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| 8-K - EATON CORPORATION PLC 8-K - Eaton Corp plc | a51604234.htm |
Exhibit 99
Eaton Reports Second Quarter Net Income and Operating Earnings Per Share of $1.15, Up 7 Percent Over Second Quarter of 2016 and at High End of Guidance Range
Affirms Midpoint of 2017 Earnings Guidance
DUBLIN--(BUSINESS WIRE)--August 1, 2017--Power management company Eaton Corporation plc (NYSE:ETN) today announced that net income and operating earnings per share were $1.15 for the second quarter of 2017. Net income per share in the second quarter of 2017 was up 7 percent over the second quarter of 2016. Operating earnings per share, which exclude $1 million of acquisition integration charges in the second quarters of both 2017 and 2016, were also up 7 percent over the second quarter of 2016.
Sales in the second quarter of 2017 were $5.1 billion, up 1 percent over the same period in 2016. The sales increase consisted of 2 percent growth in organic sales partially offset by a 1 percent decline from negative currency translation.
Craig Arnold, Eaton chairman and chief executive officer, said, “Our second quarter net income and operating earnings per share were at the high end of our guidance range. Coming into the quarter, we had expected organic sales would be up between 1 and 2 percent and negative currency translation would be 1.5 percent. Our organic sales grew 2 percent, the high end of our guidance range, and negative currency impacted sales 1 percent, less than we had expected. Organic growth of 2 percent was the same growth rate we experienced in the first quarter of 2017.
“Segment margins in the second quarter were 15.6 percent,” said Arnold. “Excluding restructuring costs of $27 million incurred in the segments in the quarter, segment margins were 16.2 percent. This represents a step up of 1.4 percentage points over the first quarter of 2017.
“Operating cash flow in the second quarter was $574 million,” said Arnold. “We continued to return substantial cash to our shareholders, repurchasing $210 million of our shares in the quarter, making our first half repurchases a total of $465 million.
“For full year 2017, we are narrowing our guidance range by 5 cents at the top and bottom of the range. As a result, we now expect net income and operating earnings per share to be between $4.50 and $4.70. This represents a 9 percent increase at the midpoint of our guidance over 2016,” said Arnold. “We anticipate net income and operating earnings per share for the third quarter of 2017 to be between $1.20 and $1.30.”
Business Segment Results
Sales for the Electrical Products segment were $1.8 billion, up 1 percent over the second quarter of 2016. Organic sales were up 2 percent partially offset by negative currency translation of 1 percent. Operating profits, excluding acquisition integration charges of $1 million during the quarter, were $315 million, down 2 percent from the second quarter of 2016.
“Operating margins in the second quarter were 17.5 percent, and excluding restructuring costs of $11 million, 18.1 percent,” said Arnold. “Margins increased 0.5 percentage point over the first quarter of 2017, excluding restructuring costs in both quarters.
“Orders in the second quarter were up 3 percent over the second quarter of 2016, driven by growth in the Americas and APAC, while EMEA was flat,” said Arnold. “We saw particular strength in the Americas in industrial controls.”
Sales for the Electrical Systems and Services segment were $1.4 billion, down 1 percent from the second quarter of 2016. Organic sales were flat and currency translation was negative 1 percent. Segment operating profits were $194 million, up 9 percent over the second quarter of 2016.
“Operating margins were 13.7 percent, and excluding restructuring costs of $5 million, 14.1 percent,” said Arnold. “The 2.3 percentage point increase in margins over the first quarter of 2017, excluding restructuring costs in both quarters, was due to a more favorable mix of projects and higher recovery of material cost increases.
“Orders in the second quarter were down 2 percent from the second quarter of 2016, due to declines in EMEA and APAC,” said Arnold. “The decline in EMEA was principally due to lower large project orders from the Middle East, while the decline in APAC reflects the impact of an unusually large utility order in the second quarter of 2016.”
Hydraulics segment sales were $633 million, up 7 percent over the second quarter of 2016. Organic sales were up 9 percent partially offset by negative currency translation of 2 percent. Operating profits in the second quarter were $74 million, an increase of 25 percent over the second quarter of 2016, with the increase driven by higher organic revenues and lower restructuring costs.
“Operating margins in the quarter were 11.7 percent, and excluding restructuring costs of $8 million, 13.0 percent,” said Arnold. “The 1.2 percentage point increase in margins over the first quarter of 2017, excluding restructuring costs in both quarters, was due to incremental sales and the benefits from our restructuring program.
“Hydraulics orders in the second quarter of 2017 were up 32 percent over the second quarter of 2016, with solid growth in all geographic regions,” said Arnold. “We continued to see order strength from both OEMs and distributors.”
Aerospace segment sales were $437 million, down 2 percent from the second quarter of 2016, entirely driven by negative currency translation. Operating profits in the second quarter were $81 million, down 2 percent from the second quarter of 2016.
“Operating margins in the quarter were 18.5 percent,” said Arnold. “Orders in the quarter were up 12 percent compared to the second quarter of 2016. We saw strength across all our major end markets, with the exception of military rotorcraft.”
The Vehicle segment posted sales of $846 million, up 2 percent over the second quarter of 2016. Organic sales were up 1 percent and currency translation was up 1 percent. Operating profits in the second quarter were $139 million, up 1 percent over the second quarter of 2016.
“Operating margins in the quarter were 16.4 percent, and excluding restructuring costs of $3 million, 16.8 percent,” said Arnold. “The 2.8 percentage point increase in margin over the first quarter of 2017, excluding restructuring costs in both quarters, was due to incremental sales and the benefits from our restructuring program.
“We also closed our previously announced Eaton Cummins Automated Transmission Technologies joint venture on July 31,” said Arnold. “We’re pleased the JV closed on schedule and we’re looking forward to working with Cummins.”
Eaton is a power management company with 2016 sales of $19.7 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 95,000 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 second 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 the center of 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 second quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning third quarter and full-year 2017 operating earnings and net income per share. 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; 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.
Financial Results
The company’s comparative financial results for the six months ended June 30, 2017 are available on the company’s website, www.eaton.com.
| EATON CORPORATION plc | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
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Three months ended |
Six months ended |
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| (In millions except for per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net sales | $ | 5,132 | $ | 5,080 | $ | 9,980 | $ | 9,893 | ||||||||
| Cost of products sold | 3,450 | 3,419 | 6,760 | 6,710 | ||||||||||||
| Selling and administrative expense | 902 | 897 | 1,787 | 1,789 | ||||||||||||
| Research and development expense | 150 | 149 | 293 | 298 | ||||||||||||
| Interest expense - net | 60 | 57 | 121 | 114 | ||||||||||||
| Other expense (income) - net | — | 5 | (15 | ) | (13 | ) | ||||||||||
| Income before income taxes | 570 | 553 | 1,034 | 995 | ||||||||||||
| Income tax expense | 54 | 61 | 86 | 100 | ||||||||||||
| Net income | 516 | 492 | 948 | 895 | ||||||||||||
| Less net income for noncontrolling interests | (1 | ) | (1 | ) | (1 | ) | — | |||||||||
| Net income attributable to Eaton ordinary shareholders | $ | 515 | $ | 491 | $ | 947 | $ | 895 | ||||||||
| Net income per share attributable to Eaton ordinary shareholders | ||||||||||||||||
| Diluted | $ | 1.15 | $ | 1.07 | $ | 2.10 | $ | 1.95 | ||||||||
| Basic | 1.15 | 1.08 | 2.12 | 1.96 | ||||||||||||
| Weighted-average number of ordinary shares outstanding | ||||||||||||||||
| Diluted | 448.6 | 458.3 | 449.8 | 459.0 | ||||||||||||
| Basic | 446.3 | 457.0 | 447.5 | 457.8 | ||||||||||||
| Cash dividends declared per ordinary share | $ | 0.60 | $ | 0.57 | $ | 1.20 | $ | 1.14 | ||||||||
|
Reconciliation of net income attributable to Eaton ordinary shareholders to operating earnings |
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| Net income attributable to Eaton ordinary shareholders | $ | 515 | $ | 491 | $ | 947 | $ | 895 | ||||||||
| Excluding acquisition integration charges (after-tax) | — | 1 | 1 | 1 | ||||||||||||
| Operating earnings | $ | 515 | $ | 492 | $ | 948 | $ | 896 | ||||||||
| Net income per share attributable to Eaton ordinary shareholders - diluted | $ | 1.15 | $ | 1.07 | $ | 2.10 | $ | 1.95 | ||||||||
| Excluding per share impact of acquisition integration charges (after-tax) | — | — | — | — | ||||||||||||
| Operating earnings per ordinary share | $ | 1.15 | $ | 1.07 | $ | 2.10 | $ | 1.95 | ||||||||
|
See accompanying notes. |
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| EATON CORPORATION plc | ||||||||||||||||
| BUSINESS SEGMENT INFORMATION | ||||||||||||||||
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| (In millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net sales | ||||||||||||||||
| Electrical Products | $ | 1,802 | $ | 1,784 | $ | 3,514 | $ | 3,464 | ||||||||
| Electrical Systems and Services | 1,414 | 1,429 | 2,747 | 2,771 | ||||||||||||
| Hydraulics | 633 | 589 | 1,220 | 1,140 | ||||||||||||
| Aerospace | 437 | 447 | 865 | 892 | ||||||||||||
| Vehicle | 846 | 831 | 1,634 | 1,626 | ||||||||||||
| Total net sales | $ | 5,132 | $ | 5,080 | $ | 9,980 | $ | 9,893 | ||||||||
| Segment operating profit | ||||||||||||||||
| Electrical Products | $ | 314 | $ | 322 | $ | 611 | $ | 593 | ||||||||
| Electrical Systems and Services | 194 | 178 | 349 | 337 | ||||||||||||
| Hydraulics | 74 | 59 | 134 | 100 | ||||||||||||
| Aerospace | 81 | 83 | 160 | 163 | ||||||||||||
| Vehicle | 139 | 137 | 247 | 255 | ||||||||||||
| Total segment operating profit | 802 | 779 | 1,501 | 1,448 | ||||||||||||
| Corporate | ||||||||||||||||
| Amortization of intangible assets | (96 | ) | (98 | ) | (190 | ) | (198 | ) | ||||||||
| Interest expense - net | (60 | ) | (57 | ) | (121 | ) | (114 | ) | ||||||||
| Pension and other postretirement benefits expense | (11 | ) | (13 | ) | (22 | ) | (27 | ) | ||||||||
| Other corporate expense - net | (65 | ) | (58 | ) | (134 | ) | (114 | ) | ||||||||
| Income before income taxes | 570 | 553 | 1,034 | 995 | ||||||||||||
| Income tax expense | 54 | 61 | 86 | 100 | ||||||||||||
| Net income | 516 | 492 | 948 | 895 | ||||||||||||
| Less net income for noncontrolling interests | (1 | ) | (1 | ) | (1 | ) | — | |||||||||
| Net income attributable to Eaton ordinary shareholders | $ | 515 | $ | 491 | $ | 947 | $ | 895 | ||||||||
|
See accompanying notes. |
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| EATON CORPORATION plc | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
|
June 30, |
December 31, 2016 |
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| (In millions) | |||||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $ | 312 | $ | 543 | |||
| Short-term investments | 525 | 203 | |||||
| Accounts receivable - net | 3,813 | 3,560 | |||||
| Inventory | 2,393 | 2,254 | |||||
| Prepaid expenses and other current assets | 444 | 381 | |||||
| Total current assets | 7,487 | 6,941 | |||||
| Property, plant and equipment - net | 3,530 | 3,443 | |||||
| Other noncurrent assets | |||||||
| Goodwill | 13,478 | 13,201 | |||||
| Other intangible assets | 5,410 | 5,514 | |||||
| Deferred income taxes | 443 | 360 | |||||
| Other assets | 1,007 | 960 | |||||
| Total assets | $ | 31,355 | $ | 30,419 | |||
| Liabilities and shareholders’ equity | |||||||
| Current liabilities | |||||||
| Short-term debt | $ | 846 | $ | 14 | |||
| Current portion of long-term debt | 1,495 | 1,552 | |||||
| Accounts payable | 1,885 | 1,718 | |||||
| Accrued compensation | 338 | 379 | |||||
| Other current liabilities | 1,745 | 1,822 | |||||
| Total current liabilities | 6,309 | 5,485 | |||||
| Noncurrent liabilities | |||||||
| Long-term debt | 6,264 | 6,711 | |||||
| Pension liabilities | 1,578 | 1,659 | |||||
| Other postretirement benefits liabilities | 364 | 368 | |||||
| Deferred income taxes | 316 | 321 | |||||
| Other noncurrent liabilities | 930 | 934 | |||||
| Total noncurrent liabilities | 9,452 | 9,993 | |||||
| Shareholders’ equity | |||||||
| Eaton shareholders’ equity | 15,552 | 14,897 | |||||
| Noncontrolling interests | 42 | 44 | |||||
| Total equity | 15,594 | 14,941 | |||||
| Total liabilities and equity | $ | 31,355 | $ | 30,419 | |||
|
See accompanying notes. |
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EATON CORPORATION plc
NOTES TO THE SECOND QUARTER 2017 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 operating earnings, operating earnings per ordinary share, and operating profit before acquisition integration charges for each business segment as well as corporate, 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.
Note 2. ACQUISITION INTEGRATION CHARGES
Eaton incurs integration charges related to acquired businesses. A summary of these charges follows:
| Operating profit | |||||||||||||||||||||||
| Acquisition | Operating profit | excluding acquisition | |||||||||||||||||||||
| integration charges | as reported | integration charges* | |||||||||||||||||||||
| Three months ended June 30 | |||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Business segment | |||||||||||||||||||||||
| Electrical Products | $ | 1 | $ | 1 | $ | 314 | $ | 322 | $ | 315 | $ | 323 | |||||||||||
| Electrical Systems and Services | — | — | 194 | 178 | 194 | 178 | |||||||||||||||||
| Hydraulics | — | — | 74 | 59 | 74 | 59 | |||||||||||||||||
| Aerospace | — | — | 81 | 83 | 81 | 83 | |||||||||||||||||
| Vehicle | — | — | 139 | 137 | 139 | 137 | |||||||||||||||||
| Total business segments | 1 | 1 | $ | 802 | $ | 779 | $ | 803 | $ | 780 | |||||||||||||
| Corporate | — | — | |||||||||||||||||||||
|
Total acquisition integration charges before income taxes |
1 | 1 | |||||||||||||||||||||
| Income taxes | 1 | — | |||||||||||||||||||||
| Total after income taxes | $ | — | $ | 1 | |||||||||||||||||||
| Per ordinary share - diluted | $ | — | $ | — | |||||||||||||||||||
|
*Operating profit excluding acquisition integration charges is used to calculate operating margin where that term is used in this release. |
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| Operating profit | |||||||||||||||||||||||
| Acquisition | Operating profit | excluding acquisition | |||||||||||||||||||||
| integration charges | as reported | integration charges* | |||||||||||||||||||||
| Six months ended June 30 | |||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Business segment | |||||||||||||||||||||||
| Electrical Products | $ | 2 | $ | 1 | $ | 611 | $ | 593 | $ | 613 | $ | 594 | |||||||||||
| Electrical Systems and Services | — | 1 | 349 | 337 | 349 | 338 | |||||||||||||||||
| Hydraulics | — | — | 134 | 100 | 134 | 100 | |||||||||||||||||
| Aerospace | — | — | 160 | 163 | 160 | 163 | |||||||||||||||||
| Vehicle | — | — | 247 | 255 | 247 | 255 | |||||||||||||||||
| Total business segments | 2 | 2 | $ | 1,501 | $ | 1,448 | $ | 1,503 | $ | 1,450 | |||||||||||||
| Corporate | — | — | |||||||||||||||||||||
| Total acquisition integration charges before income taxes | 2 | 2 | |||||||||||||||||||||
| Income taxes | 1 | 1 | |||||||||||||||||||||
| Total after income taxes | $ | 1 | $ | 1 | |||||||||||||||||||
| Per ordinary share - diluted | $ | — | $ | — | |||||||||||||||||||
|
*Operating profit excluding acquisition integration charges is used to calculate operating margin where that term is used in this release. |
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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. Business segment acquisition integration charges in 2016 related to the integration of Ephesus and Oxalis Group Ltd. (Oxalis), which was acquired in 2015. The charges associated with Ephesus and Oxalis were included in Selling and administrative expense and Cost of products sold, respectively. In Business Segment Information, the charges reduced Operating profit of the related business segment.
CONTACT:
Eaton Corporation plc
Scott Schroeder, +1-440-523-5150 (Media Relations)
scottrschroeder@eaton.com
or
Donald Bullock, +1-440-523-5127 (Investor Relations)