Cleveland—Diversified industrial manufacturer Eaton Corp. (NYSE:ETN) announced record net income per share of $1.07 for the third quarter of 2011, an increase of 37% over the $0.78 earned in the third quarter of 2010. Sales in Q3 were $4.12 billion, 15% above the third quarter of 2010. Net income in the third quarter was $365 million compared to $268 million in 2010.
Net income in both periods included charges for integration of acquisitions. Before these acquisition integration charges, operating earnings per share in Q3 2011 were $1.08 compared to $0.79 per share in 2010, an increase of 37%. Operating earnings in Q3 were $367 million compared to $272 million in 2010.
Alexander M. Cutler, Eaton chairman and CEO, said, “Our record third quarter results were at the midpoint of our guidance range, which we had increased in our July earnings release. This achievement is despite our incurring $0.06 per share of non cash mark-to-market losses on commodity hedge contracts resulting from the virtually unprecedented declines in metals prices which occurred during the last two weeks of September. We also achieved record operating margins and very strong cash flow in the third quarter, demonstrating that our business is continuing to perform well despite the uncertainty affecting the world economy and a number of our end markets.
“Sales in the third quarter increased 15% compared to the third quarter of 2010,” said Cutler.”
The 15% sales growth was comprised of 11% core growth, 2% from acquisitions, and 2% from foreign exchange. End markets grew 11% in the quarter. “We are very pleased with our 14.6% segment operating margin in the third quarter, setting a new segment operating margin record,” said Cutler.
“Our operating cash flow in the third quarter was $642 million, almost equal to the record operating cash flow we recorded in the fourth quarter of 2008,” said Cutler. “We took advantage of our strong cash flow and the depressed price of our shares to buy back 2% of our outstanding shares during the third quarter, at an average price of just over $39 per share.
“We anticipate net income per share for the fourth quarter of 2011 to be between $1.04 and $1.14,” said Cutler. “Operating earnings per share for the fourth quarter, which exclude charges to integrate our recent acquisitions, are anticipated to be between $1.06 and $1.16.
“We are affirming the midpoint of our full year earnings guidance as we continue to anticipate record operating earnings per share in 2011, our 100th anniversary year,” said Cutler. “Our guidance for net income per share is between $3.91 and $4.01 and for operating earnings per share is between $3.95 and $4.05. This represents growth in 2011 operating earnings per share of between 41 and 44%.”
Selected segment results
Hydraulics segment sales were $717 million, up 23% compared to Q3 2010. Global hydraulics markets were up 14% in the quarter, with U.S. markets up 18% and non-U.S. markets up 11%. Operating profits in Q3 were $109 million. Excluding acquisition integration costs of $1 million during the quarter, operating profits were $110 million, up 45% over the third quarter of 2010.
“Global hydraulics markets in the third quarter continued the strong rebound we saw in the first half, although we did see weakness in the Chinese construction equipment markets,” said Cutler. “Our bookings, adjusted for foreign exchange, increased 20% in the third quarter. For all of 2011, we believe global hydraulics markets will grow 17%, 1% lower than we had expected in July.
“We were pleased to close our acquisition of German filtration company E. Begerow during the third quarter,” said Cutler.
Aerospace segment sales were $420 million, up 8% compared to Q3 2010. Aerospace markets were up 7% compared to the third quarter of 2010. Operating profits in the third quarter were $71 million, up 16% over Q3 2010.
“As we expected, our Aerospace margins rebounded in the third quarter, rising to 16.9%,” said Cutler. “We believe the development program issues we encountered in the first half of 2011 are now behind us. Aerospace bookings increased 16% during the third quarter, adjusted for foreign exchange, reflecting improved bookings in commercial OEM and aftermarket. We now believe that our Aerospace markets will grow by 5% in 2011, 1% higher than we anticipated in July.”