Eaton Corp plc Quarterly Report for Q1 Ended Mar 31, 2015

Summary

Eaton Corp plc (ETN) reported its first quarter 2015 financial results, with net sales of $5.223 billion, a decrease of 5% from the prior year period. This decline was largely attributable to a 6% negative impact from currency translation, partially offset by a 1% increase in organic sales driven by growth in North American end markets. Net income attributable to ordinary shareholders rose 6% to $466 million, or $0.99 per diluted share, up from $439 million, or $0.92 per diluted share, in the first quarter of 2014. This improvement in profitability, despite lower sales, was due to a higher gross profit margin (31.2% vs. 29.8%) driven by organic sales volumes and efficiency initiatives, and a lower effective income tax rate (8% vs. 3%). Operationally, the company saw mixed results across its segments. While Electrical Products, Electrical Systems and Services, Aerospace, and Vehicle segments showed resilience or growth in operating profit, the Hydraulics segment experienced a significant decline in sales and operating profit due to weakness in global agricultural and construction equipment markets. Eaton also incurred acquisition integration charges, which were notably lower in the current quarter compared to the prior year, contributing to the improved net income. The company also continued its share repurchase program, buying back 2.4 million shares for $170 million in the quarter.

Key Highlights

• 1Net sales for Q1 2015 were $5.223 billion, a 5% decrease year-over-year, primarily driven by a 6% negative currency translation impact, though partially offset by 1% organic sales growth.
• 2Net income attributable to ordinary shareholders increased by 6% to $466 million, or $0.99 per diluted share, compared to $439 million, or $0.92 per diluted share, in Q1 2014.
• 3Gross profit margin improved to 31.2% from 29.8% in the prior year quarter, attributed to higher organic sales volumes and efficiency improvements.
• 4The effective income tax rate decreased significantly to 8% in Q1 2015 from 3% in Q1 2014.
• 5Acquisition integration charges decreased substantially to $7 million (after-tax) in Q1 2015 from $44 million in Q1 2014, positively impacting net income.
• 6The Hydraulics segment saw a sharp 15% decline in net sales and a 39% decrease in operating profit due to weakness in agricultural and construction equipment markets.
• 7Eaton repurchased 2.4 million ordinary shares for $170 million during the quarter under its ongoing share repurchase program.

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