ETN
$70.44
Eaton
($1.43)
(1.99%)
Earnings Details
3rd Quarter September 2018
Tuesday, October 30, 2018 6:30:00 AM
Tweet Share Watch
Summary

Eaton Misses

Eaton (ETN) reported 3rd Quarter September 2018 earnings of $1.43 per share on revenue of $5.4 billion. The consensus earnings estimate was $1.44 per share on revenue of $5.5 billion. The Earnings Whisper number was $1.47 per share. Revenue grew 3.9% on a year-over-year basis.

The company said it expects fourth quarter earnings of $1.38 to $1.48 per share. The current consensus earnings estimate is $1.44 per share for the quarter ending December 31, 2018.

Eaton Corp PLC is a power management company providing energy-efficient solutions that help its customers effectively manage electrical, hydraulic and mechanical power.

Results
Reported Earnings
$1.43
Earnings Whisper
$1.47
Consensus Estimate
$1.44
Reported Revenue
$5.41 Bil
Revenue Estimate
$5.49 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Eaton Reports Third Quarter Earnings Per Share of $0.95

Third Quarter Earnings Per Share were $1.43, Up 14 Percent Over Third Quarter of 2017, Excluding the Impact of the 2018 Arbitration Decision Related to Legacy Cooper Business and the 2017 Gain on the Eaton Cummins Joint Venture

Earnings Guidance for Full Year 2018 Raised by 5 Cents at Midpoint, Up 1 Percent Over Prior Guidance, Excluding the Impact of the Arbitration Decision

DUBLIN--(BUSINESS WIRE)-- Power management company Eaton Corporation plc (NYSE:ETN) today announced that earnings per share were $0.95 for the third quarter of 2018. Earnings per share were $1.43, an increase of 14 percent over the third quarter of 2017, excluding the impact of the 2018 arbitration decision related to the legacy Cooper business and the 2017 gain on the Eaton Cummins joint venture.

Sales in the third quarter of 2018 were $5.4 billion, up 4 percent over the same period in 2017. The sales increase consisted of 6 percent growth in organic sales, partially offset by 1 percent negative currency translation and negative 1 percent from the divestiture in 2017 of our share in a small electrical joint venture and the formation of the Eaton Cummins joint venture.

Craig Arnold, Eaton chairman and chief executive officer, said, “We had a solid third quarter. Revenue growth was strong and we had record segment margins.

“Our segment margins in the third quarter were 17.6 percent, an all-time quarterly record, and above the high end of our guidance,” said Arnold. “This represents a 120 basis point improvement over the third quarter of 2017. We had all-time record margins in the quarter in three segments: Electrical Products, Electrical Systems and Services, and Aerospace.

“Operating cash flow in the third quarter was $1.00 billion,” said Arnold. “Year-to-date, we have generated operating cash flow of $1.84 billion.

“We now expect the midpoint of 2018 earnings per share to be $5.35, up $0.05 from our prior guidance, representing a 15 percent increase over 2017, excluding the third quarter 2018 arbitration decision, the 2017 gain on the formation of the Eaton Cummins joint venture, and the income arising from the 2017 tax bill,” said Arnold. “We are also narrowing our earnings per share guidance for the year, resulting in revised guidance of between $5.30 and $5.40. Accordingly, for the fourth quarter of 2018, we anticipate earnings per share to be between $1.38 and $1.48.”

Business Segment Results

Sales for the Electrical Products segment were $1.8 billion, even with the third quarter of 2017. Organic sales were up 1 percent while currency translation was negative 1 percent. Excluding Lighting, organic sales were up 3 percent. Operating profits were a record $343 million, up 4 percent over the third quarter of 2017.

“Operating margins in the third quarter were 19.2 percent, 70 basis points over 2017 and an all-time quarterly record,” said Arnold. “Orders in the third quarter were up 3 percent over the third quarter of 2017, driven by solid growth in both industrial and residential markets in the Americas, and modest growth in Lighting.”

Sales for the Electrical Systems and Services segment were $1.5 billion, up 7 percent over the third quarter of 2017. Organic sales were up 9 percent, currency translation was negative 1 percent, and the sale in 2017 of our stake in a small joint venture reduced sales by 1 percent. Operating profits were $234 million, up 19 percent over the third quarter of 2017.

“Operating margins were 15.4 percent, an improvement of 160 basis points over 2017 and an all-time quarterly record,” said Arnold. “Orders in the third quarter were up 4 percent over the third quarter of 2017, led by strong growth in EMEA and Asia Pacific, and continued growth in data center markets.”

Hydraulics segment sales were $670 million, up 6 percent over the third quarter of 2017. Organic sales were up 7 percent while currency translation was negative 1 percent. Operating profits in the third quarter were $94 million, up 18 percent over the third quarter of 2017.

“Operating margins in the quarter were 14.0 percent, an improvement of 140 basis points over 2017,” said Arnold. “Orders in the third quarter were up 4 percent over the third quarter of 2017, with solid growth in the Americas and Asia Pacific.”

Aerospace segment sales were $478 million, up 9 percent over the third quarter of 2017, all coming from organic sales growth. Operating profits in the third quarter were a record $105 million, up 25 percent over the third quarter of 2017.

“Operating margins in the quarter were 22.0 percent, 280 basis points over 2017 and an all-time quarterly record,” said Arnold. “Orders in the quarter were up 12 percent over the third quarter of 2017. We saw particular strength in orders for commercial transports, commercial aftermarket, and military rotorcraft.”

The Vehicle segment posted sales of $876 million, up 2 percent over the third quarter of 2017. Organic sales were up 7 percent partially offset by negative 2 percent as a result of the formation of the Eaton Cummins joint venture in 2017 and negative 3 percent from currency translation. Operating profits in the third quarter were $166 million, up 11 percent over the third quarter of 2017.

“Operating margins in the quarter were 18.9 percent, an improvement of 140 basis points over 2017,” said Arnold. “We now forecast NAFTA Class 8 production in 2018 to be 320,000 units.”

eMobility segment sales were $80 million, up 7 percent over the third quarter of 2017, all coming from organic sales. Operating profits in the third quarter were $10 million, down 38 percent from the third quarter of 2017 due to increased R&D investments. Operating margins in the quarter were 12.5 percent.

Eaton is a power management company with 2017 sales of $20.4 billion. We provide energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton is dedicated to improving the quality of life and the environment through the use of power management technologies and services. Eaton has approximately 98,000 employees and sells products to customers in more than 175 countries. For more information, visit Eaton.com.

Notice of conference call: Eaton’s conference call to discuss its third quarter results is available to all interested parties as a live audio webcast today at 11 a.m. United States Eastern Time via a link on Eaton’s home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on third quarter results, which will be covered during the call.

This news release contains forward-looking statements concerning fourth quarter and full-year 2018 earnings per share, and the NAFTA Class 8 truck market. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; unanticipated changes in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; natural disasters; the performance of recent acquisitions; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in tax laws or tax regulations; stock market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.

Financial Results

The company’s comparative financial results for the nine months ended September 30, 2018 are available on the company’s website, www.eaton.com.

       
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME

Three months ended
September 30

Nine months ended
September 30

(In millions except for per share data) 2018 2017 2018 2017
Net sales $ 5,412 $ 5,211 $ 16,150 $ 15,191
 
Cost of products sold 3,597 3,466 10,841 10,221
Selling and administrative expense 889 902 2,679 2,669
Research and development expense 138 147 439 440
Interest expense - net 67 60 205 181
Gain on sale of business 1,077 1,077
Arbitration decision expense 275 275
Other expense - net 7   19   13   24  
Income before income taxes 439 1,694 1,698 2,733
Income tax expense 23   293   184   381  
Net income 416 1,401 1,514 2,352
Less net income for noncontrolling interests       (1 )
Net income attributable to Eaton ordinary shareholders $ 416   $ 1,401   $ 1,514   $ 2,351  
 
Net income per share attributable to Eaton ordinary shareholders
Diluted $ 0.95 $ 3.14 $ 3.45 $ 5.24
Basic 0.96 3.16 3.47 5.27
 
Weighted-average number of ordinary shares outstanding
Diluted 436.3 445.2 438.4 448.3
Basic 433.5 442.6 435.8 445.9
 
Cash dividends declared per ordinary share $ 0.66 $ 0.60 $ 1.98 $ 1.80
 

Reconciliation of net income attributable to Eaton ordinary shareholders to adjusted earnings

Net income attributable to Eaton ordinary shareholders $ 416 $ 1,401 $ 1,514 $ 2,351
Excluding acquisition integration charges (after-tax)   1     2  
Adjusted earnings $ 416   $ 1,402   $ 1,514   $ 2,353  
 
Net income per share attributable to Eaton ordinary shareholders - diluted $ 0.95 $ 3.14 $ 3.45 $ 5.24
Excluding per share impact of acquisition integration charges (after-tax)        
Adjusted earnings per ordinary share $ 0.95   $ 3.14   $ 3.45   $ 5.24  

See accompanying notes.

       
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION

Three months ended
September 30

Nine months ended
September 30

(In millions) 2018 2017 2018 2017
Net sales
Electrical Products $ 1,789 $ 1,785 $ 5,327 $ 5,167
Electrical Systems and Services 1,519 1,421 4,413 4,168
Hydraulics 670 634 2,103 1,854
Aerospace 478 438 1,399 1,303
Vehicle 876 858 2,668 2,489
eMobility 80   75   240   210  
Total net sales $ 5,412   $ 5,211   $ 16,150   $ 15,191  
 
Segment operating profit
Electrical Products $ 343 $ 330 $ 984 $ 915
Electrical Systems and Services 234 196 628 545
Hydraulics 94 80 285 214
Aerospace 105 84 284 244
Vehicle 166 150 464 399
eMobility 10   16   35   40  
Total segment operating profit 952 856 2,680 2,357
 
Corporate
Amortization of intangible assets (95 ) (98 ) (289 ) (288 )
Interest expense - net (67 ) (60 ) (205 ) (181 )
Pension and other postretirement benefits expense (3 ) (16 ) (4 ) (38 )
Gain on sale of business 1,077 1,077
Arbitration decision expense (275 ) (275 )
Other corporate expense - net (73 ) (65 ) (209 ) (194 )
Income before income taxes 439 1,694 1,698 2,733
Income tax expense 23   293   184   381  
Net income 416 1,401 1,514 2,352
Less net income for noncontrolling interests       (1 )
Net income attributable to Eaton ordinary shareholders $ 416   $ 1,401   $ 1,514   $ 2,351  

See accompanying notes.

       
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,
2018

December 31,
2017

(In millions)
Assets
Current assets
Cash $ 327 $ 561
Short-term investments 178 534
Accounts receivable - net 4,027 3,943
Inventory 2,835 2,620
Prepaid expenses and other current assets 500   679
Total current assets 7,867 8,337
 
Property, plant and equipment - net 3,446 3,502
 
Other noncurrent assets
Goodwill 13,385 13,568
Other intangible assets 4,949 5,265
Deferred income taxes 241 253
Other assets 1,740   1,698
Total assets $ 31,628   $ 32,623
 
Liabilities and shareholders’ equity
Current liabilities
Short-term debt $ 82 $ 6
Current portion of long-term debt 426 578
Accounts payable 2,165 2,166
Accrued compensation 427 453
Other current liabilities 2,167   1,872
Total current liabilities 5,267   5,075
 
Noncurrent liabilities
Long-term debt 6,737 7,167
Pension liabilities 1,160 1,226
Other postretirement benefits liabilities 344 362
Deferred income taxes 347 538
Other noncurrent liabilities 984   965
Total noncurrent liabilities 9,572   10,258
 
Shareholders’ equity
Eaton shareholders’ equity 16,754 17,253
Noncontrolling interests 35   37
Total equity 16,789   17,290
Total liabilities and equity $ 31,628   $ 32,623

See accompanying notes.

EATON CORPORATION plc
NOTES TO THE THIRD QUARTER 2018 EARNINGS RELEASE

Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution).

Note 1. NON-GAAP FINANCIAL INFORMATION

This earnings release includes certain non-GAAP financial measures. These financial measures include adjusted earnings, adjusted earnings per ordinary share, net income per ordinary share excluding the per share impact of the arbitration decision expense, net income per ordinary share excluding the per share impact of the gain on sale of a business, and operating profit before acquisition integration charges for each business segment as well as corporate, each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in this earnings release. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowing investors to more easily compare Eaton Corporation plc's (Eaton or the Company) financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment.

Net income per ordinary share of $0.95 for the third quarter of 2018 was $1.43 excluding $0.48 per share impact from the expense related to the arbitration decision. For full year 2018, we are expecting net income per share to be between $4.82 and $4.92, and between $5.30 and $5.40 excluding $0.48 per share for the expense related to the arbitration decision.

Net income per ordinary share of $3.14 for the third quarter of 2017 was $1.25 excluding $1.89 per share impact from the gain on the sale of the business related to the Eaton Cummins Automated Transmission Technologies joint venture.

Note 2. ARBITRATION DECISION

Eaton announced in a press release on August 29, 2018 that certain subsidiaries it acquired in the 2012 acquisition of Cooper Industries have been ordered to pay $293 by an arbitration panel. The panel’s award, issued on August 23, 2018, is related to claims brought by Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”).

As Eaton previously disclosed, the dispute related to Pepsi’s claims that it was harmed by a 2011 settlement agreement that resolved litigation Pneumo Abex, LLC had previously brought against various Cooper entities. The litigation involved, among other things, a guaranty related to Pneumo Abex’s friction products business. Pepsi claimed that the value contributed to Pneumo Abex and a newly established trust in exchange for a release of the guaranty was substantially below reasonably equivalent value, and that an inability of Pneumo Abex to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories. There are no other pending claims related to the contributions made for the release of the guaranty.

A Texas state court confirmed the arbitration award at the confirmation hearing, which was held on October 12, 2018. The Company is considering its options, including an appeal.

The impact of the arbitration award was an after-tax expense of $206 in the third quarter 2018, reducing third quarter earnings per share by $0.48.

Note 3. ACQUISITION INTEGRATION CHARGES

Eaton incurs integration charges related to acquired businesses. A summary of these charges follows:

      Operating profit excluding
Acquisition Operating profit acquisition integration
integration charges as reported charges
Three months ended September 30
2018   2017 2018   2017 2018   2017
Business segment
Electrical Products $ $ 1 $ 343 $ 330 $ 343 $ 331
Electrical Systems and Services 234 196 234 196
Hydraulics 94 80 94 80
Aerospace 105 84 105 84
Vehicle 166 150 166 150
eMobility     10   16   10   16
Total business segments 1 $ 952   $ 856   $ 952   $ 857
Corporate    
Total acquisition integration charges before income taxes 1
Income taxes    
Total after income taxes $   $ 1  
Per ordinary share - diluted $ $
 
      Operating profit excluding
Acquisition Operating profit acquisition integration
integration charges as reported charges
Nine months ended September 30
2018   2017 2018   2017 2018   2017
Business segment
Electrical Products $ $ 3 $ 984 $ 915 $ 984 $ 918
Electrical Systems and Services 628 545 628 545
Hydraulics 285 214 285 214
Aerospace 284 244 284 244
Vehicle 464 399 464 399
eMobility     35   40   35   40
Total business segments 3 $ 2,680   $ 2,357   $ 2,680   $ 2,360
Corporate    
Total acquisition integration charges before income taxes 3
Income taxes   1  
Total after income taxes $   $ 2  
Per ordinary share - diluted $ $

Business segment acquisition integration charges in 2017 related to the integration of Ephesus Lighting, Inc. (Ephesus), which was acquired in 2015. The charges associated with Ephesus were included in Selling and administrative expense. In Business Segment Information, the charges reduced Operating profit of the related business segment.

Eaton Corporation plc
Kelly Jasko, Media Relations, +1 440-523-5304
kellymjasko@eaton.com
or
Don Bullock, Investor Relations, +1 440-523-5127

Source: Eaton Corporation plc