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Eaton Corp (ETN) Up 2.7% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Eaton Corporation, PLC (ETN - Free Report) . Shares have added about 2.7% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Eaton Beats Q4 Earnings Estimates, Issues '17 Outlook

Eaton Corporation plc’s fourth-quarter 2016 operating earnings per share of $1.12 beat the Zacks Consensus Estimate by 1.8%. Also, reported earnings were within management’s guidance range of $1.05 to $1.15 per share. However, the bottom line was down 4% from the year-ago quarter level.

Full-year operating earnings came in at $4.22 per share, down 1.9% from the 2015 tally of $4.30. The year-over-year decline in earnings was due to lower-than-expected organic sales in 2016. Reported earnings, however, exceeded the Zacks Consensus Estimate of $4.20.

Revenues

In the quarter under review, Eaton’s total revenue came in at $4.87 billion, lagging the Zacks Consensus Estimate of $4.9 billion by 0.8%.

On a year-over-year basis, revenues were down nearly 3.8% due to lower Aerospace (3.4%), Vehicle (11.9%), Electrical Systems and Services (2.6%), and Hydraulics (5.8%) sales.

Unfavorable currency translation and a decline in organic sales were the primary reasons for the top-line deterioration. Sales took a 1% hit from currency translation, while the drop in organic sales accounted for 3%.

Full-year revenues amounted to $19.75 billion, down 5.4% from than the prior-year figure of $20.86 billion. The top line also missed the Zacks Consensus Estimate of $19.80 billion.

Quarterly Highlights

Cost of products sold in the reported quarter was $3,319 million, down 3.1% from the prior-year period.

Selling and administrative expenses decreased 1.1% to $863 million from $873 million a year ago.

In the fourth quarter of 2016, the company’s research and development expenses were $145 million, down 5.2% from $153 million in the prior-year quarter. Interest expenses of $60 million were up 5.3% from the prior-year quarter figure.

Eaton is on track with its restructuring program, with restructuring costs amounting to $211 million.

Financial Update

Eaton’s cash and short-term investments were $543 million as of Dec 31, 2016, compared with $268 million as of Dec 31, 2015.

As of Dec 31, 2016, long-term debt was $6,711 million, compared with $7,746 million as of Dec 31, 2015.

Guidance

First-quarter 2017 earnings per share are expected to be between $0.80 and $0.90.Eaton expects 2017 operating earnings in the range of $4.30 to $4.60 per share.

For 2017, Eaton anticipates flattish growth in organic revenues over the 2016 levels. Currency translation is projected to have a roughly $300 million impact during the year.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Eaton Corp's stock has a subpar Growth Score of 'D', however its momentum is doing a lot better with an 'A'. Following the exact same course, the stock was allocated also a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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