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Eaton (ETN) Up 4.2% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Eaton Corporation, PLC (ETN - Free Report) . Shares have added about 4.2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ETN 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 Tops Q1 Earnings Estimates, Lifts 2018 Guidance

Eaton Corporation’s earnings per share of $1.10 in first-quarter 2018 topped the Zacks Consensus Estimate of $1.06 by 3.8%. Reported earnings were at the high end of management’s guided range of $1.00-$1.10. Also, earnings were 14.6% higher than the year-ago figure.    

Revenues

In the quarter, Eaton’s total revenues came in at $5,251 million, surpassing the Zacks Consensus Estimate of $1,199 million by 3.2%. The figure was 8.3% higher than the year-ago quarter.

The year-over-year sales increase includes 6% growth in organic sales and 3% rise in positive currency translations, which was better than the expected growth of 4% from organic sales and 1.0% from positive currency translations.

Segment Details

In the first quarter, Electrical Products’ total sales were $1,732 million, up 4.9% from the year-ago quarter. Organic sales were up 1% and currency translation was a positive 4%. The quarter’s operating income was $307 million, up 7.3% year over year.

Electrical Systems and Services’ total sales were $1,381 million, up 3.6% from the year-ago quarter. Organic sales were up 2% and currency translation was a positive 2%. Operating income in the quarter was $167 million, up 7.8% year over year.

Hydraulics total sales were $710 million, up 20.9% from the year-ago quarter. Organic sales were up 16% and currency translation was a positive 5%. The quarter’s operating income was $90 million, up 50% year over year.

Aerospace total sales were $458 million, up 7% from the year-ago quarter. Organic sales were up 6% and currency translation was a positive 1%. Operating income in the quarter was $89 million, up 12.6% year over year.

Vehicle total sales were $893 million, up 13.6% from the year-ago quarter. Organic sales were up 13% and currency translation was a positive 3%. The quarter’s operating income was $132 million, up 22.2% year over year.

eMobility segment’s total sales were $77 million, up 22.2% from the year-ago quarter. Organic sales were up 19% and currency translation was a positive 3%. Operating income in the quarter was $11 million, flat year over year.

Quarterly Highlights

Cost of products sold in the reported quarter was $3.5 million, up 8.0% from the prior-year quarter.

Selling and administrative expenses were $889 million, up 1.5% from the year-ago quarter. In the first quarter, the company’s research and development expenses were $156 million, up 9% from $143 million in the prior-year quarter.

Interest expenses of $70 million were up 14.7% from the prior-year quarter.

Order in Electrical Systems and Services, Hydraulics and Aerospace was up 8%, 4% and 1% year over year, respectively.

During the quarter, the company repurchased shares worth $300 million.

Financial Update

Eaton’s cash and short-term investments were $317 million as of Mar 31, 2018, compared with $561 million as of Dec 31, 2017. As of Mar 31, 2017, long-term debt was $6,845 million compared with $7,167 million as of Dec 31, 2017.

Guidance

Second-quarter 2018 earnings per share are expected to be between $1.25 and $1.35. The company raised its 2018 earnings expectation by 10 cents at both ends and is now expected in the range of $5.10-$5.30 per share for the year.

Eaton now expects its organic revenues to increase 5% in 2018, up 100 basis points. It now expects segment margins in 2018 to be between 16.4% and 17.0%, up from the previous expectation between 16.3% and 16.9%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to three lower.

Eaton Corporation, PLC Price and Consensus

VGM Scores

At this time, ETN has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions indicates a downward shift. Notably, ETN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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