Cooper Industries Outperforms Again

Cooper Industries plc ( ) reported fourth-quarter 2011 earnings per share from continuing operations of $1.00, above the Zacks Consensus Estimate of 95 cents and prior-year earnings of 85 cents. The company achieved an all time quarterly record earnings per share from continuing operations. This was the eighth consecutive quarter of double-digit earnings growth for Cooper, led by its strategic initiatives and proven business model.

For full-year 2011, the company achieved a record earnings per share from continuing operations of $3.87, above the Zacks Consensus Estimate of $3.81 and prior-year earnings of $3.20.

Revenue

Total revenue in the quarter was $1.39 billion, representing a year-over-year increase of 9.0%. Excluding positive impact from acquisitions of 4.5% and negative foreign currency impact of 0.2%, core revenue in the quarter increased by 4.7%.

For full-year 2011, total revenue was $5.4 billion compared with $5.1 billion in 2010. The company’s new product viability was at the record level of 29% of total revenue, reflecting revenue from the sale of products developed in the last three years.

Segment Details

The company’s revenue in the Energy & Safety Solutions segment increased by 9.7% year over year to $742.4 million in the quarter. Excluding negative currency translation impact of 0.3% and positive impact of acquisitions of 3.1%, core segment revenue increased by 6.9%. Existing demand for utility products aided core revenue growth, coupled with the rising demand in global industrial and energy markets.

Revenue in the Electrical Products Group segment increased by 8.1% year over year to $630.7 million in the quarter. Excluding negative foreign currency impact of 0.2% and positive impact from acquisitions of 6.1%, core segment revenue increased by 2.2%. Huge demand for industrial products as well as rising demand for energy efficiency products aided core revenue growth, partially offset by weak residential and non-residential construction markets.

Margins

Operating earnings for the quarter was $201.0 million compared with $180.3 million in the prior-year period. SG&A expense was $259.5 million compared with $249.0 million in the prior-year period.

Energy & Safety Solutions segment margin was 16.0%, down 80 basis points year over year. Electrical Products Group segment margin was 13.3%, down 50 basis points.

Balance Sheet and Cash Flow

Cash and cash equivalents were $676.6 million with long-term debt of $1.1 billion and shareowner’s equity of $3.54 billion.

Cash from operating activities in the year was 561.3 million.

Outlook

The company expects earnings per share from continuing operations to be in the range of $4.15 to $4.35 in 2012. Revenue is expected to increase by 5% to 7%.

For the first quarter of 2012, the company expects earnings per share of 97 cents to $1.01, with an increase of 4% to 6% in revenue compared with the first quarter of 2011.

The company is expected to realize an outsized portion of its growth from the developing markets in China, the Middle East and Mexico. Industrial, utility and energy markets are expected to rapidly expand while the industrializing economies is expected to offset some of the declines in the already developed regions. This will eventually help to support higher growth rates for the current year.

However, heightened global competition, given that Cooper expands its international exposure, can act as a negative catalyst for the company. Major competitors of the company are ABB Ltd. ( ABB - Snapshot Report ) , General Electric Co. ( GE - Analyst Report ) and Stanley Black & Decker Inc. ( SWK - Analyst Report ) . Operations and supply sources located outside the United States, particularly the emerging markets, are subject to increased risks. Operating entities outside the USA contribute significantly to the company’s revenue and earnings.

Incorporated in Ireland and headquartered in Houston, Texas, Cooper Industries plc is a diversified manufacturer, marketer, and distributor of electrical products, tools, and hardware. General industrial manufacturers, such as those in the aerospace and automobile industries, are the main users of Cooper’s power tools and assembly systems. Its brands include Buss, Edison, Crouse Hinds, Weller, DGD, Buckeye, Cooper, and Master Power.

We continue to maintain a Neutral rating on Cooper Industries, with a Zacks #4 Rank (Sell recommendation) over the next one-to-three months.