Industrial manufacturer Eaton Corporation (ETN) has released its second quarter 2011 earnings results, which grew 43% year over year, on a per share basis, mainly on a 12% end-market growth.

Eaton’s operating earnings per share reached 97 cents in the quarter, beating the Zacks Consensus Estimate of 95 cents and exceeding the high end of the company’s second quarter guidance range of 90 – 96 cents. In the year-ago period, the Cleveland, Ohio-based company had earned 68 cents per share.

Revenue

In the second quarter, Eaton has earned net quarterly revenue of $4.09 billion, comfortably beating the Zacks Consensus Estimate of $3.99 billion and up 21% from the year-ago comparable period. Revenue growth in the quarter stemmed mainly from a 14% rise in organic sales, 1% from acquisitions and 6% from higher foreign exchange rates.

Eaton’s revenues in the second quarter also increased 8% from the first quarter of 2011, reflecting continued expansion of the company’s markets around the world. During the quarter, Eaton witnessed robust sales growth across all its business segments.

Segment Analysis

Electrical Americas: Within its Electrical unit, Electrical Americas’ revenues improved 16% from the year-ago quarter to $1.03 billion, while operating profit (excluding acquisition integration charges) was up 20% at $145 million. Growth in Electrical Americas’ revenues reflected growth of 10% in end markets and 9% in order bookings.

Electrical Rest of the World: The Electrical Rest of the World segment’s sales were up 18% at $787 million. Operating income of $78 million was up 16% from the year-ago level. Segment bookings for the quarter saw a 4% dip due to a sharp drop in orders for solar inverters. Nevertheless, the company’s markets grew 6%, with both European and Asian electrical markets increasing 6%.

Hydraulics: At $728 million, Hydraulics segment’s sales rose 28% over the prior year, while operating profits came in at $120 million, up 56% from the corresponding quarter last year. Hydraulics markets grew 18%. Segment bookings increased 20% in the second quarter.

Aerospace: Segmental sales in the second quarter grew 11% to $409 million and operating profits grew 4.2% to $50 million. Aerospace markets were up 4% in the quarter. However, Aerospace bookings declined 1%, reflecting lower military bookings.

Truck: The Truck segment posted a 37% improvement in sales to reach $673 million. It earned an operating income of $120 million during the quarter, compared to $59 million in the year-ago quarter. Eaton benefited from a 27% increase in truck markets, with U.S. markets growing 53% and non-U.S. markets being up 5%.

Automotive: Aided by a 9% growth in the global auto markets, the segment’s second quarter sales grew 18% year over year to $460 million. It posted an operating profit of $55 million, reflecting an increase of 41% from the comparable quarter last year.

Guidance

Having posted strong results in second quarter 2011, the company believes the year is shaping up to be better than what was forecast in April 2011. Eaton now estimates its overall end-market growth for the full year at 11% versus the previous forecast of 10%.

Given its strong performance in the first half of the year, Eaton expects 2011 to be a year of record sales and profits. The company said its sales for 2011 are expected to grow 19% from the 2010 level and record a 6% rise from its previous annual sales record, which was achieved in 2008.

Based on second quarter results and the revised market outlook for 2011, Eaton has now raised its full-year GAAP earnings guidance by 15 cents to $3.86–$4.06 per share, while adjusted earnings are expected between $3.90 and $4.10 per share. The midpoint of the company’s operating earnings per share guidance shows a 42% rise from the 2010 level and a 16% increase over the previous operating earnings per share record.

Eaton expects adjusted earnings per share for the third quarter in the range of $1.03–$1.13, while GAAP earnings, including integration charges, is expected to be in the $1.01–$1.11 range.

Our View

Cleveland, Ohio-based diversified power management company, Eaton Corporation, is a leading supplier of power accessories in the aerospace industry with customers in 150 countries. The company has been consistently outperforming estimates in the past few quarters and we expect this trend to continue given the strong end-market growth witnessed in the first half of 2011 and its revised 11% markets growth target.

Eaton Corporation currently has a Zacks #2 Rank (short-term Buy rating). Based on the short-term Zacks rank, the company fares better than its closest peers ITT Corporation (ITT) and Johnson Controls Inc. (JCI), which carry short-term Zacks ranks of #4 (Sell) and #3 (Hold), respectively.

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