Eaton 3Q profit drops, boosts outlook, shares rise

By THOMAS J. SHEERAN

posted: 36 DAYS 5 HOURS AGO

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CLEVELAND -Eaton Corp., the industrial equipment maker, said Monday its third quarter profit fell 39 percent, but it sees improvement in key markets that should help it beat its earlier earnings projections for the full year.

Goldman Sachs said in a research report that Eaton's strong cash flow and higher fourth-quarter guidance would generate a positive Wall Street reaction, and it did: shares jumped $4.31, or 7.1 percent, to $64.73 in midday trading after rising to a 52-week high of $65.32 earlier.

Shares closed up $3.47, or 5.7 percent, at $63.89 and have traded within a 52-week range of $30.02 to $65.32.

Operating cash flow in the third quarter $471 million, totaling $1.6 billion in the past four quarters. Eaton said it allowed the company to pay down debt.

Alexander M. Cutler, chairman and CEO, said substantial cost-cutting has helped in the past year. He also said sequential revenue trends show "the very early stages of recovery" for some key customer groups.

"As we look at our end markets, we expect the economic recovery we are beginning to experience in our early cycle markets will continue," Cutler said in a statement announcing the results.

In a phone interview, Cutler said the company would benefit from supplying the residential construction, automotive and truck industries that typically recover early in a recession.

"So we are encouraged because we have about a third of our company's revenues are driven by early-cycle businesses so we think we are on the front end of beginning to have volumes starting to increase again," he said.

Cleveland-based Eaton earned $193 million, or $1.14 per share, in the three months ended Sept. 30, down from $315 million, or $1.87 per share, a year ago.

Excluding charges related to acquisitions, operating earnings amounted to $1.21 a share.

Revenue fell 26 percent to $3.03 billion from $4.11 billion a year ago. But Cutler noted revenue rose 4 percent versus the second quarter.

Analysts surveyed by Thomson Reuters expected, on average, earnings of 92 cents per share on revenue of $3.13 billion. Analysts typically exclude one-time items from their estimates.

Eaton expects net income in the fourth quarter of $1 to $1.10 per share and operating earnings excluding charges for integrating recent acquisitions of $1.15 to $1.25 a share.

For the full year, Eaton expects net income per share of $2.05 to $2.15 and operating earnings of $2.40 to $2.50. In July, Eaton forecast 2009 earnings of $1.65 to $1.85 per share.

"The business is running even better now than we had anticipated," Cutler said in a conference call with analysts.

Analysts expect earnings of $1.06 for the fourth quarter and $1.99 for the full year.

Eaton has about 70,000 employees and sells in more than 150 countries. It provides electrical components and systems for power distribution and makes hydraulic, aerospace and vehicle parts and systems.

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AP Business Writer Stephen Singer in Hartford contributed to this report.

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On the Net: http://www.eaton.com

2009-10-19 17:29:57