We recently maintained our Neutral recommendation on Cooper Industries Plc (CBE).
Incorporated in Ireland and headquartered in Houston, Texas, Cooper Industries plc is a diversified manufacturer, marketer, and distributor of electrical products, tools, and hardware. General industrial manufacturers, such as those in the aerospace and automobile industries, are the main users of Cooper’s power tools and assembly systems. Its brands include Buss, Edison, Crouse Hinds, Weller, DGD, Buckeye, Cooper, and Master Power.
Cooper Industries Ltd. is a global manufacturer, with 2010 revenues of $5.1 billion, approximately 94% of which were from electrical segments. Cooper has manufacturing facilities in 23 countries and currently employs approximately 28,200 people.
The company is expected to realize an outsized portion of its growth from the developing markets in China, the Middle East and Mexico. Industrial, utility and energy markets are expected to rapidly expand and the industrializing economies will help to offset some of the declines in the already developed regions. This will eventually help to support higher growth rates for the current year.
On October 21, 2011, the company came out with its third-quarter 2011 earnings result, reporting earnings per share from continuing operations of 98 cents, above the Zacks Consensus Estimate of 96 cents and prior-year earnings of 85 cents. The company achieved record earnings per share in the quarter with double-digit growth for the past seven consecutive quarters.
Total revenue in the quarter was $1.39 billion, representing a year-over-year increase of 12.0%. Revenue from sale of new products, developed in the last three years, represented 28% of total revenue. Developing markets also contributed significantly to the company’s revenue. Longer cycle and international businesses were strong performers despite prevailing macro uncertainty. However, demand in both non-residential and residential construction markets remained weak.
Revenue in the Energy & Safety Solutions segment increased by 14.7% year over year to $752.2 million. Revenue in the Electrical Products Group segment increased by 9.0% year over year to $637.5 million.
The company raised its guidance for earnings per share from continuing operations to a range of $3.78 to $3.83 from a prior band of $3.75 to $3.82 for 2011. Revenue is now expected to increase by 11% to 13%. The 2010 comparative figure for revenue excludes sales from the Tools segment.
For the fourth quarter of 2011, the company expects earnings per share of $0.91 to $0.96 on the back of a 1% to 3% rise in revenue compared with the fourth quarter of 2010, excluding Tools revenue.
During the quarter, the company achieved record earnings per share. This was the seventh consecutive quarter in which the company achieved double-digit growth. Impressively, 28% of total revenue of the company was derived from the sale of new products, indicating that the company’s investment in new ventures is paying off.
However, the construction business, comprising 40% of Cooper’s portfolio, continues to be affected by recessionary pressure. Demand in both non-residential and residential construction markets remained weak in the reported quarter. The company does not see any recovery in the residential market in the near term. The market suffers from a tough pricing environment, high unemployment, a delayed foreclosure process and excess inventory of homes for sale.
We expect the company to perform in line with the market and hence maintain a Neutral recommendation.
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