Eaton Reports First Quarter Results

Sales in the quarter were a record $2.65 billion, 19 percent above the same period in 2004. Net income was $187 million, compared to $134 million in the first quarter of 2004, an increase of 40 percent.

Net income in both periods included charges for restructuring activities related to the integration of acquisitions. Before these restructuring charges, operating earnings per share in the first quarter of 2005 were $1.23 versus $.88 per share in 2004, an increase of 40 percent, and operating earnings for the first quarter of 2005 were $193 million compared to $138 million in 2004, an increase of 40 percent.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, "We are pleased with our first quarter, which came in near the top of our guidance. Sales growth in the first quarter of 19 percent consisted of 10 percent from acquisitions, 7 percent from organic growth, and 2 percent from higher exchange rates. Our end markets during the quarter grew 6 percent.

"In the first quarter, our segment operating margin before restructuring charges was 12.6 percent, a significant increase over 11.7 percent a year ago," said Cutler. "We continue to anticipate growth of 5 percent for our end markets in 2005," said Cutler. "The residential electrical markets are stronger than we had anticipated, but this strength is offset by weaker aerospace and automotive markets.

"Consistent with the plan announced in January, Eaton spent $250 million repurchasing shares during the quarter," said Cutler. "We repurchased 3.63 million shares, at an average price of $69 per share.

"We anticipate net income per share for the second quarter of 2005 to be between $1.20 and $1.30. Operating earnings per share, which excludes restructuring charges to integrate our recent acquisitions, are expected to be between $1.25 and $1.35 in the second quarter of 2005. We are maintaining our full-year guidance for both net income per share and operating earnings per share, at $4.90 to $5.10, and $5.10 to $5.30, respectively."

Business Segment Results

First quarter sales of Eaton’s largest business segment, Electrical, were $848 million, up 39 percent over 2004. Excluding the impact of the Powerware acquisition, first quarter sales were up 5 percent compared to 2004. Operating profits in the first quarter were $71 million. Operating profits before restructuring charges were $76 million, up 52 percent from 2004.

"End markets for our electrical business grew about 5 percent during the first quarter," said Cutler. "The residential markets remained very strong during the quarter, while growth in the nonresidential markets was modest."

Fluid Power segment first quarter sales were $785 million, 2 percent above the first quarter of 2004. Fluid Power markets grew 2 percent compared to the same period in 2004, with global fluid power shipments up 10 percent, commercial aerospace up 7 percent, defense aerospace down 19 percent, and European automotive down 2 percent. Operating profits in the first quarter were $76 million. Operating profits before restructuring charges were $80 million, a decline of 2 percent compared to a year earlier.

"The mobile and industrial hydraulics markets remained strong in the first quarter," said Cutler. "We expect continued growth in these markets throughout 2005. The commercial aerospace market grew slightly less than expected in the first quarter, while defense aerospace was much weaker than we anticipated.

"Sales in our automotive fluid connector business declined further in the first quarter, reflecting weaker auto markets and the loss of certain programs," said Cutler. "We anticipate that sales should begin to recover toward the end of 2005.

"We completed the acquisition of Winner Group Holdings at the end of March," said Cutler. "Winner is the largest producer of hydraulic hose fittings and adapters for the Chinese market, and is expected to be a valuable addition to our Chinese hydraulic operations."

The Truck segment posted sales of $542 million in the first quarter, up 42 percent compared to 2004, and recorded operating profits of $109 million, up 79 percent. NAFTA heavy-duty truck production was up 46 percent compared to 2004, NAFTA medium-duty truck production was up 10 percent, European truck production was up 8 percent, and Brazilian vehicle production was up 10 percent.

"First quarter production of NAFTA heavy-duty trucks totaled 82,000 units, 5 percent more than in the fourth quarter of 2004," said Cutler. "Orders for NAFTA heavy-duty trucks during the first quarter averaged 30,000 units per month and the backlog at the end of March is estimated to be 190,000 units. We estimate the NAFTA heavy-duty truck market in 2005 is likely to total at least 310,000 units.

"We acquired the Pigozzi agricultural transmission business in Brazil during the quarter," said Cutler. "Pigozzi will increase capacity for our Brazilian truck operations, as well as strengthen our position as a supplier to the agricultural equipment market worldwide."

The Automotive segment posted first quarter sales of $479 million, the same as in the comparable quarter of 2004. Automotive production in NAFTA markets declined 4 percent and in Europe declined 2 percent compared to the first quarter of 2004. Operating profits were $69 million, the same as the first quarter of 2004.

"We expect that, for 2005 as a whole, both the NAFTA and European automotive markets will decline slightly," said Cutler. "However, based on our product wins for current and future platforms, we anticipate that we will be able to achieve modest revenue growth in 2005."

Please visit Eaton’s Website for tables of comparative financial results.