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Eaton Reports 2Q Earnings Up 14 Percent

Mon, 07/23/2012 - 1:16pm
Thomas J. Sheerman, Associated Press

CLEVELAND (AP) — Diversified manufacturer Eaton Corp. overcame sluggishness in Europe and China with strong performances in the Western hemisphere to post a nearly 14 percent increase in second-quarter net income.

Its earnings beat Wall Street expectations, sending its shares up almost 5 percent in midday trading. But revenue came in short, and the company also narrowed its earnings guidance for the year, scaling back its growth estimate for the markets it serves.

Cleveland-based Eaton, which makes electrical, transmission and fuel systems for the automotive, aerospace and defense industries, said Monday that its net income rose to $382 million, or $1.12 per share, in the April-June quarter, up from $336 million, or 97 cents per share, a year ago.

Before acquisition charges, Eaton earned $1.15 per share, beating the $1.09 forecast of analysts surveyed by FactSet.

Revenue slipped to $4.07 billion from $4.09 billion a year ago. Analysts expected revenue of $4.25 billion.

Eaton's Electrical Americas segment sales rose 10 percent and U.S. hydraulics markets increased 7 percent. Eaton said its markets were hurt by uncertainty in Europe and slow growth rates in China, India and Brazil.

Electrical sales outside the Western hemisphere dropped 13 percent over the second quarter of 2011.

"The view here is that we don't believe there will be any uptick in Europe or China in the fourth quarter," Chairman and CEO Alexander Cutler told analysts in a conference call.

"When we shared our forecast with you at the end of the first quarter, we felt there was a pretty good opportunity for the beginning of a rebound in the fourth quarter. We see that now pushing into next year."

Eaton narrowed its full-year guidance in view of the strong dollar and uncertainty in some markets. Eaton now expects to earn between $4.20 and $4.50 per share, excluding acquisition charges, down from its April guidance of $4.30 to $4.70.

Analysts expect earnings of $4.36 per share for the year.

"We now believe our end markets for the year are likely to grow by 3 to 4 percent, a reduction from the 5 percent growth we had forecast in April," Cutler said.

"We also anticipate that the impact of foreign exchange rates on revenue will be more negative than previously forecast."

Cutler said in a phone interview that Eaton projects 10 percent growth in its U.S. automotive market this year, helped by more fuel-efficient cars.

"A lot of the new product has got really enhanced fuel economy in it and consumers seem to be very interested in buying it," he said.

"Unlike what's going on around the rest of the world, where we've got a much more difficult situation in the automotive markets, it's been quite good here in the U.S."

Cutler said the Securities and Exchange Commission was reviewing the draft registration statement for its pending acquisition of Cooper Industries PLC. Shareholder meetings to vote on the deal will be scheduled when the reviews have been completed.

Eaton completed the U.S. antitrust review process in mid-July, Cutler said.

Eaton shares rose $1.86, or 4.8 percent, to $40.92 in midday trading Monday. They are up 24 percent from their 52-week low of $33.09 last October but are still 23 percent below their high of $53.23 set last July.

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