Eaton 4th-quarter profit climbs as economic recovery leads to slight market improvements

Eaton ends year upbeat; sees a better 2010

CLEVELAND — Eaton Corp. scratched out a larger fourth-quarter profit as it cut costs fast enough to stay ahead of declines across most its largest businesses.

Eaton makes hydraulics and electrical equipment used by manufacturers in a variety of industries, so its fortunes tend to rise and fall with the broader economy. It has cut its work force 17 percent since 2008, trying to shrink its expenses as fast as revenue fell. The most recent layoffs happened in December.

“In the main, we hope we are sized about right,” Eaton Chairman and CEO Alexander M. Cutler said in an interview. “We don’t expect there to be much net hiring for the company either in 2010.”

That’s because Eaton furloughed its workers for one week out of every quarter last year. The furloughs are done, so Eaton’s business will have to grow about 8 percent just to absorb the extra capacity, Cutler said.

Eaton said it expects revenue to grow 11 percent in 2010. Cutler said he anticipates that this year will be transitional for the economy, with more recovery in 2011.

Cutler said Eaton’s markets saw a “very modest” recovery in the fourth quarter, which ended Dec. 31. Profits rose 29 percent to $211 million, or $1.25 per share, compared with $163 million, or 98 cents per share, a year ago. Not counting acquisition charges, its operating profit was $1.35 per share.

Sales slipped 10 percent to $3.13 billion, with the decline spread across Eaton’s electrical, hydraulics, and aerospace divisions.

Still, the performance surpassed analyst estimates for earnings of $1.23 per share on revenue of $3.07 billion. These estimates normally remove one-time items.

Eaton’s prediction for 2010 revenue works out to $13.18 billion, an increase of $1.3 billion from last year. About $450 million of that would come from currency exchange gains.

It expects an adjusted profit of $3.70 to $4 per share. Analysts had been expecting a full-year profit of $3.65 per share on sales of $12.39 billion.

The company anticipates a first-quarter adjusted profit of 75 cents to 85 cents per share. Wall Street estimates earnings of 78 cents per share.

Eaton said it paid off more than $750 million in debt during the year, giving the company much more cash on hand.

Company shares fell $1.30, or 2 percent, to $64.58 Monday.