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Eaton (ETN) Q2 Earnings Beat Estimates, 2018 Guidance Up

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Eaton Corporation’s (ETN - Free Report) earnings per share of $1.39 in second-quarter 2018 topped the Zacks Consensus Estimate of $1.32 by 5.3%. The reported earnings exceeded the high end of management’s guided range of $1.25-$1.35. Also, earnings were 20.9% higher than the year-ago figure.    

Revenues

In the quarter, Eaton’s total revenues came in at $5,487 million, surpassing the Zacks Consensus Estimate of $5,466 million by 0.4%. The figure was also 6.9% higher than the year-ago quarter.

The year-over-year sales increase includes 7% growth in organic sales and 1% rise in positive currency translations, which were partially offset by a negative 1% impact of the divestiture of its share in a small electrical JV in 2017 and the formation of the Eaton Cummins JV.

Eaton Corporation, PLC Price, Consensus and EPS Surprise
 

Eaton Corporation, PLC Price, Consensus and EPS Surprise | Eaton Corporation, PLC Quote

Segment Details

In the second quarter, Electrical Products’ total sales were $1,806 million, up 4.3% from the year-ago quarter. Organic sales were up 3% and currency translation was a positive 1%. The quarter’s operating income was $334 million, up 11.7% year over year.

Electrical Systems and Services’ total sales were $1,513 million, up 7.0% from the year-ago quarter. Organic sales were up 7% and currency translation was a positive 1%. Operating income in the quarter was $227 million, up 17.0% year over year.

Hydraulics total sales were $723 million, up 14.2% from the year-ago quarter. Organic sales were up 13% and currency translation was a positive 1%. The quarter’s operating income was $101 million, up 36.5% year over year.

Aerospace total sales were $463 million, up 5.9% from the year-ago quarter. Organic sales were up 6%. Operating income in the quarter was $90 million, up 11.1% year over year.

Vehicle total sales were $899 million, up 6.4% from the year-ago quarter. Organic sales were up 11%, partially offset by a negative 5% impact as a result of the formation of the Eaton Cummins joint venture in 2017. The quarter’s operating income was $166 million, up 17.7% year over year.

eMobility segment’s total sales were $83 million, up 15.2% from the year-ago quarter. Organic sales were up 14% and currency translation was a positive 1%. Operating income in the quarter was $14 million, up 7.7% year over year.

Quarterly Highlights

Cost of products sold in the reported quarter was $3,671 million, up 6.5% from the prior-year quarter.

Selling and administrative expenses were $901 million, up 1.2% from the year-ago quarter.

In the second quarter, the company’s research and development expenses were $145 million, down 3.3% from $150 million in the prior-year quarter.

Interest expenses of $68 million were up 13.3% from the prior-year quarter.

Order in Electrical Products, Electrical Systems and Services and Aerospace was up 4%, 15% and 18% year over year, respectively.

In the first six months of 2018, the company repurchased shares worth $600 million.

Financial Update

Eaton’s cash and short-term investments were $256 million as of Jun 30, 2018 compared with $561 million on Dec 31, 2017.

As of Jun 30, 2018, long-term debt was $6,753 million, down from $7,167 million on Dec 31, 2017.

Guidance

Third-quarter 2018 earnings per share are expected between $1.35 and $1.45.

The company raised its 2018 earnings expectation by 10 cents at both ends and is now expected in the range of $5.20-$5.40 per share for the year.

Zacks Rank

Currently, Eaton has a Zacks Rank #2 (Buy).
 
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our View

Eaton’s earnings and total revenues in the second quarter were better than expectations, courtesy of strong performance by every segment. Better-than-expected organic sales and positive currency translation boosted the performance of the company.

We believe improvement in end-market conditions is resulting in better-than-expected organic sales volumes, leading to overall strong performance of the company. The lower number of outstanding shares due to repurchase of $600 million in the first half of 2018 also positively impacted its earnings.

Upcoming Releases

SPX FLOW Inc. (FLOW - Free Report) is slated to report second-quarter 2018 earnings on Aug 1. The Zacks Consensus Estimate is pegged at 45 cents.

CUI Global Inc. (CUI - Free Report) is slated to announce second-quarter 2018 earnings on Aug 8. The Zacks Consensus Estimate is pegged at a loss of 5 cents.

Capstone Turbine Corporation (CPST - Free Report) is scheduled to report fiscal first-quarter 2019 earnings on Aug 27, 2018. The Zacks Consensus Estimate is pegged at loss of 3 cents.

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