UPDATE 2-Eaton projects 2nd-qtr profit below Street, shares fall

Tue Apr 29, 2014 1:01pm EDT

(New throughout, adds comments from CEO and analysts)

By Lewis Krauskopf

April 29 (Reuters) - Diversified manufacturer Eaton Corp on Tuesday forecast second-quarter profit below Wall Street's target, weighed down by restructuring costs.

Shares of the U.S. maker of electrical and hydraulic systems fell 2.5 percent in afternoon trading, even though the company reported slightly better-than-expected first-quarter earnings

Eaton projected second-quarter operating earnings in a range of $1.05 to $1.15 per share. Analysts had estimated $1.29 per share.

Eaton plans to incur restructuring costs worth 8 cents per share in the second quarter, as the company takes actions to make its hydraulic, aerospace and vehicle businesses more efficient.

Eaton Chief Executive Officer Sandy Cutler said the company decided to take the actions in light of "growth anxiety" around the world, including concerns over the potential eruption of the crisis in Ukraine or over possible slowing economic growth in China.

"In this kind of marketplace, where it seems that the risk is a little bit more on the downside, we're just taking actions that will allow us to be more efficient," Cutler said in an interview. "We think this is a prudent action to ensure that the company continues to be competitive."

Excluding the 8 cents in restructuring costs, analysts noted that the second-quarter forecast still would have fallen below consensus expectations.

"Even if you take into account restructuring, it was still a little but shy of what the Street was thinking," said Mig Dobre, an analyst with Robert W. Baird.

Eaton backed its full-year operating earnings forecast of a range of $4.50 to $4.90 per share. The $4.70 midpoint of that forecast trails the analyst estimate of $4.81.

Dobre noted that second half earnings will have to outpace the first half to meet the company's earnings target.

"Naturally that creates a little bit of anxiety as to how they're going to get to the second half numbers," Dobre said.

First-quarter net income rose 16 percent to $439 million, or 92 cents per share, from $378 million, or 79 cents, a year ago.

Excluding one-time items, earnings were $1.01 per share. That topped the average analyst estimate by a penny, according to Thomson Reuters I/B/E/S.

Severe winter storms in North America hurt Eaton earnings by an estimated 3 cents per share, the company said.

Eaton said corporate expenses were lower than it had expected for the first quarter, helping earnings.

Revenue rose 3.4 percent to $5.49 billion, in line with expectations.

Organic growth excluding acquisitions rose 4.5 percent, which Cutler noted was the company's strongest quarterly performance since the first quarter of 2012.

Eaton shares fell $1.88 to $72.62 on the New York Stock Exchange. The shares are down 4.5 percent this year, underperforming the broader U.S. markets. (Reporting by Lewis Krauskopf, Editing by Franklin Paul, Jeffrey Benkoe and David Gregorio)

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