2nd UPDATE: Eaton 3Q Profit Down 39%; Raises Full-Year View
20 October 2009 - 3:05AM
Dow Jones News
Eaton Corp.'s (ETN) third-quarter profit plunged 39%, but the
company raised its profit outlook for the year as cost reductions
help to counter falling sales.
Chairman and Chief Executive Alexander Cutler said the
diversified industrial company is seeing modest improvement in
several of its hard-hit end markets, which include the automotive
and truck-making sectors, construction and agricultural machinery,
aerospace and commercial construction. He expects the improvement
to continue and gain momentum in the fourth quarter. Cutler
predicted global GDP will increase 3.1% next year, up from 2.5% in
an earlier forecast. He expects global industrial production to
climb 6%.
"Not only do we have the company sized correctly, but the
markets are beginning to flatten out, and we're beginning to see
some signs of recovery," Cutler said during a conference call with
Wall Street analysts. "The business is running now better than we
anticipated."
Eaton's stock was recently trading up 7.5% at $64.99 a
share.
The Cleveland-based company has cut 15% of its work force since
2008 and moved to reduce its exposure to the slumping auto
industry. The head-count reductions and other cost cuts have
trimmed tens of millions of dollars from Eaton's overhead expenses
in recent quarters, allowing Eaton to fatten its margins. About 20%
of Eaton's earnings per share before special charges for the
quarter was attributed to improved operating performance.
Cutler declined to discuss what Eaton's costs might be in
connection with a jury's ruling earlier this month that Eaton
engaged in anticompetitive conduct in its truck-transmission
business. A venture involving rival ArvinMeritor Inc. accused Eaton
of antitrust activities, but a damage award hasn't been
determined.
Cutler said he was "disappointed" in the jury's verdict and
maintained the antitrust "allegations in the lawsuit are without
merit."
"We believe we have fully complied with the law," he said.
Eaton's third-quarter results handily topped its guidance,
prompting the company to raise its full-year profit forecast after
two straight quarters in which it slashed its 2009 profits
projections. Eaton now sees 2009 earnings, excluding items, of
$2.40 to $2.50, up from its July-lowered view of $2 to $2.20.
Analysts' latest average estimate, according to Thomson Reuters,
was $1.99.
Eaton also projected fourth-quarter earnings of $1.15 a share to
$1.25 a share, above analysts' mean view of $1.06.
Eaton's third-quarter profit fell to $193 million, or $1.14 a
share, from $315 million, or $1.87 a share, a year earlier.
Excluding restructuring and other charges, earnings fell to $1.21
from $1.95 a year ago but were well above analysts' consensus
prediction of 90 cents a share. Nevertheless, Eaton's net sales in
the quarter dropped 26% to $3.03 billion. That's below analysts'
latest forecast of $3.13 billion.
Eaton's electrical business in the Americas, the company's
biggest business by revenue, saw a 15% profit decline and 20%
decline in sales. The segment has significant exposure to
residential and commercial construction.
Automotive-segment sales dropped 27% on sharply lower vehicle
production volumes in both the U.S. and global auto markets, but
operating profit rose 21%. Eaton's truck-segment sales fell 35%,
while profit plunged 74%.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
(Mike Barris contributed to this report.)