Eaton Reports Strong First Quarter 2021 Results, Raises 2021 Outlook
May 17, 2021
Eaton announced that earnings per share were $1.14 for the first quarter of 2021. Excluding charges of $0.18 per share related to intangible amortization, $0.09 per share related to acquisitions and divestitures, and $0.03 per share related to a multi-year restructuring program, adjusted earnings per share were a first quarter record of $1.44, up 15 percent over the first quarter of 2020.
Sales in the first quarter of 2021 were $4.7 billion, down 2 percent from the first quarter of 2020. The divestiture of the Lighting business reduced sales by 5½ percent, which was partially offset by positive currency translation of 2 percent, 1 percent growth from acquisitions, and organic growth of ½ percent.
Craig Arnold, Eaton chairman and chief executive officer, said, “Our first quarter was stronger than expected, with organic sales well above the high end of our guidance range, segment margin at record levels, and strong cash flow. We are pleased with how rapidly our businesses are recovering towards pre-pandemic levels.”
First quarter segment margins were 17.7 percent, up 190 basis points over the first quarter of 2020, above the high end of our guidance range, and a first quarter record. This was the result of strong execution and ongoing improvements in the company’s cost structure from the multi-year restructuring program announced in the second quarter of 2020.
Operating cash flow in the first quarter of 2021 was $260 million. Excluding $200 million of contributions to Eaton’s U.S. qualified pension plan, adjusted operating cash flow was $460 million and adjusted free cash flow was $341 million, representing a 62 percent increase over the first quarter of 2020.
During the quarter, the company closed the acquisitions of Tripp Lite and Green Motion, and the acquisition of a 50 percent stake in HuanYu High Tech, adding new products and growth opportunities for the Electrical segments.
The Hydraulics sale to Danfoss is expected to close in the second quarter and the acquisition of Cobham Mission Systems remains on track to close the beginning of the fourth quarter of 2021.
“Factoring in the earlier than expected closing of the Tripp Lite acquisition and our strong first quarter performance, we now expect 2021 adjusted earnings per share to be between $5.90 and $6.30, up 24 percent at the midpoint over 2020,” said Arnold. “We anticipate adjusted earnings per share for the second quarter of 2021 to be between $1.45 and $1.55.”
Business Segment Results
Sales for the Electrical Americas segment were $1.6 billion, down 9 percent from the first quarter of 2020, driven by a 14 percent reduction from the divestiture of the Lighting business. Organic sales were up 2 percent, the acquisitions of Power Distribution, Inc. and Tripp Lite added 2 percent, and positive currency translation added 1 percent. Operating profits were $332 million, up 8 percent from the first quarter of 2020. Operating margins were 20.5 percent, up 330 basis points over the first quarter of 2020.
The twelve-month rolling average of orders in the first quarter was up 1 percent, with particular strength in data center and residential markets. Orders increased 11 percent over the first quarter of 2020. Backlog at the end of March remained strong, up 23 percent over March 2020.
Sales for the Electrical Global segment were $1.3 billion, up 10 percent over the first quarter of 2020. Organic sales were up 5 percent and positive currency translation added 5 percent. Operating profits were $213 million, up 28 percent over the first quarter of 2020. Operating margins were 17.0 percent, up 250 basis points over the first quarter of 2020.
The twelve-month rolling average of orders in the first quarter was down 5 percent, driven by declines in oil and gas markets partially offset by strength in data center, residential and utility markets. During the first quarter, the business experienced strong order growth of 7 percent over the first quarter of 2020. The March backlog grew 17 percent over March 2020.
Hydraulics segment sales were $561 million, up 11 percent over the first quarter of 2020, driven by a 9 percent increase in organic sales and positive currency translation of 2 percent. Operating profits were $84 million, up 53 percent over the first quarter of 2020. Operating margins were 15.0 percent, up 420 basis points over the first quarter of 2020.
Aerospace segment sales were $519 million, down 24 percent from the first quarter of 2020, driven by the continued downturn in commercial aviation. Organic sales were down 26 percent, partially offset by positive currency translation of 2 percent. Operating profits were $96 million, down 35 percent from the first quarter of 2020. Operating margins in the quarter were 18.5 percent, representing solid decremental performance in light of the continued impact of the pandemic on sales.
The twelve-month rolling average of orders in the first quarter was down 36 percent, driven by the downturn in commercial markets. Backlog at the end of March was down 11 percent compared to March 2020.
The Vehicle segment posted sales of $654 million, up 9 percent over the first quarter of 2020, driven entirely by organic sales. Operating profits were $113 million, up 40 percent over the first quarter of 2020. Operating margins were 17.3 percent, up 380 basis points over the first quarter of 2020.
eMobility segment sales were $83 million, up 15 percent over the first quarter of 2020, driven by organic sales growth of 13 percent and positive currency translation of 2 percent. The segment recorded an operating loss of $7 million reflecting continued investment in research and development for new programs.
