Eaton’s Net Income Down 36% in 4Q

Eaton’s Net Income Down 36% in 4Q

Eaton Corporation today announced that net income was $163 million in the fourth quarter, compared to $256 million in the same period in 2007 -- a reduction of 36 percent. Net income per share was $.98, a decrease of 43 percent from net income per share of $1.71. Sales in the quarter were $3.5 billion, 3 percent above the same period in 2007.

Net income in both periods included charges related to acquisition integration. Before acquisition integration charges, operating earnings per share in the fourth quarter of 2008 were $1.08 compared to $1.79 per share in the fourth quarter of 2007, a decrease of 40 percent. Operating earnings for the fourth quarter of 2008 were $180 million compared to $269 million in 2007, a reduction of 33 percent.

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Eaton Corporation today announced that net income was $163 million in the fourth quarter, compared to $256 million in the same period in 2007 -- a reduction of 36 percent. Net income per share was $.98, a decrease of 43 percent from net income per share of $1.71. Sales in the quarter were $3.5 billion, 3 percent above the same period in 2007.

Net income in both periods included charges related to acquisition integration. Before acquisition integration charges, operating earnings per share in the fourth quarter of 2008 were $1.08 compared to $1.79 per share in the fourth quarter of 2007, a decrease of 40 percent. Operating earnings for the fourth quarter of 2008 were $180 million compared to $269 million in 2007, a reduction of 33 percent.

Sales growth in the fourth quarter of 3 percent consisted of 13 percent growth from acquisitions, offset by a 6 percent decline from lower exchange rates and a 4 percent decline in organic growth. End markets in the fourth quarter declined by 6 percent.

For the full year 2008, sales were a record $15.4 billion, 18 percent above 2007. Net income was a record $1.06 billion, an increase of 6 percent over 2007, and net income per share was $6.52, 1 percent less than in 2007. Operating earnings in 2008 totaled $1.11 billion versus $1.04 billion in 2007, an increase of 7 percent. Operating earnings per share for 2008 were $6.83, 1 percent lower than in 2007.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Despite weaker-than-expected conditions in our end markets, we were able to generate earnings per share in the fourth quarter at the high end of our most recent guidance. Our markets turned down sharply in the fourth quarter, dropping 6 percent from the fourth quarter of 2007 versus our expectations in mid-December of a decline of between 3 and 4 percent.

“Looking at 2008 as a whole, our operating earnings grew to a new record, while our operating earnings per share were about the same as in 2007. We achieved a fundamental repositioning of the company in 2008, as seen by the fact that in the second half of 2008 our Electrical, Hydraulics and Aerospace businesses earned almost 90 percent of our segment profits. Our operating cash flow of $624 million in the fourth quarter was a quarterly record, further demonstrating the strength of our mix of businesses. With our strong cash flow, we were able to reduce our commercial paper outstanding at year end to $767 million and end the quarter with $530 million of cash and short-term investments.

“So far in 2009, our markets have continued to decline. We anticipate that our markets will decline through at least the second, and possibly the third, quarter. We estimate our markets for all of 2009 will decline by between 7 and 8 percent. We expect to outgrow our end markets in 2009 by approximately $300 million, and we also expect to record approximately $400 million of growth from the full-year impact of the six acquisitions we completed in 2008. These increases are expected to be offset by a decline in foreign currencies of 6 percent. As a result, we anticipate our revenues in 2009 will likely decline by 8 percent compared to 2008.

“We took significant employee reduction actions in 2008 in anticipation of the severe downturn, and in January we have taken further actions,” said Cutler. “The continued decline in our end markets in early 2009 unfortunately necessitated that we reduce our workforce even further than we originally anticipated. The employee reductions in 2008 and 2009 total about 10 percent of our full-time workforce. Net of $110 million of severance costs to be incurred in the first quarter of 2009, we anticipate a year-over-year pretax earnings increase in 2009 of $165 million from the actions. In 2010, we expect an additional year-over-year pretax earnings increase of $125 million.”

He said that in the first quarter of 2009, revenues will be impacted by plant shutdowns implemented by many of the company’s hydraulics, truck, and automotive customers late in the fourth quarter of 2008, which in many cases are extending into the middle of the first quarter of 2009.

“These shutdowns will lower revenues in the first quarter of 2009 compared to the fourth quarter of 2008. As a result of these shutdowns, combined with the impact of the $110 million of severance costs associated with the employee reductions we have taken in January, we anticipate earnings in the first quarter will be the weakest quarter by far of 2009. We now estimate that first quarter operating earnings per share, which exclude an estimated $0.15 of charges to integrate our recent acquisitions, will likely be about breakeven. For the full year 2009, we estimate that operating earnings per share, which exclude an estimated $0.40 of charges to integrate our recent acquisitions, will be between $4.20 and $5.20.”

In the Hydraulics segment, fourth quarter sales were $533 million, 11 percent lower than the fourth quarter of 2007. Hydraulics markets in the fourth quarter declined 8 percent compared to the same period in 2007, with U.S. markets down 9 percent and non-U.S. markets down just under 8 percent.

The Truck segment posted sales of $439 million in the fourth quarter, down 17 percent compared to 2007. Truck markets in the fourth quarter declined 10 percent, with U.S. markets down 5 percent and non-U.S. markets down 16 percent. Operating profits were $41 million, a decline of 49 percent compared to the fourth quarter of 2007.

“Fourth quarter production of NAFTA heavy-duty trucks totaled 46,000, about 10 percent lower than in the third quarter,” said Cutler. “We expect NAFTA heavy duty truck production in 2009 to be about 155,000 units, as the economic downturn and lack of financing limit the desire of truck buyers to purchase additional trucks in advance of the emissions law change on January 1, 2010. We also expect weakness in our non-U.S. markets, with an expected decline of about 10 percent in 2009.

“We were pleased to win two significant orders in the fourth quarter,” said Cutler. “We won an order to supply hybrid electric transmissions for buses in China, and we won a contract to supply transmissions for the Tata Motors World Truck program.”

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