Eaton share price falls on slightly lower earnings

CLEVELAND, Ohio — Investors looking to pick up an industrial stock might take a second look at Eaton Corp.

Eaton’s share price on the New York Stock Exchange fell by more than 7.5 percent to as low as $72.16 by mid-afternoon Tuesday following the company’s release of its second quarter earnings showing moderate growth compared to year-ago results.

The share price ended the day at $74.26, down $3.99, or 5.1 percent.

Eaton did not make quite as much money as analysts figured it should have. And its top executives told analysts that industrial growth throughout much of the world has slowed.

The Dublin, Ireland-based American multi-national manufacturer of power control equipment reported its net income, or profit, for the second quarter at $515 million, or $1.15 per share, on sales of $5.1 billion.

In the second quarter of 2016, the company reported net income of $491 million, or $1.07 per share, on sales of $5 billion.

The company said its sale revenues were up 2 percent, but were offset by a 1 percent decline due to currency translation.

The company is doing better financially in North America than in other parts of the world.

“Most of our North American business are more profitable than those around the world,” Craig Arnold, chairman and CEO, told analysts in a teleconference available on the company’s website.

Arnold said the company has faced higher-than-anticipated commodity costs. “Almost every commodity we purchase is at a higher level that what we anticipated,” he said, adding that the unpredictability in commodities might continue for another quarter and that the price volatility does not appear to be based on supply and demand.

The company also spent more money during the quarter on research and development for its “digitization initiatives” in its electrical equipment division, which it expects will create better products in the future.

In reply to an analyst’s question about a coherent industrial policy coming from Washington helping business, Arnold said approval of legislation committing the government to infrastructure improvements would be very positive for the company.

“I think it’s difficult to really take much to the bank in terms of what we’ve heard from the administration to-date, in terms of their ability to get legislation through,” Arnold said.

For the first six months of this year, Eaton’s results now stand at a net income of $947 million, or $2.10 per share, on sales of $9.98 billion.

During the first half of 2016, the company reported net income of $895 million, or $1.95 per share, on sales of $989 billion.

The company narrowed its guidance for net income and operating earnings for the year to $4.50 to $4.70 per share from its beginning-of-the year forecast of $4.30 to $4.60 per share.

“Overall, industrial activity remains weak,” Arnold told analysts during a morning teleconference, now available as a recording on the company’s website.

The company showed a slight increase in sales revenues for electrical products, a slight decrease in sales revenues for electrical systems and sales, a decrease in sales to the aerospace industry, an increase in parts for vehicles and a very healthy sales increase in hydraulic systems for heavy equipment.

Hydraulic sales were up 7 percent on a 32 percent increase in orders.

“We are seeing pretty broad-based improvement in hydraulics, increases in all regions of the world, both mobile and stationary equipment,”Arnold said.

“We continued to see order strength from both Original Equipment Manufacturers and distributors,” he said.

Eaton has grown, in part, because of its ambitious acquisition of other companies, a process that slowed markedly following its purchase of Cooper Industries for $11.8 billion in 2012.

The company is eager to get back in the acquisition business and has been developing a list of candidates, Richard “Rick” Fearon, vice chairman and chief financial officer, told analysts.

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