, Cleveland, OH, announced revised expectations for third quarter and full year operating earnings per share in light of weakening industrial markets and the tragic events of Sept. 11. The company now expects third quarter operating EPS to be 20-30 percent below the current analyst consensus of 88 cents.
'The economic impact of this tragedy has been immediate and, we believe, will persist for some time to come,' said Alexander M. Cutler, chairman and CEO. 'Eaton was already struggling with depressed industrial markets that showed few signs of immediate recovery. Like most capital goods producers, our sales are normally concentrated in the final month of any quarter. After Sept. 11, business slowed abruptly and sharply, further impacted both by transportation-related interruptions in our ﾑjust-in-time' industrial economy, and by the collective hesitation of our customers faced with a suddenly uncertain, and riskier, future,' he said.
'There are no direct historical parallels to the current situation, but the Persian Gulf War of 1990-1991 may provide a rough parallel to our expectations for business conditions over the coming months. As occurred then, we now anticipate that the overall U.S. economy will turn down in the second half of this year, causing a second leg down in the industrial recession we've endured since late-2000. If the analogy holds, the U.S. economy should begin to regain its bearings by next spring with a recovery that would be aided by the full impact of a year's monetary easing, low inflation, tax cuts and additional fiscal stimulus,' Cutler said.
'For most of Eaton's industrial markets, this scenario would suggest flat or declining activity levels through at least the first half of next year. Overall, we now anticipate that our consolidated markets will be off roughly 4 percent in 2002 after about a 16-percent decline this year. The eventual market rebound will be led by our Truck and Automotive segments, with the turnaround in our Fluid Power and Industrial & Commercial Controls segments not anticipated until later in 2002.
'Because of our aggressive actions earlier in the year, Eaton is in good shape to face these continued difficult operating conditions. Our new product introductions and penetration gains have enabled the company's sales to exceed the growth of our markets by 3 percentage points this year, and we are confident that this performance will be repeated in 2002. The $110 million we will have invested in restructuring Eaton this year should deliver $75 million in net savings to the bottom line in the coming year. We have sharply curtailed capital spending. We have retained very good control over working capital.
'These are difficult times, and no one can say with any precision how the future will unfold. We are confident that when our markets do return to more normal operating conditions ' and they will ' our owners, employees and customers will see the full benefits of Eaton's actions reflected in the superior operating performance of this changed enterprise.'
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