UPDATE: Eaton Posts 1Q Loss On Sales Woes; Drops Forecast
April 20 2009 - 12:09PM
Dow Jones News
Eaton Corp. (ETN) predicted that end-market demand for its
products will remain weak into early 2010, as the company lowered
its sales and earnings outlook for the year.
The company, which manufactures hydraulic and electrical
components for the automotive and aerospace industries, posted a
first-quarter loss on a 20% drop in quarterly sales. Demand from
the struggling truck and automotive sectors was particularly
anemic, with Eaton's truck segment sales off 49% in the quarter
from a year ago and automotive sales down 50%.
The company predicted that overall end-market sales will decline
by 15% to 16% for the year. The company previously forecast an
end-market sales decline of 10%.
"It's a major downward adjustment," Chief Executive and Chairman
Alexander Cutler said during a conference call with Wall Street
analysts. "In the fourth quarter and the first quarter, we've seen
an extraordinary deceleration of demand. People are really trying
to get at inventory" destocking.
Eaton said it does not expect demand to recover significantly
until the first-quarter of 2010. As a result, Eaton now sees
operating earnings for 2009 in a range of $2.50 to $3 a share, down
from February's projection of $4 to $4.60.
The company forecast second-quarter earnings of about 25 cents a
share on revenue of $3 billion to $3.1 billion.
Eaton is the latest diversified manufacturer to lower
expectations for the year. Last week, Parker Hannifin Corp. (PH)
and Illinois Tool Works Inc. (ITW) also pulled down their guidance
amid widespread reductions in sales and income so far this
year.
During the first-quarter, Eaton posted a net loss of $52
million, or 30 cents a share, compared with year-earlier net income
of $250 million, or $1.64 a share.
Excluding acquisition-related costs, the loss would have been 22
cents. Revenue decreased to $2.81 billion from $3.49 billion a year
ago. Analysts had expected the company to loose 25 cents per share
on $3.06 billion of revenue.
Gross margin in the quarter slipped to 22.7% from 27.6% amid the
sales woes.
Eaton has tried to reduce its exposure to automotive and
truck-building customers by supplying components to other
industries and overseas customers.
But the global economic downturn has affected all of Eaton's
markets.
"It's simultaneous around the world," Cutler said. "The very
fast-growing, developing nations have been hit as hard, if not
harder, than the developed nations."
Eaton predicted it will get $300 million from business
acquisitions this year, compared with $2.1 billion from
acquisitions in 2008.
Eaton's stock was recently down 10.2% at $41.18 a share. The
stock is down by more than half the past 10 months.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
(Kerry E. Grace and Kevin Kingsbury contributed to this
report.)