Cooper Industries Beats Estimates

Zacks

Cooper Industries plc (:CBE) reported its second-quarter 2012 earnings per share from continuing operations of $1.17 per share, exceeding the year-ago quarter’s earnings per share by a robust 22%. The results were 4.5% above the Zacks Consensus Estimate of $1.12 a share.

The performance in the quarter was attributed to the development in the company’s energy intensive market.

Revenue

Total revenue in the quarter grew 7.4% year over year to $1.47 billion. Revenues were in line with the Zacks Consensus Estimate. The increasing potential in the U.S. industry triggered the sales growth in the quarter. Core revenue grew 5.5% due to a positive impact from acquisitions of 3.6%, partially offset by unfavorable impact of 1.7% from foreign currency translation.

Segment Analysis

Revenues from the Energy & Safety Solutions segment grew 5.7% year over year to $793.6 million. The year-over-year growth can be attributed to 6.6% core revenue growth, 1.5% acquisitions contribution which was partially offset by 2.4% negative foreign currency translation impact. The revenues in the segment were augmented by the huge demand in the global industrial and energy markets.

Revenue in the Electrical Products Group segment surged 9.4% year over year to $676.1 million. Core revenues in the quarter inched up 4.2% year over year, with business acquisitions contributing 6.2% to the revenue, offset by 1.0% negative foreign currency translation impact.

High demand for energy intensive products as well as improved production levels offset headwinds arising from the weak economy in China and residential and non residential construction business.

Margins

Gross margin grew 166 basis points (bps) to 35.4% in the second quarter from 33.7% a year ago. The company’s cost minimization strategy and innovation of the new products augmented its gross margin.Operating margin in the quarter also expanded 84 bps to 16.7% compared with 15.8% in the year-ago quarter.

On a segmental basis, operating earningsof the Energy & Safety Solutions surged 20.4% to $160.8 million from the year-ago quarter. The Electrical Products operating earnings showed a rise of 7.3% to $99.9 million.

Operating margin of the Energy & Safety Solutions in the quarter increased 20.3% from 17.8% in the year-ago quarter. Electrical Products reported a decline in operating margin of 14.8% versus 15.1% in the year-ago quarter.

Balance Sheet

Exiting the first quarter, Cooper Industries’ cash and cash equivalents grew 14.5% sequentially to $706.2 million. Long-term debt of $1 billion at the end of 1Q12 remained flat sequentially. Net cash flow from operating activities year to date was $256.2 million.

Acquisitions

During the quarter, Cooper announced its intention to acquire Eaton Corporation (ETN) at $11.8 billion. The merger is expected to close in the second half of the year. The merger allows both the companies to expand their reach in the global power market, both technically and geographically.

Apart from this, in June, Cooper completed the acquisition of Azonix Corporation, a leading manufacturer of human machine interface (:HMI) devices for application in harsh and hazardous environments.

In addition, Cooper also entered into a definitive agreement to acquire the FHF Funke+Huster Fernsig Group of companies (FHF Group), a leading manufacturer and distributor of hazardous and industrial telephones, signaling devices and mining communications systems.

Cooper currently has a Zacks Rank of #3, implying a short-term Hold recommendation on the stock.

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