Wall Street's closed for Good Friday, so we're going to start the pre-weekend earnings previews a day early. Coming up bright and early Monday morning, diversified industrial manufacturer Eaton (NYSE:ETN) reports its Q1 2006 numbers.
What analysts say:
- Buy, sell, or waffle? Eighteen analysts follow Eaton, and fully half of them rate the stock a buy. The other half breaks down as eight holds and a sell.
- Revenues. Expectations are for an even 10% rise in sales year over year, to $2.9 billion for the quarter.
- Earnings. Profits are predicted to rise 7% to $1.32 per share.
What management says:
Ninety years old this year, Eaton doesn't truck with short-term thinking. In the last earnings report, CEO Alexander Cutler hearkened back to a goal the firm set in 2000: "In 2000, we set several challenging goals for Eaton over the 2000-2005 time period. I am pleased to report that we exceeded most of the goals. In particular, our compound annual growth in operating earnings per share of 15% exceeded our 10% goal. In addition, our annual total return to shareholders over the last five years has averaged 18%."
What management does:
That it has done this in an environment of rising raw material costs, which have stuck its current gross margin right back where it was 18 months ago, is remarkable. Credit the firm's ability to control costs (operating costs have risen only 7% against 9% revenue growth over the last six months) for this. Also, Eaton has helped to juice returns on the individual shareholder level by reducing its diluted share count by 2.7% over the last year and a half.
|
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 | |
|---|---|---|---|---|---|---|
|
Gross |
28.2% |
28.3% |
28.3% |
28.3% |
28.4% |
28.2% |
|
Op. |
9.2% |
9.5% |
9.6% |
9.8% |
10% |
9.9% |
|
Net |
6.2% |
6.6% |
6.9% |
7.0% |
7.1% |
7.2% |
One Fool says:
Eaton's shares have outperformed the S&P 500 by nearly 8% over the last 52 weeks, all the while yielding investors a dividend worth nearly 2% the value of its shares. Can the firm keep up this performance?
I wish I could give an unqualified yes, but the fact is that I see danger signs beginning to build on the balance sheet. Inventories are up 14% over the last six months; accounts receivable have grown 12%. We'd be much more comfortable seeing both those numbers moving back under the rate of sales growth. Until they do, invest with care.
Related companies:
- Honeywell International (NYSE:HON)
- Parker-Hannifin (NYSE:PH)
- TRW Automotive Holdings (NYSE:TRW)
- Esterline Technologies (NYSE:ESL)
- Sauer-Danfoss (NYSE:SHS)
- ArvinMeritor (NYSE:ARM)
Fool contributor Rich Smith does not own shares of any company named above.
