Eaton Corporation (NYSE: ETN) manufactures components and systems for use in automobiles, trucks, aerospace, agriculture, and fluid power systems. Once highly dependent on making drivetrains and other engine parts for the auto and heavy trucks sectors, Eaton has cut auto and truck related sales, shifting its focus to areas like power management, hydraulic systems, and aerospace and defense. Eaton is based in Cleveland, Ohio, but is geographically spread out, with strong international growth, selling its products in over 150 countries.
Eaton Corporation is a global diversified industrial manufacturer of electrical systems and components for power distribution and control; fluid power systems for industrial, mobile and aircraft equipment; intelligent truck drivetrain systems; as well as automotive related components.
While ETN's operations used to be highly cyclical, its improved business model, comprised of a broader range of products and services, has led to less earnings volatility by exposing the company to more higher-growth markets.
In 2009, Eaton generated a net income of $385 million on $11.87 billion in total revenues. This represents a 63.8% decrease in net income on a 22.8% decline in revenues from 2008, when the company earned $1.06 billion on $15.38 billion in revenues.
Eaton is a diversified, integrated operating company, with sales and revenue coming from five different business segments:
Eaton Corporation uses raw materials and components in its production process; thus, significant shortages or prices increases would raise operating costs and adversely impact the competitive position of Eaton products. It requires the most raw materials in the form of iron, steel, copper, nickel, aluminum, brass, silver, molybdenum, titanium, vanadium, rubber, plastic, and insulating materials. Profitability is partially offset by the increases in prices of certain raw materials, supplies, and basic metals. Eaton CEO Alexander M. Cutler believes that high commodities and steel input prices are here to stay, as long as worldwide demand stays strong.
Unforeseen volatility in Eaton's end markets can lead to decreased operating margins. In the truck segment for instance, further declines in the North American commercial truck market would adversely impact Eaton. Luckily, Eaton has taken measures to tamper this volatility through diversification of markets and geographic expansion. Furthermore, the increased calls for lowering emissions, fuel efficiency and environmental protection have increased demands for hybrid vehicles, fuel economy, and environmental safety, all of which Eaton is well positioned to handle. The question remains whether earnings in Eaton's expanding Electrical and Fluid Power businesses are be able to make up for the decline in the Truck and Automotive production in the coming years. The next emissions standard change is in 2010, a policy that promises to greatly reduce emissions.
ETN is considered a diversified industrial company. In the diversified industrials group, Eaton faces many established competitors, such as United Technologies (UTX), Danaher (DHR), American Standard Companies (ASD), Rockwell Automation (ROK), Textron (TXT), and Cooper Industries (CBE).