CBE Cooper Industries, Plc (Ireland)

Cooper Industries plc. (CBE) reported third-quarter 2012 earnings per share from continuing operations of $1.16; above the Zacks Consensus Estimate of $1.14 and the prior-year earnings of 98 cents.

Revenue

Total revenue in the quarter was $1.50 billion, representing a year-over-year increase of 7.8%. Excluding a positive impact from acquisitions of 2.6% and negative foreign currency impact of 1.5%, core revenue in the quarter increased by 6.7%.

Growth in the quarter was aided by good performance in North America as well as in the developing markets. Though demand in the commercial and residential markets improved during the quarter, the overall demand was not very impressive.

The third-quarter book-to-bill ratio was 98%, due to a decline in order rates. Backlog at the end of the quarter increased by 16% from that at the end of December 31, 2011.

Segment Details

The company’s revenue in the Energy & Safety Solutions segment increased by 6.9% year over year to $804.0 million in the quarter. Excluding a negative currency translation impact of 2.3% and positive impact of acquisitions of 2.3%, core segment revenue increased by 6.9%. Rising demand for specified products in global industrial and energy markets aided growth.

Revenue in the Electrical Products Group segment increased by 8.8% year over year to $693.5 million in the quarter. Excluding a negative foreign currency impact of 0.7% and positive impact from acquisitions of 3.0%, core segment revenue increased by 6.5%. Huge demand for industrial products as well as rising demand for energy efficiency products aided core revenue growth. Demand for residential products also increased during the quarter.

Margins

Operating earnings for the quarter were $254.9 million compared with $205.3 million in the prior-year period. SG&A expense was $279.2 million compared with $269.2 million in the prior-year period.

Energy & Safety Solutions segment margin was 19.0%, up 230 basis points year over year. Electrical Products Group segment margin was 14.9%, up 100 basis points.

Balance Sheet and Cash Flow

Cash and cash equivalents were $965.8 million with long-term debt of $1.1 billion and shareowner’s equity of $4.14 billion.

Cash from operating activities in the year was $545.2 million.

Outlook

The company is not providing any outlook due to the previously announced transaction with Eaton Corporation (ETN). The agreement was announced by Eaton and Cooper Industries on May 21, 2012, and is as per the Irish Takeover Rules. The newly formed company will be based in Ireland, which is the current location of Cooper Industries, and is expected to be called Eaton Global Corporation plc. or a modified version of  the same.

 As per the agreement, Cooper Shareholders will receive $39.15 in cash and 0.77479 shares of New Eaton for each Cooper share. Total equity value of the transaction has been fixed at $11.8 billion. Eaton shareholders are expected to enjoy approximately 73% share of the new company while Cooper will have a share of approximately 27%.

The companies expect 2014 operating earnings per share to be increased by 35 cents through this acquisition and by 45 cents in 2015. Excluding the non-cash expense related to the amortization of intangibles arising from purchase accounting, positive effect from the acquisition is expected to be 65 cents in 2014 and 75 cents in 2015.

The electrical offerings of Cooper include electrical protection, power transmission and distribution, lighting and wiring components. Cooper specializes in provision of efficient and safe energy solution to customers globally.

Further, Eaton leads in power distribution, power quality, control and automation, power monitoring, and energy management products and services, offering managerial solutions for challenges in electrical, aerospace, hydraulics and vehicle sector. The combination allows the companies to enter new related industries, exploit emerging markets and provide wide technical services to customers globally.

Cooper Industries plc, is headquartered in Houston, Texas. Its brands include Buss, Edison, Crouse Hinds, Weller, DGD, Buckeye, Cooper, and Master Power.  Major competitors of the company are ABB Ltd. (ABB), General Electric Co. (GE) and Stanley Black & Decker Inc. (SWK). Operations and supply sources located outside the United Staates, particularly the emerging markets, are subject to increased risks. Operating entities outside the USA contribute significantly to the company’s revenue and earnings.

We continue to maintain a Neutral rating on Cooper Industries, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

 
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