Cooper Industries Plc (CBE) reported better-than-expected results for the third quarter of 2010, and management has upped its guidance for the year.
The company reported earnings per share from continuing operations of 85 cents on revenues of $1.24 billion. The Zacks Consensus EPS estimate for the quarter was 84 cents while the revenue estimate was $1.19 billion.
For the quarter, equity income from the Apex Tool Group joint venture with Danaher Corporation (DHR) of $10.5 million is included in operating earnings in the third quarter 2010.
Energy & Safety Solutions segment revenues for the second quarter of 2010 increased 7.2% to $655.7 million, compared with $611.8 million in the corresponding prior-year quarter. Core revenues were 7.5%, higher than comparable prior-year periods with currency translation reducing reported revenues by 1.8% and acquisitions adding 1.5% for the most recent quarter. Segment operating margin improved 30 basis points to 16.9% compared with the prior-year period.
Electrical Products Group segment revenues for the most recent quarter increased 9.3% to $585.0 million. Core revenues were 9.2% higher than comparable prior-year period with currency translation increasing reported results by 0.1% for the quarter. This segment benefited from strong MRO demand and strong demand for electronics. Electrical Products Group had an operating margin of 16.1%, up 270 basis points from the third quarter of 2009.
The Tools equity earnings were $10.5 million or $0.05 a share, at the low-end of guidance of $0.05 to $0.10 a share due to some additional restructuring charges.
Industrial MRO remained strong. Industrial production, ISM, and factory utilization continue to be strong, with particular strength in Asia, Mexicoand South America. The commercial markets are flattening out, helped by strong demand in energy efficient products using LED and advanced florescent technology. Utility markets are finally showing an uptrend after facing a long hot summer, depleted inventories and an ageing infrastructure.
Cash Flow and Balance Sheet
During the third quarter, free cash flow was $112 million, which brings the year-to-date performance to $334.5 million. The company is on track for the 10th consecutive year to report free cash flow, which will likely exceed recurring income. The balance sheet is in great shape with net debt to total capitalization at 17.4% at the end of the quarter. This was a slight increase from the second quarter, and this increase is really due to the impact of accelerated share buyback during the third quarter.
Estimates Moving Higher
The company has raised its guidance for earnings per share from continuing operations for 2010 to $3.14 – 3.18 from $3.10. This estimate reflects an adjusted revenue growth of 3% – 5% for the year, after taking into account the revenue loss from the deconsolidated Tools segment. For the fourth quarter, the company expects a revenue growth of 7% – 10% along with earnings per share of 80 – 84 cents.
We currently have a Neutral recommendation on Cooper Industries plc.
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