Eaton Reports Q2, EPS Increase Of Fifteen Percent

Sales in the second quarter were $4.1 billion, slightly below the second quarter of 2011. Net income in the second quarter was $382 million . . .

Eaton Reports Record Quarterly Earnings Per Share, Increasing 15 Percent Over Second Quarter of 2011

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  • Record Second Quarter Operating Cash Flow of $469 Million
  • Eaton Continues to Expect Cooper Acquisition to Close in Second Half of 2012

Cleveland, OH - Diversified industrial manufacturer Eaton Corporation today announced record net income per share of $1.12 for the second quarter of 2012, an increase of 15 percent over the $0.97 earned in the second quarter of 2011. Sales in the second quarter were $4.1 billion, slightly below the second quarter of 2011. Net income in the second quarter was $382 million compared to $336 million in 2011.

Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in the second quarter of 2012 were a record $1.15 compared to $0.97 per share in 2011, an increase of 19 percent. Operating earnings in the second quarter were $392 million compared to $338 million in 2011.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are pleased with our record second quarter results. Core sales grew 3 percent and acquisitions added 1 percent of growth, which were offset by a negative 5 percent from foreign exchange, largely from the lower value of the euro and the Brazilian real. End markets grew 3 percent in the quarter.

"Our revenues were impacted in the second quarter by lower than expected end market growth and by lower than expected foreign exchange rates," said Cutler. "Nonetheless, we had strong incremental margins on our volume growth during the quarter, which allowed us to increase our segment margins to 14.7 percent, setting a new segment operating margin record for the second quarter.

"We also had record second quarter cash flow, with our operating cash flow totaling $469 million," said Cutler.

"The uncertainty in Europe, as well as slower economic growth rates in China, India and Brazil, resulted in weakness in a number of our end markets," said Cutler. "We now believe our end markets for the year are likely to grow by 3 to 4 percent, a reduction from the 5 percent growth we had forecast in April. We also anticipate that the impact of foreign exchange rates on revenue will be more negative than previously forecast. Fortunately, our improved margins and our lower tax rate are expected to partially offset these factors. As a result, we expect operating earnings per share in the third and fourth quarters to continue at record levels.

"In light of the above and the fact that we are midway through the year, we are narrowing our full year guidance range and slightly adjusting the midpoint," said Cutler. "Absent any impact from the completion of the Cooper transaction, our guidance for operating earnings per share, which exclude charges to integrate our recent acquisitions, is between $4.20 and $4.50 and for net income per share is between $4.09 and $4.39.

"Overall, we continue to expect 2012 to be a year of record sales and record profits," said Cutler. "Our sales are projected to be 4 percent above 2011 and our operating earnings per share at the midpoint of our guidance is 10 percent above 2011.

"Our draft S-4 Registration Statement related to the acquisition of Cooper Industries plc is being reviewed by the SEC," said Cutler. "Once all the reviews have been completed and the document becomes effective, we and Cooper will be able to schedule the shareholders meetings to vote on the transaction. In mid-July, we completed the U.S. antitrust review process. This is an important step in moving the Cooper acquisition forward.

"We took several financing actions in the second quarter to begin to prepare for the close of the Cooper transaction," said Cutler. "We issued a total of $600 million of 9- and 11-year term debt, and we renewed and enlarged two expiring lines of credit and amended our third line of credit, resulting in our credit lines now totaling $2.0 billion."

Business Segment Results
Second quarter sales for the Electrical Americas segment were $1.1 billion, up 10 percent compared to 2011, and a quarterly record for the segment. The sales increase was comprised of 10 percent core growth and 1 percent from acquisitions, partially offset by a 1 percent decline from foreign exchange. Operating profits in the second quarter were $190 million. Excluding acquisition integration charges of $2 million during the quarter, operating profits were a quarterly record $192 million, up 32 percent over results in 2011.

"End markets for our Electrical Americas segment grew 8 percent during the second quarter," said Cutler. "The construction markets, both residential and non-residential, were the strongest parts of the business in the quarter.

"Our bookings in the Electrical Americas segment, adjusted for foreign exchange, increased 4 percent compared to the second quarter of 2011," said Cutler. "For all of 2012, we now expect our Electrical Americas markets to grow 8 percent, 2 percent higher than our previous forecast."

Sales for the Electrical Rest of World segment were $683 million, a decrease of 13 percent compared to the second quarter of 2011. The sales decrease was comprised of a 7 percent decrease in core sales and an 8 percent decrease from foreign currency, partially offset by a 2 percent increase from acquisitions.

The segment reported operating profits of $52 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits totaled $55 million, a decrease of 29 percent from the second quarter of 2011.

This report has been truncated. To view it in its entirety, please visit www.eaton.com.

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