Eaton’s Q3 Earnings Surpass Estimates: How to Play the Stock

Eaton Corporation ETN reported better-than-expected third-quarter 2024 earnings per share on Oct. 31. Earnings and revenues increased 15% and 7.9%, respectively, year over year. The third-quarter year-over-year revenue growth was entirely driven by organic sales growth, which was partially offset by the adverse impact of Hurricane Helene and labor strikes in the aerospace industry.

ETN has been reporting strong earnings results, courtesy of solid financial and operational performance from most of its segments. The company surpassed expectations in the last four quarters, with an average earnings surprise of 3.63%.

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Eaton reported third-quarter 2024 earnings of $2.84 per share, which surpassed the Zacks Consensus Estimate by 1.4%. The bottom line increased nearly 15% year over year, coming ahead of the guidance of $2.73-$2.83.

In the third quarter, Eaton’s operating revenues were $6.34 billion, which improved 7.9% year over year, primarily due to organic sales growth.

Eaton continued with Research and Development (R&D) activities during the quarter, with R&D expenses rising 10.7% year over year. This ongoing R&D expense allows ETN to upgrade its existing products and develop new products to provide efficient power management solutions.

Eaton continues to enjoy the benefit of organic sales growth from its segments and steady demand for its high-quality product offerings. Eaton’s backlog, with orders, increased 26%, 14% and 19% in Electrical Americas, Aerospace and Electric Global, respectively, on a rolling 12-month basis.

Eaton continues to benefit from the reindustrialization process started across the globe, with $1.6 trillion in cumulative mega projects announced in North America since January 2021. Megaproject announcements have accelerated in the past six months, and the company continues to win new orders, reflected in its rising backlog.

The increase in Eaton’s share prices is a reflection of the strong performance of the company and customer growth, which are boosting demand for its services.

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Eaton has a diversified product portfolio offering that provides energy-efficient solutions to its broad customer base. ETN’s ongoing investments to upgrade the products and create new products allow the company to expand its operations and widen its revenue base.

Eaton’s products are supplied to around 175 countries, and most importantly, this provides stability to the revenue generation ability of the company, as the loss of a customer will not have any significant impact on revenues and margins.

Reindustrialization and megatrends worldwide create fresh demand for Eaton’s efficient power management products. The company continues to receive orders from its customers across the globe and continues to register an increase in backlog. The new AI training data centers, which require both high power and density, are creating a new opportunity for growth for this power management company.

Eaton’s strategic acquisitions allow it to expand into new markets and enhance its revenue stream. The company completed two acquisitions in the second quarter of 2024, further strengthening its Electrical Americas and Electrical Global segments. Currently, demand for the electric vehicle (EV) charging infrastructure is on the rise globally, and Eaton, with its expertise, can help it grab a larger market share in the fast-expanding EV charging business.

Eaton will also benefit from its multi-year restructuring program, which will increase efficiencies in its business segments, reduce its expenses, generate savings and boost margins.

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