Eaton (ETN) Benefits From Improvement In Its End Market
Zacks Investment Research | May 12, 2017 08:45AM ET
Eaton Corporation (NYSE:ETN) managed to beat first-quarter earnings and total revenue estimates, thanks to growth in organic sales. The gradual improvement in Eaton’s end-market conditions and benefits from restructuring activities will drive its performance. However, negative currency translation is expected to have an adverse impact on the company’s results, as was the case last year.
Eaton expects end market conditions to improve and projects organic growth in the range of 1%–3% in 2017. The company started its restructuring program to cope with the challenging environment, which aims to lower fixed structural costs and entail cost savings.
Given the positive return from the restructuring activities, the company will continue the same in the improving market conditions. Eaton has plans to invest $440 million in restructuring program during the 2015–2018 period, which is expected to create a cumulative benefit of $518 million.
The company continues to be a cash flow generator, which enables it to continue with share buybacks and dividend payment. Eaton aims to buyback $750 million shares in 2017 out of which $255 million has been repurchased in first quarter. Eaton also raised its quarterly dividend by 5% to 60 cents in first quarter.
Eaton operates in nearly 175 countries and has manufacturing facilities worldwide. This definitely enhances the revenue stream of the company but at the same time exposes it to disruptions like natural disaster, labor strike, war, political unrest, terrorist activity and economic upheaval.
Eaton generates nearly 50% of its revenues from operations outside the U.S. and Economic conditions in some of the countries outside the U.S. in which Eaton has a presence are yet to stabilize, which is a headwind. In addition, the stronger U.S. dollar compared to other currencies has resulted in a greater-than-expected negative currency translation. The company now expects negative foreign exchange impact of nearly $150 million on 2017 earnings.
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In the last twelve months, Eaton has outperformed the Zacks categorized Original post
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