Eaton Corporation (NYSE: ETN) posted an increase in first quarter sales and record revenue but missed analysts’ consensus earnings per share (EPS) results by two cents in a mixed report.
Eaton reported record operating cash flow of $551 million, up 63 percent from the first quarter of 2018, and EPS of $1.23. Analysts had expected $1.25 per share. Adjusted EPS was $1.26, excluding the impact of acquisition and divestiture transaction costs. That is up 15 percent over adjusted EPS in the first quarter of 2018.
“We had a very strong first quarter with good growth and better than expected margins. Organic growth came in at 4 percent, in line with our guidance. Our segment margins in the first quarter were 16 percent, up 80 basis points over the first quarter of 2018, and above the high end of our guidance range,” said Craig Arnold, Eaton chairman and chief executive officer.
First quarter sales were up 1 percent to $5.3 billion, highlighted by a 4 percent growth in organic sales, Arnold said. That was offset by a 3 percent negative currency translation.
Eaton repurchased $150 million in shares during the first quarter.
“Factoring in accretion from our new Ulusoy acquisition, we now expect 2019 adjusted earnings per share to be between $5.72 and $6.02, representing at the midpoint a 9 percent increase over 2018, excluding the 2018 arbitration decision,” Arnold said. “We anticipate adjusted earnings per share for the second quarter of 2019 to be between $1.45 and $1.55, an 8 percent increase at the midpoint over the second quarter of 2018.”
The Electrical Products segment posted a 2 percent increase in sales over the first quarter 2018 to $1.8 billion, with operating profits reaching $331 million. Excluding costs related to the spin-off of the Lighting business, adjusted operating profits were $332 million, up 8 percent over the first quarter of 2018.
“Operating margins in the first quarter were 18.9 percent, up 120 basis points over 2018,” said Arnold. “Orders in the first quarter were up 4 percent over the first quarter of 2018, driven by continued growth in both industrial and residential markets in the Americas.”
Sales for the Electrical Systems and Services segment were $1.5 billion, up 6 percent over the first quarter of 2018. Operating profits were $192 million, up 15 percent over 2018’s first quarter.
“The 12-month rolling average of our orders in the first quarter was up 8 percent over 2018, led by strong growth across all regions,” Arnold said.
During the quarter, Eaton closed its acquisition of Ulusoy Electric. The company now has an 82 percent stake in the company, which serves customers in Europe and Asia.
Sales in the Hydraulics segment declined 3 percent in the first quarter to $686 million, due mostly to a 4 percent currency translation impact because of the stronger dollar. Operating profits in the first quarter were $80 million, down 11 percent from the first quarter of 2018.
Weakness in the Global Mobile Equipment market led to an 11 percent decline in first quarter orders compared to 2018, Arnold said, pushing operating margins down 11.7 percent, off 100 basis points from 2018.
Aerospace segment sales were $502 million, up 10 percent over the first quarter of 2018, to post an all-time record operating profit of $116 million, up 30 percent over the first quarter of 2018.
“We saw particular strength in orders for commercial transports, military fighters and transports, and both commercial and military aftermarkets,” said Arnold. Operating margins, as a result, were up 23.1 percent over 2018.
The Vehicle segment posted sales of $810 million, down 9 percent from the first quarter of 2018. Arnold attributed 3 percent of the decline to currency translation and part of the remainder to revenue transfers to the Eaton-Cummins (NYSE: CMI) joint venture. The joint venture saw revenues grow 27 percent.
The growing eMobility segment posted an 8 percent growth in sales to $83 million compared to the first quarter of 2018. Operating profits in the first quarter of 2019 were $5 million, down 55 percent from the first quarter of 2018. This was attributed to increased investment in research and development, the company said.
“Operating margins in the quarter were 6 percent,” Arnold said. “We are excited by our wins in this business so far, and particularly by the decision of PSA to use our inverter on a key new platform. We expect our mature year revenue from this platform to be about $100 million.”
Eaton Q1 financial results: