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Industrial manufacturer Eaton Corporation (ETN - Analyst Report) has released its third quarter 2011 earnings results, which grew 37% year over year on a per-share basis, mainly on 11% end-market growth.

Eaton’s operating earnings per share reached $1.08 in the quarter, in line with the Zacks Consensus Estimate of $1.08 and exceeded earnings of 79 cents in the year-ago period. On a reported basis, the company clocked earnings of $1.07 versus 78 cents in the year-ago period. The variance of a penny between operating and reported earnings was due to acquisition-related charges for Ontario-based inverter producer IE Power Inc. and German filtration company E. Begerow GmbH & Co. KG.

Operating Statistics

In the reported quarter, Eaton has earned net quarterly revenues of $4.12 billion, falling short of the Zacks Consensus Estimate of $4.18 billion and up 15.5% from the year-ago comparable period. Revenue growth in the quarter stemmed from an 11% rise in organic sales, 2% from acquisitions and 2% from higher foreign exchange rates. Eaton posted net income of $365 million in the third quarter of 2011, up from $268 million in the year-ago quarter.

Segment Analysis

Electrical Americas: Within its Electrical unit, Electrical Americas’ revenues improved 11% from the year-ago quarter to $1.07 billion, while operating profit (excluding acquisition integration charges) was up 13% at $159 million. Growth in Electrical Americas’ revenues reflected growth of 11% in end-markets and 21% in order bookings.

Electrical Rest of the World: The Electrical Rest of the World segment’s sales were up 7% at $755 million. Operating income of $62 million was down 23.5% from the year-ago level, due to lower margins in the residential solar market and decline in commodity prices during the last half of September 2011. Segment bookings for the quarter saw a 9% dip due to a sharp drop in orders for solar inverters. Overall, the company’s end-markets grew 1% year-over-year.

Hydraulics: At $717 million, Hydraulics segment’s sales rose 23% over the prior year, while operating profits came in at $110 million, up 45% from the corresponding quarter last year. Hydraulics markets grew 14%, of which U.S. markets were up 18% and non-U.S. markets up 11%. Segment bookings increased 20% in the second quarter.

Aerospace: Segmental sales in the third quarter grew 8% to $420 million and operating profits grew 16% to $71 million. Aerospace markets were up 7% in the quarter. Aerospace bookings rose 16%, reflecting improved bookings in commercial OEM and aftermarket businesses.

Truck: The Truck segment posted a 34% improvement in sales to reach $715 million. It earned an operating income of $139 million during the quarter, compared to $74 million in the year-ago quarter. Eaton benefited from a 25% increase in truck production, with U.S. markets growing 51% and non-U.S. markets being up 7%.

Automotive: Aided by an 8% growth in the global auto markets, the segment’s third quarter sales grew 13% year over year to $442 million. It posted an operating profit of $62 million, reflecting an increase of 59% from the comparable quarter last year.

Guidance

Eaton expects net income per share for the fourth quarter of 2011 to be in the range of $1.04 – $1.14. Operating earnings per share for the fourth quarter, which exclude acquisition-related charges, are anticipated to be in the range of $1.06 – $1.16.

For fiscal 2011, Eaton narrowed its operating earnings per share guidance in the range of $3.95 – $4.05 from the earlier range of $3.90 to $4.10.

Our View

Cleveland, Ohio-based diversified power management company, Eaton Corporation, is a leading supplier of power accessories to the aerospace industry with customers in 150 countries.

Eaton has gradually transformed itself from an automotive and truck component manufacturer into a diversified industrial enterprise with leading positions in its core electrical, hydraulic and aerospace market segments. An improvement in global market conditions should help boost the company’s bottom lines. Eaton’s stable dividend program, which yields an impressive 3.2%, also makes the stock attractive.

Eaton Corporation currently has a Zacks #3 Rank (short-term Hold rating). Based on the short-term Zacks rank, the company fares better than its closest peers Applied Industrial Technologies, Inc. (AIT - Snapshot Report) andThe Babcock & Wilcox Company (BWC - Snapshot Report). Both the companies carry the short-term Zacks #4 Rank (Sell).

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