Cooper Industries plc (CBE) reported second-quarter 2011 earnings per share from continuing operations of 96 cents, a cent above the Zacks Consensus Estimate. Earnings in the quarter increased by 19% year over year.
Revenue
Total revenue, excluding Tools, in the quarter was $1.37 billion, representing a year-over-year increase of 16.8%, driven by continued strong performance in utility and industrial markets. Increased customer demand for industrial, electrical utilities, and oil & gas, together with energy efficient lighting applications has offset the continued weak demand in both non-residential and residential construction markets.
Segment Details
Revenue in the Energy & Safety Solutions segment increased by 22.2% year over year to $751.1 million. Excluding positive currency translation impact of 3.9% and acquisitions of 2.9%, core segment revenue increased by 15.4%.
Revenue in the Electrical Products Group segment increased by 10.8% year over year to $617.8 million. Excluding positive foreign currency impact of 1.0% and from acquisitions of 0.2%, core segment revenue increased by 9.6%. Huge demand for industrial products as well as rising demand for energy efficiency products aided core revenue growth.
Margins
Operating earnings for the quarter was $216.5 million compared with $48.6 million in the prior-year period. SG&A expense was $259.7 million compared with $255.6 million in the prior-year period.
Energy & Safety Solutions segment margin was 17.8%, up 90 basis points year over year. Electrical Products Group segment margin was 15.1%, down 30 basis points.
Balance Sheet and Cash Flow
Cash and cash equivalents was $905.1 million with long-term debt of $1.04 billion and shareowner’s equity of $3.71 billion.
Cash from its operating activities in the second quarter was a negative $22.0 million.
Outlook
The company tightened its earnings per share from continuing operations guidance range to $3.80 to $3.90 from $3.75 to $3.90 for 2011. Revenue is expected to increase by 10% to 13% versus prior expectation of 6% to 9%. The 2010 comparative figure for revenue excludes Tools segment revenue.
For the third quarter of 2011, the company expects earnings per share of 98 cents to $1.03 with an increase of 9% to 12% in revenue compared with the third quarter of 2010, excluding Tools revenue.
The company is expected to realize an outsized portion of its growth from the developing markets in China, the Middle East and Mexico. Industrial, utility and energy markets are expected to rapidly expand and industrializing economies will help to offset some of the declines in the already developed regions. This will eventually help to support higher growth rates for the current year.
However, heightened global competition, given that Cooper expands its international exposure, can act as a negative catalyst for the company. Major competitors of the company are ABB Ltd. (ABB), General Electric Co. (GE) and Stanley Black & Decker Inc. (SWK). Operations and supply sources located outside the United States, particularly the emerging markets, are subject to increased risks. Operating entities outside the USA contribute significantly to the company’s revenue and earnings.
Incorporated in Ireland and headquartered in Houston, Texas, Cooper Industries plc is a diversified manufacturer, marketer, and distributor of electrical products, tools, and hardware. General industrial manufacturers, such as those in the aerospace and automobile industries, are the main users of Cooper’s power tools and assembly systems. Its brands include Buss, Edison, Crouse Hinds, Weller, DGD, Buckeye, Cooper, and Master Power.
We continue to maintain a Neutral rating on Cooper Industries, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.
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