Investopedia: Eaton Shows Broad Recovery Continues

Conglomerates like Eaton (NYSE:ETN), Dover (NYSE:DOV) and Illinois Tool Works (NYSE:ITW) can be a pain for investors to follow with all of their moving parts. On the flip side, they can also give you a quick look at a wide range of industries and how they're performing at any point in time. To that end, while a weak aerospace industry is still a drag on Eaton, overall there continues to be a strong recovery across many industry segments. (To read more on conglomerates, check out Conglomerates: Risky Proposition?)


Good On Top, Not So Good in the Middle
Eaton seemed to have no problem booking sales in the first quarter. Overall revenue rose nearly 23% and surpassed the high end of the analyst range by about $100 million. Within the overall revenue number, the electrical business was a standpoint performer with 21% growth, and that's clearly a good thing as the electrical business is nearly 45% of the total. The hydraulic, automotive and truck segments all showed very strong growth as well, while the aerospace business was a laggard at just over 3% growth.

Top-line performance was clearly strong for Eaton, but profitability was a bit more problematic. Gross margin did increase slightly and the company did deliver over 61% growth in operating income but expectations were broadly higher than this - particularly problematic since the company surpassed revenue estimates so handily. Aerospace and automotive were relative laggards (segment operating profit margins declined), while the other units simply failed to improve as much as hoped. Still, overall segment profit growth of 46% is hardly a bad outcome. (To learn more about this type of analysis, See Fundamental Analysis For Traders.)


Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Eaton-Shows-Broad-Recovery-Continues-ETN-DOV-ITW-ABB-SI-PCAR-CMCO0425.aspx