Industrial equipment maker Eaton
Eaton generated revenue of $3.96 billion, a mere 4% increase as compared to the previous year, as its sales were hurt by slowing demand in China and an extended recession in Europe. On the other hand, the company's profits surged 8% from the previous year to $311 million. Barring the impact of acquisition costs, this translates into earnings of $0.92 per share, which comfortably beat Street expectations of $0.90 per share.
Eaton's diversified products are sold in more than 150 countries. This also makes it evident that any economic weakness in Asian and European markets has a direct bearing on the company's top line, causing a medium-term threat in the process. As Eaton pointed out in its previous quarter, demand for the electronics segment is slipping in China as the country's economy experiences a slowdown. In fact, the problem was amplified by the weakness in Europe, leading to a 9% decline in Eaton's non-U.S.-based revenue from its electrical business. Yet Eaton has raised its full-year earnings outlook for the second time this year.
What is it that makes Eaton so confident? Let's find out.
Growth at home
The answer lies in the company's home market, which seems to have rebounded in a major way. Eaton's biggest business -- the U.S. electrical market -- witnessed an almost 11% growth in revenue, largely due to improved non-residential construction and new orders from the oil and gas industry. In fact, the company now expects the U.S. market to grow at a rate of 9% as opposed to 6% estimated earlier. This is a welcome contrast to the trend prevailing over the past four to five years in which international markets outpaced the U.S. in terms of growth. Eaton plans to cash in on the home market rebound to offset the softness prevailing elsewhere.
Eaton is not alone as it faces a reversal in geographical sales dynamics. Industrial goods maker Honeywell
The Foolish bottom line
Eaton looks strong enough to withstand headwinds in the form of weak economic conditions in Europe and China, as the U.S. market for hydraulics, non-residential construction, and trucking improves. Despite predicting the international economic sluggishness to continue for a large part of this year, the company has raised its operating earnings forecast for 2012 to an average of $4.50 per share, a healthy sign for investors. I would certainly keep an eye open for Eaton and if you're thinking on similar lines, don't forget to add Eaton to your Watchlist and stay updated on this stock. Click here. It's completely free!
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