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Why Is Eaton (ETN) Up 0.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Eaton (ETN - Free Report) . Shares have added about 0.3% in that time frame, underperforming the S&P 500.

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

Eaton Q1 Earnings and Revenues Beat Estimates, View Up

Eaton Corporation reported first-quarter 2021 earnings of $1.44 per share, which surpassed the Zacks Consensus Estimate of $1.25 by 15.2%. Moreover, earnings were up 32.1% year over year. The bottom line was also higher than its expected range of $1.17-$1.27 per share.

GAAP earnings for the reported quarter were $1.14 per share compared with $1.07 in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to charges of 9 cents associated with acquisitions and divestitures, 3 cents related to a multi-year restructuring program and 18 cents related to intangible amortization.

Revenues

Total quarterly revenues came in at $4,692 million, which beat the Zacks Consensus Estimate of $4,522 million by 3.8%. However, total revenues decreased 2% from the year-ago quarter.

For the reported quarter, divestiture of the Lighting business reduced sales by 5.5%, which was partially offset by positive currency translation of 2%, 1% growth from acquisitions and organic growth of 0.5%.

Segment Details

Electrical Americas’ total first-quarter sales were $1,622 million, down 9.3% from the year-ago level. The decline was due to the impact of the Lighting business divestiture, marginally offset by an increase in organic sales and contribution from the acquisitions of Power Distribution, Inc. and Tripp Lite.

Electrical Global’s total sales were $1,253 million, up 9.5% from the year-ago quarter. Organic sales were up 5% from the year-ago quarter. Positive currency translation added another 5% to this segment’s sales.

Hydraulics’ total sales were $561 million, up 10.7% from the year-ago quarter. The revenue growth was driven by a 9% increase in organic sales and positive currency translation of 2%.

Aerospace total sales were $519 million, down 23.7% from the year-ago quarter. Organic sales were down 26% year over year, partially offset by 2% growth from positive currency translation.

Vehicle total sales were $654 million, up 9.4% from the year-ago quarter driven by an improvement in organic sales.

eMobility segment’s total sales were $83 million, up 15% year over year. Improvement in organic sales and positive currency translation boosted the top line of this segment.

Highlights of the Release

Selling and administrative expenses were $795 million, down 8.1% from the year-ago quarter. Its first-quarter research and development expenses were $148 million, down 3.3% from the prior-year period. Interest expenses for the quarter were $38 million, down 11.8% from the year-ago period.

During the quarter, the company closed the acquisitions of Tripp Lite, Green Motion and a 50% stake in HuanYu High Tech, adding new products and growth opportunities for the Electrical segments.

Orders in Electrical Americas and Electrical Global were up 1% and 7% year over year, respectively. Orders from the Aerospace segment were down 36% from first-quarter 2020.

Financial Update

Eaton’s cash was $354 million as of Mar 31, 2021 compared with $438 million on Dec 31, 2020.

As of Mar 31, 2021, the company’s long-term debt was $8,682 million, up from $7,010 million on Dec 31, 2020.

Guidance

Eaton’s second-quarter 2021 earnings are expected in the range of $1.45-$1.55 per share. It now expects organic revenue growth in the range of 24-28%. The company also anticipates positive currency translation to add 2% to second-quarter earnings.

Eaton now expects organic revenue growth within 7-9% for 2021, up from the prior guided range of 4-6%. Segment operating margin for 2021 is now expected in the range of 18.1-18.5%, up from earlier expectation of 17.6-18%. The company raised its 2021 earnings guidance to the range of $5.90-$6.30 per share from the prior projection $5.40-$5.80. It is targeting share buyback in the range of $500-$700 million in 2021. The company is aiming for 11-13% earnings growth over the next five years.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 18.46% due to these changes.

VGM Scores

At this time, Eaton has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Eaton has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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