In a market that's looking for positive news to latch onto, Eaton (NYSE:ETN) didn't really step up and deliver. Oh sure, the quarter wasn't terrible, but neither was it great -- and "OK" doesn't quite get the job done for investors right now.
Revenue growth of 12% looked alright, but organic growth was only 5%. I'm not asking for a lot -- last quarter's 9% organic growth was fine -- but I do expect better than this. What rankles me further, though, was the nature and quality of the earnings growth. Operating income growth was only about 6% this quarter, and even if you add back various acquisition-related items, it doesn't get much better. Top it off with the fact that net income was boosted by things like a lower tax rate, and it's hard to work up a lot of excitement.
Now that the negatives are out there flapping in the breeze, there were some positives we can chat about. The electrical and fluid power businesses are both strong and bookings are growing at a double-digit clip. And it's not just Eaton who benefits -- that growth should bode well for companies like Emerson (NYSE:EMR) and Parker-Hannifin (NYSE:PH) as well.
What's more, we're also talking about a company that has worked hard to diversify away from such heavy reliance upon auto/truck components and big customers like GeneralMotors (NYSE:GM) and Ford (NYSE:F). And as markets like commercial aerospace stay strong and trucks weaken in the near-term, that might look like an even better move.
I'm not in the habit of turning the lights out on a company simply because one quarter's organic growth didn't live up to my expectations. So this stock is still worth some serious consideration -- unless you think that the Fed tightening is going to bite into economic growth and turn those Eaton bookings into cancellations. Since I think (or maybe that's "hope") that we're heading for more of a pause than a break, I still think that buying quality industrials on a dip could prove to be a worthwhile idea.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
