Electrical equipment maker Eaton Corporation (ETN) reported fourth quarter earnings of $1.35 per share, beating its own guidance of $1.15-$1.25 and the Zacks Consensus Estimate of $1.23. Quarterly earnings also increased 25% from the year-ago profit of $1.08 per share.
For the full year 2009, Eaton reported earnings per share of $2.59, above its guidance range of $2.40−$2.50 and the Zacks Consensus Estimate of $2.47. However, full-year earnings were down 62% from $6.83 reported in 2008.
Eaton’s revenues fell 10% and 23% year over year to $3.1 billion and $11.9 billion for the fourth quarter and full year 2009, respectively. The revenue decline in the quarter was a result of 15% decline in core sales offset by a 5% growth in foreign exchange. End markets in the fourth quarter declined by 15%.
During the fourth quarter, the company witnessed double digit sales decline across its Electrical Americas, Hydraulics and Aerospace segments, which was offset by slight growth at its Truck and Automative segments. Sales for the Electrical Americas and Electrical rest of the world were down 20% and 1%, respectively.
Sales in the Electrical Americas segment fell primarily due to weakness in the non-residential electrical market. Electrical Rest of the World segment sales were down 1%, driven by a 15% decline in European markets and 7% decline in Asia-Pacific, both significantly lower rates of decline than in the third quarter.
The Aerospace and the Hydraulic segments posted sales decline of 15% and 21%, respectively. The Aerospace markets declined 10% in the quarter, with U.S. markets declining 5% and non-U.S. markets declining 20%. In the quarter, Hydraulics markets witnessed about a 30% drop from last year, with a 39% decline in the U.S. markets and a 21% decline outside the U.S.
However, the Truck and the Automative segments posted improvements of 1% and 9%, respectively. Automotive unit production increased 10% during the quarter. Sales in the Truck markets in the fourth quarter declined 8%, with U.S. markets down 22% and non-U.S. markets up 10%.
At year-end the company had free cash flow of $1.2 billion. The company used its cash flow in 2009 to markedly reduce its long-term liabilities, pay off $750 million of debt, contribute $270 million to its global pension plans in 2009 and an additional $300 million contributed to its U.S. pension plan in January 2010.
Thus, the company ended the year with an exceptionally strong liquidity position, with little commercial paper outstanding, no term debt maturities until the middle of 2012, and no additional contributions to the U.S. pension plan required until 2011.
Eaton now expects fourth quarter earnings of 75−85 cents per share and full-year 2010 earnings in the range of $3.70−$4.00. For 2010, the company expects its overall revenue to increase by 11% compared to 2009. The company expects the economic recovery experienced in the early cycle markets to continue going forward. It expects its markets in 2010 to grow 5% and its overall end markets to outgrow by roughly $300 million. The company also expects a $450 million growth from foreign exchange in 2010.
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