Eaton Reports Fourth Quarter Earnings per Share of $1.46, Up 13 Percent Over the Fourth Quarter of 2017, Excluding 2017 Income Related to the U.S. Tax Bill
DUBLIN, Ireland--(BUSINESS WIRE)--Jan 31, 2019--Power management company Eaton Corporation plc (NYSE:ETN) today announced that earnings per share were $1.46 for the fourth quarter of 2018. This represents an increase of 13 percent over the fourth quarter of 2017, excluding the $62 million of income in the fourth quarter of 2017 related to the U.S. tax bill.
Sales in the fourth quarter of 2018 were $5.5 billion, up 5 percent over the same period in 2017. The sales increase consisted of 7 percent growth in organic sales, partially offset by 2 percent negative currency translation.
Craig Arnold, Eaton chairman and chief executive officer, said, “We had a very strong fourth quarter, with better-than-expected organic revenue growth and margins. Organic growth came in at 7 percent, 1 percent higher than our guidance. Our segment margins in the fourth quarter were 17.4 percent, 20 basis points above the midpoint of our margin guidance and 100 basis points over the fourth quarter of 2017.
“Operating cash flow in the fourth quarter, excluding the $300 million payment for the arbitration decision related to the legacy Cooper business, was $1.1 billion,” said Arnold. “We took advantage of the significant pullback in financial markets in December and repurchased $700 million of our shares in the fourth quarter. This represents 2.3 percent of our shares outstanding at the start of the quarter. We intend to continue taking advantage of any periods of share price weakness to buy our shares back.”
For full year 2018, sales were $21.6 billion, 6 percent higher than 2017. Segment margins were 16.8 percent, up 100 basis points over 2017. Earnings per share were $4.91, and excluding the impact of the arbitration decision, earnings per share were $5.39. This represents an increase of 16 percent over 2017, excluding the 2017 gain on the Eaton Cummins joint venture and the 2017 income related to the U.S. tax bill. Operating cash flow in 2018 was $3.0 billion, excluding the $300 million arbitration payment related to the legacy Cooper business. During 2018, share repurchases totaled 17.5 million shares, at a cost of $1.3 billion, representing 4.0 percent of shares outstanding at the beginning of the year.
“Looking at 2019, we expect our organic revenues to grow between 4 and 5 percent, partially offset by approximately 1 percent from negative currency translation,” said Arnold. “We anticipate segment margins to be between 17.0 percent and 17.4 percent, representing at the midpoint a 40 basis point improvement over 2018.
“We expect 2019 earnings per share to be between $5.70 and $6.00, representing at the midpoint a 9 percent increase over 2018 excluding the 2018 arbitration decision,” said Arnold. “We anticipate earnings per share for the first quarter of 2019 to be between $1.18 and $1.28, a 12 percent increase at the midpoint over the first quarter of 2018.”
Business Segment Results
Sales for the Electrical Products segment were $1.8 billion, up 3 percent over the fourth quarter of 2017. Organic sales were up 5 percent, partially offset by 2 percent from negative currency translation. Operating profits were $327 million, up 3 percent over the fourth quarter of 2017.
“Operating margins in the fourth quarter were 18.2 percent, flat with 2017,” said Arnold. “Orders in the fourth quarter were up 3 percent over the fourth quarter of 2017, driven by solid growth in both industrial and residential markets in the Americas.”
Sales for the Electrical Systems and Services segment were $1.6 billion, up 8 percent over the fourth quarter of 2017. Organic sales were up 10 percent, currency translation was negative 1 percent, and the sale in 2017 of our stake in a small joint venture reduced sales by 1 percent. Operating profits were a record $268 million, up 19 percent over the fourth quarter of 2017.
“Operating margins were 16.6 percent, an improvement of 160 basis points over 2017 and an all-time record,” said Arnold. “Orders in the fourth quarter were up 12 percent over the fourth quarter of 2017, led by strong growth in all major end markets in the Americas and in EMEA.”
Hydraulics segment sales were $653 million, up 6 percent over the fourth quarter of 2017. Organic sales were up 8 percent, partially offset by 2 percent from negative currency translation. Operating profits in the fourth quarter were $85 million, up 15 percent over the fourth quarter of 2017.
“Operating margins in the quarter were 13.0 percent, an improvement of 90 basis points over 2017,” said Arnold. “Orders in the fourth quarter decreased 4 percent from the fourth quarter of 2017, driven by a decline in EMEA similar to what we saw in the second and third quarters.”
Aerospace segment sales were $497 million, up 13 percent over the fourth quarter of 2017, all coming from organic sales growth. Operating profits in the fourth quarter were an all-time record $114 million, up 30 percent over the fourth quarter of 2017.
“Operating margins in the quarter were 22.9 percent, 290 basis points over 2017, an all-time record,” said Arnold. “Orders in the quarter were up 17 percent over the fourth quarter of 2017. We saw particular strength in orders for commercial transports, military fighters, and both commercial and military aftermarkets.”
The Vehicle segment posted sales of $821 million, down 2 percent from the fourth quarter of 2017, entirely driven by negative currency translation. Operating profits in the fourth quarter were $147 million, up 4 percent over the fourth quarter of 2017.
“Our revenue growth in Vehicle was affected by revenues transferring over to the Eaton Cummins joint venture. The joint venture’s revenues grew 45 percent in the fourth quarter of 2018,” said Arnold. “Operating margins for Vehicle in the quarter were 17.9 percent, an improvement of 90 basis points over 2017.”
eMobility segment sales were $80 million, up 10 percent over the fourth quarter of 2017. Organic sales were up 11 percent, partially offset by 1 percent from negative currency translation. Operating profits in the fourth quarter were $9 million, down 10 percent from the fourth quarter of 2017 due to increased R&D investments.
“Operating margins in the quarter were 11.3 percent,” said Arnold. “We continue to make good progress in new product development and we are ahead of most of the 2018 year-end objectives we had set for eMobility.”
Eaton is a power management company with 2018 sales of $21.6 billion. We provide energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton is dedicated to improving the quality of life and the environment through the use of power management technologies and services. Eaton has approximately 99,000 employees and sells products to customers in more than 175 countries. For more information, visit Eaton.com.
Notice of conference call: Eaton’s conference call to discuss its fourth quarter results is available to all interested parties as a live audio webcast today at 10 a.m. United States Eastern Time via a link on Eaton’s home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on fourth quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning first quarter and full-year 2019 earnings per share, organic revenue growth, and segment margins, as well as anticipated share repurchases. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; unanticipated changes in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; natural disasters; the performance of recent acquisitions; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in tax laws or tax regulations; stock market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.
The company’s comparative financial results for the twelve months ended December 31, 2018 are available on the company’s website, www.eaton.com.
See accompanying notes.
See accompanying notes.
See accompanying notes.
EATON CORPORATION plc NOTES TO THE FOURTH QUARTER 2018 EARNINGS RELEASE
Amounts are in millions of dollars unless indicated otherwise (per share data assume dilution).
Note 1. NON-GAAP FINANCIAL INFORMATION
This earnings release includes certain non-GAAP financial measures. These financial measures include adjusted earnings, adjusted earnings per ordinary share, net income per ordinary share excluding the per share impact of the arbitration decision expense, net income per ordinary share excluding the gain on the sale of a business and income from the 2017 United States (U.S.) tax bill, net income per ordinary share excluding the income from the 2017 U.S. tax bill, operating profit before acquisition integration charges for each business segment as well as corporate, and operating cash flows excluding payments for the arbitration decision, each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of each of these financial measures to the most directly comparable GAAP measure is included in this earnings release. Management believes that these financial measures are useful to investors because they exclude certain transactions, allowing investors to more easily compare Eaton Corporation plc’s (Eaton or the Company) financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton and each business segment.
Net income per ordinary share of $4.91 for the year ended December 31, 2018 was $5.39 excluding the $0.48 per share expense from an arbitration decision related to the legacy Cooper business, which was acquired in 2012 (see Note 2).
During the fourth quarter of 2018 and full year 2018, operating cash flows of $0.8 billion and $2.7 billion, respectively, would have been $1.1 billion and $3.0 billion, respectively, excluding the $297 payment made during the fourth quarter for the arbitration decision.
Net income per ordinary share of $1.43 for the three months ended December 31, 2017 was $1.29 excluding $0.14 per share of income from the 2017 U.S. tax bill. Net income per ordinary share of $6.68 for the year ended December 31, 2017 was $4.65 excluding $1.89 per share from the gain on the sale of the business related to the Eaton Cummins Automated Transmission Technologies joint venture and $0.14 per share of income from the 2017 U.S. tax bill.
Note 2. ARBITRATION DECISION
Eaton announced in a press release on August 29, 2018 that certain subsidiaries it acquired in the 2012 acquisition of Cooper Industries have been ordered to pay $293 by an arbitration panel. The panel’s award, issued on August 23, 2018, is related to claims brought by Pepsi-Cola Metropolitan Bottling Company, Inc. (“Pepsi”).
As Eaton previously disclosed, the dispute related to Pepsi’s claims that it was harmed by a 2011 settlement agreement that resolved litigation Pneumo Abex, LLC had previously brought against various Cooper entities. The litigation involved, among other things, a guaranty related to Pneumo Abex’s friction products business. Pepsi claimed that the value contributed to Pneumo Abex and a newly established trust in exchange for a release of the guaranty was substantially below reasonably equivalent value, and that an inability of Pneumo Abex to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories. There are no other pending claims related to the contributions made for the release of the guaranty.
A Texas state court confirmed the arbitration award at the confirmation hearing, which was held on October 12, 2018. On November 2, 2018, the Company appealed. On November 28, 2018, the Company paid $297, the full judgment plus accrued post-judgment interest, to Pneumo Abex and preserved its rights, including to pursue the appeal, which is pending.
The impact of the arbitration award was an after-tax expense of $206 in the third quarter 2018, reducing 2018 earnings per share by $0.48.
Note 3. ACQUISITION INTEGRATION CHARGES
Eaton incurs integration charges related to acquired businesses. A summary of these charges follows:
Business segment acquisition integration charges in 2017 related to the integration of Ephesus Lighting, Inc. (Ephesus), which was acquired in 2015. The charges associated with Ephesus were included in Selling and administrative expense. In Business Segment Information, the charges reduced Operating profit of the related business segment.
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CONTACT: Eaton Corporation plc
Kelly Jasko, Media Relations, +1 (440) 523-5304
Don Bullock, Investor Relations, +1 (440) 523-5127
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