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Why Is Eaton (ETN) Down 8.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Eaton (ETN - Free Report) . Shares have lost about 8.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Eaton due for a breakout? 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 & Sales Beat Estimates, 2022 View Up

Eaton reported first-quarter 2022 earnings of $1.62 per share, which surpassed the Zacks Consensus Estimate of $1.6 by 1.3%. Furthermore, earnings were up 12.5% year over year. First-quarter earnings were near the higher end of the guided range of $1.55-$1.65 per share.

GAAP earnings for the reported quarter were $1.33 per share compared with $1.14 in the year-ago period. The difference between GAAP and operating earnings for the reported quarter was due to charges of 25 cents associated with intangible amortization, 3 cents related to a multi-year restructuring program, and 1 cent pertaining to acquisitions and divestitures.

Revenues

Total quarterly revenues came in at $4,843 million, which surpassed the Zacks Consensus Estimate of $4,813 million by 0.6%. Total revenues improved 3.2% from the year-ago quarter.

The year-over-year improvement was due to 10% growth in organic sales and 6% growth from acquisitions, offset by a 1% negative currency translation and a 12% decline stemming from the Hydraulics business divestiture.

Segment Details

Electrical Americas’ total first-quarter sales were $1,891 million, up 16.6% from the year-ago level. This improvement was due to improved organic sales and contribution from the acquisition of Tripp Lite. Operating profits were $361 million, up 8.7% year over year.

Electrical Global’s total sales were $1,437 million, up 14.7% from the year-ago quarter. Organic sales were up 18% from the year-ago quarter, offset by a negative currency translation of 3%. Operating profits were $279 million, up 31% year over year.

Aerospace’s total sales were $718 million, up 38.4% from the year-ago quarter. This was due to improved organic sales and contribution from the acquisition of Mission Systems, marginally offset by negative currency translation. Operating profits were $159 million, up 65.6% year over year.

Vehicle total sales were $671 million, up 2.6% from the year-ago quarter due to an increase in organic sales. Operating profits were $113 million, on par with the year-ago quarter.

eMobility segment’s total sales were $126 million, up 51.8% year over year due to an improvement in organic sales and acquisition of Royal Power Solutions.

Highlights of the Release

Selling and administrative expenses were $790 million, down 0.6% from the year-ago quarter.

ETN’s first-quarter research and development expenses were $165 million, up 11.5% from the prior-year period. Interest expenses for the quarter were $32 million, down 15.8% from the year-ago period.

Eaton’s Electrical segment backlog was up 76% and rolling 12-month orders up 30%, while Aerospace backlog was up 14% with rolling 12-month orders up 35%, all on an organic basis.

Financial Update

Eaton’s cash was $237 million as of Mar 31, 2022 compared with $297 million on Dec 31, 2021.

As of Mar 31, 2022, the company’s long-term debt was $6,763 million, down from $6,831 million on Dec 31, 2021.

Guidance

Eaton’s second-quarter 2022 earnings are expected in the range of $1.78-$1.88 per share. ETN now expects organic revenue growth in the range of 9-11% for the second quarter.

Eaton revised the 2022 earnings per share guidance in the range of $7.32-$7.72 from $7.30-$7.70 guided previously. ETN now expects organic revenue growth in the range of 9-11% for 2022. Segment operating margin for 2022 is now expected in the range of 19.9-20.3%.

Eaton is targeting share buyback in the range of $200-$300 million in 2022.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Eaton has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Eaton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Eaton is part of the Zacks Manufacturing - Electronics industry. Over the past month, ABB (ABB - Free Report) , a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended March 2022 more than a month ago.

ABB reported revenues of $6.97 billion in the last reported quarter, representing a year-over-year change of +0.9%. EPS of $0.31 for the same period compares with $0.31 a year ago.

For the current quarter, ABB is expected to post earnings of $0.31 per share, indicating a change of -16.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -3.1% over the last 30 days.

ABB has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.


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