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Power management company Eaton Corp. reported sharp drops in net income and revenue in the second quarter as the novel coronavirus pandemic cut vehicle production at key customers.
For the period ended June 30, net income plunged to $54 million, or 13 cents per diluted share, compared with $636 million, or $1.50, a year earlier.
Revenue fell to $3.8 billion compared with $5.5 billion a year earlier.
Eaton provides products that help customers effectively manage electrical, hydraulic and mechanical power.
“We anticipate that several of our markets will take some time to recover, and so we have decided to implement a multiyear restructuring program to deal with that weakness,” Chairman and CEO Craig Arnold said in the earnings release. “The principal end markets affected are commercial aerospace, oil and gas, NAFTA Class 8 trucks, and North American/European light vehicles.”
The actions are targeted at structural costs, he said, “that will enable Eaton to deliver even stronger results when the markets recover. We expect the restructuring program to deliver mature-year benefits of $200 million when fully implemented in 2023.”
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Revenue fell in all its business segments, as did operating profit, with two segments posting an operating profit loss: vehicle and eMobility.
Revenue at the vehicle segment slid to $327 million compared with $803 million a year earlier. It reported an operating loss of $21 million compared with an operating profit of $136 million in the 2019 period.
“It’s been kind of a long time since we lost money in our vehicle business and I just say once again it was just an extraordinary combination of events when you look at some of these numbers around production, both in Class 8 and in global light vehicle. Essentially half the quarter was lost and so the team once again did, I think, an extraordinary job in maintaining a 33% decremental in that environment,” Arnold said in the earnings conference call.
Vehicle segment sales are primarily for drivetrains, powertrain systems and critical components that reduce emissions and improve fuel economy, stability, performance, and safety of cars, light trucks and commercial vehicles, according to the Dublin-based company. They fell as the pandemic led to shutdowns at customers’ plants.
“We certainly, if you look forward, expect the volumes are going to be significantly better than [second quarter]. We would fully expect that the margins for the business this year will be double-digit and we would not expect to see a loss in the vehicle business in any subsequent quarter, barring another return to this is horrific- market kind of event that we experienced over the last quarter,” Arnold added.
Revenue for eMobility dropped to $56 million compared with $84 million a year earlier. At the same time, it reported an operating loss of $2 million compared with an operating profit of $7 million a year earlier.
In the eMobility segment, sales are primarily for electronic and mechanical components and systems that improves the power management and performance of both on-road and off-road vehicles.
Eaton’s largest business segment, Electrical Americas, saw revenue fall to $1.5 billion compared with $2 billion a year earlier, while operating profit slipped to $308 million compared with $404 million. It had a 20.7% operating margin.
The Electrical Americas segment consists of electrical components, industrial components, power distribution and assemblies, residential products, single and three phase power quality, wiring devices, circuit protection, utility power distribution, power reliability equipment, and services that are primarily produced and sold in North and South America.
For the six-month period, Eaton’s total net income fell to $492 million, or $1.20, on revenue of $8.6 billion compared with a net of $1.1 billion, or $2.73, on revenue of $10.8 billion in the year-earlier period.
Eaton sells in more than 175 countries and has 93,000 employees.
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