Eaton Earns $84 Million On Sales of $1.66 Billion
15 April 1999
Eaton Earns $84 Million On Sales of $1.66 Billion
CLEVELAND--April 15, 1999--Eaton Corporation today announced that first quarter 1999 earnings per share were $1.17, down 18 percent from last year's first quarter record $1.42 per fully diluted share. Net income for the first quarter was $84 million compared to last year's $105 million. Sales were $1.66 billion compared to $1.69 billion last year.Stephen R. Hardis, Chairman and Chief Executive Officer, said, "These first quarter operating results met our expectations, and we believe that earnings comparisons for the balance of 1999 should steadily improve. The $125 million we have invested in restructuring operations over the past two years is just beginning to pay off. We are also seeing good market acceptance of several major new products. Higher orders and a rising backlog for Semiconductor Equipment should buoy shipments for the remainder of the year. Robust North American demand for heavy trucks and for light vehicles has exceeded projections, and neither market shows signs of slackening.
"We are also increasingly excited by the acquisition of Aeroquip-Vickers, which was completed last week. Dedicated integration teams, composed of individuals from both corporations, have been at work since the February 1 announcement. Our initial findings confirm the opportunities we had anticipated from the combination. Our goals now are to speed implementation and to exceed our initial estimates of $120 million of annual synergies.
"In sum, for the first time in a year, we are again feeling optimistic."
Looking at Eaton's business segments, Hardis noted that Automotive Components' first quarter sales reached a record $532 million, 8 percent above one year ago. Excluding the 1998 acquisitions of GT Products and Amtec, sales were up 4 percent, slightly ahead of the 2 percent increase in production of light vehicles in the Americas and Europe. Segment profits were $68 million, 1 percent ahead of last year's $67 million before restructuring costs of $8 million.
Said Hardis, "We are continuing to fund the higher programmatic spending required by our continuing new product wins, which will drive sales and profits above overall automotive market trends over the next 1 to 3 years."
During the quarter, Eaton announced it would divest its Engineered Fasteners and Fluid Power divisions, with combined 1998 sales of $283 million, in order to minimize the equity issuance required by its acquisition of Aeroquip-Vickers, Inc.
Hydraulics & Other Components recorded first quarter 1999 sales of $145 million, 10 percent below last year's record volume and marginally better than the 13 percent year-to-year decline in North American mobile equipment shipments. Segment profits were $20 million compared to $30 million one year earlier. Said Hardis, "Though well below the boom conditions of early 1998, first quarter 1999 operating margins were above those of last year's second half. It appears that we have now seen the worst of the Asian crisis on our customers' orders, but we don't anticipate a meaningful upturn before this year's second half."
Sales of Industrial & Commercial Controls were $551 million, unchanged from year-earlier results. Adjusting for the impact of Brazil's devaluation, first quarter sales were up $8 million, or 1 percent. In comparison, the North American market for electrical distribution equipment and industrial controls was flat year to year. First quarter operating profits of $34 million were 26 percent below last year's comparable results. Said Hardis, "A modest increase in Cutler-Hammer sales was offset by surprising weakness in our Commercial and Aerospace markets. Profits were hurt by the weakness in those very profitable businesses, as well as by the continued costs of building Cutler-Hammer's new Engineering Services and Systems business."
First quarter Semiconductor Equipment sales were $57 million, 28 percent below last year. The segment reported a $12 million operating loss, an improvement of $2 million compared to year ago results. Hardis attributed the better results, despite much lower sales, to the initial impact of last year's $43 million operational restructuring. Said Hardis, "Industry orders have been rising for nearly 9 months, and the current book-to-bill ratio, at about 1.10, suggests shipments should begin following orders higher by this summer. Eaton's first quarter orders were the best in over a year, increasing our confidence that Eaton will achieve at least a break-even performance in 1999 compared to an $80 million operating loss in 1998."
Truck Components sales reached a record $376 million. Brazil's devaluation reduced reported sales by $14 million. The 5 percent year-to-year increase in volume is consistent with the rise in production of medium and heavy truck production in the Americas and Europe. Operating profits were $64 million, 4 percent below 1998 results before restructuring costs.
Noted Hardis, "Last year's first quarter North American factory sales of Class 8 trucks, at a 240,000 annual rate, represented the 'sweet spot' for Eaton production. This year, because of higher volumes and higher market share, we must make increasing use of Eaton's worldwide capacity to satisfy North American demand. At this point, we expect 1999 North American Class 8 production to reach a new record of more than 270,000 and, including Mexico, we expect NAFTA heavy truck production to reach 300,000 units."
Concluded Hardis, "We have stated our conviction that 1999 is a critical year for Eaton. The acquisition of Aeroquip-Vickers will not distract Eaton leadership from the commitment to achieve superior performance in the context of a relatively flat and brutally competitive economic environment.
"With the addition of Aeroquip-Vickers, Eaton becomes a company characterized by global leadership positions in each of its business segments. The tasks immediately ahead are to achieve the synergies inherent in this acquisition, while continuing to pursue global opportunities for superior returns and higher sustainable growth. We intend to demonstrate, via this strategic path, that Eaton deserves to be valued as a premier diversified industrial company."
Eaton is a global manufacturer of highly engineered products that serve industrial, vehicle, construction, commercial, aerospace and semiconductor markets. Principal products include hydraulic products and fluid connectors, electrical power distribution and control equipment, truck drivetrain systems, engine components, ion implanters and a wide variety of controls. Headquartered in Cleveland, the company has 65,000 employees and 215 manufacturing sites in 25 countries around the world. Eaton's sales for 1998 were $6.6 billion. Sales of Aeroquip-Vickers, Inc., for 1998 were $2.1 billion. The Internet address for Eaton is: http://www.eaton.com/
The forward-looking statements in this news release should be used with caution. They are subject to various risks and uncertainties, many of which are outside the control of the company. Important factors which could cause actual results to differ materially from those in the forward-looking statements include changes in global economic and financial conditions, labor strikes, Eaton's ability to successfully implement the integration of Aeroquip-Vickers and the markets for semiconductor equipment, automotive and hydraulic components and heavy trucks. The financial results: The company's comparative financial results for the three months ended March 31, 1999 and 1998 follows:
Eaton Corporation
Comparative Financial Summary
Three months ended
March 31
------------------
(Millions except for per share data) 1999 1998
---- ----
Net sales $1,661 $1,687
Income before income taxes 123 155
Net income 84 105
Net income per Common Share
Assuming dilution $ 1.17 $ 1.42
Basic 1.18 1.45
Average number of Common Shares outstanding
Assuming dilution 72.2 73.7
Basic 71.2 72.0
Cash dividends paid per Common Share $ .44 $ .44
See accompanying notes.
Eaton Corporation
Statements of Consolidated Income
Three months ended
March 31
----------------
(Millions except for per share data) 1999 1998
---- ----
Net sales $1,661 $1,687
Costs & expenses
Cost of products sold 1,172 1,207
Selling & administrative 275 263
Research & development 71 82
------ ------
1,518 1,552
------ ------
Income from operations 143 135
Other income (expense)
Interest expense - net (21) (21)
Gain on sales of businesses 43
Other - net 1 (2)
------ ------
(20) 20
------ ------
Income before income taxes 123 155
Income taxes 39 50
------ ------
Net income $ 84 $ 105
------ ------
------ ------
Net income per Common Share
Assuming dilution $ 1.17 $ 1.42
Basic 1.18 1.45
Average number of Common Shares outstanding
Assuming dilution 72.2 73.7
Basic 71.2 72.0
Cash dividends paid per Common Share $ .44 $ .44
See accompanying notes.
Eaton Corporation
Business Segment Information
Three months ended
March 31
------------------
(Millions) 1999 1998
---- ----
Net sales
Automotive Components $ 532 $ 492
Hydraulics & Other Components 145 162
Industrial & Commercial Controls 551 551
Semiconductor Equipment 57 79
Truck Components 376 372
------ ------
Total ongoing operations 1,661 1,656
Divested operations 31
------ ------
Total net sales $1,661 $1,687
------ ------
------ ------
Operating profit
Automotive Components $ 68 $ 59
Hydraulics & Other Components 20 30
Industrial & Commercial Controls 34 31
Semiconductor Equipment (12) (14)
Truck Components 64 57
------ ------
Total ongoing operations 174 163
Divested operations (1)
Amortization of certain intangible assets (17) (16)
Interest expense - net (21) (21)
Gain on sales of businesses 43
Corporate & other - net (13) (13)
------ ------
Income before income taxes $ 123 $ 155
------ ------
------ ------
See accompanying notes.
Eaton Corporation
Condensed Consolidated Balance Sheets
March 31, December 31,
(Millions) 1999 1998
---- ----
ASSETS
Current assets
Cash $ 20 $ 80
Short-term investments 20 42
Accounts receivable 1,018 885
Inventories 714 707
Deferred income taxes & other current
assets 290 268
------ ------
2,062 1,982
Property, plant & equipment 1,781 1,837
Excess of cost over net assets
of businesses acquired 1,015 1,025
Deferred income taxes & other assets 806 821
------ ------
$5,664 $5,665
------ ------
------ ------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt & current portion
of long-term debt $ 398 $ 333
Accounts payable & other current
liabilities 1,181 1,183
------ ------
1,579 1,516
Long-term debt 1,188 1,191
Postretirement benefits other than pensions 561 557
Other liabilities 318 344
Shareholders' equity 2,018 2,057
------ ------
$5,664 $5,665
------ ------
------ ------
See accompanying notes.
Eaton Corporation
Notes to the First Quarter 1999 Earnings Release
(All references to net income per Common Share assume dilution.)
Unusual Charges
---------------
Income in the first quarter of 1998 was reduced by unusual pretax
charges of $43 million ($28 million aftertax, or $.38 per Common
Share). The Company recorded $33 million of restructuring charges
which reduced operating profit of the Automotive Components
segment by $8 million, the Industrial & Commercial Controls
segment by $15 million, and the Truck Components segment by
$10 million. The Company also recorded a $10 million contribution to
its charitable trust which is included in other expense.
Gain on Sales of Businesses
---------------------------
On January 2, 1998, the Company completed the sale of the Axle
and Brake business to Dana Corporation. The sale of this
business, and an adjustment related to a business sold in a prior
period, resulted in a pretax gain of $43 million ($28 million
aftertax, or $.38 per Common Share).