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OFFON

EATON CORPORATION PLC

(ETN)
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EATON : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution). (form 10-Q)

08/03/2021 | 12:19pm EDT
COMPANY OVERVIEW
Eaton Corporation plc (Eaton or the Company) is a power management company with
2020 net sales of $17.9 billion. Eaton's mission is to improve the quality of
life and environment through the use of power management technologies and
services. We provide sustainable solutions that help our customers effectively
manage electrical, hydraulic, and mechanical power - more safely, more
efficiently and more reliably. Eaton has approximately 85,000 employees in 60
countries and sells products to customers in more than 175 countries.
Summary of Results of Operations
A summary of Eaton's Net sales, Net income attributable to Eaton ordinary
shareholders, and Net income per share attributable to Eaton ordinary
shareholders - diluted follows:
                                                                 Three months ended                     Six months ended
                                                                       June 30                               June 30
                                                                2021                2020              2021              2020
Net sales                                                 $    5,215$ 3,856$   9,907$ 8,645
Net income attributable to Eaton ordinary shareholders           506                  51                964              489
Net income per share attributable to Eaton ordinary
shareholders - diluted                                    $     1.26$  0.13$    2.40$  1.20



In the second quarter of 2020, Eaton decided to undertake a multi-year
restructuring program to reduce its cost structure and gain efficiencies in its
business segments and at corporate in order to respond to declining market
conditions. Restructuring charges incurred for the three and six months ended
June 30, 2021 were $13 and $29, respectively, and were $187 for the three and
six months ended June 30, 2020. These restructuring activities are expected to
incur additional expenses of $32 in 2021, and $5 in 2022, primarily comprised of
plant closing costs and other costs, resulting in total estimated charges of
$280 for the entire program. The projected mature year savings from these
restructuring actions are expected to be $200 when fully implemented in 2023.
Additional information related to this restructuring is presented in Note 14.
On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier
of mission critical power distribution, static switching, and power monitoring
equipment and services for data centers and industrial and commercial customers.
The company is headquartered in Richmond, Virginia, and had 2019 sales of $125.
Power Distribution, Inc. is reported within the Electrical Americas business
segment.
On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash
purchase price of $1.4 billion. As a result of the sale, the Company recognized
a pre-tax gain of $221 in 2020. The Lighting business, which had sales of $1.6
billion in 2019 as part of the Electrical Americas business segment, served
customers in commercial, industrial, residential, and municipal markets.
On March 17, 2021, Eaton acquired Tripp Lite for $1.65 billion, net of cash
received. Tripp Lite is a leading supplier of power quality products and
connectivity solutions including single-phase uninterruptible power supply
systems, rack power distribution units, surge protectors, and enclosures for
data centers, industrial, medical, and communications markets in the Americas.
Tripp Lite had sales of over $400 in 2020. Tripp Lite is reported within the
Electrical Americas business segment.
On March 22, 2021, Eaton acquired Green Motion SA, a leading designer and
manufacturer of electric vehicle charging hardware and related software based in
Switzerland. Green Motion SA was acquired for $105, including $49 of cash paid
at closing and $56 of estimated fair value of contingent future consideration
based on 2023 and 2024 revenue performance, with a maximum possible undiscounted
value of $109. Green Motion SA is reported within the Electrical Global business
segment.
On March 29, 2021, Eaton acquired a 50 percent stake in HuanYu High Tech, a
subsidiary of HuanYu Group that manufactures and markets low-voltage circuit
breakers and contactors in China, and throughout the Asia-Pacific region. HuanYu
High Tech had 2019 sales of $106 and has production operations in Wenzhou,
China. Eaton accounts for this investment on the equity method of accounting and
is reported within the Electrical Global business segment.
                                       26
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On June 1, 2021, Eaton acquired Cobham Mission Systems (CMS) for $2.80 billion,
net of cash received. CMS is a leading manufacturer of air-to-air refueling
systems, environmental systems, and actuation primarily for defense markets. CMS
had sales of over $700 in 2020. CMS is reported within the Aerospace business
segment.
On June 25, 2021, Eaton acquired a 50 percent stake in Jiangsu YiNeng Electric's
busway business, which manufactures and markets busway products in China and had
sales of $60 in 2020. Eaton accounts for this investment on the equity method of
accounting and is reported within the Electrical Global business segment.
On August 2, 2021, Eaton sold its Hydraulics business to Danfoss A/S, a Danish
industrial company, for $3.3 billion. Eaton's Hydraulics business is a global
leader in hydraulics components, systems, and services for industrial and mobile
equipment. The business had sales of $1.8 billion in 2020.

COVID-19

The Company was impacted by the COVID-19 pandemic in select markets and
industries. As a result, our businesses have been focused on cost control
measures where appropriate to offset the volume declines we experienced in
addition to executing on our multi-year restructuring program we decided to
undertake in the second quarter of 2020. In the first six months of 2021, the
Company has seen broad-based strength in its end-markets and regions as our
businesses have largely recovered from the negative impact of the COVID-19
pandemic. However, our Aerospace business segment continues to see some softness
in demand due to the impact of continued travel restrictions on commercial
aviation, particularly in international travel.
Eaton's products and support services are vital to hospitals, emergency
services, military sites, utilities, public works, transportation, and shipping
providers. In addition, data centers, retail outlets, airports, and governments,
as well as the networks that support schools and remote workers, rely on the
Company's products to serve their customers and communities. As a result, the
Company's plants are generally not subject to extended shutdowns.
The Company continues to monitor the pandemic's impact throughout the world,
including guidance from governmental authorities and world health organizations.
The Company's actions to protect the safety and health of its workforce are
aligned with its preventive health protocols and those of governmental
authorities and health organizations including the Centers for Disease Controls
(U.S.) and the World Health Organization.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
The following discussion of Consolidated Financial Results includes certain
non-GAAP financial measures. These financial measures include adjusted earnings
and adjusted earnings per ordinary share, each of which differs from the most
directly comparable measure calculated in accordance with generally accepted
accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted
earnings per ordinary share to the most directly comparable GAAP measure is
included in the Consolidated Financial Results table below. During the first
quarter of 2021, the Company revised its definition of adjusted earnings to
exclude intangible asset amortization expense and prior periods have been
retrospectively adjusted to apply this change. Management believes that these
financial measures are useful to investors because they exclude certain
transactions, allowing investors to more easily compare Eaton's financial
performance period to period. Management uses this information in monitoring and
evaluating the on-going performance of Eaton.
Acquisition and Divestiture Charges
Eaton incurs integration charges and transaction costs to acquire businesses,
and transaction costs and other charges to divest and exit businesses. Eaton
also recognizes gains and losses on the sale of businesses. A summary of these
Corporate items follows:
                                                                   Three months ended                      Six months ended
                                                                        June 30                                 June 30
                                                                  2021                2020               2021               2020
Acquisition integration, divestiture charges and
transaction costs                                          $       87$  103$     133$  235
Gain on the sale of the Lighting business                           -                    -                  -               (221)
Total before income taxes                                          87                  103                133                 14
Income tax expense (benefit)                                      (15)                 (23)               (24)                75
Total after income taxes                                   $       72$   80$     109$   89
Per ordinary share - diluted                               $     0.18$ 0.20$    0.27$ 0.22



                                       27

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  Table of Contents
Acquisition integration, divestiture charges and transaction costs in 2021 are
primarily related to the divestiture of the Hydraulics business, the
acquisitions of Tripp Lite, Cobham Mission Systems, Souriau-Sunbank Connection
Technologies, and Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S., and other
charges to exit businesses. Charges in 2020 are primarily related to the
divestitures of the Hydraulics business and the Lighting business, the
acquisitions of Souriau-Sunbank Connection Technologies, and Ulusoy Elektrik,
and other charges to exit businesses. These charges were included in Cost of
products sold, Selling and administrative expense, Research and development
expense, Interest expense - net, or Other (income) expense - net. In Business
Segment Information in Note 15, the charges were included in Other expense -
net.
Intangible Asset Amortization Expense
Intangible asset amortization expense follows:

© Edgar Online, source Glimpses

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