Earnings Preview: ETN - Analyst Blog
October 30 2012 - 9:30AM
Zacks
Eaton Corporation
(ETN) is expected to release its third quarter 2012 results on
October 31, 2012. The Zacks Consensus Estimate for the third
quarter of 2012 is $1.09 per share (year-over-year increase of
2.31%) on revenues of $4,195 million (year-over-year increase of
1.75%).
Second-quarter 2012, a Synopsis
Industrial manufacturer Eaton Corporation released its second
quarter results with earnings per share of $1.15 beating the
year-ago quarter figure of 97 cents per share. Earnings were ahead
of the Zacks Consensus Estimate of $1.09 per share.
Eaton’s GAAP earnings during the second quarter were $1.12 per
share versus 97 cents per share reported in the year-ago quarter.
The difference between GAAP and operating earnings of 3 cents
during the reported quarter was due to acquisition integration
charges.
In the second quarter 2012, Eaton earned net quarterly revenue of
$4.07 billion, which was marginally lower than the year-ago
performance of $4.09 billion. The year-over-year results were
impacted by lower-than-expected end market growth and an
unfavorable foreign exchange rate, which were marginally offset by
growth in core sales and positive contribution from the acquired
assets.
Quarterly revenue was also lower than the Zacks Consensus Estimate
of $4.2 billion.
Read our full coverage on this earnings report: Mixed Performance
from Eaton
Guidance for 2012
Eaton expects its 2012 pro forma and GAAP earnings to be in the
range of $4.20 – $4.50 per share and $4.09 –$4.39 per share,
respectively. Pro forma earnings estimates exclude acquisition
integration charges.
After registering a strong performance in the first half of the
year, the company expects the Electrical Americas market to improve
8% in 2012, up from the earlier projection of 6%. Electrical Rest
of the World registered soft results in the first half of 2012 and
the company expects a 3% year-over-year decline in the business in
2012. The company expects the global hydraulics business to
grow at a 3% rate in 2012, lower than the previous expectation due
to delay in recovery in the Chinese markets.
Zacks
Consensus
The analysts covered by Zacks expects Eaton to post third-quarter
2012 earnings of $1.09 per share, higher than $1.07 delivered in
the prior-year quarter. Currently, the Zacks Consensus Estimate
ranges between earnings of $1.01 and $1.27 a share.
For 2012, the Zacks Consensus Estimate stood at $4.25 per share,
significantly up from its prior-year earnings of $3.96 per share.
The current Zacks Estimate ranges between $4.10 and $4.40 per
share.
Estimate Revisions Trend
Agreement
We see a declining trend for estimates for the third quarter of
2012. Among the 15 estimates, none of the estimates moved in the
upward direction over the last 30 days. None moved in the opposite
direction over the last 7 days, whereas 5 moved down over the last
30 days.
Similarly for full-year 2012, among the 14 estimates, none of the
estimates moved in the upward direction over the last 30 days. None
moved in the opposite direction over the last 7 days, while 6 moved
downwards in the last 30 days.
The analysts seem to be negative for third quarter as well as full
year 2012.
Magnitude
The Zacks Consensus Estimate for the third quarter 2012 remained
static for the last 7 days, while it inched down by 3 cents to 1.09
cents over the last 30 days. For full year 2012, the Zacks
Consensus Estimate did not witness any movement in the last 7 days
but moved down by 4 cents in the last 30 days.
Surprise History
With respect to earnings surprises, Eaton has topped the Zacks
Consensus Estimate in two of the last four quarters in the range of
(2.70%) to 5.50%. The average surprise over the last four quarter
remained at positive 0.80%. The earnings beat in June 2012 was the
highest at 5.50%.
Our Recommendation
Eaton Corporation continues to reward its shareholders through
payment of regular quarterly dividend. Moreover, it is busy with
acquisitions. Recently, the company has completed the proposed
acquisition of Santiago-based Rolec Comercial e Industrial S.A.
This transaction involves acquisition of all the shares of the
Chilean firm. Moreover, the company is progressing well with the
acquisition procedure of Cooper Industries plc
(CBE). Yesterday, the company received approval from Russia’s
Federal Anti-Monopoly Service and the Competition Commission in
South Africa.
It has already received approval from competition authorities in
the United States, Brazil, Canada, Mexico, South Korea and Turkey,
as well as all necessary approvals of the shareholders of Eaton and
Cooper. However, the transaction remains subject to customary
closing conditions, including certain additional regulatory
clearances.
In view of Eaton’s last few acquisitions, it is evident that the
company intends to diversify its portfolio while expanding its line
of businesses as well as its global footprint. However, we are
skeptical about slow economic growth rate in the emerging countries
and volatile currency market conditions, which might have a
negative impact on Eaton’s forthcoming performance.
The company presently retains a short-term Zacks #4 Rank (Sell). We
have a long-term Neutral recommendation on the stock.
Cleveland, Ohio-based Eaton Corporation is a diversified power
management company and a global technology leader in electrical
components and systems for power quality, distribution and control;
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.
COOPER INDS PLC (CBE): Free Stock Analysis Report
EATON CORP (ETN): Free Stock Analysis Report
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