(Recasts, adds CEO comments)
By Lewis Krauskopf
July 29 Eaton Corp tempered its
full-year profit forecast on Tuesday due to weaker margins in
its electrical systems business and dented some Wall Street
hopes for a near-term spin-off of its vehicle business, sending
its shares down 6 percent.
The U.S. manufacturer of power products and systems also
said bookings fell 2 percent for its hydraulics segment, while
second-quarter profit missed analysts' target.
Eaton Chief Executive Officer Sandy Cutler said no
"compelling" reason existed for portfolio transformation, amid
speculation by some analysts that the company should seek to
spin off the vehicle business, which makes turbochargers for
cars and transmissions for trucks.
Eaton would face a "very significant" tax liability with any
spin off, Cutler said, because of rules about making such a move
within five years of its $11.8 billion acquisition of Cooper
Industries, which was completed in 2012. The CEO also said the
company gains benefits from applying its power technologies to
"There is not really a compelling economic rationale for
further portfolio transformation, so we hope that provides some
clarification" to recent questions from investors, Culter said
on a conference call with analysts.
Eaton now expects 2014 earnings of $4.50 to $4.70 per share,
lowering the top end from $4.90. Analysts on average had been
looking for $4.73 for the year, according to Thomson Reuters
Eaton "lowered guidance for 2014 and that's made investors
somewhat nervous," said Eli Lustgarten, senior vice president at
Cutler said the lower forecast reflected weaker margins in
the company's major electrical systems and services segment.
The company lowered its overall margin target to 15.2
percent for the year from 15.75 percent previously.
The electrical segment is being hit by higher logistical
costs and pricing pressures, according to the company.
Eaton's net income attributable to shareholders fell 65
percent to $171 million, or 36 cents per share, in the second
quarter ended June 30.
The latest quarter's net income included charges related to
acquisitions and litigation costs.
Excluding one-time items, earnings of $1.11 per share fell 2
cents short of the average estimate of analysts.
Sales rose 3 percent to $5.77 billion. Bookings in Eaton's
electrical products business rose 6 percent, while those in its
aerospace unit increased 9 percent.
Eaton shares fell 6 percent to $72.17 in mid-day trading on
the New York Stock Exchange.
(Reporting by Lewis Krauskopf in New York and Sagarika
Jaisinghani in Bangalore; Editing by Savio D'Souza, W Simon and