Cooper Industries Ltd. (CBE) reported its first-quarter 2011 earnings per share from continuing operations of 93 cents, beating the Zacks Consensus Estimate of 84 cents. The company outperformed the prior-year earnings per share by 33%.
During the quarter, the company achieved record core total revenue growth of 16%, led by a rapid recovery in utility markets, strength in industrial market and a rising demand for energy-efficient technologies such as LED lighting.
Total Revenue
Total revenue in the quarter was $1.28 billion, an increase of 18% year over year (including 0.5% positive impact from currency translation and 1.5% from acquisitions). Total revenue in the quarter was supported by rise in core revenue in double digit in all of Cooper’s business segment. Total revenue figure excluded Tools business revenue.
Segment Results
Energy and Safety Solutions revenue increasedby 19.5% year over year to $680.9 million. Excluding currency translation increase of 0.5% and 2.8% from acquisitions, core revenue increased by 16.2%. Strong utility orders and purchase trends in the company's Power Systems division, together with sustained strong order receipt from industrial and energy markets at the Company's Crouse Hinds and Safety divisions, boosted the segments sales in the quarter.
Energy Products Group revenue increased by 16.5% to $596.8 million. Excluding currency translation related increase of 0.5% and 0.2% from acquisitions, core revenue increased by 15.8%. Increased demand for Cooper Lighting division products in both commercial and industrial sector and good performance at the Bussmann division supported the segment revenue.
Income & Expenses
In the quarter, Cooper’s total Electrical Segment operating margin increased by 30 basis points year over year to 16.0%. SG&A expense was $250.9 million compared with $244.8 million in the prior-year period.
Equity income from Apex Tools Group (a consolidation formed in July 2010) was $14.5 million.
The company recorded $190.3 million gain from continuing operations with the consummation of the settlement agreement with Pneumo Abex.
Balance Sheet and Cash Flow
The company maintains a strong balance sheet, ending the first quarter with $1.0 billion of cash and cash equivalents, $1.4 billion of long-term debt and $3.6 billion of shareholders’ equity.
Free Cash Flow use was $25.6 million, as the company invested in working capital, which delivered strong revenue as well as investment to support growth.
Outlook
Cooper increased its 2011 earnings per share from continuing operations guidance to $3.75 – $3.90 from $3.60 – $3.80. Revenue is expected to increase in the range of 8% to 11%.
Earnings per share from continuing operations are expected to be in the range of $0.90 to $0.95, with revenue growth expected to be 10% to 13%. Revenue expectation excludes Tools revenue.
Though the company’s investment in new product development and global initiatives have moderated margin, Cooper believes that it would result in continued future growth opportunities. Further, the company expects to benefit in 2011 from its pricing actions taken during the first quarter, offsetting commodity cost pressures. A strong balance sheet supports internal growth projects and helps the company to capitalize on an improving acquisition pipeline.
However, demand for electrical products follows general economic conditions and is usually sensitive to activity in the commercial and residential construction and renovation markets, industrial production levels, electronic component production and spending by utilities for replacements, expansions and efficiency improvements. Further, price increases or significant shortages of raw materials and components could adversely affect operating costs and the competitive position of its products. Major competitors of Cooper are ABB Ltd. (ABB), General Electric Co. (GE) and Stanley Black & Decker Inc. (SWK).
Cooper Industries Ltd. was incorporated under the laws of Bermuda on May 22, 2001, and became the successor-registrant to Cooper Industries Inc. on May 22, 2002. Cooper recently announced that reorganization activities have been completed and the company is incorporated in Ireland. The transaction was completed on September 8, 2009, following the receipt of the required approval from the Supreme Court of Bermuda.
We currently maintain our Neutral rating on Cooper, with a Zacks #2 Rank (Buy recommendation) over the next one-to-three months.
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