Doing Things Right at Eaton Corporation, PLC (ETN)

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Eaton logoNo, there’s no cause for alarm even as Eaton Corporation, PLC (NYSE:ETN), the Cleveland-based manufacturer of industrial products, reported an earnings decline in the 2012 fourth quarter to $179 million, or 46 cents per share, from the year-ago earnings of $362 million, or $1.07 per share. What weighed down Eaton in the October–December 2012 period is actually what will help keep it buoyant and rising into the future: its estimated $13 billion acquisition of electrical equipment supplier Cooper Industries plc (NYSE:CBE) late last year.

Factoring in the costs related to the Cooper acquisition, EPS for 2012 resulted in an adjusted $0.82, significantly lower that the 2011 level and well short of the $0.93 Wall Street watchers had expected. But still, Eaton’s shares rose 4.9% following its fourth quarter results’ announcement. Much of this favorable market reaction can be attributed to what the acquisition of Cooper will eventually bring in to Eaton’s bottom line.

Milestone Transformation Achieved

Eaton dubbed its takeover of Cooper not only as the largest in its 101-year history but also a transformational milestone. With this acquisition, the company expanded its global market reach to more than 150 countries, and broadened its portfolio of products, services, and solutions. Added to Eaton’s strengths in power distribution, power quality, and energy services were Cooper’s tested capabilities in utility power distribution, lighting, lighting controls, safety solutions, smart grid, and wiring devices.

Moving forward, Cooper’s contribution to Eaton in the future can already be gleaned in the latter’s 2012 fourth quarter results. Acquisitions, all told, contributed 14% in Eaton’s revenues during the three-month period, with Cooper accounting for a 12% slice. Further growth of this share can be expected as the integration of operations is set firmly in place, a process that Eaton management expects to achieve in 24 to 36 months.

To Eaton’s credit, the company was likewise able to secure very attractive financing for its Cooper acquisition, thereby manifesting the rosy financial health of the company. To acquire Cooper, Eaton bagged term loans of $4.9 billion at manageable maturities of 3 to 30 years with a 2.74% average rate. As a further manifestation of its robust balance sheet, the company has already repaid bridge financing for the acquisition using its $1.67 billion bridge facility to close the Cooper deal.

Eyes Firm on Emerging Technologies

By successfully incorporating Cooper’s technologies with its own, Eaton expects to further accelerate its growth as a global integrated power management firm. This integration, Eaton said, will be focused on addressing the rising costs and increasing environmental impact of the world’s growing energy use, considered to be one of the most challenging megatrends at present.

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