Diversified power management company Eaton Corp. (ETN) reported Monday a sharp fall in its profit for the third quarter, hurt by plunge in sales across all segments. On an adjusted basis, operating earnings fell 38%, yet significantly beat market projections, while sales, with a 26% drop, missed Wall Street view. Further, the Cleveland, Ohio-based company issued its fourth-quarter earnings forecast, and lifted fiscal 2009 view, both above analysts' projections.
Third-quarter net income attributable to Eaton was $193 million or $1.14 per share, down 39% from net income of $315 million or $1.87 per share in the same quarter last year. The latest quarter results included acquisition integration charges of $12 million or $0.07 per share, compared to prior year's acquisition integration charges of $14 million or $0.08 per share.
Excluding charges, operating earnings dropped to $205 million or $1.21 per share from $329 million or $1.95 per share in 2008.
On average, 21 analysts polled by Thomson Reuters expected the company to earn $0.92 per share for the quarter. Analysts' estimates typically exclude special items.
The manufacturer of electrical control systems, hydraulics and truck transmissions was projecting third-quarter net income between $0.80 and $0.90 per share, and operating earnings between $0.90 and $1.00 per share.
Net sales for the quarter fell 26% to $3.03 billion from $4.11 billion in the comparable quarter last year, and missed Wall Street analysts' consensus revenue estimate of $3.13 billion. The company noted that the decline in sales consisted of a 23% fall in core sales and a 3% drop from exchange rates. The company's end markets declined 24% in the quarter.
Commenting on the results, Alexander Cutler, Eaton chairman and chief executive officer, said, "We are pleased with our third quarter results, which significantly exceeded our guidance. The results reflect the impact of the substantial enterprise-wide reductions in costs we have enacted during the past year. Our revenues in the third quarter grew 4% over the second quarter, reflecting equally the very early stages of recovery in our end markets and benefit from the strengthening of currencies against the dollar."
In the preceding second quarter, Eaton reported profit of $29 million or $0.17 per share and operating earnings of $39 million or $0.23 per share, significantly lower than last year, on 32% drop in net sales to $2.901 billion.
On a segmental basis, third-quarter sales for the Electrical Americas segment fell 20% year-over-year to $843 million, and sales for the Electrical Rest of World segment were $646 million, down 28% from last year which comprised of a 5% decline due to foreign currency and a 23% fall in core sales. In the Hydraulics segment, third-quarter sales plunged 34% to $418 million, as Hydraulics markets declined 40%, with U.S. markets down 45% and non-U.S. markets down 34%.
The Aerospace segment's third-quarter sales fell 16% to $394 million. The company noted that Aerospace markets in the third quarter are estimated to have declined 14%, with 19% drop in non-U.S. markets and 11% decline in U.S. Markets.
In the quarter, Truck segment posted sales of $401 million, down 35% from last year, reflecting 31% drop in Truck markets, with U.S. markets down 43% and non-U.S. markets down 17%.
The company's Automotive segment posted third-quarter sales of $326 million, 27% lower than prior year. Automotive unit production in the quarter declined 17%, with North American production down 21% and production outside the U.S. declined 15%
Among others in the industry, auto parts supplier Johnson Controls Inc. (JCI) is slated to release its fourth-quarter results on Tuesday, October 27. Last week, the company said it projects fourth-quarter earnings to range between $0.40 and $0.42 per share, which includes a $0.12 warranty charge in its North America residential HVAC business, but excludes the costs associated with its recent convertible debt exchange offer and the impact of non-recurring tax benefits. Analysts expect the company to post earnings of $0.50 per share on sales of $7.79 billion for the quarter. In the fourth quarter of fiscal 2008, the company reported net income of $16 million or $0.03 per share, on sales of $9.31 billion.
For the nine months of fiscal 2009, Eaton's net income attributable to company plunged to $172 million or $1.02 per share from $895 million or $5.57 per share a year ago. Operating earnings fell to $208 million or $1.23 per share from $929 million or $5.78 per share last year. Nine-month net sales also declined to $8.74 billion from $11.89 billion in the previous year.
Looking ahead to the fourth quarter, Eaton expects net income in the range of $1.00 to $1.10 per share, and operating earnings, excluding charges to integrate recent acquisitions, in the range of $1.15 to $1.25 per share. Analysts currently anticipate the company to earn $1.06 per share, with estimates ranging between $0.75 and $1.32 per share.
For the full year 2009, the company currently anticipates net income to be in the range of $2.05 to $2.15 per share, and operating earnings in the range of $2.40 to $2.50 per share. The company previously projected full-year net income of $1.65 to $1.85 per share, and operating earnings per share of $2.00 to $2.20 per share. Analysts currently expect earnings of $1.99 per share for the full year.
Cutler said, "As we look at our end markets, we expect the economic recovery we are beginning to experience in our early cycle markets will continue. For the full year, we still believe our end markets will decline by 21% to 22%."
ETN closed Friday's regular trading session at $60.42, up $0.23, on a volume of 2.3 million shares. In the past 52 weeks, shares have been trading in a broad range of $30.02 to $60.70.
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