Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Eaton (ETN) Q1 Earnings & Revenues Beat; Keeps '16 View

Eaton Corporation plc’s ETN first-quarter 2016 operating earnings per share of 88 cents were 3.5% above the Zacks Consensus Estimate of 85 cents. Earnings were near the higher end of the guidance range of 80 to 90 cents per share.

Earnings however declined 8% from the year-ago quarter. The decline was primarily due to weakness in demand in the majority of the company’s markets.

Revenues

In the quarter under review, Eaton’s total revenues came in at $4.81 billion, beating the Zacks Consensus Estimate marginally by 0.8%.

On a year-over-year basis, revenues were down nearly 7.8% due to lower Aerospace (4%), Vehicle (16.8%), Electrical Products (0.7%), Electrical Systems and Services (7.3%) and Hydraulics (17.1%) sales.

Quarterly Highlights

An unfavorable currency translation and decline in organic sales were the primary reasons for the revenue decline. Sales took a 2% hit from currency translation, while drop in organic sales accounted for 6%.

Cost of products sold in the reported quarter was $3,291 million, down 8.4% from the prior-year period.

Selling and administrative expenses decreased 2.5% to $892 million from $915 million a year ago.

In the first quarter of 2016, the company’s research and development expenses were $149 million, down 5.7% from $158 million in the prior-year quarter.

Interest expenses of $57 million were on par with the prior-year quarter.

Financial Update

Eaton’s cash and short-term investments were $0.57 billion as of Mar 31, 2016, compared with $0.45 billion as of Dec 31, 2015.

As of Mar 31, 2016, long-term debt was $7.57 billion compared with $7.78 billion as of Dec 31, 2015.

Guidance

Second quarter 2016 earnings per share are expected to be between $1.00 and $1.10 per share.

For 2016, Eaton still anticipates organic revenues to decline between 2% and 4%, reflecting continuing sluggish markets around the world. The company expects the impact of negative currency translation in 2016 to be lower than the previous expectation of $400 million. Eaton expects currency translation to have a roughly $200 million hit in 2016.

Eaton reiterated its 2016 operating earnings guidance of $4.15–$4.45 per share.

Upcoming Releases

ESCO Technologies Inc. ESE is slated to release second-quarter fiscal 2016 earnings on May 3. The Zacks Consensus Estimate is pegged at 36 cents.

Ideal Power, Inc. IPWR is slated to release first-quarter 2016 earnings on May 12. The Zacks Consensus Estimate is pegged at a loss of 32 cents.

Pioneer Power Solutions, Inc. PPSI is slated to release first-quarter 2016 earnings on May 12. The Zacks Consensus Estimate is pegged at 11 cents.

Our View

Eaton managed to surpass earnings and revenue expectations.  However, due to the persistent weakness in the end markets and negative currency translations, both the top and bottom line were lower year over year.

Despite difficult end market conditions, Eaton’s strong business model allows it to generate ample cash flow. During the first quarter, the company raised its dividend rate by 4% and bought back shares worth $100 million. This shareholder friendly gesture  will undoubtedly attract more investors.

However, we are concerned about the consistent drop in bookings in some of  its business segment. Bookings in Electrical Systems and Services and Hydraulics were down 2% and 10%, respectively, due to weak end markets.

Eaton currently carries a Zacks Rank #3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. http://www.zacks.com/registration/pfp/?ALERT=RPT_7BST_LP194&... blog">Click to get this free report >>


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
 
ESCO TECH INC (ESE): Free Stock Analysis Report
 
EATON CORP PLC (ETN): Free Stock Analysis Report
 
PIONEER PWR SOL (PPSI): Free Stock Analysis Report
 
IDEAL POWER INC (IPWR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research