Eaton Reports Fourth Quarter Net Income of $0.46 Per Share

Eaton Reports Fourth Quarter Net Income of $0.46 Per Share

Earnings Reflect Anticipated Adjustments from Closing Cooper Acquisition in Fourth Quarter
Bridge Financing for Cooper Acquisition Has Been Repaid
Cooper Integration on Track

DUBLIN--(BUSINESS WIRE)-- Diversified industrial manufacturer Eaton Corporation plc (NYS: ETN) today announced net income per share of $0.46 for the fourth quarter of 2012, reflecting the impact of closing the acquisition of Cooper Industries plc on November 30, 2012. Net income included charges related to integrating recent acquisitions and transaction costs related to acquisitions. Excluding these charges, operating earnings per share in the fourth quarter of 2012 were $0.82 compared to $1.08 per share in the fourth quarter of 2011. Operating earnings per share in 2012 included restructuring actions of $(0.14) per share taken in the fourth quarter related to weaker than originally anticipated end market demand in the fourth quarter of 2012, weakness which is expected to continue into early 2013.


Sales in the quarter were $4.3 billion, 7 percent higher than the same period in 2011. Net income in the fourth quarter of 2012 was $179 million compared to $362 million in 2011, a decrease of 51 percent. Operating earnings, which exclude acquisition integration charges and acquisition transaction costs, were $316 million compared to $366 million in 2011, a decrease of 14 percent.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We closed the acquisition of Cooper at the end of November and are off to a great start on the integration of Cooper into Eaton. As we had previously communicated, the closing of the Cooper transaction resulted in several unusual financial impacts to our fourth quarter results. Among these were $152 million of transaction costs reflected in our fourth quarter results. We also incurred $24 million of acquisition integration charges in the quarter.

"Sales growth in the fourth quarter of 7 percent consisted of a decline of 6 percent in core sales and a reduction of 1 percent from foreign exchange, offset by an increase of 14 percent from acquisitions. Of the 14 percent sales growth from acquisitions, Cooper represented 12 percent. End markets in the fourth quarter declined by 5 percent," said Cutler.

For the full year 2012, sales were $16.3 billion, 2 percent higher than 2011. Net income was $1.22 billion, and net income per share was $3.46. Operating earnings in 2012 totaled $1.38 billion, an increase of 2 percent compared to 2011. Operating earnings per share for 2012 were $3.94 versus $3.96 in 2011.

"Our full year 2012 sales increase of just 2 percent reflects the impact of continued uncertainty about economic growth in all major regions of the world," said Cutler. "Looking back at 2012, while weak economic conditions impacted our sales growth, with the acquisition of Cooper, 2012 will go down in Eaton's history as a year of immense transformation.

"We were able to obtain very attractive financing on the debt we issued in connection with the Cooper acquisition," said Cutler. "We issued $4.9 billion of term debt, with maturities from 3 to 30 years, at an average rate of 2.74 percent. We also used $1.67 billion of our bridge facility to close the transaction. As of last Friday, we have repaid the bridge financing.

"Our board will address the first quarter dividend at its meeting later this month," said Cutler.

"In 2013, we anticipate our revenues will grow approximately 42 percent," said Cutler. "Acquisitions completed in 2012 are expected to add $6 billion of revenues.

"We expect that 2013 operating earnings per share will set a record," said Cutler. "We estimate that first quarter operating earnings per share, which exclude an estimated $33 million of charges to integrate our recent acquisitions, will be between $0.70 and $0.80 per share. Note that this guidance includes a charge of $0.06 to complete the Cooper inventory purchase price adjustment.

"For the full year 2013, we estimate that operating earnings per share, which exclude an estimated $145 million of charges to integrate our recent acquisitions, will be between $4.05 and $4.45 per share," said Cutler. "Based on the midpoint of this guidance, our operating earnings per share in 2013 will grow 8 percent."

Business Segment Results

Fourth quarter sales for the Electrical Americas segment were $1.2 billion, up 3 percent from the fourth quarter of 2011. Operating profits in the fourth quarter were $190 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits totaled $193 million, up 11 percent from the fourth quarter of 2011.

"End markets for our Electrical Americas segment grew 1 percent during the fourth quarter, and our orders grew 11 percent," said Cutler. "Our operating margin was 16.7 percent.

"Our U.S. nonresidential electrical and residential electrical markets showed good growth during the quarter, while the power quality market remained soft," said Cutler.

Fourth quarter sales for the Electrical Rest of World segment were $711 million, up 2 percent over the fourth quarter of 2011. This is the first quarter of revenue growth in over a year. Operating profits were $68 million. Excluding acquisition integration charges of $3 million during the quarter, operating profits totaled $71 million, up 1 percent over the fourth quarter of 2011.

"During the fourth quarter, our Rest of World electrical markets declined 5 percent, as both Europe and APAC remained soft," said Cutler. "Despite the market decline, we were able to grow our revenues and post an operating margin of 10.0 percent in the quarter. The restructuring actions we took in the quarter reduced the margin by 0.4 percent. Orders in the fourth quarter increased 2 percent."

Fourth quarter sales for the Cooper segment were $470 million, reflecting Eaton's ownership of Cooper for the month of December. Operating profits were $66 million. Excluding acquisition integration charges of $2 million during the quarter, operating profits were $68 million.

"In 2013, we are going to be resegmenting our electrical business," said Cutler. "We will be reporting two segments, the first named Electrical Products and the second named Electrical Systems and Services. For 2013, we expect our overall electrical markets to grow 3 to 4 percent."

In the Hydraulics segment, fourth quarter sales were $693 million, 2 percent lower than the fourth quarter of 2011. The 2 percent sales decline was made up of 10 percent growth from acquisitions offset by an 11 percent decline in core growth and a 1 percent decline from foreign exchange. Hydraulics markets in the fourth quarter declined 11 percent compared to the same period in 2011, with U.S. markets down 9 percent and non-U.S. markets down 12 percent.

Operating profits in the fourth quarter were $44 million. Excluding acquisition integration charges of $7 million in the fourth quarter of 2012, operating profits were $51 million, down 52 percent from the fourth quarter of 2011.

"The global hydraulics market had another weak quarter, as mobile OEMs in particular maintained a cautious stance regarding future volumes. Our bookings in the quarter declined 24 percent from the fourth quarter of 2011," said Cutler. "To address continued weakness in our Hydraulics markets, particularly in Europe, we took restructuring actions in the fourth quarter that reduced our Hydraulics margins by 2.5 percent. For 2013, we anticipate global hydraulics markets will decline by 4 percent, with U.S. markets down a bit more than non-U.S. markets."

The Aerospace segment posted fourth quarter sales of $434 million, an increase of 1 percent over the fourth quarter of 2011. Aerospace markets in the fourth quarter grew by 1 percent. Aerospace orders declined by 4 percent during the quarter. Operating profits in the fourth quarter were $45 million, down 42 percent from the fourth quarter of 2011.

"Aerospace markets in the fourth quarter posted just 1 percent growth, as good growth in commercial deliveries and modest growth in the commercial aftermarket was largely offset by a decline in the defense aerospace markets," said Cutler. "The mix shift we have experienced has been the primary driver of our lower margins in 2012. We also took restructuring actions in the quarter to improve the efficiency of the business, reducing our operating margin by 0.9 percent. For 2013, we anticipate our aerospace markets will grow 2 percent."

The Truck segment posted sales of $504 million in the fourth quarter, down 26 percent compared to 2011. Truck markets in the fourth quarter declined 13 percent, with U.S. markets down 14 percent and non-U.S. markets down 12 percent. Operating profits were $81 million, down 41 percent from the fourth quarter of 2011, partly impacted by restructuring actions taken to reflect weaker markets. The restructuring actions reduced the operating margin by 1.6 percent.

The Automotive segment posted fourth quarter sales of $367 million, down 8 percent from the fourth quarter of 2011. Automotive unit production in the fourth quarter declined by 7 percent, with U.S. markets up 5 percent and non-U.S. markets down 11 percent. Operating profits in the fourth quarter were $17 million, down 60 percent from the fourth quarter of 2011 largely due to restructuring actions taken during the quarter to deal with continued soft conditions in Europe. The restructuring actions reduced the operating margin by 2.7 percent.

"Starting in 2013, our truck and automotive drivetrain and powertrain systems businesses will be reported as the Vehicle segment," said Cutler. "We expect our Vehicle markets to grow 2 percent during 2013."

Eaton is a diversified power management company providing energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power. With 2012 sales of $16.3 billion, Eaton is a global technology leader in electrical products, systems and services for power quality, distribution and control, power transmission, lighting and wiring products; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuel, hydraulics and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy and safety. Eaton acquired Cooper Industries plc in 2012. Eaton has approximately 103,000 employees and sells products to customers in 175 countries. For more information, visit www.eaton.com.

Notice of conference call: Eaton's conference call to discuss its fourth quarter and full year 2012 results is available to all interested parties as a live audio webcast today at 10 a.m. United States Eastern time via a link on the center of Eaton's home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on fourth quarter results, which will be covered during the call.

This news release contains forward-looking statements concerning the first quarter 2013 and full year 2013 operating earnings per share, the growth in full year 2013 revenues, the performance of our worldwide markets, and our growth in relation to end markets. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company's business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions or realizing expected synergies from the Cooper acquisition; new laws and governmental regulations; interest rate changes; changes in currency exchange rates; stock market fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.

Financial Results

The company's comparative financial results for the three months and year ended December 31, 2012 are available on the company's website, www.eaton.com.

       

 

     

 

 
 

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF INCOME

 

Three months ended

December 31

Year ended
December 31

(In millions except for per share data) 2012 2011 2012 2011
Net sales $ 4,333 $ 4,033

$

16,311 $ 16,049
 
Cost of products sold 3,132 2,817

 

11,448

11,261
Selling and administrative expense 815 707 2,894 2,738
Research and development expense 126 101 439 417
Interest expense-net 108 26 208 118
Other expense (income)-net 64 (8) 71 (38)
Income before income taxes 88 390 1,251 1,553
Income tax (benefit) expense (92) 29 31 201
Net income 180 361 1,220 1,352
Adjustment for net (income) loss for noncontrolling interests (1) 1 (3) (2)
Net income attributable to Eaton common shareholders $ 179 $ 362 $ 1,217 $ 1,350
 
Net income per common share
Diluted $ 0.46 $ 1.07 $ 3.46 $ 3.93

Basic

0.47

1.08

3.54

3.98

 
Weighted-average number of common shares outstanding
Diluted 384.4 338.1 350.9 342.8
Basic 381.3 334.2 347.8 338.3
 

Reconciliation of net income attributable to Eaton common shareholders to operating earnings

Net income attributable to Eaton common shareholders $ 179 $ 362 $ 1,217 $ 1,350
Excluding acquisition integration charges and transaction costs (after-tax) 137 4   167 10
Operating earnings $ 316 $ 366 $ 1,384 $ 1,360
 
Net income per common share - diluted $ 0.46 $ 1.07 $ 3.46 $ 3.93

Excluding per share impact of acquisition integration charges and transaction costs (after-tax)

0.36 0.01 0.48   0.03
Operating earnings per common share $ 0.82 $ 1.08 $ 3.94

$

3.96

 

See accompanying notes.

 
       

 

   

 

 

EATON CORPORATION plc

   

BUSINESS SEGMENT INFORMATION

 

Three months ended
December 31

Year ended
December 31

(In millions) 2012 2011 2012 2011
Net sales
Electrical Americas $ 1,154 $ 1,121 $ 4,517 $ 4,192
Electrical Rest of World 711 699 2,731 2,984
Cooper 470 470
Hydraulics 693 705 2,960 2,835
Aerospace 434 430 1,719 1,648
Truck 504 680 2,309 2,644
Automotive 367 398 1,605 1,746
Total net sales $ 4,333 $ 4,033 $ 16,311 $ 16,049
 
Segment operating profit
Electrical Americas $ 190 $ 173 $ 749 $ 605
Electrical Rest of World 68 69 249 278
Cooper 66 66
Hydraulics 44 103 369 438
Aerospace 45 78 213 244
Truck 81 137 420 486
Automotive 17 42 150 209
Total segment operating profit 511 602 2,216 2,260
 
Corporate
Amortization of intangible assets (66) (47) (195) (190)
Interest expense-net (108) (26) (208) (118)
Pension and other postretirement benefits expense (41) (37) (162) (142)
Inventory step-up adjustment (38) (42) (5)
Other corporate expense-net (170) (102) (358) (252)
Income before income taxes 88 390 1,251 1,553
Income tax (benefit) expense (92) 29 31 201
Net income 180 361 1,220 1,352
Adjustment for net (income) loss for noncontrolling interests (1) 1 (3) (2)
Net income attributable to Eaton common shareholders $ 179 $ 362 $ 1,217 $ 1,350
 

See accompanying notes.

 
           
 
EATON CORPORATION plc
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