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Eaton Corporation plc’s (ETN - Free Report) second-quarter 2016 operating earnings per share of $1.07 were in line with the Zacks Consensus Estimate. Earnings were above the midpoint of the guidance range of $1.00 to $1.10 per share.
Earnings, however, declined 8% from the year-ago quarter. The decline was primarily due to weakness in demand in the some of its product segments.
In the quarter under review, Eaton’s total revenues came in at $5.08 billion, beating the Zacks Consensus Estimate of $5.05 billion marginally by 0.6%.
On a year-over-year basis, revenues were down nearly 5.4% due to lower Aerospace (1.5%), Vehicle (15.9%), Electrical Systems and Services (4.9%) and Hydraulics (8.4%) sales.
An unfavorable currency translation and decline in organic sales were the primary reasons for the revenue decline. Sales took a 1% hit from currency translation, while the drop in organic sales accounted for 4%.
Cost of products sold in the reported quarter was $3,419 million, down 6.9% from the prior-year period.
Selling and administrative expenses decreased 0.5% to $897 million from $901 million a year ago.
In the second quarter of 2016, the company’s research and development expenses were $149 million, down 5.7% from $158 million in the prior-year quarter.
Interest expenses of $57 million were down by 3.4% from the prior-year quarter.
Eaton continues with its restructuring program and expects it to deliver $174 million of incremental profit in 2016 compared with 2015.
Financial Update
Eaton’s cash and short-term investments were $0.46 billion as of Jun 30, 2016, compared with $0.45 billion as of Dec 31, 2015.
As of Jun 30, 2016, long-term debt was $7.6 billion compared with $7.74 billion as of Dec 31, 2015.
Guidance
Third-quarter 2016 earnings per share are expected to be between $1.10 and $1.20.
For 2016, Eaton still anticipates organic revenues to decline between 2% and 4%, reflecting continuing sluggish markets around the world. Eaton expects currency translation to have a roughly $225 million hit in 2016, $25 million higher than the prior expectation.
Eaton narrowed its 2016 operating earnings guidance to $4.20–$4.40 from its prior expectation of $4.15–$4.45 per share.
Upcoming Releases
Pioneer Power Solutions, Inc. (PPSI - Free Report) is slated to release second-quarter 2016 earnings on Aug 10. The Zacks Consensus Estimate is pegged at 11 cents.
EnerSys Inc. (ENS - Free Report) is slated to release first-quarter fiscal 2017 earnings on Aug 11. The Zacks Consensus Estimate is pegged at $1.10.
Ideal Power, Inc. (IPWR - Free Report) is slated to release second-quarter 2016 earnings on Aug 11. The Zacks Consensus Estimate is pegged at a loss of 31 cents.
Our View
Eaton managed to match second-quarter earnings estimates while total revenues beat the same marginally. However, persistent weakness in end markets and negative currency translations took a toll on the top line, which dropped 5% year over year.
We are concerned about the consistent drop in bookings at Eaton’s business segments. Bookings in Electrical Systems and Services and Hydraulics were each down by 2% year over year. Bookings in Electrical Products and Aerospace were also down by 2% and 1%, respectively, year over year.
The softness in end markets is impacting the organic sales of the company. Eaton projects a decline in organic revenues in 2016 between 2% and 4%.
Eaton currently carries a Zacks Rank #4 (Sell).
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Eaton (ETN) Meets Q2 Earnings Estimates, Misses Revenues
Eaton Corporation plc’s (ETN - Free Report) second-quarter 2016 operating earnings per share of $1.07 were in line with the Zacks Consensus Estimate. Earnings were above the midpoint of the guidance range of $1.00 to $1.10 per share.
Earnings, however, declined 8% from the year-ago quarter. The decline was primarily due to weakness in demand in the some of its product segments.
Revenues
In the quarter under review, Eaton’s total revenues came in at $5.08 billion, beating the Zacks Consensus Estimate of $5.05 billion marginally by 0.6%.
On a year-over-year basis, revenues were down nearly 5.4% due to lower Aerospace (1.5%), Vehicle (15.9%), Electrical Systems and Services (4.9%) and Hydraulics (8.4%) sales.
EATON CORP PLC Price, Consensus and EPS Surprise
EATON CORP PLC Price, Consensus and EPS Surprise | EATON CORP PLC Quote
Quarterly Highlights
An unfavorable currency translation and decline in organic sales were the primary reasons for the revenue decline. Sales took a 1% hit from currency translation, while the drop in organic sales accounted for 4%.
Cost of products sold in the reported quarter was $3,419 million, down 6.9% from the prior-year period.
Selling and administrative expenses decreased 0.5% to $897 million from $901 million a year ago.
In the second quarter of 2016, the company’s research and development expenses were $149 million, down 5.7% from $158 million in the prior-year quarter.
Interest expenses of $57 million were down by 3.4% from the prior-year quarter.
Eaton continues with its restructuring program and expects it to deliver $174 million of incremental profit in 2016 compared with 2015.
Financial Update
Eaton’s cash and short-term investments were $0.46 billion as of Jun 30, 2016, compared with $0.45 billion as of Dec 31, 2015.
As of Jun 30, 2016, long-term debt was $7.6 billion compared with $7.74 billion as of Dec 31, 2015.
Guidance
Third-quarter 2016 earnings per share are expected to be between $1.10 and $1.20.
For 2016, Eaton still anticipates organic revenues to decline between 2% and 4%, reflecting continuing sluggish markets around the world. Eaton expects currency translation to have a roughly $225 million hit in 2016, $25 million higher than the prior expectation.
Eaton narrowed its 2016 operating earnings guidance to $4.20–$4.40 from its prior expectation of $4.15–$4.45 per share.
Upcoming Releases
Pioneer Power Solutions, Inc. (PPSI - Free Report) is slated to release second-quarter 2016 earnings on Aug 10. The Zacks Consensus Estimate is pegged at 11 cents.
EnerSys Inc. (ENS - Free Report) is slated to release first-quarter fiscal 2017 earnings on Aug 11. The Zacks Consensus Estimate is pegged at $1.10.
Ideal Power, Inc. (IPWR - Free Report) is slated to release second-quarter 2016 earnings on Aug 11. The Zacks Consensus Estimate is pegged at a loss of 31 cents.
Our View
Eaton managed to match second-quarter earnings estimates while total revenues beat the same marginally. However, persistent weakness in end markets and negative currency translations took a toll on the top line, which dropped 5% year over year.
We are concerned about the consistent drop in bookings at Eaton’s business segments. Bookings in Electrical Systems and Services and Hydraulics were each down by 2% year over year. Bookings in Electrical Products and Aerospace were also down by 2% and 1%, respectively, year over year.
The softness in end markets is impacting the organic sales of the company. Eaton projects a decline in organic revenues in 2016 between 2% and 4%.
Eaton currently carries a Zacks Rank #4 (Sell).
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