Eaton (ETN) Up 6.7% Since Last Earnings Report: Can It Continue?

It has been about a month since Eaton (ETN) last reported earnings. Shares have risen about 6.7% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Eaton facing a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Eaton’s first-quarter earnings beat estimates, outlook for 2024 increased

Eaton Corporation reported first-quarter 2024 earnings of $2.40 per share, missing the Zacks Consensus Estimate by 5.3%. Financial results increased 27.7% year-over-year and exceeded earnings forecasts of $2.21-2.31 per share. The improvement was due to increased project activity related to megatrends, reindustrialization and infrastructure spending.

GAAP earnings for the reported quarter were $2.04, an increase of 28.3% from the $1.59 reported in the prior-year quarter. The difference between GAAP and operating results for the reported quarter was due to charges of 21 cents for amortization of intangible assets, 12 cents for the multi-year restructuring program and 3 cents for acquisitions and divestitures.

Revenue

Total quarterly revenues were $5.94 billion, surpassing the Zacks Consensus Estimate of $5.9 billion by 0.7%. Revenue growth in the first quarter was entirely driven by organic sales growth. Total revenues increased 8.4% year over year.

Segment details

Electric AmericaTotal first-quarter sales were $2.69 billion, up 17.3% year-over-year due to increased organic sales. Operating profit was $785 million, up 50% year over year.

Electric GlobalThe company’s total sales were $1.5 billion, flat from the prior-year quarter. Operating profit of $284 million year over year.

air”The company’s total sales were $0.87 billion, up 9% year-over-year, driven by organic sales growth. Operating profit was $201 million, up 12% year over year.

VehicleTotal company sales were $0.72 billion, down 2% year-over-year due to a decline in organic sales, partially offset by positive currency translation. Operating profit was $116 million, up 8% year over year.

The eMobility Total segment sales were $158 million, up 7% year-over-year, driven by organic sales growth. The operating loss for the quarter was $4 million, comparable to the loss for the quarter a year earlier.

Release highlights

Selling and administrative expenses were $1.02 billion, up 13.4% year-over-year.

Research and development expenses were $189 million, up 5.6% year over year. Interest expense was $30 million, down 40% year-over-year.

Eaton’s order backlog growth increased by 31%, 11% and 12% in the Electrical Americas, Aerospace and Electric Global industries, respectively, on a rolling 12-month basis.

The story continues

Financial update

As of March 31, 2024, the company’s cash balance was $473 million, compared to $488 million as of December 31, 2023.

As of March 31, 2024, ETN’s long-term debt was $8.2 billion, down 0.6% from $8.24 billion as of December 31, 2023.

Conductivity

Eaton’s second-quarter 2024 earnings are expected to be in the range of $2.52 to $2.62 per share. The Zacks Consensus Estimate of $2.55 is below the company’s mid-range estimate. The company expects organic growth in the range of 6.5-8.5%.

Eaton now forecasts adjusted earnings per share in the range of $10.20-$10.60 for 2024, which indicates growth of 14% at the midpoint from year-ago levels. The company raised its organic sales forecast for 2024 from 6.5-8.5% to 7-9%. Eaton also raised its segment margin guidance from 22.4% to 22.8% to 22.8% to 23.2%.

The company estimates 2024 operating cash flow to be between $4 billion and $4.4 billion. Free cash flow is projected to be between $3.2 billion and $3.6 billion.

How have estimates changed since then?

It turns out that the review estimates have been trending upwards over the past month.

VGM results

Eaton currently has an average Growth Score of C, although it lags slightly behind its Momentum Score of D. Following the exact same trajectory, the stock is rated D on the value side, placing it in the bottom 40% for this strategy investment.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. It’s no surprise that Eaton has a Zacks Rank #2 (Buy). We expect an above-average rate of return on shares in the coming months.

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