CLEVELAND — Diversified industrial manufacturer Eaton Corp. has announced revised earnings guidance for the fourth quarter, reflecting the impact of the global economic crisis on its end markets.
“We have experienced recent, dramatic deceleration in global demand in our Automotive, Truck and Hydraulics segments,” said Alexander Cutler, Eaton chairman and chief executive officer. “The weakness in these segments has been accentuated by customer decisions to sharply curtail production starting in late November and continuing into December. We have also begun to see weakness in certain markets within our Electrical and Aerospace businesses.
As a result Eaton underwent a number of cost-cutting actions in 2008, including reducing employment by 3,400. Cutler stated that the company continues to evaluate further cost-cutting measures that could be taken in early 2009. “In total, the actions taken in 2008 and our anticipated 2009 actions are expected to generate a net pre-tax benefit of approximately $125 million in 2009,” Cutler said.
As a result of declining markets, Eaton now anticipates its net income per share for the fourth quarter will be between 90 cents and $1, with operating earnings per share, which exclude charges to integrate its recent acquisitions, to be between $1 and $1.10. For the full year, the new fourth quarter guidance would result in net income per share of between $6.44 and $6.54, and operating earnings per share of between $6.75 and $6.85, both sets of numbers being approximately even with the earnings per share achieved in 2007.
“We expect weak global economic conditions to persist throughout 2009, with GDP in the United States likely to decline by between 2 and 3 percent and GDP in the European Union likely to decline by between 1 and 2 percent,” said Cutler. “We also expect GDP growth in emerging economies to be approximately 3 percentage points lower than in recent years, reflecting the impact of lower demand from the United States and Europe.”
In light of this economic outlook, Eaton’s end markets are expected to face reduced demand. While Eaton is still evaluating the full impact, its present view is that its overall end markets in 2009, as measured in local currencies, are likely to decline by approximately 7 percent.
In addition, revenue in 2009 will be impacted by the decline in most currencies against the dollar. At this point, Eaton believes the reduction in non-U.S. currencies is likely to reduce revenues on the order of between 5 and 6 percent, compared to 2008.
“Largely offsetting the decline in revenues from foreign exchange will be additional revenues from the full year impact of acquisitions completed in 2008 and our demonstrated ability to grow more quickly than our end markets — a key indicator of the strength of our power management portfolio of products and services,” said Cutler.
