Eaton, Hubbell and Rockwell Report Q2 Earnings

We continue with our Q2 earnings report highlights seeking marketplace insights after sharing information from Rexel, WESCO, Acuity and ABB / T&B.

Eaton

First a review of their presentation.  Key highlights, again focusing solely on the divisions important to the electrical industry,

• Overall, sales were down 7% but organically only 1%.  Again, the impact of foreign exchange on a manufacturer.
• Electrical Products Segment was up 3% organically but down 3% when foreign exchange is included.  They saw continued strength in lighting, resi and selected non-resi segments.This segment and Automotive were the only segments that had organic growth.
• They are expecting 2015 electric products organic growth of 1-3% (comment – high than the two distributors previously reviewed.  Could they be negatively affecting Eaton or are other Eaton distributors making up the difference?)
• Eaton will be undergoing a company-wide (not restricted to Electrical) restructuring of $145 million. It includes positions, facility closings, departmental consolidation and some more, (ET comment … again, the impact on the electrical group is unknown.)
• Integration with Cooper is expected to contribute $115 million in incremental savings in 2016.

And according to the analyst call:

• “Bookings in Q2 were disappointing in our Electrical … businesses and as a result, we believe it reduces the likelihood of more robust revenue growth in the second half.” And then they caution that bookings differ from revenue due to timing (think switchgear and lighting projects.)
• “Cost control, operational excellence and structural cost reduction are really critical.”
• In Electrical, haven’t been able to announce price increases to offset embedded exchange issues
• Strong growth in lighting sales – mostly resi with selective in non-resi
• Weakness in industrial MRO
• Crouse is in Eaton’s Electrical Systems & Services business which was down 8% with foreign exchange but down only 4% overall.  Given Crouse’s visibility in Oil / Gas segment, overall pleased with margin performance (and interesting not down more).
• Eaton thinks the non-resi market, excluding oil / mining will be up 4-5% for 2015.
• They think the small project market has strengthened “a bit”
• Overall, “feels to us more like we’re in a period of rather prolonged slower growth”
• Outlook for the remainder of the year:  industrial MRO is 0-1%; Crouse oil / gas down 25%, Resi up 6-8%, commercial mid-single digit growth, data centers up 2-3% (power distribution aspect is 5%, UPS slightly negative).
• “Economy sort  of stalling a bit, globally”
• Seeing distributors, in electrical and hydraulics “people just have not really rebuilt deep inventories and they’re not going to at this point” (this question was posed by a few analysts in a couple of different company reports, especially as it relates to industrial MRO)

Hubbell

First, from the analyst call:

• Overall sales increase of 2%.  Organic growth was 1%, acquisitions were 3% and foreign exchange was -2%
• Growth in resi with solid demand in non-resi.  Utility was stable
  • Commercial construction up double digits
• Lighting was strong with non-resi lighting up double digits and resi mid-single digits.
• Seeing slowdown in industrial MRO, beyond energy issues.
  • Harsh & Harzardous down about 20%
• Have “initiated actions that are expected to impact, at this point, 250+ positions” plus back-office streamlining. (ET comment – no indication of which divisions)
  • 60% are in areas of “industrial facing” and Harsh & Hazardous”
  • Could be more if price of oil stays below $50 / barrel
• Harsh & Hazardous business is 50% international, 50% domestic; 60/40 project vs MRO (interesting benchmark for distributors to consider in evaluating this aspect of their business)
• Industrials, for the first 6 month, down mid single digits
• Non-resi outlook is 5-6% for year (commercial very strong, industrial weaker)
  • Industrial outlook now 0-2%
    • Auto activity strong
    • Harsh & Hazardous (oil / gas / mining) expected to be down 20-25%
• Projecting electrical segment, overall, at 2-3%
• Lighting
  • Some of the national account business is not doing well (some retail?)
  • More than 50% of sales are LED

From the presentation

• Electrical is 71% of Hubbell sales (Power is the remaining 29%)

Rockwell

Rockwell was mentioned in tedmag.com so we thought we’d take a deeper look:

• July is Rockwell’s Q3
• Organic sales up 2.2% YoY; overall down 4.5%
• 2 point improvement in Segment Operating Margin
• Segments
  • Architecture & Software – organic for Q3 up 3.1%, down 4.4% with currency, up 4.3% YTD
  • Control Products & Solutions – organic up 1.6% for Q3, down 4.3% with currency, up .8% organic YtD
• US organically up 3.1% in Q3; up 2.2% organically YTD
• Expecting overall organic growth of 1.5-2.5%, currency to negatively impact by 5-6%
• Canadian market down 7.5% in Q3, down from -3.7% organically YTD, even though only 5.9% of Q3 or 10.7% of YTD sales
• US market is 55.4% of Rockwell Q3

and from the analyst call

• Safety segment up double digits
• Logics up slighting
• Process down 3% in quarter
• Expect 3% growth in their Q4 (Q3 for calendar year) in U.S.
• Automotive and consumer strongest verticals in US
• “Don’t see a short-term catalyst for growth”
• Lowered midpoint of full-year organic growth, company-wide to 1%
• Currency issues affected sales by 7.5% vs prior year for Architecture & Software segment, 6.3% for Control Products & Solutions Segment.
• Oil & gas, globally, was down about 10% in Rockwell’s Q3
• Exporting OEMs in the US were weaker because of the exchange rate
• A number of analyst questions regarding Rockwell in China
• “Don’t think we will see a significant increase in spending (in oil / gas segment) until we see an increase in the price of oil.”
• Use Lean & Six Sigma to reduce costs as well as strategic sourcing organization to influence material costs
• With industrial production rates slowing …seeing somewhat less MRO and small project activity

Observations:

• Industrial MRO “growth rate” declining with expectations of flat, excluding currency issues (which only affects manufacturers)
• LEDs in double digit growth mode
• Distributors should use manufacturer reporting benchmarks for product mix / line mix as indicators for them to evaluate their business with that manufacturer
• Commercial construction is a growth market

How is your performance in these segments? With these manufacturers?