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Eaton’s 4Q Net Income Up 28%

Jan. 25, 2010
Eaton Corporation (NYSE:ETN) today announced net income per share of $1.25 for the fourth quarter of 2009, an increase of 28 percent over net income per share of $0.98 in the fourth quarter of 2008. Sales in the quarter were $3.1 billion, 10 percent below the same period in 2008. Net income was $211 million compared to $163 million in 2008, an increase of 29 percent

Eaton Corporation (NYSE:ETN) today announced net income per share of $1.25 for the fourth quarter of 2009, an increase of 28 percent over net income per share of $0.98 in the fourth quarter of 2008. Sales in the quarter were $3.1 billion, 10 percent below the same period in 2008. Net income was $211 million compared to $163 million in 2008, an increase of 29 percent.

Net income in both periods included charges related to acquisition integration. Before acquisition integration charges, operating earnings per share in the fourth quarter of 2009 were $1.35 compared to $1.08 per share in the fourth quarter of 2008, an increase of 25 percent. Operating earnings for the fourth quarter of 2009 were $229 million compared to $180 million in 2008, an increase of 27 percent.

The sales decline in the fourth quarter of 10 percent consisted of a 15 percent decline in core sales offset by 5 percent growth due to foreign exchange. End markets in the fourth quarter declined by 15 percent.

For the full year 2009, sales were $11.9 billion, 23 percent less than 2008. Net income was $383 million, a decrease of 64 percent over 2008, and net income per share of $2.27 was 65 percent less than in 2008. Operating earnings in 2009 totaled $437 million versus $1.109 billion in 2008, a decrease of 61 percent. Operating earnings per share for 2009 of $2.59 were 62 percent lower than in 2008.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, “We had a strong fourth quarter, with earnings considerably higher than our guidance at the start of the quarter due principally to improved operating performance. As we anticipated, our markets improved very modestly in the fourth quarter, reflecting a continuation of the slow global economic recovery.

“Looking at 2009 as a whole, our earnings were significantly affected by the decline in our revenues due to the market downturn. We believe the steps we took to deal with the downturn effectively adjusted our cost structure to ensure we can operate profitably at these lower volumes and realize attractive incremental profits on revenue gains. Our 2009 free cash flow of $1.2 billion was an outstanding accomplishment in this economic environment. We used our robust cash flow in 2009 to markedly reduce our long-term liabilities, with over $750 million of debt paid off during the year, $270 million contributed to our global pension plans in 2009, and an additional $300 million contributed to our U.S. pension plan in January 2010. As a result of these actions, our liquidity position is exceptionally strong, with little commercial paper outstanding, no term debt maturities until the middle of 2012, and no additional contributions to the U.S. pension plan required until 2011.

“We estimate our markets for all of 2010 will grow 5 percent, and we expect to outgrow our end markets in 2010 by approximately $300 million. We also expect approximately $450 million of growth from foreign exchange. In total, we anticipate our revenues in 2010 will likely grow by 11 percent compared to 2009.

“As we concluded our planning for 2010 late last year, we initiated additional workforce reductions in several of our mid- and late-cycle business units to further align capacity with expected 2010 demand. These actions resulted in severance costs of $26 million in the fourth quarter, $24 million more than we had planned for at the start of the fourth quarter. About half the higher severance costs were offset by a higher tax benefit than we had forecast.

“Our forward visibility is improving as the global market conditions have stabilized and are beginning to improve. In addition to the normal seasonal first quarter weakness in several of our businesses, our overall business will be impacted by two additional factors this year: first, our 2010 earnings will be impacted by a significant swing in our tax rate from a credit rate of 27 percent in 2009 to a tax expense of an estimated 15 percent in 2010, and secondly, compared to our fourth quarter results, we have removed in the first quarter the extraordinary short-term cost containment actions we put in place last year. As a result, we estimate that first quarter operating earnings per share, which exclude an estimated $0.05 of charges to integrate our recent acquisitions, will be between $0.75 and $0.85 per share. For the full year 2010, we estimate that operating earnings per share, which exclude an estimated $0.20 of charges to integrate our recent acquisitions, will be between $3.70 and $4.00.

“Our guidance underlines the considerable earnings leverage we expect to capture as volumes improve. Operating earnings per share in 2010 will double on only 11 percent growth in sales, after adjusting 2009 earnings to reflect the same tax rate we expect in 2010. We anticipate that 2010 will prove to be a transitional year of growth between the depressed market conditions of 2009 and even better market conditions in 2011.”

In the Hydraulics segment, fourth quarter sales were $419 million, 21 percent lower than the fourth quarter of 2008. Hydraulics markets in the fourth quarter declined 30 percent compared to the same period in 2008, with U.S. markets down 39 percent and non-U.S. markets down 21 percent.

Operating profits in the fourth quarter were $13 million. Adjusting for acquisition integration charges in the fourth quarter of 2008, operating profits in the fourth quarter of 2009 were down 72 percent.

The Truck segment posted sales of $443 million in the fourth quarter, up 1 percent compared to 2008. Truck markets in the fourth quarter declined 8 percent, with U.S. markets down 22 percent and non-U.S. markets up 10 percent. Operating profits were $51 million, an increase of 24 percent compared to the fourth quarter of 2008.

“We were pleased with the 11.5 percent Truck segment operating margin in the fourth quarter,” said Cutler. “Our business is operating at good margins despite low activity levels. As evidence of just how low activity levels have been, the truck market during 2009 declined by 27 percent, with the NAFTA Class 8 market at levels not seen since 1991.

“For 2010, we expect good market growth, although volumes are likely to still be at depressed levels,” said Cutler. “We anticipate our overall truck markets will grow at 19 percent, with U.S. markets growing at 26 percent and non-U.S. markets growing at 10 percent.”