Eaton Corporation (Eaton), a US-based diversified power management company, has reported net sales of $2.8 billion for the first quarter of 2009, down 20%, compared with the net sales of $3.5 billion in the year-ago quarter. It has also reported a net loss of $50 million, or $0.30 loss per diluted share, for the first quarter of 2009, compared with the net income of $247 million, or $1.64 per diluted share, in the year-ago quarter.

Net income in both periods included charges for integration of acquisitions. Before acquisition integration charges, the operating loss per share in the first quarter of 2009 was $0.22 versus operating earnings per share of $1.70 in 2008. The operating loss for the first quarter of 2009 was $36 million compared to operating earnings of $256 million in 2008.

Alexander M. Cutler, Eaton chairman and chief executive officer, said, “Our first quarter results reflect the impact of the severe downturn in many of our end markets and the expenses associated with personnel reductions made in the first quarter. Weaker than expected markets were partially offset by lower than originally anticipated severance expense. The lower severance expense was primarily due to the length of time it has taken to conclude severance plans in several countries. The sales decline in the first quarter of 20% consisted of a 20% decline in organic growth, an 8% decline due to lower foreign exchange rates, and 8% growth from acquisitions. Our end markets declined 21% in the quarter.

“We generated strong cash flow in the first quarter, with operating cash flow totaling $107 million and free cash flow totaling $59 million, the second highest free cash flow for the first quarter we have ever had,” said Cutler. “In addition, we issued $550 million of term debt in March, at attractive rates. The combination of our strong cash flow and the term debt issuance allowed us to reduce commercial paper at the end of March to $172 million, a substantial reduction from the $767 million of commercial paper outstanding at the end of December.

“We have been very pleased with our cash generation over the last six months, the two most challenging quarters of the current recession,” said Cutler. “Our operating cash flow over the last six months totaled $731 million.

“We now anticipate our end markets for all of 2009 will decline between 15 and 16% as the recovery in the US and Western European economies will be pushed out one quarter, with the recovery now more likely to begin in the first quarter of 2010,” said Cutler. “As a result of the expected greater market decline in 2009, we are continuing to adjust our corporate-wide resource levels.

“Given the uncertain end market demand, it is very difficult to provide guidance for the second quarter. Assuming our sales in the second quarter total between $3.0 billion and $3.1 billion, coupled with the additional charges we expect in the quarter, we anticipate net income per share for the second quarter of 2009 to be about $0.15 and operating earnings per share, which exclude charges to integrate our recent acquisitions, to be about $0.25. As a result of our lower market forecast for 2009, we are lowering our full-year guidance to net income per share of between $2.10 and $2.60 and operating earnings per share of between $2.50 and $3.00. Our second half 2009 and full year 2010 results will be strengthened by the savings from the resource adjustment actions taken during the first half of 2009.

Business Segment Results:

Sales for the Electrical Americas segment were $859 million, down 6% from 2008. Operating profits were $106 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits were $107 million, down 25% from 2008.

“End markets for our Electrical Americas segment declined 10% during the first quarter,” said Cutler. “While our large project business held up well, our short-cycle component businesses all registered steep declines.

“Our bookings in the Electrical Americas segment, adjusted for foreign exchange and acquisitions, were down 11% from the first quarter a year ago.”

Sales for the Electrical Rest of World segment were $544 million, an increase of 38% over the first quarter of 2008. The 38% sales increase was made up of 70% growth from acquisitions, offset by a 16% decline from foreign exchange and a volume decline of 16%. The segment reported an operating loss of $6 million. Excluding $16 million of charges to integrate our recent acquisitions, the segment had operating profits of $10 million, down 52% compared to the first quarter of 2008.

“The markets in Europe and Asia Pacific declined markedly in the first quarter and our bookings declined by 20%,” said Cutler. “We experienced significant inventory destocking in most of our channels as customers moved aggressively to reduce their inventory levels. We are starting to see some signs that Asian markets are stabilizing, but have yet to see such signs in Europe.”

Hydraulics segment sales were $430 million, down 35% compared to the first quarter of 2008. Global hydraulics markets were down about 30% in the quarter.

Operating profits in the first quarter were $6 million. Excluding acquisition integration charges of $1 million during the quarter, operating profits totaled $7 million, a decrease of 91% from the first quarter of 2008.

“The hydraulics markets in the first quarter suffered from prolonged shutdowns and cancellations of orders by many OEM customers. In addition, our distributor channel partners also significantly curtailed their level of orders,” said Cutler. “For all of 2009, we now believe hydraulics markets are likely to decline by 25%.”

Aerospace segment sales were $418 million, 3% lower than the first quarter of 2008. Aerospace markets declined 4% compared to the first quarter of 2008.

Operating profits in the first quarter were $71 million. Excluding acquisition integration charges of $2 million during the quarter, operating profits were $73 million, an increase of 4% compared to a year earlier.

“We anticipate the global aerospace market will decline by about 5% in 2009,” said Cutler. “The decline is driven by reduced commercial passenger traffic and by a sharp decline in business jet production.”

The Truck segment posted sales of $292 million, down 49% compared to the first quarter of 2008. The segment reported an operating loss in the first quarter of $34 million.

Truck production in the first quarter is forecasted to have declined by 27%, with U.S. markets down 32% and non-U.S. markets down 20%. While it is difficult to determine precisely, it appears that purchases of components by global truck OEMs and aftermarket channel partners declined even more severely than truck production, as significant destocking occurred throughout the channel.

The Automotive segment posted first quarter sales of $270 million, down 50% from the first quarter of 2008. The segment posted an operating loss in the first quarter of $46 million. Excluding acquisition integration charges of $1 million, the operating loss was $45 million. Global automotive markets were down 40%, with U.S. markets down 51% and non-US markets down 35%.

“The world auto markets in the first quarter suffered their sharpest decline in decades,” said Cutler. “For the year as a whole, we now anticipate global automotive markets will decline by 23%, with US production down 25% and non-U.S. production down 22%.”