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Eaton (ETN) Up 3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Eaton (ETN - Free Report) . Shares have added about 3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Eaton Q2 Earnings and Revenues Beat Estimates, View Up

Eaton Corporation reported second-quarter 2021 earnings of $1.72 per share, which surpassed the Zacks Consensus Estimate of $1.56 by 10.3%. Furthermore, earnings were up 145.7% year over year. The bottom line was also higher than the expected range of $1.45-$1.55 per share.

GAAP earnings for the reported quarter were $1.26 per share compared with 13 cents in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to charges of 18 cents associated with acquisitions and divestitures, 3 cents related to a multi-year restructuring program as well as 25 cents related to intangible amortization.

Revenues

Total quarterly revenues came in at $5,215 million, which beat the Zacks Consensus Estimate of $4,974 million by 4.8%. Total revenues also improved 35.2% from the year-ago quarter. The year-over-year improvement is due to 27% growth in organic sales, 5% growth from acquisitions, and 3% from positive currency translation.

Segment Details

Electrical Americas’ total second-quarter sales were $1,849 million, up 24.1% from the year-ago level. This was due to improved organic sales, contribution from the acquisition of Tripp Lite and positive currency translation.

Electrical Global’s total sales were $1,418 million, up 27.6% from the year-ago quarter. Organic sales were up 22% from the year-ago quarter. Positive currency translation added another 6% to this segment’s sales.

Hydraulics’ total sales were $560 million, up 36.2% from the year-ago quarter.

Aerospace total sales were $625 million, up 36% from the year-ago quarter. This was due to improved organic sales, contribution from the acquisition of Cobham Mission Systems and positive currency translation.

Vehicle total sales were $675 million, up 106% from the year-ago quarter driven by an improvement in organic sales and positive currency translation.

eMobility segment’s total sales were $88 million, up 57% 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 $876 million, up 26.8% from the year-ago quarter.

During the quarter, the company closed the acquisitions of Cobham Mission Systems and 50% of Jiangsu YiNeng Electric’s busway business in China. On Aug 2, the company completed the sale of Hydraulics unit to Danfoss.

Its second-quarter research and development expenses were $154 million, up 22.2% from the prior-year period. Interest expenses for the quarter were $37 million, down 2.6% from the year-ago period.

Orders in Electrical Americas and Electrical Global were up 43% and 46% year over year, respectively. Orders from the Aerospace segment were down 16% from second-quarter 2020 due to downturn in commercial markets.

Financial Update

Eaton’s cash was $279 million as of Jun 30, 2021 compared with $438 million on Dec 31, 2020. As of Jun 30, 2021, the company’s long-term debt was $8,721 million, up from $7,010 million on Dec 31, 2020.

Guidance

Eaton’s third-quarter 2021 earnings are expected in the range of $1.72-$1.82 per share. It now expects organic revenue growth in the range of 11-13%. The company also anticipates positive currency translation to add 1% to third-quarter earnings.

Eaton now expects organic revenue growth within 11-13% for 2021, up from the prior guided range of 7-9%. Segment operating margin for 2021 is now expected in the range of 18.4-18.8%, up from earlier expectation of 18.1-18.5%.

The company raised its 2021 earnings guidance to the range of $6.58-$6.88 per share from the prior projection $5.90-$6.30, taking into account strong second-quarter performance and expected high organic sales for the remainder of the year. It is targeting share buyback in the range of $500-$700 million in 2021. The company is aiming for 11-13% earnings growth in the 2020-2025 time period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 11.53% due to these changes.

VGM Scores

Currently, Eaton has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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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