Industrial manufacturer Eaton Corporation plc’s (ETN) first quarter earnings per share of $1.01 surpassed the year-ago figure of 84 cents by 20%. Quarterly earnings also managed to edge past the Zacks Consensus Estimate of $1.00.
Eaton’s GAAP earnings during the first quarter were 92 cents per share, up 16.5% from 79 cents reported in the year-ago quarter. The difference between GAAP and operating earnings was due to a 9 cent impact associated with acquisition integration charges and transactions costs.
Revenue
Eaton’s first quarter total revenues increased 3.4% year over year to $5,492 million. Quarterly revenues however fell slightly below the Zacks Consensus Estimate of $5,508 million.
Robust sales from the company’s core operations resulted in the top-line increase. This was partially offset by unfavorable currency translation.
Operating Update
Cost of product sold in the reported quarter was $3,858 million, increasing 3.3% from the prior-year period.
Selling and administrative expenses also increased to $962 million in first quarter 2014 from $958 million in the prior-year quarter.
Research and development expenses increased 6.6% year over year to $162 million.
Total segment operating profit was up 2.4% to $740 million from $723 million in the prior-year quarter.
Segment Analysis
Electrical Products: Total segment revenue was $1,726 million, up 4% from the year-ago quarter owing to a 6% increase in bookings. Operating profit, excluding acquisition integration charges of $29 million, was $279 million, up 14% from the year-ago comparable period.
Electrical Systems and Service: Segment revenue was $1,524 million, up 0.2% from the year-ago quarter owing to a 2% increase in sales partially offset by unfavorable currency translation. Operating profit, excluding acquisition integration charges of $26 million, was $195 million, down 9% year over year.
Hydraulics: At $782 million, Hydraulics sales improved nearly 3% over the prior year, while operating profit excluding integration charges came in at $112 million, up 24% from the corresponding period last year.
Aerospace: Segment sales in the quarter rose 7% to $464 million on the back of solid aftermarket bookings. Operating profit remained flat at $62 million with the comparable year-ago period.
Vehicles: Segment revenue moved up 6% year over year to $996 million. Operating income of $151 million jumped 14% from the year-ago quarter.
Financial Health
Cash and short-term investments as of Mar 31, 2014, were $1,144 million versus $1,709 million as of Dec 31, 2013.
Long-term debt was $8,991 million as of Mar 31, 2014, compared with $8,969 million as of Dec 31, 2013.
Guidance
Eaton maintained its 2014 pro forma earnings guidance in the range of $4.50–$4.90 per share. The guidance includes restructuring charges related to the industrial division. For the second quarter 2014, the company estimates earnings in the band of $1.05–$1.15 per share. The guidance excludes a $35 million charge related to the integration of acquisitions as well as the impact of divestment of two aerospace units. Eaton expects its market to expand by 3% in 2014.
Other Company Releases
A. O. Smith Corporation (AOS) reported first-quarter 2014 earnings of 54 cents per share beating the Zacks Consensus Estimate by 1.9%.
Plug Power Inc. (PLUG) is scheduled to release its first-quarter 2014 earnings results on May 14, 2014. The Zacks Consensus Estimate is pegged at a loss of 5 cents per share.
Advanced Energy Industries, Inc. (AEIS) is slated to release its first-quarter 2014 earnings results on May 5, 2014. The Zacks Consensus Estimate for the first quarter is 40 cents.
Our View
Eaton’s earnings cleared our estimates on the back of healthy sales from each of the company’s operating businesses.
Going ahead, truck market fundamentals are expected to strengthen in North America as demand for NAFTA Class 8 trucks continues to grow. This is expected to boost Eaton’s Vehicle sales in the upcoming quarters. Moreover, rising commercial airline traffic is anticipated to drive the company’s aftermarket returns. Currently, Eaton carries a Zacks Rank #3 (Hold).
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