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Eaton Reports 1st Quarter Earnings Per Share Of $1.07

Sales in the first quarter of 2020 were $4.8 billion.

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Power management company Eaton Corporation plc recently announced that earnings per share were $1.07 for the first quarter of 2020. Excluding charges of $0.02 per share related to acquisitions and divestitures, adjusted earnings per share were $1.09. Adjusted earnings per share were reduced by $0.14 due to the impact of the COVID-19 pandemic.

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Sales in the first quarter of 2020 were $4.8 billion, down 10 percent from the first quarter of 2019. Organic sales were down 7 percent, including a reduction of 4 percent from the impact of the COVID-19 pandemic. Acquisitions added 2 percent to sales, which was offset by 3-1/2 percent from divestitures. Negative currency translation reduced sales by 1-1/2 percent.

Craig Arnold, Eaton chairman and CEO, said, “At our annual investor day on March 2, we indicated that our first quarter would be impacted by the COVID-19 pandemic. At that time, the pandemic was largely limited to China with little direct impact on other parts of the world. As we all know, things have changed dramatically since that time and the pandemic is now affecting all countries. At the start of the year, we expected organic sales in the first quarter to be down 3 percent. The COVID-19 pandemic reduced our sales by an additional 4 percent, resulting in a 7 percent reduction in organic sales for the quarter.”

“Despite the lower revenues, we are pleased with our first quarter segment margins, which were 15.8 percent. The margin was impacted by a restructuring charge we took at quarter end to deal with some of the anticipated impact of COVID-19,” said Arnold. “As we go forward, we will continue to focus on ensuring the safety of our workforce, implementing cost controls to offset the volume declines, and maximizing our free cash flow. Among the cost actions we have already taken are significant reductions in salaries and incentive compensation, elimination of merit increases for the year, sharp reductions in all categories of discretionary expenses, and elimination of all nonessential capital spending.”

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“Operating cash flow in the first quarter was $325 million,” said Arnold. “We returned substantial cash to our shareholders in the quarter, raising our quarterly dividend by 3 percent in February and repurchasing $1.3 billion of our shares. As most of you know, we have paid dividends every year since 1923. We ended the first quarter with only $330 million of commercial paper outstanding, and our undrawn bank facility has $2 billion of capacity. With only a small term debt maturity in 2020, late in the fourth quarter, our liquidity remains quite strong.”

“We continued our work during the quarter on the previously-announced portfolio changes,” said Arnold. “We closed the sale of the Lighting business on March 2. And we expect the Hydraulics sale to close by the end of the year, which will be another source of substantial liquidity.”

“While most of our plants are still operating and our businesses are deemed essential by almost all governments around the world, the reduction in global growth and economic uncertainty will have a significant impact on our outlook for Q2 and the rest of the year,” said Arnold. “As a result, we are withdrawing our full year 2020 adjusted earnings per share guidance. We do, however, have much more visibility into our cash flow for the year. We now expect full year free cash flow for 2020 to be between $2.3 billion and $2.7 billion, down modestly from our February guidance.”

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Business Segment Results

Sales for the Electrical Americas segment were $1.8 billion, down 9 percent from the first quarter of 2019 driven by a 7 percent impact from the divestiture of the Lighting business. Organic sales were down 2 percent, as a result of the impact of COVID-19. Negative currency translation was 1 percent, which was offset by a 1 percent increase from the acquisitions of Innovative Switchgear and Power Distribution, Inc.

“On February 25 we completed the purchase of Power Distribution, Inc.,” said Arnold. “The acquisition provides us with additional high-value products for data center and industrial markets.”

Operating profits were $308 million, down 8 percent from the first quarter of 2019.

“Operating margins in the first quarter were 17.2 percent, up 20 basis points over the first quarter of 2019,” said Arnold. “Excluding Lighting, the 12-month rolling average of our orders in the first quarter was up 3 percent. In the first quarter, growth was strongest in the data center, utility, and residential markets, with weakness shown in industrial markets.”

Sales for the Electrical Global segment were $1.1 billion, down 8 percent from the first quarter of 2019. Organic sales were down 6 percent, all driven by the impact of COVID-19. Negative currency translation was 3 percent, partially offset by a 1 percent increase from the acquisition of Ulusoy last year. Operating profits were $166 million, down 13 percent from the first quarter of 2019.

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“Operating margins were 14.5 percent, a decrease of 80 basis points from the first quarter of 2019. Operating margins were impacted by a restructuring charge we took at quarter end to deal with the impact of COVID-19,” said Arnold. “The 12-month rolling average of our orders in the first quarter was down 1 percent. In the first quarter, we saw good growth in data centers, but that was more than offset by declines in global oil and gas markets.”

Hydraulics segment sales were $507 million, down 16 percent from the first quarter of 2019 driven by a 14 percent decline in organic sales, with the impact of COVID-19 driving 3 percent of the decline. Negative currency translation was 2 percent. Organic revenue declined due to continued weakness in the global mobile equipment market and destocking at both OEMs and distributors. Operating profits were $55 million, down 7 percent from the first quarter of 2019.

“Operating margins in the first quarter were 10.8 percent, up 100 basis points over the first quarter of 2019,” said Arnold. “Orders in the first quarter decreased 11 percent from the first quarter of 2019, driven primarily by continued weakness in the global mobile equipment market.”

Aerospace segment sales were $680 million, up 13 percent over the first quarter of 2019, driven by a 14 percent increase from the acquisition of Souriau-Sunbank last year. Organic sales were down 1 percent, driven by a 3 percent decline from the impact of COVID-19. Operating profits were $147 million, up 7 percent over the first quarter of 2019.

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“Operating margins in the quarter were 21.6 percent, down 110 basis points from 2019,” said Arnold. “The 12-month rolling average of our orders in the first quarter was down 1 percent. In the first quarter, we saw strength in military fighters and the military aftermarket, and particular weakness in orders for commercial transports.”

The Vehicle segment posted sales of $598 million, down 26 percent from the first quarter of 2019. Organic sales were down 20 percent, partly driven by the impact of COVID-19 which reduced sales by 5 percent. The divestiture of our automotive fluid conveyance business at the end of last year reduced revenues by 4 percent, and currency translation was negative 2 percent. Operating profits were $81 million, down 34 percent from the first quarter of 2019.

“Our revenue in Vehicle declined due to the impact of COVID-19 shutdowns, lower Class 8 OEM production, and continued global weakness in light vehicles,” said Arnold. “Operating margins were 13.5 percent, down 160 basis points from the first quarter of 2019.”

eMobility segment sales were $72 million, down 13 percent from the first quarter of 2019, driven by a 12 percent decline in organic sales, of which 4 percent was due to the impact of COVID-19. Negative currency translation was 1 percent. Operating profits in the first quarter were $1 million, driven by lower volumes due to continued weakness in legacy internal combustion engine platforms, and research and development expenditures and manufacturing start-up costs for new electric vehicle programs.

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The company’s comparative financial results for the three months ended March 31, 2020, are available on the company’s website, www.eaton.com.

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