Eaton Corporation (ETN) reported robust third quarter 2010 results mainly upon a 14% end-market growth. Earnings per share, excluding acquisition-related integration charges, came in at $1.60, beating the Zacks Consensus Estimate of $1.38 and exceeded the company’s guidance range of $1.25 – $1.35. In the year-ago period, the Cleveland, Ohio-based company earned $1.21 per share.
Operating Results
Total quarterly revenues of $3.6 billion exceeded the Zacks Consensus Estimate of $3.4 billion and were up 18% year over year. Improved sales in the quarter primarily came from organic growth and continued expansion in the company’s markets around the world, offset slightly by unfavorable foreign exchange rates.
Eaton witnessed robust sales growth across all its business segments during the third quarter. Overall, the company’s end-markets grew 14% in the quarter.
Segment operating margin in the quarter was 13.4%, 10 basis points below the company’s record margin of 13.5% in the fourth quarter of 2007. Operating margins also improved significantly versus the last quarter in the Electrical Americas, Electrical Rest of World, Aerospace and Truck.
Segment Analysis
Electrical Americas: Within its Electrical unit, Electrical Americas revenues improved 15% from the year-ago quarter to $967 million, while operating profit was down 1% to $141 million. Growth in Electrical Americas revenues in the quarter reflected a 3% growth in the end-markets, mainly in the early- and mid-cycle power quality and industrial markets. However, the company’s non-residential markets remained weak in the quarter. Bookings (adjusted for acquisitions and foreign exchange) witnessed a growth of 8% from last year.
Electrical Rest of the World: Electrical Rest of the World segment sales were up 9% to $707 million, driven by a 12% increase in core sales and 1% increase from acquisitions, offset by a 4% foreign currency decline. Operating income of $87 million (excluding acquisition integration charges) was up 53% from the year-ago level. Segment bookings (adjusted for foreign exchange and acquisitions) grew 19%, buoyed by accelerating strength in Asia and Europe.
Hydraulic: At $583 million, Hydraulic segment sales rose 40% year-over-year, while operating profit (excluding acquisition integration charges) came in at $76 million, up from $20 million in the corresponding quarter last year. A rebound in the global hydraulics markets in the third quarter accounted for this improvement. Bookings at quarter-end increased 43% for the Hydraulics segment.
Aerospace: Compared to the third quarter of 2009, the Aerospace segment sales and operating profit posted a decline of 1% and an increase of 5%, respectively, reflecting a 3% increase in the Aerospace markets. Bookings in the quarter were up 12% for this segment. Moreover, third quarter operating margin of 15.6% was significantly higher than the second quarter margin.
Truck: The Truck segment posted a 33% improvement in sales to $534 million. It earned operating income of $74 million during the quarter, almost three times of $25 million earned in the year-ago quarter. Eaton benefited from a 28% increase in truck production, with U.S. markets up 24% and non-U.S. markets up 31%.
Automotive: Helped by a 14% year-over-year growth in the automotive unit production, the segment’s third quarter sales were up 20%. It posted an operating profit of $39 million, an increase of 70% from last year.
Guidance
Eaton expects continued growth in its end-markets, especially international markets, guiding 2010 end-market growth 2 points higher than the previous guidance. The company now expects end-markets to grow about 10% for full year 2010.
For the fourth quarter, Eaton guided net earnings in the range of $1.50 – $1.60 per share, while adjusted earnings are expected in the $1.55 and $1.65 range. Buoyed by strong third quarter results and a stronger market outlook, the company raised its full-year 2010 earnings outlook by 10%. Full-year net and adjusted earnings are now guided at $5.30 – $5.40 and $5.45 – $5.55 per share, respectively.
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