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Eaton (ETN) Up 2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Eaton (ETN). Shares have added about 2% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Eaton Beats Q1 Earnings and Sales Estimates, Ups View

Eaton Corporation has reported first-quarter 2023 earnings of $1.88 per share, which surpassed the Zacks Consensus Estimate by 5.6%. Earnings grew 16% year over year. First-quarter earnings surpassed the guidance of $1.72-$1.82 per share.

GAAP earnings for the reported quarter were $1.59 per share compared with $1.33 in the year-ago quarter. The difference between GAAP and operating earnings for the reported quarter was due to charges of 24 cents for intangible amortization, 2 cents for a multi-year restructuring program and 3 cents for acquisitions and divestitures.

Revenues

Total quarterly revenues were $5,483 million, which surpassed the Zacks Consensus Estimate of $5,233 million by 4.8%. Total revenues improved 13.2% from the year-ago quarter.

First-quarter revenues gained from a 15% increase in organic sales and were partially offset by 2% from negative currency translation.

Segmental Details

Electrical Americas’ total first-quarter sales were $2,294 million, up 21% from the year-ago quarter. The improvement was due to increased organic sales, marginally offset by negative currency translation. Operating profits were $525 million, up 45% year over year.

Electrical Global’s total sales were $1,500 million, up 4% from the year-ago quarter. Organic sales were up 8% from the year-ago quarter, offset by a negative currency translation of 3% and 1% from a business divestiture. Operating profits were $274 million, down 2% from the year-ago quarter.

Aerospace’s total sales were $803 million, up 12% from the year-ago quarter. Organic sales were up 13% from the year-ago quarter, offset by a negative currency translation of 1%. Operating profits were $180 million, up 13% year over year.

Vehicle’s total sales were $739 million, up 10% from the year-ago quarter due to an 11% increase in organic sales, offset by 1% negative currency translation.
Operating profits were $107 million, down 5% year over year.

The eMobility segment’s total sales were $147 million, up 17% year over year due to an improvement in organic sales, offset marginally by a negative currency translation. The operating loss was $4 million in first-quarter 2023, wider than the $3-million loss registered in the year-ago quarter.

Highlights of the Release

Selling and administrative expenses were $904 million, up 14.4% from the year-ago quarter.

ETN’s first-quarter research and development expenses were $179 million, up 8.5% from the prior-year period. Interest expenses for the quarter were $50 million, up 56.3% from the year-ago quarter.

Eaton’s backlog growth with orders increased by 51% in Electrical Americas, 3% in Electrical Global and 27% in Aerospace on a rolling 12-month basis.

Financial Update

As of Mar 31, 2023, the company’s cash was $235 million, down from $294 million as of Dec 31, 2022.

As of Mar 31, 2023, ETN’s long-term debt was $8,701 million, up 21.8% from $8,321 million as of Dec 31, 2022.

Guidance

Eaton’s second-quarter 2023 earnings are expected to be $2.04-$2.14 per share. The company expects organic growth of 10-12%.

Eaton is increasing its organic growth guidance from 7-9% to 9-11% and raising adjusted earnings per share to between $8.30 and $8.50 from $8.04-$8.44 for 2023. The segmental operating margin for 2022 is expected to be 20.7-21.1%.

Capital expenditure for 2023 is expected to be $700 million, up from the previously mentioned $630 million. Eaton expects to generate a free cash flow of $2.6-$3 billion in 2023 and buy back shares of $300-$600 million in 2023.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Eaton has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 C. 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.

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