Power management company Eaton Corporation plc’s (ETN) second quarter earnings per share of $1.11 beat the year-ago figure of $1.09 by 1.8%. Quarterly earnings were in line with the Zacks Consensus Estimate.
Earnings came in within the guidance range of $1.05–$1.15 per share issued during the first quarter release.
Revenue
Eaton’s second quarter total revenues increased 2.9% year over year to $5,767 million. Quarterly revenues however fell slightly short of the Zacks Consensus Estimate of $5,778 million.
Operating Update
Cost of product sold in the reported quarter was $4,025 million, increasing 4% from the prior-year period.
Selling and administrative expenses also increased to $984 million from $960 million in the prior-year quarter.
Research and development expenses rose 4.3% year over year to $168 million.
Segment Analysis
Electrical Products: Total segment revenue was $1,832 million, up 4.2% from the year-ago quarter owing to a 6% increase in bookings. Operating profit, excluding acquisition integration charges of $12 million, was $312 million, up 10% from the year-ago comparable period.
Electrical Systems and Service: Segment revenue was $1,628 million, up 0.2% from the year-ago quarter. Core sales were up 1%, partly offset by a 1% unfavorable currency translation. Operating profit, excluding acquisition integration charges of $13 million, was $207 million, down 13% year over year.
Hydraulics: At $787 million, Hydraulics sales edged up nearly 1.9% over the prior year, while operating profit excluding integration charges came in at $99 million, down 12% from the corresponding period last year.
Aerospace: Segment sales in the quarter rose 8.9% to $486 million on the back of solid aftermarket bookings. Operating profit was $71 million excluding integration charges.
Vehicles: Segment revenue moved up 3.2% year over year to $1,034 million. Operating income of $155 million fell 9.9% from the year-ago quarter.
Financial Health
Cash and short-term investments as of Jun 30, 2014, were $1,265 million versus $1,709 million as of Dec 31, 2013.
Long-term debt was $8,615 million as of Jun 30, 2014, compared with $8,969 million as of Dec 31, 2013.
Guidance
Eaton revised its 2014 pro forma earnings guidance to the range of $4.50–$4.70 per share from its earlier expectation of $4.50–$4.90 per share. The guidance takes into consideration the impact of Aerospace divestures and lower margins at its Electrical Systems and Services segment.
For the third quarter 2014, the company estimates earnings in the band of $1.20–$1.30 per share. The guidance excludes a $33 million charge related to the integration of acquisitions.
Eaton expects its overall market to expand by 3% in 2014.
Other Releases
Franklin Electric Co., Inc. (FELE) reported second-quarter 2014 earnings of 60 cents per share, missing the Zacks Consensus Estimate by 1.64%.
AO Smith Corp. (AOS) reported second-quarter 2014 earnings of 66 cents per share, surpassing the Zacks Consensus Estimate by 10%.
Our View
Going ahead, truck market fundamentals are expected to strengthen in North America as demand for NAFTA Class 8 trucks continues to grow. Eaton now expects the NAFTA Class 8 truck market to be 290,000 in 2014, up from its prior estimate of 280,000. Eaton expects the Vehicles market to improve by 5%, better than the growth expected in its other segments.
Hydraulics market bookings were impacted by weakness in agricultural equipment globally and construction equipment in China. If this trend continues in the second half of 2014, the company will find it difficult to meet its 1% growth objective for this division.
Eaton carries a Zacks Rank #4 (Sell). Another operator in the same space Emerson Electric Co. (EMR) having a Zacks Rank #2 (Buy) is scheduled to release its third quarter fiscal 2014 earnings on Aug 5.
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