Eaton Corp Earnings: Double-Digit Growth Again

S&P 500 (NYSE:SPY) component Eaton Corporation (NYSE:ETN) reported its results for the fourth quarter. Eaton is a power management company offering services in the sectors of electricity, hydraulics, aerospace, truck, and automotive.

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Eaton Earnings Cheat Sheet for the Fourth Quarter

Results: Net income for Eaton Corporation rose to $362 million ($1.07 per share) vs. $280 million (82 cents per share) in the same quarter a year earlier. This marks a rise of 29.3% from the year earlier quarter.

Revenue: Rose 10.1% to $4.03 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: ETN fell short of the mean analyst estimate of $1.11 per share. It fell short of the average revenue estimate of $4.16 billion.

Quoting Management: Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our earnings per share came in below the midpoint of our guidance range, driven by revenues in December falling roughly $200 million short of our expectations partially offset by a lower tax rate and better segment operating margins.”

“About 75 percent of the revenue shortfall was in our Electrical sector, with the shortfall spread evenly among the U.S., Europe, and Asia Pacific,” said Cutler. “The shortfall in the U.S. was principally due to customer requested delays of major project shipments. The shortfall in Europe was due to the slowing Eurozone economy, and in Asia Pacific the shortfall was due to a slowdown in China as a result of restrictions on credit availability.”

“The balance of the revenue shortfall was due to lower truck demand in Brazil and production reductions and shutdowns late in the quarter at several U.S. and European auto assembly plants,” said Cutler. “We believe that many of the factors behind the shortfall in fourth quarter revenues are temporary and, as a result, should not have a significant impact on 2012 revenues,” said Cutler.

“Sales growth in the fourth quarter of 10 percent consisted of nine percent growth in core sales and one percent growth from acquisitions. End markets in the fourth quarter grew by eight percent,” said Cutler. “Our segment operating margin in the fourth quarter was 15.1 percent, an all-time record and a notable improvement over our segment operating margin of 14.6 percent in the third quarter.” For the full year 2011, sales were $16.0 billion, 17 percent higher than 2010. Net income was $1.35 billion, an increase of 45 percent over 2010, and net income per share of $3.93 was 44 percent more than in 2010. Operating earnings in 2011 totaled $1.36 billion, an increase of 42 percent over 2010. Operating earnings per share for 2011 of $3.96 were 41 percent higher than in 2010.”

“Our full year 2011 sales increase of 17 percent reflects strong growth, despite a volatile global economy over the course of 2011,” said Cutler. “We increased our earnings guidance three times during 2011, reflecting stronger markets than we had anticipated at the start of the year.”

“We expect that 2012 operating earnings per share will set another record,” said Cutler. “We estimate that first quarter operating earnings per share, which exclude an estimated $0.01 of charges to integrate our recent acquisitions, will be between $0.80 and $0.90 per share. For the full year 2012, we estimate that operating earnings per share, which exclude an estimated $0.05 of charges to integrate our recent acquisitions, will be between $4.15 and $4.55. Based on this guidance, our operating earnings per share in 2012 will grow between five percent and 15 percent. ”

“In light of our strong 2011 results and our outlook for 2012, we are increasing our quarterly dividend by 12 percent, raising the quarterly dividend from $0.34 per share to $0.38 per share,” said Cutler.

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 17.2%, with the biggest boost coming in the first quarter when revenue rose 22.6% from the year earlier quarter.

The company has now seen net income rise in three straight quarters. In the third quarter, net income rose 36.2% and in the second quarter, the figure rose 48.7%.

The company has now fallen short of estimates in the last two quarters. In the third quarter, it missed expectations by 2 cents with net income of $1.07 versus a mean estimate of net income of $1.09 per share.

Margins rose in the third quarter after falling the quarter before. Gross margin rose 0.2 percentage point to 30.2% from the quarter earlier quarter. In the second quarter, the figure rose 0.9 percentage point to 29.7% from the year earlier quarter.

Looking Forward: Analysts appear increasingly optimistic about the company’s results for the next quarter. The average estimate for the first quarter of the next fiscal year has moved up from 95 cents a share to 97 cents over the last ninety days. For the fiscal year, the average estimate has moved up from $3.99 a share to $4 over the last ninety days.

Competitors to Watch: Parker-Hannifin Corp. (NYSE:PH), Magnetek, Inc. (NYSE:MAG), Tech/Ops Sevcon, Inc. (NASDAQ:TO), United Technologies Corp. (NYSE:UTX), General Electric Company (NYSE:GE), Sauer-Danfoss Inc. (NYSE:SHS), Dover Corporation (NYSE:DOV), Thomas & Betts Corporation (NYSE:TNB), Roper Industries, Inc. (NYSE:ROP), and Crane Co. (NYSE:CR).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)


To contact the reporter on this story: Derek Hoffman at

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