Eaton beat quarterly revenue and profit targets on Thursday morning. Segment profit margin and organic sales growth beat estimates. Management also raised its full-year guidance. Despite that strength, the economic club’s shares traded lower. Second-quarter revenue rose over 8% year-over-year – 9% organically – to a brand new record of $6.35 billion, beating analyst expectations of $5.34 billion, in accordance with LSEG estimates. Adjusted earnings per share rose 23.5% to $2.73 – also a record and higher than the consensus of $2.61. Segment margin, much like adjusted operating profit margin, rose 210 basis points, just over 2 percentage points, to a quarterly record of 23.7%. That was well above the estimate of twenty-two.7%. ETN YTD-Berg Eaton YTD Shares of electrical components and power management systems company Eaton opened lower after rising 6% as a part of Wednesday’s broader market rally. The stock briefly moved toward zero on Thursday but then got caught up within the broader market’s sharp decline. Despite the two.5% drop in afternoon trading, the stock remains to be up 23% year-to-date, barely outperforming the S&P 500 over the identical period. Bottom line: The momentum evident in Eaton’s quarterly results and management’s outlook shows no signs of slowing, and for that reason, we do not view Thursday’s stock decline as anything greater than profit-taking in a nasty situation. Data center power demands drove record sales at Eaton Electrical Americas and Electrical Global. Aerospace and defense also posted record sales, the corporate’s three largest business segments. Order growth continued in Electrical Americas and Electrical Global, and Aerospace, with all three reporting book-to-bill ratios above 1. That’s an indication of strong demand since it shows orders are coming in faster than they will be filled. Eaton Why we own it: Eaton is involved in several major megatrends, similar to electrification, energy transition, and infrastructure spending. It’s also a player in generative AI, where data centers are using its power management solutions to maintain up with increased demand for more computing power. In North America alone, the corporate has taken on greater than 415 projects since January 2021, valued at greater than $1 billion each, for a complete of $1.2 trillion. We see an extended period of growth ahead. Competitors: Parker-Hannifin, DuPont and Honeywell Last purchase: Dec 8, 2023 Start: Nov 15, 2023 In the conference call following the earnings release, management said 36 recent megaprojects valued at $1 billion or more were announced within the second quarter. The total value of those orders is $118 billion. CEO Craig Arnold said, “It’s important to highlight that we are not seeing a decline in the number of projects announced. In fact, the second quarter was one of the strongest quarters ever.” Since January 2021, 444 megaprojects valued at about $1.4 trillion have been announced in North America. The company is currently negotiating with electric customers for one more $1.3 billion value of projects. Arnold also said about 40% of the projects announced last 12 months are related to data centers and power generation/renewables. “In many ways, this is a once-in-a-lifetime opportunity, as the megatrends we’ve shared have a broad and meaningful impact on the growth outlook for most of our end markets,” he explained. “We’re seeing the benefit in our sales results and even more clearly in our orders, backlog and negotiation pipeline, all of which are at record levels and growing.” With all forms of corporations having to spend tons of cash to construct data centers that may handle the computing a great deal of artificial intelligence, Eaton has a promising future ahead of it. We reiterate our Buy1 rating and maintain our price goal of $350 per share, which is $5 above the stock’s all-time high on May 24. Shares are currently trading slightly below $300. Quarterly Commentary While money flow results fell in need of expectations, each operating money flow (up 11% to $946 million) and free money flow (up 10% to $759 million) were second-quarter records. Four of Eaton’s five business units increased revenue. Vehicle unit revenue fell 3.7% to $723 million. Segment profit increased in all five units, with the tiny eMobility unit up 300%. Aerospace segment margin of 21.6% was the just one to say no year-over-year and miss estimates. Forecast Eaton management raised full-year guidance on several items. Organic revenue is anticipated to extend 8% to 9%, up from the 7% to 9% previously forecast and from Wall Street estimates of about 8.7%. Segment operating margins are expected to be between 23.4% and 23.7%, down from 22.8% to 23.2% and higher than the consensus of 23.2%, even on the low end. Adjusted earnings per share are expected to be between $10.65 and $10.75, down from $10.20 to $10.60 and well above Wall Street’s midpoint of $10.54. Operating money flow is estimated at $4.2 billion to $4.4 billion, and free money flow at $3.6 billion, versus estimates of $4.4 billion operating money flow and $3.56 billion free money flow. For the present quarter, the third quarter, Eaton expects the next. Organic sales are expected to grow 8% to 9%, barely below the midpoint expectation of 8.75%. Segment margin is estimated at 23.5% to 23.9%, consistent with the median estimate of 23.7%. Adjusted earnings per share are estimated at $2.73 to $2.83, above the median estimate of $2.75. (Jim Cramer’s Charitable Trust is long ETN, HON and DD. A full list of stocks will be found here.) 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Eaton Corporation signage on the NYSE
Source: NYSE
Eaton on Thursday morning, the quarterly results exceeded sales and profits. The segment profit margin and organic sales growth exceeded estimates. Management also raised its forecast for the total 12 months.
Despite this demonstration of strength, the economic club’s shares traded lower.
