Manufacturers

Eaton Second Quarter Earnings Up 21 Percent

DUBLIN, Ireland — Power management company Eaton Corporation plc today announced that earnings per share were $1.39 for the second quarter of 2018, an increase of 21 percent over the second quarter of 2017. Net income was $610 million, up 18 percent over the second quarter of 2017.

Sales in the second quarter of 2018 were $5.5 billion, up 7 percent over the same period in 2017. The sales increase consisted of 7 percent growth in organic sales and 1 percent increase from positive currency translation, partially offset by a negative 1 percent from the divestiture in 2017 of our share in a small electrical JV and also the formation of the Eaton Cummins JV.

Craig Arnold, Eaton chairman and chief executive officer, said, “We had a strong second quarter, with revenues and earnings per share coming in above the high end of the guidance we provided. Coming into the quarter, we expected organic sales would be up 5 percent. Our actual organic sales growth was 7 percent. The 7 percent organic growth was our highest quarterly rate of growth since the fourth quarter of 2011.

“Our segment margins in the second quarter were 17.0 percent, an all-time quarterly record, and also above the high end of our guidance. This represents a 140 basis point improvement over the second quarter of 2017,” said Arnold. “And despite a higher tax rate in the second quarter of 2018 than last year, our after-tax margin came in at 11.1 percent.

“Operating cash flow in the second quarter was $499 million, impacted by the growth of working capital needed to fund our rapid sales growth and as a result of pre-buying inventory to mitigate the impact of trade tariffs,” said Arnold. “Our full-year outlook for cash generation is unchanged from our prior forecast. We also continued to return substantial cash to our shareholders in the quarter, repurchasing $300 million of our shares. And we have repurchased $600 million of our shares over the first six months of the year.

“We now expect 2018 earnings per share to be between $5.20 and $5.40, up $0.10 from our prior guidance, representing at the midpoint a 14 percent increase over 2017, excluding the gain on the formation of the Eaton Cummins JV and the income arising from the new tax bill in 2017,” said Arnold. “For the third quarter of 2018, we anticipate earnings per share to be between $1.35 and $1.45.”

Business Segment Results
Sales for the Electrical Products segment were $1.8 billion, up 4 percent over the second quarter of 2017. Organic sales were up 3 percent and currency translation was positive 1 percent. Operating profits were $334 million, up 12 percent over the second quarter of 2017.

“Operating margins in the second quarter were 18.5 percent, 120 basis points over 2017 and a record for a second quarter,” said Arnold. “Orders in the second quarter were up 4 percent over the second quarter of 2017, driven by strength in both industrial and residential markets.”

Sales for the Electrical Systems and Services segment were $1.5 billion, up 7 percent over the second quarter of 2017. Organic sales were up 7 percent, currency translation was positive 1 percent, and the sale in 2017 of our stake in a small joint venture reduced sales by 1 percent. Operating profits were $227 million, up 17 percent over the second quarter of 2017.

“Operating margins were 15.0 percent, an improvement of 130 basis points over 2017,” said Arnold. “Orders in the second quarter were up 15 percent over the second quarter of 2017, led by strong growth in the Americas and Asia Pacific. We saw particular strength in large industrial projects and data centers. With the strong orders we have booked over the last nine months, we expect continued sales strength in the second half of the year.”

Hydraulics segment sales were $723 million, up 14 percent over the second quarter of 2017. Organic sales were up 13 percent and currency translation was positive 1 percent. Operating profits in the second quarter were $101 million, an increase of 36 percent over the second quarter of 2017.

“Operating margins in the quarter were 14.0 percent, an improvement of 230 basis points over 2017,” said Arnold. “Hydraulics orders in the second quarter of 2018 were down 1 percent from the second quarter of 2017, with strong growth in Asia Pacific and moderate growth in Americas offset by a decline in Europe. We believe the decline in European orders reflects our ability to now deliver to shorter lead times as a result of investments we have made in new capacity, making it unnecessary to place long-dated orders. Our backlog for the total business remains strong and is up 26 percent year-to-date.”

Aerospace segment sales were $463 million, up 6 percent over the second quarter of 2017, all coming from organic sales growth. Operating profits in the second quarter were a record $90 million, up 11 percent over the second quarter of 2017.

“Operating margins in the quarter were 19.4 percent, 90 basis points over 2017,” said Arnold. “Orders in the quarter were up 18 percent over the second quarter of 2017. We saw particular strength in orders for the commercial and military aftermarket, business jets, military fighters, and military rotorcraft.”

The Vehicle segment posted sales of $899 million, up 6 percent over the second quarter of 2017. Organic sales were up 11 percent partially offset by a negative 5 percent as a result of the formation of the Eaton Cummins joint venture in 2017. Operating profits in the second quarter were $166 million, up 18 percent over the second quarter of 2017.

“Operating margins in the quarter were 18.5 percent, an improvement of 180 basis points over 2017,” said Arnold. “We continue to forecast NAFTA Class 8 production in 2018 to be 295,000 units.”

eMobility segment sales were $83 million, up 15 percent over the second quarter of 2017. Organic sales were up 14 percent and currency translation was positive 1 percent. Operating profits in the second quarter were $14 million, up 8 percent over the second quarter of 2017. Operating margins in the quarter were 16.9 percent.

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