Last updated: February 5, 2013 5:46 pm

Eaton profits dented on weak auto demand

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Eaton Corporation, the diversified industrial group, blamed worldwide economic uncertainty for holding back 2012 sales growth as it announced full-year results heavily dented by weak truck and car demand.

Eaton announced fourth-quarter net income down 51 per cent to $179m as a result of $176m in acquisition charges, mainly for last year’s purchase of Cooper Industries, and $50m in restructuring charges.

Another diversified industrial group – Emerson – also sounded a cautious note when it announced net earnings for the September to December quarter up 22 per cent to $454m, on revenues up 5 per cent to $5.6bn. It said business investment remained “slow and cautious” globally, but that there were signs of thawing in some frozen markets.

The market responded positively to Eaton’s announcement, particularly its projection that 2013 operating earnings per share, excluding $145m in projected charges for integrating acquisitions, would rise about 8 per cent to between $4.05 and $4.45 per share. Full-year earnings per diluted share fell 12 per cent to $3.46. The shares rose 2.81 per cent to $58.17.

Sandy Cutler, chief executive, said the market was reacting to signs that the integration of Cooper was going “even better than expected”.

Emerson’s shares meanwhile fell 1.4 per cent to $56.67.

Eaton suffered from sharp falls in demand in some of its core markets. Fourth-quarter operating profits in its truck segment, which supplies truckmakers, fell 41 per cent to $81m, on sales down 26 per cent to $504m.

North American truck production in the quarter was 23 per cent down on 2011, it said. In automotive business, exposure to the collapsing European auto industry led fourth-quarter operating profits down 60 per cent to $17m, on sales down 8 per cent to $367m.

Mr Cutler said that Eaton’s vehicle businesses – once the group’s core – now accounted for only 40 per cent of turnover. The electrical businesses that now account for 60 per cent of turnover had held up far better. Electrical Americas reported fourth-quarter operating profits up 11 per cent to $193m, on sales up 3 per cent to $1.15bn.

Electrical Rest of the World fourth-quarter operating profits rose 1 per cent to $70m, on sales up 2 per cent to $711m. Cooper Industries, which the company took over on November 30, provided $66m operating profits and $470m sales for December.

Full-year net income fell 9.9 per cent to $1.22bn, on sales up from $16bn to $16.3bn.

“The electrical segments are working really well,” Mr Cutler said. “We’ve seen weakness in the traditional vehicle and hydraulics markets. But the restructuring in what is now 60 per cent of the company – electrical – is really paying off.”

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