And occasionally there are observations made about the electrical industry, or the specific company, that can be of interest. The following are excerpts from an interview with Rick Fearon, Vice Chairman, CFO and Planning Officer for Eaton. You can register and read the entire transcript here at SeekingAlpha.com.
About the Cooper / Eaton integration (and we’ve edited for brevity and Seeking Alpha’s copyright policy and we’ve added the italics for emphasis)
- People…focusing on Cooper, we have 50 full time people deployed against it, they’re the members of our integration team and we are working hard at both the revenue synergies and the cost synergies.
- Cost Synergies … we raised our cost synergies at the end of the first and the second quarters and it’s a reflection of our better understanding of the opportunities. And Cooper’s a large company, 29,000 employees, over a 100 manufacturing facilities, many significant distribution facilities and it has taken some time to get our arms around the opportunities to achieve consolidation, …we’re pleased that we’ve been able to find additional cost savings.
- On the revenue side … if you look at the profits that we expect to earn from revenue synergies, we think it’s only going to be about $10 million in 2013. … there are four areas of revenue synergies
- … the quickest progress is on bundling Cooper and Eaton products together and realizing a larger package sale than we would had either of us been independent. That’s probably the quickest.
- … signing up new distribution, because as I think most of you know, about 70% of the sales of products in the electrical business go through distribution, so that’s a key part of selling our product and we’ve had a fair amount of success at convincing distributors to change to our product lines.
- … post Cooper, we can supply about 65% of the line card of a distributor. And so we really can be a very comprehensive distributor or a supplier to a typical distributor and that’s been attractive to various distributors and they have elected to move to us.
- … started to earn service contracts on Cooper equipment and Cooper did not really have a service capability.
- … taking advantage of strengths that one of us was as disproportionately strong in, in parts of world.
- Cost synergies everyone expects (and yes, there have been some personnel changes, but that is unfortunately expected when 2 large companies are combined)
- Revenue synergies are interesting … service opportunities are a great idea, Eaton has a decent business in this area and service agreements represent an opportunity for distributors as well as manufacturers. Question becomes, are distributors involved in some of Eaton’s service programs (we don’t know)? If not, could they be?
- We question that Eaton / Cooper represent 65% of the linecard of a distributor, or even 65% of a distributor’s sales … (but they were presenting to analysts, they aren’t too interested in that level of detail)
- The signing up of new distribution is interesting. There has been lots of talk of “will Eaton leverage their business” to pick up Cooper business or use Cooper to get into some desired distributor locations. We don’t specifically know the answer but it appears that the end desire is there (but perhaps not being too heavy-handed for leverage.) As they develop cross company service benefits, it is reasonable to suspect that there could be additional benefits to doing business with 1 company – especially if the customer is accepting of the brand and, as a distributor, the profitability is equal if not better.
5 Comments
Interesting Graybar just named Schneider as their Supplier of the Year. Maybe a move to appease them as the new Eaton logo with the ex-Cooper brands was all over the conference.
When they need revenue, probably at the end of a quarter, they’ll try to leverage the brands to get more business. From some meetings with Eaton / Cooper personnel I sense that they have some internal goals, maybe personal goals, for getting distributors to convert to their brands. Wonder what the next version of Commitments / Connection will be?
they’ll try to leverage us with the rebate program and brow beating us but history shows that few distributors respond. Just as T&B from years ago. There is choice in the marketplace for many of these products. Other companies may win. Eaton is just playing to the stock market
The backend synergies far outweigh the frontend, or customer-end. ABB and T&B…same deal. Distributors will listen politely but then do what they’ve always done – serve customers and focus on earnings. On the last point, Cooper-Eaton can have some impact if they want to step up with higher rebates but that’s a hard sell internally and to WS. They have to decide how badly they want the channel?
While Cooper does own some good products, they do have their share of dogs as well. It well be difficult to displace some manufacturers at distribution when the product is noticeably different. The other concern is how well two large companies continue to function after consolidation. One of the strengths of some of the Cooper brands has been rapid product development. Frequently, organizations start losing this ability as “cost” is removed. Finally, as much as everyone wants single transactions for large amounts of material, distribution (and rightly so) has long been mindful of being too attached to any single company. When everyone in town is going to market with the same products you always have to wonder how good your pricing is compared to your competitor. Diversity in each trading area is healthy for all involved and there is nothing Eaton/Cooper offers that cannot be sourced from someone else.
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