Eaton Q3 Profit Jumps, Beats Analyst Expectations

Overall sales in the quarter totaled $5.9 billion, a quarterly record and up 11% from the third quarter of 2022. (Eaton via YouTube)

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Profits at Eaton Corp. jumped year-over-year in the third quarter, but the component manufacturer’s vehicles unit saw the joint weakest sales growth of any part of the company, and executives are not optimistic about commercial vehicle prospects in 2024.

Eaton reported net income of $892 million, up 46.7% compared with $608 million in the year-ago quarter, it said Oct. 31.

Dublin-based Eaton — which manufactures clutches, brakes and transmission systems, among other things — posted diluted earnings per share of $2.22 in Q3, compared with $1.52 per share in the year-ago period.

The company posted adjusted earnings of $2.47, compared with $2.02 a year earlier, beating consensus analyst expectations of $2.34, according to Zacks Equity Research.

Overall sales in the quarter totaled $5.9 billion, a quarterly record and up 11% from the third quarter of 2022, the company said.

Segment margins were 23.6%, a quarterly record and a 2.4 percentage point improvement over the third quarter of 2022. The company’s backlog was up 18% over the third quarter of 2022, up 4% sequentially, it added.

“We’re proud to deliver another quarter of record results with continued growth in our backlog,” said CEO Craig Arnold. “To meet that demand, we are investing more than $1 billion of capital in manufacturing to support the growth driven by electrification, energy transition and digitalization.”

“Given our strong performance and these capacity additions, we continue to look ahead with confidence in our ability to deliver on our growth and margin expansion outlook into 2024 and beyond,” he added.

Eaton’s Vehicle segment — which provides components for diesel-powered trucks — posted sales of $753 million, up 1% from the third quarter of 2022’s $744 million.

Operating profit at the unit totaled $131 million, up 5% compared with $125 million in the year-ago period. The unit’s operating margin in the quarter was 17.4%, up 0.6 percentage points year-on-year.

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Denk 

Eaton plans to merge the Vehicle segment with its eMobility unit in what will be called the company’s Mobility Group going forward, Mobility Group President Pete Denk told Transport Topics in August.

The eMobility segment’s sales totaled a record $163 million in Q3, up 19% from $137 million in the year-ago period. The segment broke even in the quarter when it came to operating profit, with a 1.5 percentage point year-over-year improvement, driven by higher volumes from ramping programs and improved net manufacturing productivity, the company said.

“Overall, we remain very encouraged by the growth prospects of the eMobility segment,” Chief Financial Officer Thomas Okray said during the company’s Oct. 31 quarterly earnings call. “So far in 2023, we have won new programs worth $1.1 billion of mature year revenues. This is nearly a 145% increase in new program wins since the $450 million highlighted in last quarter’s earnings call.

“Through these wins, we continue to find opportunities to leverage expertise and differentiated technologies across segments. It should be noted we have increased our interim revenue target for 2025 by 25% from $1.25 billion to $1.5 billion,” he added.

At Eaton’s biggest unit, Electrical Americas sales totaled a record $2.594 billion, up 19% compared with $2.179 billion in the year-earlier period.

The segment’s operating profit came in at a record $719 million, up 41% year-over-year from $511 million, while its operating margin in the most recent quarter was a record 27.7%.

Sales at the Electrical Global segment totaled $1.503 billion, up 1% from $1.486 billion in the third quarter of 2022. Operating profit came in at $328 million for the unit, an 8% increase compared with $305 million in the third quarter of 2022.

The company is investing over $1 billion to support growth associated with electrification, including for eMobility inverters and power distribution units.

“We are expecting attractive growth in nearly all of our markets in 2024. We expect strong double-digit growth in data centers and the distributed IT segment, in utilities, commercial aerospace and electric vehicles,” Arnold said during the call.

“Additionally, we expect solid growth within industrial facilities, commercial and institutional and defense aerospace,” he told analysts.

However, the “global light-vehicle market should be modestly positive, with only the residential and commercial vehicle markets experiencing a decline,” Arnold said. “So, it should be another year of significant growth, with over 80% of our end markets seeing solid or better growth.”