Eaton (ETN) Lags Q3 Earnings Estimates, Narrows Guidance

Eaton Corporation ETN reported earnings per share of $1.43 in third-quarter 2018, which lagged the Zacks Consensus Estimate of $1.44 by a penny. The reported earnings were at the high end of management’s guided range of $1.35-$1.45. Moreover, the bottom line was 14.4% higher than the year-ago figure.    

Revenues

In the quarter, Eaton’s total revenues came in at $5,412 million, lagging the Zacks Consensus Estimate of $5,489 million by 1.4%.  However, total revenues were 3.8% higher than the year-ago quarter.

The year-over-year revenue increase includes 6% organic sales growth, and was partially offset by a 1% negative impact from currency translation and the divestiture of its share in a small electrical joint venture (JV) in 2017, along with 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 third quarter, Electrical Products’ total sales were $1,789 million, up 0.2% from the year-ago quarter. Organic sales were up 3% while currency translation negatively impacted the same by 1%. The quarter’s operating income was $343 million, up 4% year over year.

Electrical Systems and Services’ total sales were $1,519 million, up 6.9% from the year-ago quarter. Organic sales were up 9% but currency translation negatively impacted the same by 1%. Operating income in the quarter was $234 million, up 19.4% year over year.

Hydraulics total sales were $670 million, up 6% from the year-ago quarter. Organic sales were up 7% but currency translation had a 1% negative impact on the same. The quarter’s operating income was $94 million, up 18% year over year.

Aerospace total sales were $478 million, up 9% from the year-ago quarter. Organic sales were up 9%. Operating income in the quarter was $105 million, up 25% year over year.

Vehicle total sales were $876 million, up 2% from the year-ago quarter. Organic sales were up 7%, partially offset by a negative 2% impact as a result of the formation of the Eaton Cummins JV in 2017 and 3% from negative currency translation. The quarter’s operating income was $166 million, up 10.7% year over year.

eMobility segment’s total sales were $80 million, up 7% from the year-ago quarter. Also, organic sales were up 7%. However, operating income in the quarter was $10 million, down 38% year over year, primarily due to higher spending on research and development activities.

Quarterly Highlights

Cost of products sold in the reported quarter was $3,597 million, up 3.8% from the prior-year quarter.

Selling and administrative expenses were $889 million, down 1.4% from the year-ago quarter.

In the third quarter, the company’s research and development expenses were $138 million, down 6.1% from $147 million in the prior-year quarter.

Interest expenses of $67 million were up 11.7% from the prior-year quarter.

Orders in Electrical Products, Electrical Systems and Services, Hydraulics and Aerospace were up 3%, 4%, 4% and 12% year over year, respectively.

Financial Update

Eaton’s cash & cash equivalents were $327 million as of Sep 30, 2018 compared with $561 million on Dec 31, 2017.

As of Sep 30, 2018, long-term debt of the company was $6,737 million, down from $7,167 million on Dec 31, 2017.

Guidance

Fourth-quarter 2018 earnings per share are expected between $1.38 and $1.48.

The company raised its 2018 earnings expectation by 10 cents, estimated at the lower end of the guided range, to the range of $5.30-$5.40 per share from earlier projection of $5.20-$5.40.

Eaton has plans to repurchase shares worth $800 million to $1 billion in 2018.

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.

To Sum Up

Eaton’s earnings and total revenues in the third quarter were marginally lower than expectations. The company avoided the impact of new tariffs to a great extent through its strategy to manufacture in the zone of sale. The decision to buy back shares will generate a positive impact on its earnings.

Strong margins, improving organic sales and timely execution of plans by strong management team are expected to boost its performance over the long run.

Upcoming Releases

ESCO Technologies Inc. ESEI is slated to announce fourth-quarter fiscal 2018 earnings on Nov 15. The Zacks Consensus Estimate is pegged at $1.14.

Enersys ENS is scheduled to report fiscal second-quarter 2019 earnings on Nov 8. The Zacks Consensus Estimate is pegged at $1.16.

Pioneer Power Solution Inc. PPSI is slated to report third-quarter 2018 earnings on Nov 8. The Zacks Consensus Estimate is pegged at 15 cents.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Pioneer Power Solutions, Inc. (PPSI) : Free Stock Analysis Report
 
Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
 
Enersys (ENS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.