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Eaton's (ETN) Q3 Earnings Beat, Revenues Miss, View Cut

Zacks Equity Research

Eaton Corporation ETN reported third-quarter 2019 earnings of $1.52 per share, which surpassed the Zacks Consensus Estimate by a penny. The reported earnings were at the lower end of management’s guided range of $1.50-$1.60 per share. Moreover, the bottom line marked a 6% improvement from the year-ago level.    

GAAP earnings in the reported quarter were $1.44 per share compared with 96 cents in the year-ago period. The difference between GAAP and operating earnings in the reported quarter was due to one-time acquisition and divestiture transaction and integration costs.

Revenues

Total revenues in the quarter came in at $5,314 million, lagging the Zacks Consensus Estimate of $5,545 million by 4.2%. Quarterly revenues also decreased 1.8% from the year-ago quarter.

The year-over-year decline in revenues was due to 1% fall in organic sales and negative currency translation of 1.5%. These negatives were partially offset by gains from acquired assets.

 

Eaton Corporation, PLC Price, Consensus and EPS Surprise

 

Eaton Corporation, PLC Price, Consensus and EPS Surprise

Eaton Corporation, PLC price-consensus-eps-surprise-chart | Eaton Corporation, PLC Quote

Segment Details

Electrical Products’ total third-quarter sales were $1,786 million, down 0.2% from the year-ago level. Although organic sales were up 1% from the prior-year quarter, the metric was negatively impacted by 1% due to currency translation.

Electrical Systems and Services’ total sales were $1,572 million, up 3.5% from the year-ago quarter. Organic sales were also up 3% from the year-ago quarter. The acquisition of Ulusoy and Innovative Switchgear added 1.5% to its sales, which were negatively impacted by 1.5% due to currency translation.

Hydraulics total sales were $603 million, down 10% from the year-ago quarter. Organic sales were down 8% year over year and negative currency translation adversely impacted revenues by another 2%.

Aerospace total sales were $513 million, up 7.3% from the year-ago quarter due to 8% organic sales growth, marginally offset by negative currency translation of 1%.

Vehicle total sales were $761 million, down 13.1% from the year-ago quarter, owing to a 12% decline in organic sales and 1% negative currency translation.

eMobility segment’s total sales were $79 million, down 1.2% from the year-ago quarter. Organic sales were flat with the prior-year level. Revenues were negatively impacted by 1% due to currency translation.

Quarterly Highlights

Segment margins in the reported quarter were 18.7%, up 110 basis points (bps) from the year-ago level.

Cost of products sold in the reported quarter was $3,512 million, down 2.4% from the year-ago figure.

Selling and administrative expenses were $885 million, down 0.5% from the year-ago quarter.

The company’s research and development expenses in the first nine months of the year were $454 million, up 3.4% from the prior-year period. Interest expenses in the first nine months of 2019 were $183 million, down 10.7% from the comparable prior-year period.

Orders in Electrical Products (excluding Lighting), Electrical Systems and Services, and Aerospace were up 1%, 5% and 13% year over year, respectively. On the contrary, Hydraulics’ orders were down 14% year over year due to weakness in the global mobile equipment market.

It repurchased shares worth $539 million in the quarter, resulting in a repurchase of $949 million shares year to date.

Financial Update

Eaton’s cash & cash equivalents were $549 million as of Sep 30, 2019 compared with $283 million on Dec 31, 2018.

As of Sep 30, 2019, long-term debt of the company was $8,013 million, up from $6,768 million on Dec 31, 2018.

Guidance

Fourth-quarter 2019 earnings per share are expected between $1.36 and $1.46.

The company now expects 2019 earnings within $5.67-$5.77, down from the prior guided range of $5.77-$5.97 per share. Segment operating margin for 2019 is expected within 17.3-17.7%.

Eaton has plans to repurchase shares worth $1 billion in 2019. Currency translation is likely to have a negative impact of $350 million in 2019.
    
The company expects organic revenues to improve 1% in 2019, down 200 bps from the prior expectation.

Zacks Rank

Currently, Eaton has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Regal Beloit Corporation RBC is slated to announce third-quarter 2019 earnings on Nov 4. The Zacks Consensus Estimate for the quarter to be reported is pegged at $1.33.

Emerson Electric Co. EMR is slated to announce fourth-quarter fiscal 2019 earnings on Nov 5. The Zacks Consensus Estimate for the quarter is pegged at $1.07.

Enersys ENS is scheduled to report fiscal second-quarter 2020 earnings on Nov6. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $1.20.

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