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Why Is Eaton (ETN) Up 8.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Eaton (ETN). Shares have added about 8.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Eaton Q3 Earnings Surpass Estimates, Revenues Up Y/Y

Eaton Corporation has reported third-quarter 2022 earnings of $2.02 per share, which surpassed the Zacks Consensus Estimate by a penny. Earnings were up 15% year over year. The third-quarter earnings were near the higher end of the company’s guidance of $1.95-$2.05.

GAAP earnings for the reported quarter were $1.52 per share compared with $1.58 in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to charges of 25 cents associated with intangible amortization, 4 cents related to a multi-year restructuring program, and 21 cents pertaining to acquisitions and divestitures.

Revenues

Total quarterly revenues were $5,313 million, marginally lagging the Zacks Consensus Estimate of $5,324 million by 0.2%. Total revenues improved 7.9% from the year-ago quarter.

Revenues gained from a 15% increase in organic sales and acquisitions added 1%. These positives were offset by a 4% decline from divestitures and a 4% decrease from a negative currency translation.

Segmental Details

Electrical Americas’ total third-quarter sales were $2,179 million, up 18% from the year-ago level. The improvement was due to increased organic sales. Operating profits were $511 million, up 27% year over year.

Electrical Global’s total sales were $1,486 million, up 5% from the year-ago quarter. Organic sales were up 13% from the year-ago quarter, offset by a negative currency translation of 8%. Operating profits were $305 million, up 7% year over year.

Aerospace’s total sales were $768 million, up 3% from the year-ago quarter. This was due to improved organic sales and contributions from the acquisition of Mission Systems, marginally offset by a negative currency translation. Operating profits were $185 million, up 13% year over year.

Vehicle’s total sales were $744 million, up 16% from the year-ago quarter due to an increase in organic sales, partially offset by negative currency translation. Operating profits were $125 million, up 9% year over year.

The eMobility segment’s total sales were $137 million, up 63% year over year due to an improvement in organic sales and the acquisition of Royal Power Solutions, offset marginally by a negative currency translation. The operating loss was $2 million in third-quarter 2022, narrower than the $8 million loss registered in the year-ago quarter.

Highlights of the Release

Selling and administrative expenses were $813 million, down 2.5% from the year-ago quarter.

ETN’s third-quarter research and development expenses were $165 million, up 8.6% from the prior-year period. Interest expenses for the quarter were $37 million, on par with the year-ago period.

Eaton’s Electrical sector backlog was up 75% and rolling 12-month orders increased 27%, while Aerospace backlog was up 17%, with rolling 12-month orders rising 22%, all on an organic basis.

Financial Update

Eaton’s cash was $231 million as of Sep 30, 2022, compared with $297 million as of Dec 31, 2021.

As of Sep 30, 2022, the company’s long-term debt was $8,082 million, down from $6,831 million as of Dec 31, 2021.

Guidance

Eaton’s fourth-quarter 2022 earnings are expected to be $2-$2.10 per share. ETN expects organic revenue growth of 13-15% for the fourth quarter. Segment operating margin is expected to be 20.5%-20.9%.

Eaton expects its 2022 earnings per share in the range of $7.51-$7.61 per share. ETN expects organic revenue growth of 11-13% for 2022. The segmental operating margin for 2022 is expected to be 20-20.4%.

Eaton is targeting a share buyback of $200-$300 million for 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Eaton has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Eaton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Eaton belongs to the Zacks Manufacturing - Electronics industry. Another stock from the same industry, ABB (ABB), has gained 14.9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

ABB reported revenues of $7.41 billion in the last reported quarter, representing a year-over-year change of +5.4%. EPS of $0.20 for the same period compares with $0.37 a year ago.

ABB is expected to post earnings of $0.37 per share for the current quarter, representing a year-over-year change of +8.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -28.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for ABB. Also, the stock has a VGM Score of D.

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