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Eaton (ETN) Lags Q3 Earnings Estimates on Natural Disasters

Eaton Corporation plc’s ETN earnings per share of $1.25 in third-quarter 2017 missed the Zacks Consensus Estimate by a penny. However, reported earnings were at the within of the management’s guidance range of $1.20-$1.30 per share.

The three recent hurricanes and the earthquake in Mexico City adversely impacted earnings by 3 cents in the reported quarter.

The operating earnings in the quarter excluded one-time gain of $1.89 per share on the sale of the business related to the Eaton Cummins Automated Transmission Technologies joint venture.

Eaton Corporation, PLC Price, Consensus and EPS Surprise

 

Revenues

In the quarter, Eaton’s total revenues came in at $5.21 billion, surpassing the Zacks Consensus Estimate of $5.11 billion by 1.9%. The figure was 4.5% higher than the year-ago quarter.

The year-over-year sales increase includes of 3.5% growth in organic sales and 1% increase in positive currency translations.

Total revenues improved primarily due to a higher contribution from Electric Products, Vehicle, Aerospace and Hydraulics segments, offset marginally by lower contribution from Electrical Systems and Services segment.

Quarterly Highlights

Cost of products sold in the reported quarter was $3,469 million, up 2.9% from the prior-year period.

Selling and administrative expenses increased 7.4% to $916 million from $853 million a year ago.

In the third quarter, the company’s research and development expenses were $147 million, up from $146 million in the prior-year quarter.

Interest expenses of $60 million were up 1.7% from the prior-year quarter.

Bookings in Electrical Systems and Services segment was down 1% year over year. Hydraulics segment orders were up 32% year over year. Bookings in Electrical Products and Aerospace segment were up 5% and 11%, respectively.

Financial Update

Eaton’s cash and short-term investments were $791 million as of Sep 30, 2017, compared with $543 million as of Dec 31, 2016.

As of Sep 30, 2017, long-term debt was $7,273 million compared with $6,711 million as of Dec 31, 2016.

Year to date, the company repurchased shares worth $789 million and is on track to complete its $3 billion share repurchase authorization in 2018.

Guidance

Fourth-quarter 2017 earnings per share are expected to be between $1.19 and $1.29.

The company revised its earnings guidance for 2017.Post revision, new expectation for 2017 will be $4.55-$4.65 per share compared with the prior guidance of $4.50-$4.70.

Eaton expects its organic revenues to increase in the range of 2% to 3% in 2017, up from the prior expectation of 1% to 3%.

Zacks Rank

Eaton currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our View

Eaton’s earnings were lower than expectations but its total revenues gained from solid contribution from most of its segments.

The company will also gain from its restructuring activities, which is expected to bring about a net gain of $55 million in 2017.

We believe the improvement in end-market conditions is boosting the order book of the company. The free cash flow generation capability is also helping Eaton to move ahead with its share repurchase program.

A Peer Release

ABB Ltd ABB reported third-quarter 2017 earnings of 34 cents per share, beating the Zacks Consensus Estimate of 30 cents by 13.3%.

Upcoming Releases

SPX FLOW Inc. FLOW is slated to report third-quarter earnings on Nov 1. The Zacks Consensus Estimate is pegged at 46 cents.

CUI Global Inc. CUI is slated to report third-quarter 2017 earnings on Nov 9. The Zacks Consensus Estimate is pegged at a loss of 8 cents.

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