Eaton profit up, outlook disappoints, shares fall

CHICAGO (Reuters) - Diversified manufacturer Eaton Corp (ETN.N) said on Monday its quarterly profit rose but gave a lower-than-expected fourth-quarter outlook, citing economic uncertainties, sending its shares down more than 2 percent.

"Due to the economic uncertainties triggered by the late summer turmoil in global credit markets, we believe that our overall markets in the fourth quarter will not improve as we had earlier anticipated," Chief Executive Officer Alexander Cutler said in a statement.

Cutler added that while many of its market segments remained strong, the North American heavy-duty truck market had not rebounded as the company had hoped and "greater weakness in U.S. housing starts had negatively affected its residential electrical, hydraulics construction equipment and North American automotive businesses.

"The third-quarter numbers are still terrific," said Eli Lustgarten, an analyst at Longbow Securities.

But due to recent market turmoil, the fourth-quarter outlook is a "sign that the whipped cream and the cherry for the rest of the year are gone," Lustgarten said.

"We should see more companies like Eaton tempering their outlook over the next few weeks," he added.

Eaton posted third-quarter net income of $258 million, or $1.71 a share, up from $248 million, or $1.62 a share, a year earlier, as strong results from its electrical segment offset weakness from its truck segment.

Excluding one-time items, the Cleveland, Ohio-based company earned $1.79 a share, including 12 cents in earnings from discontinued operations.

The company posted adjusted operating earnings of $1.67 per share. On that basis Wall Street expected quarterly earnings of $1.68 per share, according to Reuters Estimates.

Operating profit from the company's electrical unit rose to $156 million from $116 million a year ago. Eaton said in July its electrical segment was benefiting from a booming nonresidential construction sector, to which the company supplies products.

Cleveland-based Eaton said operating profit from its truck segment fell to $95 million from $122 million a year ago. The entire truck industry is being hit by new U.S. clean-air regulations that took effect on January 1.

Looking forward, Eaton said it expects earnings per share for the fourth quarter in a range from $1.60 to $1.70. Analysts had expected EPS for the quarter of $1.85.

Cutler told Reuters in July that he believed the sluggish commercial truck market wouldn't begin to recover until late this year at the earliest.

He said the downturn, caused by U.S. clean-air rules that took effect on January 1, would end gradually as even stricter pollution regulations scheduled to take effect in 2010 get closer.

The decline in North American sales stems from new environmental protection rules that took effect this year that require truck manufacturers to put more complex and expensive engines in their vehicles.

Many trucking companies, worried about the reliability and running costs of engines designed to comply with the tough new rules, chose to update their fleets last year, ahead of the rules' implementation.