ETN
$76.88
Eaton
$.45
.59%
Earnings Details
1st Quarter March 2017
Tuesday, May 02, 2017 6:30:04 AM
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Summary

Eaton Beats

Eaton (ETN) reported 1st Quarter March 2017 earnings of $0.96 per share on revenue of $4.8 billion. The consensus earnings estimate was $0.87 per share on revenue of $4.7 billion. The Earnings Whisper number was $0.89 per share. Revenue grew 0.7% on a year-over-year basis.

The company said it expects second quarter earnings of $1.05 to $1.15 per share and 2017 earnings of $4.45 to $4.75 per share. The company's previous guidance was 2017 earnings of $4.30 to $4.60 per share. The current consensus earnings estimate is $1.15 per share for the quarter ending June 30, 2017 and $4.44 per share for the year ending December 31, 2017.

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
$0.96
Earnings Whisper
$0.89
Consensus Estimate
$0.87
Reported Revenue
$4.85 Bil
Revenue Estimate
$4.69 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Eaton Reports First Quarter Net Income and Operating Earnings Per Share of $0.96, Up 9 Percent Over First Quarter of 2016

Net Income and Operating Earnings Per Share Guidance Raised by $0.15 to $4.45 - $4.75

Power management company Eaton Corporation plc (ETN) today announced that net income and operating earnings per share were $0.96 for the first quarter of 2017. Net income per share in the first quarter of 2017 was up 9 percent over the first quarter of 2016. Operating earnings per share, which exclude $1 million of acquisition integration charges in the first quarter of 2017 and $1 million in the first quarter of 2016, were also up 9 percent over the first quarter of 2016.

Sales in the first quarter of 2017 were $4.8 billion, up 1 percent over the same period in 2016. The sales increase consisted of 2 percent from growth in organic sales partially offset by a 1 percent decline from negative currency translation.

Craig Arnold, Eaton chairman and chief executive officer, said, "Our first quarter net income and operating earnings per share were above the high end of our guidance range. Coming into the quarter, we had expected sales would be down 3 percent, split evenly between a decline in organic sales and negative currency translation. Our organic sales instead grew 2 percent and currency translation was slightly less negative than we had forecast, resulting in 1 percent revenue growth. This is the first quarter of revenue growth since the fourth quarter of 2014, evidence that a number of our markets are starting to turn up.

"Segment margins in the first quarter were 14.4 percent," said Arnold. "Excluding restructuring costs of $17 million incurred in the segments in the quarter, segment margins were 14.8 percent.

"Operating cash flow in the first quarter was $463 million, a new first quarter record," said Arnold. "The cash flow was inclusive of $100 million we put into our U.S. qualified pension plan in the quarter. We continued to return substantial cash to our shareholders, raising our quarterly dividend by 5 percent in February and repurchasing $255 million of our shares in the quarter.

"Order growth showed an improvement in most segments compared to the fourth quarter of 2016," said Arnold. "Most notably, Hydraulics orders grew 22 percent versus growth of 8 percent in the fourth quarter of 2016, and Electrical Systems and Services orders were flat compared to a decline of 7 percent in the fourth quarter of 2016.

"In light of our strong first quarter, we are raising our earnings guidance for the year by $0.15 per share, an increase of 3 percent to the prior midpoint of our guidance," said Arnold. "For the whole of 2017, we now expect net income and operating earnings per share to be between $4.45 and $4.75, representing a 9 percent increase at the midpoint of our guidance over 2016. We anticipate net income and operating earnings per share for the second quarter of 2017 to be between $1.05 and $1.15."

Business Segment Results

Sales for the Electrical Products segment were $1.7 billion, up 2 percent over the first quarter of 2016. Organic sales were up 3 percent partially offset by negative currency translation of 1 percent. Operating profits, excluding acquisition integration charges of $1 million during the quarter, were $298 million, up 10 percent over the first quarter of 2016.

"Operating margins in the first quarter were 17.4 percent, and excluding restructuring costs of $3 million, 17.6 percent," said Arnold. "Orders in the first quarter were up 3 percent over the first quarter of 2016, driven by growth in the Americas and EMEA, while APAC was flat. We saw particular strength in the Americas in residential products and lighting, and in EMEA in industrial controls."

Sales for the Electrical Systems and Services segment were $1.3 billion, down 1 percent from the first quarter of 2016. Organic sales were flat and currency translation was negative 1 percent. Segment operating profits were $155 million, down 3 percent from the first quarter of 2016.

"Operating margins were 11.6 percent, and excluding restructuring costs of $2 million, 11.8 percent," said Arnold. "Margins continue to be negatively impacted by weakness in large industrial projects and oil and gas markets.

"Orders in the first quarter were flat with the first quarter of 2016, as declines in the Americas and EMEA were offset by strength in APAC. The declines in the Americas and EMEA were largely due to lower power quality orders, reflecting a slowdown after a year of strong orders in 2016. Orders in APAC showed double-digit growth during the quarter as a result of strong project orders."

Hydraulics segment sales were $587 million, up 7 percent over the first quarter of 2016. Organic sales were up 9 percent partially offset by negative currency translation of 2 percent. Operating profits in the first quarter were $60 million, an increase of 46 percent over the first quarter of 2016, with the increase driven by higher organic revenues and lower restructuring costs.

"Operating margins in the quarter were 10.2 percent, and excluding restructuring costs of $9 million, 11.8 percent," said Arnold. "Hydraulics orders in the first quarter of 2017 were up a solid 22 percent over the first quarter of 2016, with growth in all geographic regions, particularly APAC. We saw order strength from both OEMs and distribution."

Aerospace segment sales were $428 million, down 4 percent from the first quarter of 2016. Organic sales were down 1 percent and currency translation was negative 3 percent. Operating profits in the first quarter were $79 million, down 1 percent from the first quarter of 2016.

"Operating margins in the quarter were 18.5 percent, and excluding restructuring costs of $1 million, 18.7 percent," said Arnold. "Orders in the quarter were up 2 percent compared to the first quarter of 2016. We saw strength in commercial transports and aftermarket, military rotorcraft, and business jets, partially offset by weakness in military transports and fighters."

The Vehicle segment posted sales of $788 million, down 1 percent from the first quarter of 2016. Organic sales were down 2 percent while currency translation was 1 percent positive. Operating profits in the first quarter were $108 million, down 8 percent from the first quarter of 2016.

"Operating margins in the quarter were 13.7 percent, and excluding restructuring costs of $2 million, 14.0 percent," said Arnold.

Eaton is a power management company with 2016 sales of $19.7 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 95,000 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 first 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 the center of 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 first quarter results, which will be covered during the call.

This news release contains forward-looking statements concerning second quarter 2017 operating earnings and net income per share, full-year 2017 operating earnings and net income per share, and growth in our end markets. 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; 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 three months ended March 31, 2017 are available on the company’s website, www.eaton.com.

EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
Three months ended
March 31
(In millions except for per share data)
2017
2016
Net sales
$
4,848
$
4,813
Cost of products sold
3,310
3,291
Selling and administrative expense
885
892
Research and development expense
143
149
Interest expense - net
61
57
Other income - net
(15 )
(18 )
Income before income taxes
464
442
Income tax expense
32
39
Net income
432
403
Less net loss for noncontrolling interests
--
1
Net income attributable to Eaton ordinary shareholders
$
432
$
404
Net income per share attributable to Eaton ordinary shareholders
Diluted
$
0.96
$
0.88
Basic
0.96
0.88
Weighted-average number of ordinary shares outstanding
Diluted
451.0
459.8
Basic
448.8
458.6
Cash dividends declared per ordinary share
$
0.60
$
0.57
Reconciliation of net income attributable to Eaton ordinary
shareholders to
operating earnings
Net income attributable to Eaton ordinary shareholders
$
432
$
404
Excluding acquisition integration charges (after-tax)
1
--
Operating earnings
$
433
$
404
Net income per share attributable to Eaton ordinary shareholders -
$
0.96
$
0.88
diluted
Excluding per share impact of acquisition integration charges
--
--
(after-tax)
Operating earnings per ordinary share
$
0.96
$
0.88
See accompanying notes.
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
Three months ended
March 31
(In millions)
2017
2016
Net sales
Electrical Products
$
1,712
$
1,680
Electrical Systems and Services
1,333
1,342
Hydraulics
587
551
Aerospace
428
445
Vehicle
788
795
Total net sales
$
4,848
$
4,813
Segment operating profit
Electrical Products
$
297
$
271
Electrical Systems and Services
155
159
Hydraulics
60
41
Aerospace
79
80
Vehicle
108
118
Total segment operating profit
699
669
Corporate
Amortization of intangible assets
(94 )
(100 )
Interest expense - net
(61 )
(57 )
Pension and other postretirement benefits expense
(11 )
(14 )
Other corporate expense - net
(69 )
(56 )
Income before income taxes
464
442
Income tax expense
32
39
Net income
432
403
Less net loss for noncontrolling interests
--
1
Net income attributable to Eaton ordinary shareholders
$
432
$
404
See accompanying notes.
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
2017
2016
(In millions)
Assets
Current assets
Cash
$
222
$
543
Short-term investments
301
203
Accounts receivable - net
3,673
3,560
Inventory
2,344
2,254
Prepaid expenses and other current assets
435
381
Total current assets
6,975
6,941
Property, plant and equipment - net
3,481
3,443
Other noncurrent assets
Goodwill
13,296
13,201
Other intangible assets
5,441
5,514
Deferred income taxes
439
360
Other assets
979
960
Total assets
$ 30,611
$ 30,419
Liabilities and shareholders’ equity
Current liabilities
Short-term debt
$
208
$
14
Current portion of long-term debt
1,328
1,552
Accounts payable
1,891
1,718
Accrued compensation
270
379
Other current liabilities
1,860
1,822
Total current liabilities
5,557
5,485
Noncurrent liabilities
Long-term debt
6,677
6,711
Pension liabilities
1,553
1,659
Other postretirement benefits liabilities
366
368
Deferred income taxes
319
321
Other noncurrent liabilities
940
934
Total noncurrent liabilities
9,855
9,993
Shareholders’ equity
Eaton shareholders’ equity
15,157
14,897
Noncontrolling interests
42
44
Total equity
15,199
14,941
Total liabilities and equity
$ 30,611
$ 30,419
See accompanying notes.

EATON CORPORATION plc NOTES TO THE FIRST QUARTER 2017 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 operating earnings, operating earnings per ordinary share, 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.

Note 2. ACQUISITION INTEGRATION CHARGES

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

Operating profit
Acquisition
Operating profit
excluding acquisition
integration charges
as reported
integration charges*
Three months ended March 31
2017
2016
2017
2016
2017
2016
Business segment
Electrical Products
$
1
$ --
$ 297
$ 271
$ 298
$ 271
Electrical Systems and Services
--
1
155
159
155
160
Hydraulics
--
--
60
41
60
41
Aerospace
--
--
79
80
79
80
Vehicle
--
--
108
118
108
118
Total business segments
1
1
$ 699
$ 669
$ 700
$ 670
Corporate
--
--
Total acquisition integration charges before income taxes
1
1
Income taxes
--
1
Total after income taxes
$
1
$ --
Per ordinary share - diluted
$ --
$ --
*Operating profit excluding acquisition integration charges is
used to calculate operating margin where that term is used in this
release.

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. Business segment acquisition integration charges in 2016 related to the integration of Oxalis Group Ltd. (Oxalis), which was acquired in 2015. The charges associated with Oxalis were included in Cost of products sold. In Business Segment Information, the charges reduced Operating profit of the related business segment.

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Eaton Corporation plc
Scott Schroeder, +1-440-523-5150 (Media Relations)
scottrschroeder@eaton.com
or
Donald Bullock, +1-440-523-5127 (Investor Relations)