Power management company Eaton Corporation announced that earnings per share were US$1.10 for the first quarter of 2018, an increase of 15% over the first quarter of 2017. Net income was $488m, up 12% over the first quarter of 2017.
Sales in the first quarter of 2018 were $5.3bn, up 8% over the same period in 2017. The sales increase consisted of 6% growth in organic sales and 3% increase from positive currency translation, partially offset by negative 1% from the divestiture in 2017 of our share in a small electrical JV and also the formation of the Eaton Cummins JV.
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Craig Arnold, Eaton chairman and chief executive officer, said, “We had a strong first quarter, with revenues above the high end of our guidance range, and earnings per share at the high end of our guidance range. Coming into the quarter, we expected organic sales would be up 4% and currency translation would add 1% growth. Our organic sales ended up growing 6%, and currency translation was a positive 3%. The 6% organic growth was our highest quarterly rate of growth since the fourth quarter of 2011.
“Our segment margins in the first quarter were 15.2%, a record for a first quarter, and above the high end of our guidance,” said Arnold. “This represents an 80 basis point improvement over the first quarter of 2017.
“During the quarter, we established a new reporting segment – eMobility – to focus on growth in the vehicle and mobile equipment electrification market,” said Arnold. “Eaton is not new to this market, as we have participated in this market in the past through our Electrical Products and Vehicle businesses. Combining our efforts through the creation of a new business will allow us to generate additional synergies and accelerate growth.
“The segment financial results for Electrical Products and Vehicle have accordingly been restated for 2016 and 2017,” said Arnold. “The impact of the restatement on each segment was small.
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By GlobalData“Operating cash flow in the first quarter was $339m, reflecting the growth of working capital to fund our rapid sales growth,” said Arnold. “We returned substantial cash to our shareholders in the quarter, raising our quarterly dividend by 10% in February and repurchasing $300m of our shares in the quarter.
“We now expect 2018 earnings per share to be between $5.10 and $5.30, up $0.10 from our prior guidance, representing at the midpoint a 12% increase over 2017, excluding the gain on the formation of the Eaton Cummins JV and the income arising from the new tax bill in 2017,” said Arnold. “For the second quarter of 2018, we anticipate earnings per share to be between $1.25 and $1.35.”
Business Segment Results
Sales for the Electrical Products segment were $1.7bn, up 5% over the first quarter of 2017. Organic sales were up 1% and currency translation was positive 4%. Operating profits were $307m, up 7% over the first quarter of 2017.
“Operating margins in the first quarter were 17.7%, 30 basis points over 2017 and a record for a first quarter,” said Arnold. “Orders in the first quarter were down 2% from the first quarter of 2017, driven by a decline in our lighting business. Excluding lighting, orders were up 2% with particular strength in products going into industrial applications.”
Sales for the Electrical Systems and Services segment were $1.4bn, up 4% over the first quarter of 2017. Organic sales were up 2%, currency translation was positive 2%, and the sale in 2017 of our stake in a small joint venture reduced sales by 1%. Operating profits were $167m, up 8% over the first quarter of 2017.
“Operating margins were 12.1%, an improvement of 50 basis points over 2017,” said Arnold. “Orders in the first quarter were up 8% over the first quarter of 2017, led by strong growth in the Americas. We continued to see particular strength in large industrial assemblies and in services. With the strong orders we have booked over the last nine months, we expect organic growth in the second quarter to markedly accelerate.”
Hydraulics segment sales were $710m, up 21% over the first quarter of 2017. Organic sales were up 16% and currency translation was positive 5%. Operating profits in the first quarter were $90m, an increase of 50% over the first quarter of 2017.
“Operating margins in the quarter were 12.7%, an improvement of 250 basis points over 2017,” said Arnold. “Hydraulics orders in the first quarter of 2018 were up 14% over the first quarter of 2017, with solid growth in all geographic regions. We saw particular strength in orders from OEMs.”
Aerospace segment sales were $458m, up 7% over the first quarter of 2017. Organic sales were up 6% and currency translation was positive 1%. Operating profits in the first quarter were $89m, up 13% over the first quarter of 2017.
“Operating margins in the quarter were 19.4%, 90 basis points over 2017,” said Arnold. “Orders in the quarter were up 1% compared to the first quarter of 2017. We saw particular strength in aftermarket and rotorcraft orders, with some weakness in orders for transports.”
The Vehicle segment posted sales of $893m, up 14% over the first quarter of 2017. Organic sales were up 13% and currency translation was positive 3%, partially offset by a negative 2% as a result of the formation of the Eaton Cummins joint venture in 2017. Cummins purchased 50% of Eaton’s advanced automated transmission business and consolidates the revenue in their results. Operating profits in the first quarter were $132m, up 22% over the first quarter of 2017.
“Operating margins in the quarter were 14.8%, an improvement of 110 basis points over 2017” said Arnold. “The NAFTA Class 8 truck market has continued to strengthen, and we now forecast NAFTA Class 8 production in 2018 to be 295,000 units. We also saw strength in Brazilian truck and light vehicle markets.”
eMobility segment sales were $77m, up 22% over the first quarter of 2017. Organic sales were up 19% and currency translation was positive 3%. Operating profits in the first quarter were $11m, flat to 2017. Operating margins in the quarter were 14.3%.
“We’re excited by the prospects for eMobility,” said Arnold. “We’re investing heavily in this segment, and are working on a large number of opportunities as the electric vehicle market continues to accelerate.”
