Monday, July 20, 2009

Earnings Reports From Industrial Sector

A couple of names of note reporting this morning, Eaton Corp. and Johnson Controls Inc.

EATON (via Reuters)

-Diversified manufacturer Eaton Corp, a maker of hydraulics, electrical control systems and truck transmissions, reported higher-than-expected quarterly profits on Monday, but slashed its earnings forecast, citing weakness across its markets.

-Eaton cited weak truck production, steep declines in European electrical markets and shutdowns at U.S. automakers. It said it expected its end-markets to decline at a faster rate than it had forecast in April.

-But the company said cost cuts made it possible to deliver second-quarter earnings per share close to its original forecast.

-Net earnings fell to $31 million, or 17 cents a share, from $337 million, or $2.03 per share, a year earlier. Revenue fell 32 percent to $2.9 billion, compared with Wall Street forecasts of $3 billion.

-Eaton said it now expected its end-markets to decline 21 percent to 22 percent, versus down 15 percent to 16 percent in its April forecast. It expects its U.S. markets to fall more steeply than overseas markets.

-It estimated full-year operating earnings of $2 to $2.20 per share, compared with its April forecast of $2.50 to $3, but still above Wall Street estimates of $1.92 a share.

When you take a step back at look at these numbers, they are pretty poor. Of course they beat estimates through cost cutting, but earnings at $31 million from $337 million? And we're not talking about some small company that is too focused on one industry or product (Eaton has 75,000 employees). But hey, they beat expectations and the stock is up 10%.


-Johnson Controls Inc posted a 63 percent plunge in quarterly earnings as the weak economy pressured the diversified manufacturer's auto parts and building controls businesses, but its shares rose 7 percent as the results beat Wall Street forecasts.

-The company said economic conditions remained challenging in most of its markets. It benefited from cost cuts made earlier in the fiscal year, and it expects profits to increase in the current fourth quarter and into fiscal 2010.

-"There are still many uncertainties in our industries, but there is better clarity than there was three months ago," Chief Executive Steve Roell said in a statement."Automotive production globally remains at low levels, but appears to be stabilizing," he said. "Analysts are beginning to see a bottom in the commercial buildings and residential ... markets in the next six to nine months."

-Net income fell to $163 million, or 26 cents per share, in the third quarter ended June 30 from $439 million, or 73 cents per share, a year earlier.

-Revenue fell to $6.99 billion from $9.87 billion, missing analysts' estimates of $7.39 billion.

We all knew auto parts would be weak. But I wanted to see what JCI had to say about industrial level HVAC business. With the economic stimulus now out, businesses are encouraged to trade out for more efficient energy saving options. At a minimum, I know the federal government has been doing it in many of their buildings, so you know some revenue is going to be coming in. Here's what I could find for info on that:

The building business' order backlog fell 9 percent to $4.4 billion at the end of the quarter. The backlog in North America was comparable with year-earlier levels, while there was a double-digit decline in Europe and the Middle East. Customers have delayed some projects to see if funding could come from the U.S. stimulus package, Johnson Controls said, but the program should give a meaningful boost to its financial results in the second half of fiscal 2010.

What do these earnings reports tell us? Unfortunately, its the same old tune. Revenues are weak, they are all cutting cost (which mostly means cutting jobs), and are beating earnings estimates. This is good for the stock, but when you attach it to the big picture, it can't make for positive results. We need strong employment levels so the consumer can get healthy. Until the consumer gets healthy it will be hard for retail sales, real estate sales, and many other aspects of the economy to grow again.

Disclosure: No Positions

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