OREANDA-NEWS. Alexander M. Cutler, Eaton chairman and chief executive officer, said, "Our second quarter operating earnings per share came in above the midpoint of our guidance for the quarter. Operating earnings per share were up 5 percent over the second quarter of 2014, driven by strong operating margin performance and tightly controlled costs, partially offset by a 5 percent negative impact from currency translation. Without the negative currency impact, our second quarter operating earnings per share would have grown 10 percent.

"Revenue was slightly below expectations due to weaker conditions in most of our markets," said Cutler. "The 7 percent sales decline in the second quarter consisted of a decline of 6 percent from currency translation and a decline of 1 percent in organic sales.

"Following weaker than expected market conditions in the first quarter, we had expected our end markets to strengthen during the balance of this year," said Cutler. "While demand in the second quarter did strengthen, we do not expect further strengthening over the balance of the year. Accordingly, we now believe our organic revenue growth will be just modestly positive in 2015, likely coming in between 0 and 1 percent, down 2 percent from our prior expectation.

"As a result, we are taking additional actions to reset our cost structure to the lower activity levels we are seeing," said Cutler. "We anticipate taking charges to implement these actions of $120 million in the second half of 2015, with $110 million in the third quarter and $10 million in the fourth quarter, and $25 million in 2016. The restructuring actions will allow us to realize $45 million of benefits in 2015 and $125 million of benefits in 2016.

"We anticipate operating earnings per share for the third quarter of 2015, which exclude an estimated $14 million of charges to integrate our recent acquisitions, but include the cost and benefits of the restructuring program, to be between $1.00 and $1.10," said Cutler. "Due to our lower organic growth forecast and the impact of the restructuring actions, we are lowering our full year 2015 guidance for operating earnings per share to between $4.40 and $4.60, a decline of 6 percent from the midpoint of our prior guidance. Of the 6 percent reduction, 3 percent is due to the net cost of the restructuring program," said Cutler.

Business Segment Results

Sales for the Electrical Products segment were $1.8 billion, down 3 percent from 2014. Organic sales grew 3 percent, which was more than offset by a 6 percent decline from currency translation. Operating profits were $276 million. Excluding acquisition integration charges of $6 million during the quarter, operating profits were $282 million, down 10 percent from the second quarter of 2014.

"Our bookings in the second quarter in the Electrical Products segment were up 4 percent over the second quarter a year ago," said Cutler. "Continuing the pattern of recent quarters, demand was strongest in our Americas region."

Sales for the Electrical Systems and Services segment were $1.5 billion, down 8 percent from the second quarter of 2014. Organic sales were down 4 percent and negative currency translation was 4 percent. The segment reported operating profits of $223 million. Excluding acquisition integration charges of $4 million during the quarter, operating profits were $227 million, up 10 percent from the second quarter of 2014.

"Our organic sales declined 4 percent in the second quarter, reflecting the softness we saw in bookings during the second half of 2014 and the first quarter of 2015," said Cutler. "Bookings in the second quarter were down 7 percent from the second quarter of 2014.

"The Electrical markets in the second quarter of 2015 were sluggish, with strength in lighting and U.S. residential offset by global weakness in oil and gas and other industrial markets," said Cutler.

Hydraulics segment sales were $643 million, down 18 percent from the second quarter of 2014. Organic sales declined 11 percent and negative currency translation was 7 percent. Operating profits in the second quarter were $74 million. Excluding acquisition integration charges of $1 million, operating profits were $75 million, a decrease of 24 percent.

"The Hydraulics markets in the second quarter of 2015 were down significantly from the second quarter of 2014, reflecting continued weakness in agricultural equipment globally and construction equipment in China," said Cutler. "Our bookings in the quarter decreased 13 percent compared to the second quarter of 2014."

Aerospace segment sales were $454 million, down 7 percent from the second quarter of 2014. Organic sales declined 2 percent, negative currency translation was 3 percent, and the two divestitures completed in the second quarter of 2014 reduced revenues by 2 percent. Operating profits in the second quarter were $77 million, up 12 percent over the second quarter of 2014.

"Organic sales were down 2 percent, reflecting very strong sales in the second quarter of last year as a result of cost reimbursements on customer programs," said Cutler. "Adjusting 2014 to remove these reimbursements, organic sales in the second quarter of 2015 increased 3 percent over the second quarter of 2014. Bookings in the quarter were down 9 percent, principally driven by slower bookings for defense equipment."

The Vehicle segment posted sales of $989 million, down 4 percent compared to the second quarter of 2014. Organic sales growth of 4 percent was offset by negative currency translation of 8 percent. The segment reported operating profits in the second quarter of $190 million, up 23 percent compared to the second quarter of 2014.

"North American markets were particularly strong in the quarter while South American and Asian markets were weak," said Cutler. "We continue to expect NAFTA Class 8 truck production to be 330,000 units in 2015, while South American and Asian markets will be lower than what we had expected at the beginning of the year."

Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 102,000 employees and sells products to customers in more than 175 countries.