Why Is Eaton (ETN) Down 8.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Eaton (ETN). Shares have lost about 8.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Eaton due for a breakout? 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 drivers.
Eaton Beats Q2 Earnings Estimates, Ups 2022 EPS View
Eaton has reported second-quarter 2022 earnings of $1.87 per share, which surpassed the Zacks Consensus Estimate of $1.82 by 2.8%. Earnings were up 9% year over year. Second-quarter earnings were near the higher end of the company’s guidance of $1.78-$1.88.
GAAP earnings for the reported quarter were $1.50 per share compared with $1.26 in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to charges of 24 cents associated with intangible amortization, 2 cents related to a multi-year restructuring program, and 11 cents pertaining to acquisitions and divestitures.
Revenues
Total quarterly revenues were $5,212 million, marginally lagging the Zacks Consensus Estimate of $5,227 million. Total revenues declined 0.05% from the year-ago quarter.
Revenues gained from an 11% increase in organic sales and acquisitions added 2%. These positives were offset by an 11% decline from divestitures and a 2% decrease from a negative currency translation.
Segmental Details
Electrical Americas’ total second-quarter sales were $2,131 million, up 15% from the year-ago level. The improvement was due to increased organic sales, marginally offset by a negative currency translation. Operating profits were $495 million, up 26% year over year.
Electrical Global’s total sales were $1,495 million, up 5% from the year-ago quarter. Organic sales were up 12% from the year-ago quarter, offset by a negative currency translation of 7%. Operating profits were $282 million, up 9% year over year.
Aerospace’s total sales were $742 million, up 19% 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 $163 million, up 24% year over year.
Vehicle total sales were $708 million, up 5% from the year-ago quarter due to an increase in organic sales, partially offset by negative currency translation. Operating profits were $108 million, down 11% year over year.
The eMobility segment’s total sales were $136 million, up 55% year over year due to an improvement in organic sales and the acquisition of Royal Power Solutions, offset marginally by a negative currency translation.
Highlights of the Release
Selling and administrative expenses were $828 million, down 5.5% from the year-ago quarter.
ETN’s second-quarter research and development expenses were $168 million, up 9.1% from the prior-year period. Interest expenses for the quarter were $31 million, down 16.2% from the year-ago period.
Eaton’s Electrical segment backlog was up 74% and rolling 12-month orders increased 25%, while Aerospace backlog was up 12%, with rolling 12-month orders rising 19%, all on an organic basis.
Financial Update
Eaton’s cash was $364 million as of Jun 30, 2022, compared with $297 million as of Dec 31, 2021.
As of Jun 30, 2022, the company’s long-term debt was $6,277 million, down from $6,831 million as of Dec 31, 2021.
Guidance
Eaton’s third-quarter 2022 earnings are expected to be $1.95-$2.05 per share. ETN expects organic revenue growth of 13-15% for the third quarter.
Eaton has raised the 2022 earnings per share guidance to $7.36-$7.76 from the previously mentioned $7.32-$7.72 based on strong organic growth. 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?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Eaton has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 C. 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.
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