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Eaton (ETN) Q4 Earnings Top Estimates on Higher Organic Sales

Zacks Equity Research

Eaton Corporation ETN reported fourth-quarter 2018 earnings of $1.436 per share, which surpassed the Zacks Consensus Estimate of $1.43 by 2.09%. The reported earnings were at the higher end of management’s guided range of $1.38-$1.48 per share. Moreover, the bottom line marked an improvement from the year-ago level.    

Revenues

Eaton’s total revenues in the quarter came in at $5,459 million, beating the Zacks Consensus Estimate of $5,419 million by 0.7%. Quarterly revenues were also 4.7% higher than the year-ago quarter.

The year-over-year revenue increase includes 7% organic sales growth, and was partially offset by a 2% negative impact from currency translation.

Eaton Corporation, PLC Price, Consensus and EPS Surprise

Eaton Corporation, PLC Price, Consensus and EPS Surprise | Eaton Corporation, PLC Quote

Segment Details

Electrical Products’ total fourth-quarter sales were $1,797 million, up 2.7% from the year-ago level. Organic sales were up 5%, while currency translation negatively impacted the same by 2%. Operating income was $327 million, up 3% year over year.

Electrical Systems and Services’ total sales were $1,611 million, up 7.5% from the year-ago quarter. Organic sales were up 10%, while currency translation negatively impacted the same by 1%. Operating income in the quarter was $268 million, up 19% year over year.

Hydraulics total sales were $653 million, up 6% from the year-ago quarter. Organic sales were up 8%, while currency translation had a 2% negative impact on the same. Operating income in the quarter was $85 million, up 15% year over year.

Aerospace total sales were $497 million, up 12.7% from the year-ago quarter, solely due to organic sales growth. Operating income in the quarter was $114 million, up 30% year over year.

Vehicle total sales were $821 million, down 1.9% from the year-ago quarter, entirely due to currency translation. Operating income in the quarter was $147 million, up 4% year over year.

eMobility segment’s total sales were $80 million, up 936% from the year-ago quarter. Organic sales were up 11%, while currency translation had a 1% negative impact on the same. Operating income in the quarter was $9 million, down 10% year over year, primarily due to higher spending on research and development activities.

Quarterly Highlights

Segment margins in the reported quarter were 17.4%, up 100 basis points from the year-ago level.

Cost of products sold in the reported quarter was $3,670 million, up 3.8% from the prior-year quarter.

Selling and administrative expenses were $869 million, up 1.4% from the year-ago quarter.

The company’s research and development expenses in the fourth quarter were $145 million, up 0.7% from $144 million in the prior-year period. Also, interest expenses of $66 million were up 1.5% from the prior-year quarter.

Orders in Electrical Products, Electrical Systems, and Services and Aerospace were up 3%, 12% and 17% year over year, respectively. On the contrary, Hydraulics’ orders were down 4% year over year due to a decline in EMEA.

The company repurchased shares worth $700 million in the reported quarter. In 2018, Eaton repurchased 17.5 million shares worth $1.3 billion, equivalent to 4% of shares outstanding at the beginning of 2018.

Financial Update

Eaton’s cash & cash equivalents were $283 million as of Dec 31, 2018 compared with $561 million on Dec 31, 2017.

As of Dec 31, 2018, long-term debt of the company was $6,768 million, down from $7,167 million on Dec 31, 2017.

Guidance

First-quarter 2019 earnings per share are expected between $1.18 and $1.28.

The company expects 2019 earnings in the range of $5.70-$6.00 per share, with organic growth expectation in the range of 4-5%.

Eaton has plans to repurchase shares worth $400 million in 2019.

Zacks Rank

Currently, Eaton has a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

To Sum Up

Eaton’s earnings and total revenues in the fourth quarter were higher than expected, courtesy of strong performance from majority of the segments. We expect improving organic sales, strong margins and timely execution of plans by strong management team to boost its performance in the long run.

Share buybacks in 2019 will have a positive impact on its earnings.

Upcoming Releases

Emerson Electric Co. EMR is slated to announce first-quarter fiscal 2019 earnings on Feb 5. The Zacks Consensus Estimate for the quarter is pegged at 66 cents.

Enersys ENS is scheduled to report fiscal third-quarter 2019 earnings on Feb 7. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.24 per share.

Regal Beloit Corporation RBC is slated to announce fourth-quarter 2018 earnings on Feb 4. The Zacks Consensus Estimate for the quarter is pegged at $1.31.

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