- The Washington Times - Monday, April 20, 2009

CLEVELAND (AP) - Eaton Corp., a global company which depends on industrial vitality for sales of its diverse products, has posted its first quarterly loss since 1991, and its chief executive said Monday hard times are expected the rest of this year with more job cuts likely.

The Cleveland-based industrial parts and systems maker lost $50 million in the first quarter as sales skidded amid weak economic conditions worldwide and it absorbed costs for thousands of job cuts.

Even though Eaton’s adjusted earnings beat Wall Street forecasts, shares fell $4.42, or 9.9 percent, to $40.33 in afternoon trading, part of a broad sell-off of stocks.

Eaton Chairman and CEO Alexander Cutler cautioned that an economic recovery in the U.S. and Western Europe is more likely to begin in early 2010 rather than late this year.

“It’s terribly tough times, but we’re trying to proactively manage our costs in a way to preserve employment for as many people as possible but recognizing that this is a real challenge,” Cutler said in an interview.

In January, Eaton said it was cutting an additional 5,200 jobs this year, on top of 3,400 eliminated in 2008. Cutler said Monday more job reductions are needed.

“We haven’t announced a specific number of people, because we haven’t worked our way all the way through these plans,” he said.

“We had expected from employment reductions to net about $165 million in year-to-year improvement, 2009 over 2008,” Cutler said. “We increased that today to $205 million, a $40 million increase. That is coming from additional full-time employment cuts that we’re making this spring.”

Eaton’s loss amounted to 30 cents per share in the three months ended March 31 versus a profit of $247 million, or $1.64 per share, a year ago.

Sales fell 20 percent to $2.8 billion from $3.5 billion a year ago.

Excluding acquisition integration charges, the operating loss amounted to 22 cents per share. Analysts surveyed by Thomson Reuters expected, on average, that Eaton would post a first-quarter loss of 25 cents per share on higher revenue of $3.1 billion. The estimates typically exclude one-time items.

Cutler said its markets for all of 2009 will decline between 15 and 16 percent as the recovery in the U.S. and Western European economies will be pushed out one quarter, with the recovery now more likely to begin in the first quarter of 2010.

Eaton said it expects net income per share for the second quarter to be about 15 cents and operating earnings per share of about 25 cents. Eaton lowered its full-year guidance to net income per share of between $2.10 and $2.60 and operating earnings per share of between $2.50 and $3.00. Analysts projected a full-year profit of $3.44 per share.

About 55 percent of Eaton’s business is outside of the United States, and electrical, aerospace and hydraulics produce about 70 percent of earnings. Before shifting its business focus several years ago, Eaton was more dependent in heavy-duty truck and automotive markets.

Its automotive and truck business in the first quarter had the biggest downturn. Its biggest segment, electrical, was down but not as much and helped the overall result from being even worse.

Industrial markets analyst Eli Lustgarten, with Longbow Research, said Eaton’s downtown is no surprise, given the tough economy in the United States and elsewhere.

“Basically you have had a shutdown in production activity, with a 15 percent decline in industrial production in this country and 22 percent in Europe,” Lustgarten said. “If you don’t produce, everybody suffers.”

Also a factor is significant and widespread inventory reductions, Lustgarten said.

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On the Net: https://www.eaton.com

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