Market Overview

Eaton Reports Second Quarter Earnings Per Share of $1.39, Up 21 Percent Over Second Quarter of 2017 and Above High End of Guidance Range

Share:

Organic Sales Growth of 7 Percent in the Second Quarter

Earnings Guidance for 2018 Raised, Resulting in 14 Percent Earnings
Per Share Growth at Midpoint of Guidance, Excluding the 2017 Gain on
Eaton Cummins Joint Venture and the Income Related to the New U.S. Tax
Bill

Power management company Eaton Corporation plc (NYSE:ETN) today
announced that earnings per share were $1.39 for the second quarter of
2018, an increase of 21 percent over the second quarter of 2017. Net
income was $610 million, up 18 percent over the second quarter of 2017.

Sales in the second quarter of 2018 were $5.5 billion, up 7 percent over
the same period in 2017. The sales increase consisted of 7 percent
growth in organic sales and 1 percent increase from positive currency
translation, partially offset by a negative 1 percent from the
divestiture in 2017 of our share in a small electrical JV and also the
formation of the Eaton Cummins JV.

Craig Arnold, Eaton chairman and chief executive officer, said, "We had
a strong second quarter, with revenues and earnings per share coming in
above the high end of the guidance we provided. Coming into the quarter,
we expected organic sales would be up 5 percent. Our actual organic
sales growth was 7 percent. The 7 percent organic growth was our highest
quarterly rate of growth since the fourth quarter of 2011.

"Our segment margins in the second quarter were 17.0 percent, an
all-time quarterly record, and also above the high end of our guidance.
This represents a 140 basis point improvement over the second quarter of
2017," said Arnold. "And despite a higher tax rate in the second quarter
of 2018 than last year, our after-tax margin came in at 11.1 percent.

"Operating cash flow in the second quarter was $499 million, impacted by
the growth of working capital needed to fund our rapid sales growth and
as a result of pre-buying inventory to mitigate the impact of trade
tariffs," said Arnold. "Our full-year outlook for cash generation is
unchanged from our prior forecast. We also continued to return
substantial cash to our shareholders in the quarter, repurchasing $300
million of our shares. And we have repurchased $600 million of our
shares over the first six months of the year.

"We now expect 2018 earnings per share to be between $5.20 and $5.40, up
$0.10 from our prior guidance, representing at the midpoint a 14 percent
increase over 2017, excluding the gain on the formation of the Eaton
Cummins JV and the income arising from the new tax bill in 2017," said
Arnold. "For the third quarter of 2018, we anticipate earnings per share
to be between $1.35 and $1.45."

Business Segment Results

Sales for the Electrical Products segment were $1.8 billion, up 4
percent over the second quarter of 2017. Organic sales were up 3 percent
and currency translation was positive 1 percent. Operating profits were
$334 million, up 12 percent over the second quarter of 2017.

"Operating margins in the second quarter were 18.5 percent, 120 basis
points over 2017 and a record for a second quarter," said Arnold.
"Orders in the second quarter were up 4 percent over the second quarter
of 2017, driven by strength in both industrial and residential markets."

Sales for the Electrical Systems and Services segment were $1.5 billion,
up 7 percent over the second quarter of 2017. Organic sales were up 7
percent, currency translation was positive 1 percent, and the sale in
2017 of our stake in a small joint venture reduced sales by 1 percent.
Operating profits were $227 million, up 17 percent over the second
quarter of 2017.

"Operating margins were 15.0 percent, an improvement of 130 basis points
over 2017," said Arnold. "Orders in the second quarter were up 15
percent over the second quarter of 2017, led by strong growth in the
Americas and Asia Pacific. We saw particular strength in large
industrial projects and data centers. With the strong orders we have
booked over the last nine months, we expect continued sales strength in
the second half of the year."

Hydraulics segment sales were $723 million, up 14 percent over the
second quarter of 2017. Organic sales were up 13 percent and currency
translation was positive 1 percent. Operating profits in the second
quarter were $101 million, an increase of 36 percent over the second
quarter of 2017.

"Operating margins in the quarter were 14.0 percent, an improvement of
230 basis points over 2017," said Arnold. "Hydraulics orders in the
second quarter of 2018 were down 1 percent from the second quarter of
2017, with strong growth in Asia Pacific and moderate growth in Americas
offset by a decline in Europe. We believe the decline in European orders
reflects our ability to now deliver to shorter lead times as a result of
investments we have made in new capacity, making it unnecessary to place
long-dated orders. Our backlog for the total business remains strong and
is up 26 percent year-to-date."

Aerospace segment sales were $463 million, up 6 percent over the second
quarter of 2017, all coming from organic sales growth. Operating profits
in the second quarter were a record $90 million, up 11 percent over the
second quarter of 2017.

"Operating margins in the quarter were 19.4 percent, 90 basis points
over 2017," said Arnold. "Orders in the quarter were up 18 percent over
the second quarter of 2017. We saw particular strength in orders for the
commercial and military aftermarket, business jets, military fighters,
and military rotorcraft."

The Vehicle segment posted sales of $899 million, up 6 percent over the
second quarter of 2017. Organic sales were up 11 percent partially
offset by a negative 5 percent as a result of the formation of the Eaton
Cummins joint venture in 2017. Operating profits in the second quarter
were $166 million, up 18 percent over the second quarter of 2017.

"Operating margins in the quarter were 18.5 percent, an improvement of
180 basis points over 2017," said Arnold. "We continue to forecast NAFTA
Class 8 production in 2018 to be 295,000 units."

eMobility segment sales were $83 million, up 15 percent over the second
quarter of 2017. Organic sales were up 14 percent and currency
translation was positive 1 percent. Operating profits in the second
quarter were $14 million, up 8 percent over the second quarter of 2017.
Operating margins in the quarter were 16.9 percent.

Eaton is a power management company with 2017 sales of $20.4 billion. We
provide energy-efficient solutions that help our customers effectively
manage electrical, hydraulic and mechanical power more efficiently,
safely and sustainably. Eaton is dedicated to improving the quality of
life and the environment through the use of power management
technologies and services. Eaton has approximately 96,000 employees and
sells products to customers in more than 175 countries. For more
information, visit Eaton.com.

Notice of conference call: Eaton's conference call to discuss its
second quarter results is available to all interested parties as a live
audio webcast today at 10 a.m. United States Eastern time via a link on
Eaton's home page. This news release can be accessed under its headline
on the home page. Also available on the website prior to the call will
be a presentation on second quarter results, which will be covered
during the call
.

This news release contains forward-looking statements concerning third
quarter and full-year 2018 earnings per share, 2018 second half sales
for the Electrical Systems and Services segment, and the 2018 NAFTA
Class 8 truck market. These statements should be used with caution and
are subject to various risks and uncertainties, many of which are
outside the company's control. The following factors could cause actual
results to differ materially from those in the forward-looking
statements: unanticipated changes in the markets for the company's
business segments; unanticipated downturns in business relationships
with customers or their purchases from us; competitive pressures on
sales and pricing; unanticipated changes in the cost of material and
other production costs, or unexpected costs that cannot be recouped in
product pricing; the introduction of competing technologies; unexpected
technical or marketing difficulties; unexpected claims, charges,
litigation or dispute resolutions; strikes or other labor unrest;
natural disasters; the performance of recent acquisitions; unanticipated
difficulties integrating acquisitions; new laws and governmental
regulations; interest rate changes; changes in tax laws or tax
regulations; stock market and currency fluctuations; and unanticipated
deterioration of economic and financial conditions in the United States
and around the world. We do not assume any obligation to update these
forward-looking statements.

Financial Results

The company's comparative financial results for the six months ended
June 30, 2018 are available on the company's website, www.eaton.com.

 
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
       

Three months ended
June 30

Six months ended
June 30

(In millions except for per share data) 2018 2017 2018 2017
Net sales $ 5,487 $ 5,132 $ 10,738 $ 9,980
 
Cost of products sold 3,671 3,448 7,244 6,755
Selling and administrative expense 901 891 1,790 1,767
Research and development expense 145 150 301 293
Interest expense - net 68 60 138 121
Other expense - net 8   11   6   5  
Income before income taxes 694 572 1,259 1,039
Income tax expense 83   55   161   88  
Net income 611 517 1,098 951
Less net income for noncontrolling interests (1 ) (1 )   (1 )
Net income attributable to Eaton ordinary shareholders $ 610   $ 516   $ 1,098   $ 950  
 
Net income per share attributable to Eaton ordinary shareholders
Diluted $ 1.39 $ 1.15 $ 2.50 $ 2.11
Basic 1.40 1.16 2.51 2.12
 
Weighted-average number of ordinary shares outstanding
Diluted 437.3 448.6 439.5 449.8
Basic 435.2 446.3 437.0 447.5
 
Cash dividends declared per ordinary share $ 0.66 $ 0.60 $ 1.32 $ 1.20
 

Reconciliation of net income attributable to Eaton ordinary
shareholders to adjusted earnings

Net income attributable to Eaton ordinary shareholders $ 610 $ 516 $ 1,098 $ 950
Excluding acquisition integration charges (after-tax)       1  
Adjusted earnings $ 610   $ 516   $ 1,098   $ 951  
 

Net income per share attributable to Eaton ordinary shareholders -
diluted

$ 1.39 $ 1.15 $ 2.50 $ 2.11
Excluding per share impact of acquisition integration charges
(after-tax)
       
Adjusted earnings per ordinary share $ 1.39   $ 1.15   $ 2.50   $ 2.11  
 

See accompanying notes.

 
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
       

Three months ended
June 30

Six months ended
June 30

(In millions) 2018 2017 2018 2017
Net sales
Electrical Products $ 1,806 $ 1,731 $ 3,538 $ 3,382
Electrical Systems and Services 1,513 1,414 2,894 2,747
Hydraulics 723 633 1,433 1,220
Aerospace 463 437 921 865
Vehicle 899 845 1,792 1,631
eMobility 83   72   160   135  
Total net sales $ 5,487   $ 5,132   $ 10,738   $ 9,980  
 
Segment operating profit
Electrical Products $ 334 $ 299 $ 641 $ 585
Electrical Systems and Services 227 194 394 349
Hydraulics 101 74 191 134
Aerospace 90 81 179 160
Vehicle 166 141 298 249
eMobility 14   13   25   24  
Total segment operating profit 932 802 1,728 1,501
 
Corporate
Amortization of intangible assets (96 ) (96 ) (194 ) (190 )
Interest expense - net (68 ) (60 ) (138 ) (121 )
Pension and other postretirement benefits expense 1 (11 ) (1 ) (22 )
Other corporate expense - net (75 ) (63 ) (136 ) (129 )
Income before income taxes 694 572 1,259 1,039
Income tax expense 83   55   161   88  
Net income 611 517 1,098 951
Less net income for noncontrolling interests (1 ) (1 )   (1 )
Net income attributable to Eaton ordinary shareholders $ 610   $ 516   $ 1,098   $ 950  
 

See accompanying notes.

   
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
2018
December 31,
2017
(In millions)
Assets
Current assets

Cash

$ 256 $ 561
Short-term investments 236 534
Accounts receivable - net 4,092 3,943
Inventory 2,753 2,620
Prepaid expenses and other current assets 576   679
Total current assets 7,913 8,337
 
Property, plant and equipment - net 3,462 3,502
 
Other noncurrent assets
Goodwill 13,427 13,568
Other intangible assets 5,050 5,265
Deferred income taxes 296 253
Other assets 1,717   1,698
Total assets $ 31,865   $ 32,623
 
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 504 $ 6
Current portion of long-term debt 428 578
Accounts payable 2,192 2,166
Accrued compensation 353 453
Other current liabilities 1,910   1,872
Total current liabilities 5,387   5,075
 
Noncurrent liabilities
Long-term debt 6,753 7,167
Pension liabilities 1,174 1,226
Other postretirement benefits liabilities 354 362
Deferred income taxes 486 538
Other noncurrent liabilities 986   965
Total noncurrent liabilities 9,753   10,258
 
Shareholders' equity
Eaton shareholders' equity 16,690 17,253
Noncontrolling interests 35   37
Total equity 16,725   17,290
Total liabilities and equity $ 31,865   $ 32,623
 

See accompanying notes.

EATON CORPORATION plc
NOTES TO THE SECOND QUARTER 2018
EARNINGS RELEASE

Amounts are in millions of dollars unless indicated otherwise (per share
data assume dilution).

Note 1. NON-GAAP FINANCIAL INFORMATION

This earnings release includes certain non-GAAP financial measures.
These financial measures include adjusted earnings, adjusted earnings
per ordinary share, and operating profit before acquisition integration
charges for each business segment as well as corporate, each of which
differs from the most directly comparable measure calculated in
accordance with generally accepted accounting principles (GAAP). A
reconciliation of each of these financial measures to the most directly
comparable GAAP measure is included in this earnings release. Management
believes that these financial measures are useful to investors because
they exclude certain transactions, allowing investors to more easily
compare Eaton Corporation plc's (Eaton or the Company) financial
performance period to period. Management uses this information in
monitoring and evaluating the on-going performance of Eaton and each
business segment.

Note 2. ACQUISITION INTEGRATION CHARGES

Eaton incurs integration charges related to acquired businesses. A
summary of these charges follows:

     
Operating profit excluding
Acquisition Operating profit acquisition integration
integration charges as reported charges
Three months ended June 30
2018   2017 2018   2017 2018   2017
Business segment
Electrical Products $ $ 1 $ 334 $ 299 $ 334 $ 300
Electrical Systems and Services 227 194 227 194
Hydraulics 101 74 101 74
Aerospace 90 81 90 81
Vehicle 166 141 166 141
eMobility     14   13   14   13
Total business segments 1 $ 932   $ 802   $ 932   $ 803
Corporate    
Total acquisition integration charges before income taxes 1
Income taxes   1  
Total after income taxes $   $  
Per ordinary share - diluted $ $
 

     
Operating profit excluding
Acquisition Operating profit acquisition integration
integration charges as reported charges
Six months ended June 30
2018   2017 2018   2017 2018   2017
Business segment
Electrical Products $ $ 2 $ 641 $ 585 $ 641 $ 587
Electrical Systems and Services 394 349 394 349
Hydraulics 191 134 191 134
Aerospace 179 160 179 160
Vehicle 298 249 298 249
eMobility     25   24   25   24
Total business segments 2 $ 1,728   $ 1,501   $ 1,728   $ 1,503
Corporate    
Total acquisition integration charges before income taxes 2
Income taxes   1  
Total after income taxes $   $ 1  
Per ordinary share - diluted $ $
 

Business segment acquisition integration charges in 2017 related to the
integration of Ephesus Lighting, Inc. (Ephesus), which was acquired in
2015. The charges associated with Ephesus were included in Selling and
administrative expense. In Business Segment Information, the charges
reduced Operating profit of the related business segment.

View Comments and Join the Discussion!