CLEVELAND — Diversified industrial manufacturer Eaton Corporation announced net income per share of $1.37 for the second quarter of 2005, an increase of 33 percent over net income per share of $1.03 in the second quarter of 2004. Sales in the quarter were a record $2.83 billion, 18 percent above the same period in 2004. Net income was $209 million compared to $161 million in 2004, an increase of 30 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 second quarter of 2005 were $1.40 versus $1.06 per share in 2004, an increase of 32 percent, and operating earnings for the second quarter of 2005 were $214 million compared to $166 million in 2004, an increase of 29 percent.
Alexander M. Cutler, Eaton chairman and chief executive officer, said, “We are very pleased with our second quarter results, which came in above our guidance. Sales growth in the quarter of 18 percent consisted of 9 percent from organic growth, 7 percent from acquisitions, and 2 percent from exchange rates. Our end markets grew by approximately 7 percent.
“In the second quarter, our segment operating margin before restructuring charges was 13.3 percent, a significant step up from the 12.6 percent margin in the first quarter, and a record for the second quarter,” said Cutler. “Our operating cash flow for the quarter was $322 million.
“During the quarter, we repurchased $200 million of stock, and we also issued $200 million of long-term debt,” said Cutler. “In addition, we were pleased that Standard & Poor’s upgraded both our short-term and long-term debt ratings during the quarter.
“As we survey our end markets, we now anticipate growth in 2005 of between 4 to 5 percent,” said Cutler. “Growth in nonresidential electrical markets in the U.S. is starting to accelerate, while the growth in the hydraulics markets has slowed.
The automotive segment posted second quarter sales of $472 million, 1 percent lower than the comparable quarter of 2004. Automotive production in both NAFTA and Europe was down 1 percent compared to the second quarter of 2004. Operating profits were $67 million, up 3 percent compared to a year earlier.
“The automotive markets held up better than generally expected during the second quarter,” said Cutler. “We are expecting that for 2005 as a whole the markets in NAFTA and Europe will be down approximately 2 percent.
“We completed the acquisition of Morestana during the quarter, which expands our manufacturing presence in Mexico,” said Cutler. “We also made progress during the quarter on the construction of a significant new plant in Poland to expand our ability to serve European automotive customers.”
“Last week, we announced we signed an agreement to purchase Tractech Holdings, a global manufacturer of specialized differentials and clutch components for the commercial vehicle markets,” said Cutler. “This acquisition, which is expected to close in the third quarter, will allow us to extend our existing differential product capabilities into a wide range of markets beyond our traditional light vehicle applications.”
“We anticipate net income per share for the third quarter of 2005 to be between $1.20 and $1.30. We are increasing our full-year guidance for net income per share by 10 cents, to between $5.00 and $5.20. Operating earnings per share, which exclude restructuring charges to integrate acquisitions, are anticipated to be between $1.25 and $1.35 in the third quarter of 2005, and we are increasing our full-year guidance for operating earnings per share by 10 cents, to between $5.20 and $5.40.”
The truck segment posted sales of $596 million in the second quarter, up 37 percent compared to 2004, and recorded operating profits of $120 million, an increase of 54 percent from the second quarter of 2004. NAFTA heavy-duty production was up 39 percent compared to 2004, NAFTA medium-duty production was up 11 percent, European truck production was up 10 percent, and Brazilian vehicle production was up 13 percent.
“Second quarter production of NAFTA heavy-duty trucks totaled 88,000 units, about 11 percent more than in the first quarter of 2005,” said Cutler. “As a result of the higher than expected NAFTA heavy-duty production in the first two quarters of 2005, we are raising our estimate of the 2005 market from 310,000 units to 320,000 units.
“We are delighted to continue our very positive momentum in the developing market for hybrid powertrains for medium duty trucks,” said Cutler. “In early July, we were notified that the UK’s Institute of Transport Management awarded Eaton the Global Environmental Company of the Year for our hybrid powertrain technology.
“We were also awarded a contract to supply medium-duty transmissions to Hyundai for the Korean market,” said Cutler. “We anticipate annual volumes of $20 million, with production starting in 2007.”
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