Eaton Misses on Both the Counts

Zacks

Industrial manufacturer Eaton Corporation (NYSE:ETN - News) has released its fourth quarter 2011 results clocking operating earnings of $1.08 per share compared with 85 cents per share in the year-ago quarter. The results of the company, however, missed the Zacks Consensus Estimate of $1.11 per share by 3 cents.

GAAP earnings of Eaton during the quarter were $1.07 per share, up 30.4%, from 82 cents in the year-ago period.

In the reported quarter, the variation between GAAP and operating earnings was due to an acquisition integration charge of 1 cent.

Eaton’s 2011 operating earnings were $3.96 per share compared with $2.81 per share reported in 2010. However, the results of the company missed the Zacks Consensus Estimate of $4.00 per share by 4 cents. 

Operating Statistics

Eaton earned net quarterly revenues of $4,033 million, up 10.0% from the year-ago comparable period. However, it fell short of the Zacks Consensus Estimate of $4,179 million. Revenue growth in the quarter was attributable to 9.0% increase in core sales and 1.0% growth associated with acquisitions.

Eaton posted net income of $362 million in the fourth quarter of 2011, up from $280 million in the year-ago quarter, a rise of 29.0%.

Eaton’s total revenue for 2011 was $16,049 million versus $13,715 million reported in the prior fiscal year, reflecting a growth of 17.01%. Fiscal year 2011 revenue, however, fell short of the Zacks Consensus Estimate of $16,178 million.

In 2011, the net income was $1,350 million, an increase of 45.3% from the year-ago quarter.

Segment Analysis

Electrical Americas: Within its Electrical unit, Electrical Americas’ revenues of fourth quarter 2011 improved by 11.0% from the year-ago quarter to $1,121 million,while operating profit (excluding acquisition integration charges) was up 6.13% to $173 million. Growth in Electrical Americas’ revenues reflected growth of 10.0% in end-markets and 11.0% in orders.

Electrical Americas’ revenue for 2011 was $4,192 million versus $3,675 million in 2010.

Electrical Rest of the World: The Electrical Rest of the World segment’s fourth quarter 2011 sales was down 9.0% from the year-ago quarter to $699 million. In the reported quarter, operating profit was $69 million, down 14.8% from $81 million in the year-ago quarter. This was due to weakness in Europe and Asia-Pacific region. Segment orders for the quarter saw a dip of 10.0%.

Electrical Rest of the World’s revenue for 2011 was $2,984 million versus $2,748 million in 2010.

Hydraulics: At $705 million, Hydraulics segment’s sales rose 23.5% over the prior year, while operating profits came in at $103 million, up 43.1% from the corresponding quarter last year. Hydraulics markets grew 9.0%, of which U.S. markets were up 16.0% and non-U.S. markets up 3.0%. Segment bookings increased 5.0% during the fourth quarter of 2010.

Hydraulics segment’s revenue for 2011 was $2,835 million versus $2,212 million in 2010.

Aerospace: Segmental sales in the fourth quarter 2011 grew 7.5% to $430 million and operating profits grew 23.8% to $78 million. Aerospace markets grew 4.0% in the quarter. Aerospace bookings rose 1.0%.

In 2011, the Aerospace segment generated revenue of $1,648 million versus $1,536 million in 2010.

Truck: The Truck segment posted a 31.3% improvement in sales to reach $680million. It earned an operating profit of $137million during the quarter, compared with $66 million in the year-ago quarter. Eaton benefited from a 27.0% increase in truck production, with US and non-US markets growing 52.0% and 10.0% respectively.

Truck segment’s 2011 revenue was $2,644 million versus $1,997 million in 2010.

Automotive: Aided by an 8.0% growth in the global auto markets, the segment’s fourth quarter sales grew 1.0% year over year to $398 million. It posted an operating profit of $42 million, reflecting a dip of 2.3% from the comparable quarter last year due to start-up costs for capacity expansion to support the new program wins in China.

In 2011, Automotive segment revenue was $1,746 million, a rise of 12.9% from $1,547 million in 2010.

Guidance

Eaton expects operating earnings per share for the first quarter of 2012 to be in the range of 80 cents - 90 cents per share, excluding an estimated 1 cent charge for integration of company’s recent acquisitions.

For fiscal 2012, Eaton estimates its operating earnings per share guidance in the range of $4.15 - $4.55 per share, excluding acquisition-related charges of 5 cents. 

Cleveland, Ohio-based Eaton Corporation is a leading supplier of power accessories to the aerospace industry with customers in more than 150 countries.

Eaton Corporation competes with The Babcock & Wilcox Company (NYSE:BWC - News) and Applied Industrial Technologies, Inc. (NYSE:AIT - News). Both the companies carry a short-term Zacks #3 Rank (Hold).

Eaton Corporation currently has a Zacks #3 Rank (short-term Hold rating).

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