A month has gone by since the last earnings report for Eaton (ETN). Shares have added about 5.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Eaton due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Eaton Q3 Earnings Beat Estimates, 2023 Guidance Raised
Eaton Corporation has reported third-quarter 2023 earnings of $2.47 per share, which surpassed the Zacks Consensus Estimate by 5.6%. The bottom line increased by 22.3% year over year and beat the guidance of $2.27-$2.37 per share.
GAAP earnings for the reported quarter were $2.22 per share compared with $1.52 in the year-ago quarter. The difference between GAAP and operating earnings for the reported quarter was due to charges of 21 cents for intangible amortization, 1 cent for a multi-year restructuring program and 3 cents for acquisitions and divestitures.
Revenues
Total quarterly revenues were $5,880 million, which lagged the Zacks Consensus Estimate of $5,894 million by 0.2%. Total revenues improved 10.7% from the year-ago quarter. Third-quarter revenues gained from a 9% increase in organic sales.
Segmental Details
Electrical Americas’ total third-quarter sales were $2,594 million, up 19.1% from the year-ago quarter. The improvement was due to increased organic sales. Operating profits were $719 million, up 40.7% year over year.
Electrical Global’s total sales were $1,503 million, up 1.1% from the year-ago quarter. Organic sales were flat from the year-ago quarter, with positive currency translation adding 2%, offset by a negative impact from a small divestiture. Operating profits were $328 million, up 8% from the year-ago quarter.
Aerospace’s total sales were $867 million, up 13% from the year-ago quarter, driven by organic sales and positive currency translation. Operating profits were $209 million, up 24.1% year over year.
Vehicle’s total sales were $753 million, up 1% from the year-ago quarter, driven by positive currency translation offset by a drop in organic sales. Operating profits were $131 million, up 17.4% year over year.
The eMobility segment’s total sales were $163 million, up 19% year over year, driven by organic sales. The segment broke even in the quarter, with a 150-basis point improvement compared with the third quarter of 2022, driven by higher volumes from ramping programs and improved net manufacturing productivity.
Highlights of the Release
Selling and administrative expenses were $949 million, up 16.7% from the year-ago quarter.
ETN’s third-quarter research and development expenses were $187 million, up 13.3% from the prior-year period. Interest expenses for the quarter were $33 million, down 10.8% from the year-ago quarter.
Eaton’s backlog growth, with orders, increased by 19% in Electrical Americas and 22% in Aerospace on a rolling 12-month basis.
Financial Update
As of Sep 30, 2023, the company’s cash was $348 million, up from $294 million as of Dec 31, 2022.
As of Sep 30, 2023, ETN’s long-term debt was $8,150 million, down 2.1% from $8,321 million as of Dec 31, 2022.
Guidance
Eaton’s fourth-quarter 2023 earnings are expected to be $2.39-$2.49 per share. The Zacks Consensus Estimate is $2.39 per share, much lower than the midpoint of the company’s guidance. Eaton expects its organic sales growth guidance in the band of 8-10% for the fourth quarter.
Eaton raised its adjusted earnings per share in the range of $8.95-$9.05 from $8.65-$8.85 for 2023. The company narrowed full-year organic growth guidance to a range of 11% to 12%.
The company also raised full-year operating cash flow guidance to $3.3-$3.7 billion, up $100 million at the midpoint.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Eaton has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Eaton has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Eaton is part of the Zacks Manufacturing – Electronics industry. Over the past month, A.O. Smith (AOS), a stock from the same industry, has gained 6.1%. The company reported its results for the quarter ended September 2023 more than a month ago.
A.O. Smith reported revenues of $937.5 million in the last reported quarter, representing a year-over-year change of +7.2%. EPS of $0.90 for the same period compares with $0.69 a year ago.
A.O. Smith is expected to post earnings of $0.93 per share for the current quarter, representing a year-over-year change of +8.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for A.O. Smith. Also, the stock has a VGM Score of B.
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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
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