Markets
ESE

Eaton (ETN) Beats Q4 Earnings Estimates, Gives Guidance

Eaton Corporation plc 's ETN fourth-quarter 2015 operating earnings per share of $1.17 were 7.3% higher than the Zacks Consensus Estimate of $1.09. Earnings exceeded the guidance range of $1.05 to $1.15 per share.

Eaton Corporation (ETN) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

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.

Including an acquisition integration charge of 2 cents, GAAP earnings were $1.15 per share in the reported quarter compared with $1.23 per share in the year-ago quarter.

In 2015, earnings per share were $4.30, up 8.3% year over year and ahead of the Zacks Consensus Estimate by 1.67%.

Revenues

In the quarter under review, Eaton's total revenues came in at $5.05 billion, missing the Zacks Consensus Estimate by 0.4%.

On a year-over-year basis, revenues were down nearly 9.1% due to lower Aerospace (4%), Vehicle (13%), Electrical Products (5%), Electrical Systems and Services (9%) and Hydraulics (18%) sales.

In 2015, total revenues were down 7.9% year over year to $20.9 billion, primarily due to a 2% decline in organic sales and a 5.5% headwind from negative currency translation.

Quarterly Highlights

An unfavorable currency translation was the primary reason for the revenue decline. Sales took a 5% hit from currency translation, while drop in organic sales accounted for 4%.

Cost of products sold in the reported quarter was $3,427 million, down 10.9% from the prior-year period.

Selling and administrative expenses decreased 3.3% to $873 million from $903 million a year ago.

In the fourth quarter of 2015, the company's research and development expenses were $153 million, down 0.6% from $154 million in the prior-year quarter.

Interest expenses increased 5.6% year over year to $57 million.

Financial Update

Eaton's cash and short-term investments were $0.45 billion as of Dec 31, 2015, compared with $1.02 billion as of Dec 31, 2014.

As of Dec 31, 2015, long-term debt was $7.78 billion compared with $8.02 billion as of Dec 31, 2014.

Guidance

First quarter 2016 earnings per share are expected to be between 80 cents and 90 cents per share.

For 2016, Eaton anticipates organic revenues to decline between 2% and 4%, reflecting a continuation of sluggish markets around the world. The company expects the impact of negative currency translation to be nearly 2% in 2016.

Taking into consideration the impact of lower organic growth and restructuring actions, the company expects 2016 operating earnings of $4.15-$4.45 per share.

Upcoming Releases

ESCO Technologies Inc. ESE is slated to release first-quarter fiscal 2016 earnings on Feb 9. The Zacks Consensus Estimate is pegged at 37 cents.

Ideal Power, Inc. IPWR is slated to release fourth-quarter 2015 earnings on Feb 11. The Zacks Consensus Estimate is pegged at a loss of 32 cents.

Pioneer Power Solutions, Inc. PPSI is slated to release fourth-quarter 2015 earnings on Mar 29. The Zacks Consensus Estimate is pegged at 5 cents.

Our View

Eaton managed to surpass earnings expectations but its revenues lagged estimates. Persistent weakness in the end markets and negative currency translations are taking a toll on the top line.

However, Eaton's ability to lower structural costs helped to counter the weakening end markets resulting in an earnings beat.

Benefits from restructuring activities have encouraged the company to expand the program. Eaton has plans to invest $400 million in its three-year restructuring program, spanning from 2015 to 2017.

The company used its cash flow to repurchase shares worth $228 million in the fourth quarter, an appreciable shareholder friendly gesture. Eaton has plans to repurchase shares worth $3 billion in the 2015-2018 time period.

However, we are concerned about the consistent drop in bookings in its business segments. Bookings at the Hydraulics and Electrical Systems and Services segments decreased 22% and 2%, respectively, due to weak end markets.

Eaton currently carries a Zacks Rank #4 (Sell).

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 >>

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

ESE PPSI IPWR ETN

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More