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Eaton Corporation plc’s (ETN - Free Report) third-quarter 2016 operating earnings per share of $1.15 were a penny higher than the Zacks Consensus Estimate. Also, reported earnings were within management’s guidance range of $1.00 to $1.20 per share. Moreover, the bottom line surged 20% from the year-ago quarter figure.
Revenues
In the quarter under review, Eaton’s total revenue came in at $4.99 billion, lagging the Zacks Consensus Estimate of $5.05 billion by 1.2%.
On a year-over-year basis, revenues were down nearly 4% due to lower Aerospace (2.9%), Vehicle (12.4%), Electrical Systems and Services (3.4%), and Hydraulics (6.1%) sales.
Unfavorable currency translation and a decline in organic sales were the primary reasons for the revenue decline. Sales took a 1% hit from currency translation, while the drop in organic sales accounted for 3%.
Cost of products sold in the reported quarter was $3,371 million, down 6.3% from the prior-year period.
Selling and administrative expenses decreased 5.9% to $853 million from $907 million a year ago.
In the third quarter of 2016, the company’s research and development expenses were $146 million, down 6.4% from $156 million in the prior-year quarter.
Interest expenses of $59 million were in line with the prior-year quarter figure.
Eaton is on track with its restructuring program, which is expected to deliver $200 million of incremental profit in 2016 over the 2015 levels.
Financial Update
Eaton’s cash and short-term investments were $494 million as of Sep 30, 2016, compared with $268 million as of Dec 31, 2015.
As of Sep 30, 2016, long-term debt was $7,881 million, compared with $7,746 million as of Dec 31, 2015.
Eaton repurchased shares worth $243 million during the third quarter.
Guidance
Fourth-quarter 2016 earnings per share are expected to be between $1.05 and $1.15.
For 2016, Eaton still anticipates organic revenues to decline 4%, reflecting persistently sluggish markets around the world. Currency translation is projected to have a roughly $225 million impact during the year.
Eaton narrowed its 2016 operating earnings guidance to the range of $4.15 to $4.25 per share from its prior expectation of $4.20–$4.40.
The company anticipates fourth-quarter 2016 and 2017 bookings continue to being soft due to the company’s cost control initiatives for 2017, which now targets savings of $180 million, up from its prior expectation of $130 million.
Ball Corp. , a Zacks Rank #2 stock, is slated to report third-quarter 2016 earnings on Nov 3. The Zacks Consensus Estimate is pegged at 92 cents.
TASER International Inc. , with a Zacks Rank #3, is expected to report third-quarter earnings on Nov 9. The Zacks Consensus Estimate is pegged at 5 cents.
Our View
Eaton managed to beat third-quarter earnings estimates even though revenues lagged the mark. The top line was also down on a year-over-year basis due to persistent weakness in the company’s end-markets and negative currency translations.
We are concerned about the continuing decline in bookings at Eaton’s business segments. Bookings at the Electrical Systems and Services, and the Hydraulics segments were down 5% and 3% respectively, year over year. Bookings in Electrical Products were also down 1%. However, Aerospace segment bookings were up 15%.
Softness in the end-markets is hurting organic sales of the company. Management projects a 4% decline in organic revenues in 2016.
Eaton currently carries a Zacks Rank #4 (Sell).
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Eaton (ETN) Beats Q3 Earnings Estimates, Lags Revenues
Eaton Corporation plc’s (ETN - Free Report) third-quarter 2016 operating earnings per share of $1.15 were a penny higher than the Zacks Consensus Estimate. Also, reported earnings were within management’s guidance range of $1.00 to $1.20 per share. Moreover, the bottom line surged 20% from the year-ago quarter figure.
Revenues
In the quarter under review, Eaton’s total revenue came in at $4.99 billion, lagging the Zacks Consensus Estimate of $5.05 billion by 1.2%.
On a year-over-year basis, revenues were down nearly 4% due to lower Aerospace (2.9%), Vehicle (12.4%), Electrical Systems and Services (3.4%), and Hydraulics (6.1%) sales.
Unfavorable currency translation and a decline in organic sales were the primary reasons for the revenue decline. Sales took a 1% hit from currency translation, while the drop in organic sales accounted for 3%.
EATON CORP PLC Price, Consensus and EPS Surprise
EATON CORP PLC Price, Consensus and EPS Surprise | EATON CORP PLC Quote
Quarterly Highlights
Cost of products sold in the reported quarter was $3,371 million, down 6.3% from the prior-year period.
Selling and administrative expenses decreased 5.9% to $853 million from $907 million a year ago.
In the third quarter of 2016, the company’s research and development expenses were $146 million, down 6.4% from $156 million in the prior-year quarter.
Interest expenses of $59 million were in line with the prior-year quarter figure.
Eaton is on track with its restructuring program, which is expected to deliver $200 million of incremental profit in 2016 over the 2015 levels.
Financial Update
Eaton’s cash and short-term investments were $494 million as of Sep 30, 2016, compared with $268 million as of Dec 31, 2015.
As of Sep 30, 2016, long-term debt was $7,881 million, compared with $7,746 million as of Dec 31, 2015.
Eaton repurchased shares worth $243 million during the third quarter.
Guidance
Fourth-quarter 2016 earnings per share are expected to be between $1.05 and $1.15.
For 2016, Eaton still anticipates organic revenues to decline 4%, reflecting persistently sluggish markets around the world. Currency translation is projected to have a roughly $225 million impact during the year.
Eaton narrowed its 2016 operating earnings guidance to the range of $4.15 to $4.25 per share from its prior expectation of $4.20–$4.40.
The company anticipates fourth-quarter 2016 and 2017 bookings continue to being soft due to the company’s cost control initiatives for 2017, which now targets savings of $180 million, up from its prior expectation of $130 million.
Upcoming Releases
NN Inc. is slated to report third-quarter earnings on Nov 2. The Zacks Consensus Estimate is pegged at 46 cents. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ball Corp. , a Zacks Rank #2 stock, is slated to report third-quarter 2016 earnings on Nov 3. The Zacks Consensus Estimate is pegged at 92 cents.
TASER International Inc. , with a Zacks Rank #3, is expected to report third-quarter earnings on Nov 9. The Zacks Consensus Estimate is pegged at 5 cents.
Our View
Eaton managed to beat third-quarter earnings estimates even though revenues lagged the mark. The top line was also down on a year-over-year basis due to persistent weakness in the company’s end-markets and negative currency translations.
We are concerned about the continuing decline in bookings at Eaton’s business segments. Bookings at the Electrical Systems and Services, and the Hydraulics segments were down 5% and 3% respectively, year over year. Bookings in Electrical Products were also down 1%. However, Aerospace segment bookings were up 15%.
Softness in the end-markets is hurting organic sales of the company. Management projects a 4% decline in organic revenues in 2016.
Eaton currently carries a Zacks Rank #4 (Sell).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>