Diversified industrial manufacturer Eaton Corp. today, April 20, announced a net loss of $50 million for the first quarter of 2009 compared to net income of $247 million in the first quarter of 2008. Sales in the quarter were $2.8 billion, 20 percent below the same period in 2008, reflecting the impact of the global recession.
Net income in both periods included charges for integration of acquisitions. Before acquisition integration charges, the operating loss per share in the first quarter of 2009 was $0.22 versus operating earnings per share of $1.70 in 2008. The operating loss for the first quarter of 2009 was $36 million compared to operating earnings of $256 million in 2008.
“Our first-quarter results reflect the impact of the severe downturn in many of our end markets and the expenses associated with personnel reductions made in the first quarter,” said Alexander M. Cutler, chairman and chief executive officer of Eaton, based in Cleveland. “Weaker-than-expected markets were partially offset by lower-than-originally-anticipated severance expense. The lower severance expense was primarily due to the length of time it has taken to conclude severance plans in several countries.”
Cutler said the sales decline in the first quarter of 20 percent consisted of a 20 percent decline in organic growth, an 8 percent decline due to lower foreign exchange rates, and 8 percent growth from acquisitions. “Our end markets declined 21 percent in the quarter,” he said. “We generated strong cash flow in the first quarter, with operating cash flow totaling $107 million and free cash flow totaling $59 million, the second-highest free cash flow for the first quarter we have ever had. In addition, we issued $550 million of term debt in March, at attractive rates. The combination of our strong cash flow and the term debt issuance allowed us to reduce commercial paper at the end of March to $172 million, a substantial reduction from the $767 million of commercial paper outstanding at the end of December.”
Cutler said the company has been pleased with its cash generation over the last six months, the two most challenging quarters of the current recession. “Our operating cash flow over the last six months totaled $731 million,” he said. “We now anticipate our end markets for all of 2009 will decline between 15 and 16 percent as the recovery in the U.S. and Western European economies will be pushed out one quarter, with the recovery now more likely to begin in the first quarter of 2010. As a result of the expected greater market decline in 2009, we are continuing to adjust our corporatewide resource levels.”
Eaton’s Truck segment posted sales of $292 million, down 49 percent compared to the first quarter of 2008. The segment reported an operating loss in the first quarter of $34 million. Truck production in the first quarter is forecasted to have declined by 27 percent, with U.S. markets down 32 percent and non-U.S. markets down 20 percent. The company said that while it is difficult to determine precisely, it appears that purchases of components by global truck OEMs and aftermarket channel partners declined even more severely than truck production, as significant destocking occurred throughout the channel.
“The world auto markets in the first quarter suffered their sharpest decline in decades,” Cutler said. “For the year as a whole, we now anticipate global automotive markets will decline by 23 percent, with U.S. production down 25 percent and non-U.S. production down 22 percent.”