DUBLIN, Ireland — Power management company Eaton Corporation plc today announced that earnings per share were $0.13 for the second quarter of 2020. Excluding charges of $0.20 per share related to acquisitions and divestitures and $0.37 per share related to a multi-year restructuring program, adjusted earnings per share were $0.70.
Sales in the second quarter of 2020 were $3.9 billion, down 30 percent from the second quarter of 2019. Organic sales were down 22 percent. Acquisitions added 2 percent to sales, which was more than offset by 8 percent from the divestitures of the Lighting and Automotive Fluid Conveyance businesses and 2 percent from negative currency translation.
Craig Arnold, Eaton chairman and chief executive officer, said, “We were pleased with how our teams dealt with the difficult environment during the quarter. Despite several of our end markets facing dramatic declines, we were able to post better-than-expected financial results and very strong cash flow.”
“We anticipate that several of our markets will take some time to recover, and so we have decided to implement a multi-year restructuring program to deal with that weakness,” said Arnold. “The cost of the program is estimated to be $280 million, including the $187 million charge we took in the second quarter. The principal end markets affected are commercial aerospace, oil and gas, NAFTA Class 8 trucks, and North American/European light vehicles. These actions are targeted at structural costs that will enable Eaton to deliver even stronger results when the markets recover. We expect the restructuring program to deliver mature year benefits of $200 million when fully implemented in 2023.”
“Second quarter segment margins were 14.7 percent, reflecting a decremental margin of 25 percent,” said Arnold. “This is a result of the cost controls implemented in the quarter to offset the volume declines.”
“Operating cash flow in the second quarter was $757 million, and free cash flow was $667 million,” said Arnold. “Our operating cash flow over the last six months totaled $1,080 million, and free cash flow totaled $878 million. We remain on track for 2020 full year free cash flow of between $2.3 billion and $2.7 billion.”
Business Segment Results
Sales for the Electrical Americas segment were $1.5 billion, down 29 percent from the second quarter of 2019 driven by a 20 percent impact from the divestiture of the Lighting business. Organic sales were down 9 percent. Negative currency translation was 1 percent, which was offset by a 1 percent increase from the acquisitions of Innovative Switchgear and Power Distribution, Inc. Operating profits were $308 million, down 24 percent from the second quarter of 2019, and excluding the divested Lighting business, down 16 percent from the second quarter of 2019.
“We were very pleased with our 20.7 percent operating margins in the second quarter, which were up 130 basis points over the second quarter of 2019 despite the decline in organic sales,” said Arnold. “Excluding Lighting, the twelve-month rolling average of our orders in the second quarter was up 2.1 percent.”
“Despite pandemic related challenges early in the quarter, orders registered good growth in June, with growth strongest in residential and utility end markets,” said Arnold. “The backlog at the end of June grew 11 percent organically over June 2019.”
Sales for the Electrical Global segment were $1.1 billion, down 16 percent from the second quarter of 2019. Organic sales were down 14 percent, and negative currency translation was 2 percent. Operating profits were $178 million, down 24 percent from the second quarter of 2019.
“Operating margins were 16.0 percent, a decrease of 160 basis points from the second quarter of 2019, reflecting the significant decline in organic sales,” said Arnold. “The twelve-month rolling average of our orders in the second quarter was down 4.6 percent, driven by declines in global oil and gas and industrial markets. The June backlog grew 2 percent organically over June 2019.”
Hydraulics segment sales were $411 million, down 32 percent from the second quarter of 2019, driven by a 30 percent decline in organic sales. Negative currency translation was 2 percent. Organic revenue declined due to continued weakness at both OEMs and distributors. Operating profits were $37 million, down 30 percent from the second quarter of 2019.
“Operating margins in the second quarter were 9.0 percent, up 20 basis points over the second quarter of 2019,” said Arnold. “Orders in the second quarter decreased 33.7 percent from the second quarter of 2019, driven by continued weakness in most of our end markets.”
Aerospace segment sales were $461 million, down 27 percent from the second quarter of 2019, driven by the downturn in commercial aviation. Organic sales were down 35 percent, partially offset by an 8 percent increase from the acquisition of Souriau-Sunbank. Operating profits were $68 million, down 56 percent from the second quarter of 2019.
“Operating margins in the quarter were 14.8 percent,” said Arnold. “The twelve-month rolling average of our orders in the second quarter was down 12.8 percent. Backlog at the end of June was down 5 percent organically compared to June 2019.”
The Vehicle segment posted sales of $327 million, down 59 percent from the second quarter of 2019. Organic sales were down 52 percent. The divestiture of our Automotive Fluid Conveyance business at the end of last year reduced revenues by 4 percent, and currency translation was negative 3 percent. The segment had an operating loss of $21 million.
“Our revenue in Vehicle declined dramatically in the quarter due to customer plant shutdowns to deal with the COVID-19 pandemic, lower Class 8 OEM production, and global weakness in light vehicle production,” said Arnold. “We anticipate much better conditions in the second half of 2020 since customer plants have reopened and demand is returning.”
eMobility segment sales were $56 million, down 33 percent from the second quarter of 2019. The decline was entirely due to lower organic sales. The operating loss was $2 million.
“We remain excited by the future prospects for eMobility,” said Arnold. “Since launching this segment in 2018, we have won programs whose mature year annual sales total approximately $500 million.”
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