Eaton Corp (LSE:ETN)
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Eaton Corp.'s (ETN) second-quarter profit plunged 91% as the company's exposure to the slumping automotive and commercial truck markets continued to weigh on sales and profits. The diversified industrial manufacturer slashed its 2009 earnings outlook for the second straight quarter, predicting it will earn $2 to $2.20 a share in 2009, down from $2.50 to $3 forecast previously. Nevertheless, the forecast is above Wall Street analysts' latest view of $1.90 a share for the year, according to Thomson Reuters. The company projected third-quarter earnings of 90 cents to $1 a share; analysts, on average, expect 89 cents a share. Second-quarter earnings also came in better than anticipated, driving Eaton's stock up $2.49, or 5.6%, at $47.44 in recent trading. But the Cleveland-based company, which makes components for autos, trucks, hydraulic systems and electrical products, said there was little improvement in demand from its end-markets in the second quarter. Earnings were largely driven by lower expenses.

"It's a real testament to the cost reductions we've been able to put in place," said Alexander Cutler, chairman and chief executive, during a conference call Monday with analysts. "We don't really see much of an economic recovery for the balance of 2009 in our markets."

Eaton predicts its overall end-market demand will fall by 21% to 22% in 2009 from last year.

For the second quarter, Eaton reported a profit of $29 million, or 17 cents a share, compared with $333 million, or $2.03 a share, a year earlier. Excluding one-time items, earnings fell to 23 cents from $2.10, but above analysts' projection of 17 cents per share. Revenue decreased 32% to $2.9 billion, 4.5% below analyst expectations. Gross margin fell to 24.5% from 28.3%. Eaton's second-quarter sales to auto and truck manufacturers were especially hard hit, reflecting production outages by General Motors and Chrysler. Automotive segment sales dropped 51% from a year ago. Eaton reported a $19 million operating loss from the segment. Cutler said demand for Eaton's auto components, which include turbochargers, should improve in the second half on higher auto production volumes. Cutler expects U.S. auto production in the third-quarter to increase by 25%.

Truck segment sales, meanwhile, plunged 49% in the second-quarter, as lower shipping volume holds down demand for new commercial trucks. Eaton reported a $3 million operating loss in its truck business. Cutler said the loss would have been greater had the company not reduced truck segment costs by $8 million in the quarter.

Eaton's business lines in hydraulics, electrical and aerospace also reported lower sales, but remained profitable in the quarter.

Eaton has reduced its work force by 10% and imposed other dramatic cost reductions, including suspending pension contributions and not paying employees for time off. The company said Monday it's expecting additional $120 million in cost savings in 2009.

Despite aggressive destocking of inventories, Cutler said he's seen little evidence that Eaton's customers are ready to crank up orders again.

"Distributors don't have the confidence to build inventories at this point," he said. -By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Joan E. Solsman and Kerry Grace Benn contributed to this report.)