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It has been about a month since the last earnings report for Eaton (ETN). Shares have added about 12.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Eaton due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Eaton Beats Q3 Earnings Estimates, Narrows Guidance
Eaton Corporation reported third-quarter 2020 earnings of $1.18 per share, which surpassed the Zacks Consensus Estimate of $1.05 by 12.7%. However, earnings were down 22.4% year over year due to weakness in some of its end markets.
GAAP earnings for the reported quarter were $1.11 per share compared with $1.44 in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to a one-time charge of 5 cents associated with acquisitions and divestitures, as well as 2 cents related to a multi-year restructuring program.
Total quarterly revenues came in at $4,526 million, which beat the Zacks Consensus Estimate of $4,200 million by 7.8%. However, total revenues decreased 14.8% from the year-ago quarter.
For the reported quarter, organic sales were down 9% from the prior-year period. Divestiture of the Lighting and Automotive Fluid Conveyance businesses resulted in an 8% decline in revenues, while acquired assets added 2% to third-quarter sales.
Electrical Americas’ total third-quarter sales were $1,699 million, down 16.7% from the year-ago level. The decline was due to the impact of the Lighting business divestiture and negative currency translation.
However, higher organic sales and contribution from the acquired assets marginally offset the drop in revenues.
Electrical Global’s total sales were $1,196 million, down 7.6% from the year-ago quarter. Organic sales were down 10% from the year-ago quarter, primarily due to the COVID-19 outbreak. Positive currency translation offset the negatives by 2%.
Hydraulics’ total sales were $439 million, down 15.4% from the year-ago quarter. The revenue decline was due to fall in organic sales.
Aerospace total sales were $540 million, down 12.9% from the year-ago quarter. The decline was due to downturn in commercial aviation, partially offset by growth in military sales. Organic sales were down 26%, partially offset by a 12% increase from the acquisition of Souriau-Sunbank and 1% growth from the impact of positive currency translation.
Vehicle total sales were $573 million, down 24.7% from the year-ago quarter. Decline in organic sales, divestiture of the automotive fluid conveyance business and negative currency translation affected the results.
eMobility segment’s total sales were $79 million, flat year over year. The decline in organic sales was offset by positive currency translation.
Highlights of the Release
Selling and administrative expenses were $754 million, down 14.8% from the year-ago quarter.
The company’s third-quarter research and development expenses were $132 million, down 10.2% from the prior-year period. Interest expenses for the quarter were $41 million, down 12.8% from the year-ago period.
Orders in Hydraulics were up 8% year over year, while the same in Electrical Americas, Electrical Global, and Aerospace was down 1%, 6%, and 22%, respectively.
The company decided to implement a multi-year restructuring program that will cost nearly $280 million. Restructuring charges incurred under this program for the nine months ended Sep 30, 2020 was $197 million.
During the quarter, it repurchased shares worth $177 million, with its year-to-date buyback totaling $1.5 billion.
Eaton’s cash was $429 million as of Sep 30, 2020 compared with $370 million on Dec 31, 2019.
As of Sep 30, 2020, long-term debt of the company was $6,948 million, down from $7,819 million on Dec 31, 2019.
Eaton narrowed its 2020 free cash flow guidance to the range to $2.4-$2.6 billion from $2.3-$2.7 billion. It is targeting share buyback in the range of $1.7-$1.9 billion in 2020.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 10.27% due to these changes.
Currently, Eaton has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Eaton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
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