- Eaton Reports First Quarter Earnings Per Share of $1.14,
First Quarter Record Adjusted Earnings Per Share of $1.44, Up 15
Percent Over the First Quarter of 2020
- First Quarter Operating Cash Flow of $260 Million; Adjusted
Operating Cash Flow of $460 Million, Up 42 Percent Over the First
Quarter of 2020
- First Quarter Segment Margin of 17.7%, 190 Basis Points
Favorable to the First Quarter of 2020 and a First Quarter
Record
- Raising Adjusted Earnings Per Share Guidance for 2021 to
$6.10 at the Midpoint, Up 24 Percent Over 2020
Power management company Eaton Corporation plc (NYSE:ETN) today
announced that earnings per share were $1.14 for the first quarter
of 2021. Excluding charges of $0.18 per share related to intangible
amortization, $0.09 per share related to acquisitions and
divestitures, and $0.03 per share related to a multi-year
restructuring program, adjusted earnings per share were a first
quarter record of $1.44, up 15 percent over the first quarter of
2020.
Sales in the first quarter of 2021 were $4.7 billion, down 2
percent from the first quarter of 2020. The divestiture of the
Lighting business reduced sales by 5½ percent, which was partially
offset by positive currency translation of 2 percent, 1 percent
growth from acquisitions, and organic growth of ½ percent.
Craig Arnold, Eaton chairman and chief executive officer, said,
“Our first quarter was stronger than expected, with organic sales
well above the high end of our guidance range, segment margin at
record levels, and strong cash flow. We are pleased with how
rapidly our businesses are recovering towards pre-pandemic
levels.”
First quarter segment margins were 17.7 percent, up 190 basis
points over the first quarter of 2020, above the high end of our
guidance range, and a first quarter record. This was the result of
strong execution and ongoing improvements in the company’s cost
structure from the multi-year restructuring program announced in
the second quarter of 2020.
Operating cash flow in the first quarter of 2021 was $260
million. Excluding $200 million of contributions to Eaton’s U.S.
qualified pension plan, adjusted operating cash flow was $460
million and adjusted free cash flow was $341 million, representing
a 62 percent increase over the first quarter of 2020.
During the quarter, the company closed the acquisitions of Tripp
Lite and Green Motion, and the acquisition of a 50 percent stake in
HuanYu High Tech, adding new products and growth opportunities for
the Electrical segments.
The Hydraulics sale to Danfoss is expected to close in the
second quarter and the acquisition of Cobham Mission Systems
remains on track to close the beginning of the fourth quarter of
2021.
“Factoring in the earlier than expected closing of the Tripp
Lite acquisition and our strong first quarter performance, we now
expect 2021 adjusted earnings per share to be between $5.90 and
$6.30, up 24 percent at the midpoint over 2020,” said Arnold. “We
anticipate adjusted earnings per share for the second quarter of
2021 to be between $1.45 and $1.55.”
Business Segment Results
Sales for the Electrical Americas segment were $1.6 billion,
down 9 percent from the first quarter of 2020, driven by a 14
percent reduction from the divestiture of the Lighting business.
Organic sales were up 2 percent, the acquisitions of Power
Distribution, Inc. and Tripp Lite added 2 percent, and positive
currency translation added 1 percent. Operating profits were $332
million, up 8 percent from the first quarter of 2020. Operating
margins were 20.5 percent, up 330 basis points over the first
quarter of 2020.
The twelve-month rolling average of orders in the first quarter
was up 1 percent, with particular strength in data center and
residential markets. Orders increased 11 percent over the first
quarter of 2020. Backlog at the end of March remained strong, up 23
percent over March 2020.
Sales for the Electrical Global segment were $1.3 billion, up 10
percent over the first quarter of 2020. Organic sales were up 5
percent and positive currency translation added 5 percent.
Operating profits were $213 million, up 28 percent over the first
quarter of 2020. Operating margins were 17.0 percent, up 250 basis
points over the first quarter of 2020.
The twelve-month rolling average of orders in the first quarter
was down 5 percent, driven by declines in oil and gas markets
partially offset by strength in data center, residential and
utility markets. During the first quarter, the business experienced
strong order growth of 7 percent over the first quarter of 2020.
The March backlog grew 17 percent over March 2020.
Hydraulics segment sales were $561 million, up 11 percent over
the first quarter of 2020, driven by a 9 percent increase in
organic sales and positive currency translation of 2 percent.
Operating profits were $84 million, up 53 percent over the first
quarter of 2020. Operating margins were 15.0 percent, up 420 basis
points over the first quarter of 2020.
Aerospace segment sales were $519 million, down 24 percent from
the first quarter of 2020, driven by the continued downturn in
commercial aviation. Organic sales were down 26 percent, partially
offset by positive currency translation of 2 percent. Operating
profits were $96 million, down 35 percent from the first quarter of
2020. Operating margins in the quarter were 18.5 percent,
representing solid decremental performance in light of the
continued impact of the pandemic on sales.
The twelve-month rolling average of orders in the first quarter
was down 36 percent, driven by the downturn in commercial markets.
Backlog at the end of March was down 11 percent compared to March
2020.
The Vehicle segment posted sales of $654 million, up 9 percent
over the first quarter of 2020, driven entirely by organic sales.
Operating profits were $113 million, up 40 percent over the first
quarter of 2020. Operating margins were 17.3 percent, up 380 basis
points over the first quarter of 2020.
eMobility segment sales were $83 million, up 15 percent over the
first quarter of 2020, driven by organic sales growth of 13 percent
and positive currency translation of 2 percent. The segment
recorded an operating loss of $7 million reflecting continued
investment in research and development for new programs.
Eaton’s mission is to improve the quality of life and the
environment through the use of power management technologies and
services. We provide sustainable solutions that help our customers
effectively manage electrical, hydraulic, and mechanical power –
more safely, more efficiently, and more reliably. Eaton’s 2020
revenues were $17.9 billion, and we sell products to customers in
more than 175 countries. We have approximately 92,000 employees.
For more information, visit www.eaton.com.
Notice of conference call: Eaton’s conference call to discuss
its first quarter results is available to all interested parties as
a live audio webcast today at 11 a.m. United States Eastern Time
via a link on Eaton’s home page. This news release can be accessed
under its headline on the home page. Also available on the website
prior to the call will be a presentation on first quarter results,
which will be covered during the call.
This news release contains forward-looking statements concerning
second quarter and full-year 2021 adjusted earnings per share,
anticipated charges and benefits from restructuring actions, the
closing dates for the Hydraulics divestiture, and the acquisition
of Cobham Mission Systems. These statements should be used with
caution and are subject to various risks and uncertainties, many of
which are outside the company’s control. The following factors
could cause actual results to differ materially from those in the
forward-looking statements: the course of the COVID-19 pandemic and
government actions related thereto; unanticipated changes in the
markets for the company’s business segments; unanticipated
downturns in business relationships with customers or their
purchases from us; competitive pressures on sales and pricing;
unanticipated changes in the cost of material and other production
costs, or unexpected costs that cannot be recouped in product
pricing; the introduction of competing technologies; unexpected
technical or marketing difficulties; unexpected claims, charges,
litigation or dispute resolutions; strikes or other labor unrest;
natural disasters; the performance of recent acquisitions;
unanticipated difficulties completing or integrating acquisitions;
new laws and governmental regulations; interest rate changes;
changes in tax laws or tax regulations; stock market and currency
fluctuations; and unanticipated deterioration of economic and
financial conditions in the United States and around the world. We
do not assume any obligation to update these forward-looking
statements.
Financial Results
The company’s comparative financial results for the three months
ended March 31, 2021 are available on the company’s website,
www.eaton.com.
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF
INCOME
Three months ended
March 31
(In millions except for per share
data)
2021
2020
Net sales
$
4,692
$
4,789
Cost of products sold
3,184
3,302
Selling and administrative expense
795
865
Research and development expense
148
153
Interest expense - net
38
34
Gain on sale of business
—
221
Other (income) expense - net
(11
)
35
Income before income taxes
538
621
Income tax expense
79
183
Net income
459
438
Less net income for noncontrolling
interests
(1
)
—
Net income attributable to Eaton
ordinary shareholders
$
458
$
438
Net income per share attributable to
Eaton ordinary shareholders
Diluted
$
1.14
$
1.07
Basic
1.15
1.07
Weighted-average number of ordinary
shares outstanding
Diluted
400.9
411.1
Basic
398.3
409.3
Cash dividends declared per ordinary
share
$
0.76
$
0.73
Reconciliation of net income
attributable to Eaton ordinary shareholders to
adjusted earnings
Net income attributable to Eaton ordinary
shareholders
$
458
$
438
Excluding acquisition and divestiture
charges, after-tax
37
9
Excluding restructuring program charges,
after-tax
12
—
Excluding intangible asset amortization
expense, after-tax
70
67
Adjusted earnings
$
577
$
514
Net income per share attributable to Eaton
ordinary shareholders - diluted
$
1.14
$
1.07
Excluding per share impact of acquisition
and divestiture charges, after-tax
0.09
0.02
Excluding per share impact of
restructuring program charges, after-tax
0.03
—
Excluding per share impact of intangible
asset amortization expense, after-tax
0.18
0.16
Adjusted earnings per ordinary
share
$
1.44
$
1.25
See accompanying notes.
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
Three months ended
March 31
(In millions)
2021
2020
Net sales
Electrical Americas
$
1,622
$
1,788
Electrical Global
1,253
1,144
Hydraulics
561
507
Aerospace
519
680
Vehicle
654
598
eMobility
83
72
Total net sales
$
4,692
$
4,789
Segment operating profit (loss)
Electrical Americas
$
332
$
308
Electrical Global
213
166
Hydraulics
84
55
Aerospace
96
147
Vehicle
113
81
eMobility
(7
)
1
Total segment operating profit
831
758
Corporate
Intangible asset amortization expense
(92
)
(87
)
Interest expense - net
(38
)
(34
)
Pension and other postretirement benefits
income (expense)
14
(8
)
Restructuring program charges
(16
)
—
Other expense - net
(161
)
(8
)
Income before income taxes
538
621
Income tax expense
79
183
Net income
459
438
Less net income for noncontrolling
interests
(1
)
—
Net income attributable to Eaton
ordinary shareholders
$
458
$
438
See accompanying notes.
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, 2021
December 31, 2020
(In millions)
Assets
Current assets
Cash
$
354
$
438
Short-term investments
945
664
Accounts receivable - net
3,065
2,904
Inventory
2,399
2,109
Assets held for sale
2,537
2,487
Prepaid expenses and other current
assets
605
576
Total current assets
9,905
9,178
Property, plant and equipment - net
2,922
2,964
Other noncurrent assets
Goodwill
13,757
12,903
Other intangible assets
4,722
4,175
Operating lease assets
429
428
Deferred income taxes
436
426
Other assets
1,909
1,750
Total assets
$
34,080
$
31,824
Liabilities and shareholders’
equity
Current liabilities
Short-term debt
$
464
$
1
Current portion of long-term debt
1,012
1,047
Accounts payable
2,172
1,987
Accrued compensation
334
351
Liabilities held for sale
501
468
Other current liabilities
2,098
2,027
Total current liabilities
6,581
5,881
Noncurrent liabilities
Long-term debt
8,682
7,010
Pension liabilities
1,283
1,588
Other postretirement benefits
liabilities
326
330
Operating lease liabilities
328
326
Deferred income taxes
445
277
Other noncurrent liabilities
1,398
1,439
Total noncurrent liabilities
12,462
10,970
Shareholders’ equity
Eaton shareholders’ equity
14,995
14,930
Noncontrolling interests
42
43
Total equity
15,037
14,973
Total liabilities and equity
$
34,080
$
31,824
See accompanying notes.
EATON CORPORATION plc
NOTES TO THE FIRST QUARTER 2021 EARNINGS RELEASE
Amounts are in millions of dollars unless indicated otherwise
(per share data assume dilution).
Note 1. NON-GAAP FINANCIAL INFORMATION
This earnings release includes certain non-GAAP financial
measures. These financial measures include adjusted earnings,
adjusted earnings per ordinary share, operating cash flow excluding
a U.S. qualified pension plan contribution, free cash flow, and
free cash flow excluding a U.S. qualified pension plan
contribution, each of which differs from the most directly
comparable measure calculated in accordance with generally accepted
accounting principles (GAAP). A reconciliation of each of these
financial measures to the most directly comparable GAAP measure is
included in this earnings release. During the first quarter of
2021, the Company revised its definition of adjusted earnings to
exclude intangible asset amortization expense and prior periods
have been retrospectively adjusted to apply this change. Management
believes that these financial measures are useful to investors
because they exclude certain transactions, allowing investors to
more easily compare Eaton Corporation plc's (Eaton or the Company)
financial performance period to period. Management uses this
information in monitoring and evaluating the on-going performance
of Eaton and each business segment.
The Company's second quarter and full year adjusted earnings
results for 2020 and guidance for 2021, excluding the impact of the
expected gain from the sale of the Hydraulics business,
follows:
Three months ended June 30
Year ended December 31
2020
2021
2020
2021
Results
Guidance
Results
Guidance
Net income per share attributable to Eaton
ordinary shareholders - diluted
$
0.13
$1.08 - $1.18
$
3.49
$4.56 - $4.96
Excluding per share impact of acquisition
and divestiture charges (after-tax)
0.20
0.15
0.33
0.46
Excluding per share impact of
restructuring program charges (after-tax)
0.37
0.03
0.42
0.14
Excluding per share impact of intangible
amortization expense (after-tax)
0.17
0.19
0.67
0.74
Adjusted earnings per ordinary share
$
0.87
$1.45 - $1.55
$
4.91
$5.90 - $6.30
A reconciliation of operating cash flow to adjusted operating
cash flow and adjusted free cash flow follows:
Three months ended March 31,
2021
Operating cash flow
$
260
U.S. qualified pension plan
contribution
200
Adjusted operating cash flow
460
Capital expenditures for property, plant
and equipment
(119
)
Adjusted free cash flow
$
341
A reconciliation of operating cash flow to free cash flow
follows:
Three months ended March 31,
2020
Operating cash flow
$
323
Capital expenditures for property, plant
and equipment
(112
)
Free cash flow
$
211
Note 2. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
Acquisition of a 50% stake in HuanYu High Tech
On March 29, 2021, Eaton acquired a 50 percent stake in HuanYu
High Tech, a subsidiary of HuanYu Group that manufactures and
markets low-voltage circuit breakers and contactors in China, and
throughout the Asia-Pacific region. HuanYu High Tech had 2019 sales
of $106 and has production operations in Wenzhou, China. Eaton
accounts for this investment on the equity method of accounting and
is reported within the Electrical Global business segment.
Acquisition of Green Motion SA
On March 22, 2021, Eaton acquired Green Motion SA, a leading
designer and manufacturer of electric vehicle charging hardware and
related software based in Switzerland. Green Motion SA was acquired
for $105, including $49 of cash paid at closing and $56 of
estimated fair value of contingent future consideration based on
2023 and 2024 revenue performance. The fair value of contingent
consideration liabilities is estimated by discounting contingent
payments expected to be made, with a maximum possible undiscounted
value of $109. Green Motion SA is reported within the Electrical
Global business segment.
Acquisition of Tripp Lite
On March 17, 2021, Eaton acquired Tripp Lite for $1.65 billion,
net of cash received. Tripp Lite is a leading supplier of power
quality products and connectivity solutions including single-phase
uninterruptible power supply systems, rack power distribution
units, surge protectors, and enclosures for data centers,
industrial, medical, and communications markets in the Americas.
Tripp Lite had sales of over $400 in 2020. Tripp Lite is reported
within the Electrical Americas business segment.
Agreement to Acquire Cobham Mission Systems
On January 31, 2021, Eaton signed an agreement to acquire Cobham
Mission Systems (CMS), a leading manufacturer of air-to-air
refueling systems, environmental systems, and actuation primarily
for defense markets. Under the terms of the agreement, Eaton will
pay $2.83 billion. CMS had sales of over $700 in 2020. The
transaction is subject to customary closing conditions and is
expected to close the beginning of the fourth quarter of 2021. CMS
will be reported within the Aerospace business segment.
Sale of Lighting business
On March 2, 2020, Eaton sold its Lighting business to Signify
N.V. for a cash purchase price of $1.4 billion. As a result of the
sale, the Company recognized a pre-tax gain of $221 in 2020. The
Lighting business, which had sales of $1.6 billion in 2019 as part
of the Electrical Americas business segment, served customers in
commercial, industrial, residential, and municipal markets.
Pending sale of Hydraulics business
On January 21, 2020, Eaton entered into an agreement to sell its
Hydraulics business to Danfoss A/S, a Danish industrial company,
for $3.3 billion in cash. Eaton’s Hydraulics business is a global
leader in hydraulics components, systems, and services for
industrial and mobile equipment. The business had sales of $1.8
billion in 2020. During the first quarter of 2020, the Company
determined the Hydraulics business met the criteria to be
classified as held for sale. Therefore, assets and liabilities of
the business have been presented as held for sale in the Condensed
Consolidated Balance Sheets as of December 31, 2020 and March 31,
2021. The transaction is subject to customary closing conditions
and regulatory approvals and is expected to close in the second
quarter of 2021.
Note 3. ACQUISITION AND DIVESTITURE CHARGES
Eaton incurs integration charges and transaction costs to
acquire businesses, and transaction costs and other charges to
divest and exit businesses. Eaton also recognizes gains and losses
on the sale of businesses. A summary of these Corporate items
follows:
Three months ended March 31
2021
2020
Acquisition integration, divestiture
charges and transaction costs
$
46
$
132
Gain on the sale of the Lighting
business
—
(221
)
Total before income taxes
46
(89
)
Income tax expense (benefit)
(9
)
98
Total after income taxes
$
37
$
9
Per ordinary share - diluted
$
0.09
$
0.02
Acquisition integration, divestiture charges and transaction
costs in 2021 are primarily related to the planned divestiture of
the Hydraulics business, the acquisitions of Tripp Lite,
Souriau-Sunbank Connection Technologies, and Ulusoy Elektrik Imalat
Taahhut ve Ticaret A.S., the planned acquisition of Cobham Mission
Systems, and other charges to exit businesses. Charges in 2020 are
primarily related to the planned divestiture of the Hydraulics
business, the divestiture of the Lighting business, and the
acquisitions of Ulusoy Elektrik and Souriau-Sunbank. These charges
were included in Cost of products sold, Selling and administrative
expense, Research and development expense, or Other (income)
expense - net. In Business Segment Information, these charges were
included in Other expense - net.
Note 4. RESTRUCTURING CHARGES
In the second quarter of 2020, Eaton decided to undertake a
multi-year restructuring program to reduce its cost structure and
gain efficiencies in its business segments and at corporate in
order to respond to declining market conditions. Restructuring
charges incurred under this program were $214 in 2020 and $16 for
the three months ended March 31, 2021. These restructuring
activities are expected to incur additional expenses of $45 in
2021, and $5 in 2022, primarily comprised of plant closing costs
and other costs, resulting in total estimated charges of $280 for
the entire program.
A summary of restructuring program charges follows:
Three months ended March 31,
2021
Workforce reductions
$
2
Plant closing and other
14
Total before income taxes
16
Income tax benefit
4
Total after income taxes
$
12
Per ordinary share - diluted
$
0.03
Restructuring program charges related to the following
segments:
Three months ended March 31,
2021
Electrical Americas
$
5
Electrical Global
2
Aerospace
1
Vehicle
6
Corporate
2
Total
$
16
These restructuring program charges were included in Cost of
products sold, Selling and administrative expense, Research and
development expense, or Other (income) expense - net, as
appropriate. In Business Segment Information, these restructuring
program charges are treated as Corporate items. The projected
mature year savings from these restructuring actions are expected
to be $200 when fully implemented in 2023.
Note 5. INTANGIBLE ASSET AMORTIZATION EXPENSE
Intangible asset amortization expense follows:
Three months ended
March 31
2021
2020
Intangible asset amortization expense
$
92
$
87
Income tax benefit
22
20
Total after income taxes
$
70
$
67
Per ordinary share - diluted
$
0.18
$
0.16
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version on businesswire.com: https://www.businesswire.com/news/home/20210504005680/en/
Eaton Corporation plc Margaret Hagan, Media Relations, +1 (440)
523-4343 MargaretHagan@eaton.com or Yan Jin, Investor Relations, +1
(440) 523-7558
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