Manufacturers

Eaton delivers solid quarter and remains optimistic about 2013

By Jack Keough

Eaton says it achieved $15 million in synergistic savings during the first quarter from its Cooper Industries acquisition and is now forecasting $90 million in savings for 2013. Those savings, new products and rebounding commercial and residential housing markets are causing Eaton executives to be optimistic about the remainder of 2013.

The Cleveland-Ohio based international diversified manufacturer posted a 38 percent increase in sales and a 28 percent increase in profit for the quarter, which is traditionally a slower one for Eaton.

It also was the first full quarter of revenues associated with the $13 billion acquisition of Cooper completed last November, which was the largest acquisition ever completed in Eaton’s more than 100-years in business. It is also one of the largest acquisitions in the history of the electrical industry.

During a conference call with financial analysts, Eaton Chairman and CEO Alexander “Sandy” Cutler said the “Cooper integration remains right on track” from a revenue point of view and a cost reduction basis.

“One of the important sources of slightly higher profits in the second half this year than the first half is the fact that we would expect these acquisition synergies to accelerate in the second half. On the whole deal, we would look at the first half being slightly dilutive, and that $0.15 accretion, we call for basically all of it happens in the second half of the year,” Cutler said according to a transcript of the call provided by www.seekingalpha.com.

“Our combined bookings were down about 3 percent … And we are fairly confident that we saw distributor destocking occur in the first quarter here in the U.S. and in Europe, as people are minding their stores tightly, trying to figure out what volume will look like in the second quarter of this year,” he said.

Cutler said his company is especially pleased about the “the vast array of new products that we are launching this year,” that will lead to higher sales.

Specifically he noted products in Eaton’s electrical business and industrial automation and control solutions.

In a later interview with Jim Cramer on CNBC’s “Mad Money” Show, Cutler said those new products include cutting edge technology like LED recessed lighting to replace the traditional use of fluorescent light bulbs.

Electrical products now make up 60 percent of Eaton’s total revenues.

In addition, Cutler said he was pleased with the increased commercial and residential construction activities in the U.S., important markets for Eaton.

Cutler pointed out that it is difficult to compare the first quarter this year in the electrical segment because Cooper revenues were not figured in as it was this quarter.

But one thing is for certain. Acquisitions played a big role in Eaton’s quarterly results as the company recorded more than $820 million in revenues from those newly-acquired businesses.

Cutler sees continued strengths in the company’s end user markets in the U.S., in the Middle East, in Latin America while business is more mixed in Asia-Pacific. “Europe continues to be weak. We’re not seeing any form of recovery. It’s slightly weaker than we perhaps thought it was going to be when the year started,” he said.

Eaton is also optimistic about its hydraulic segment. Sales in that sector totaled $756 million, up from the fourth quarter in which sales were $693 million. That increase amounts to about 9 percent.

Cutler pointed to a rebound in the operating earnings in the hydraulic segment, 11.9 percent versus the 7.4 percent that Eaton reported in the fourth quarter.

In that fourth quarter Eaton closed two plants, and downsized two other plants resulting in $17 million of restructuring costs.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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