Cooper Industries Reports Third Quarter Record Revenues and Record Earnings of $1.37 Per Share, Up 27 Percent
Cooper Increases Full Year Outlook to $5.04 — $5.10
HOUSTON, October 24, 2006– Cooper Industries, Ltd. (NYSE: CBE) today reported third quarter 2006 earnings per share of $1.37 (diluted), an increase of 27 percent compared with $1.08 earnings per share for the third quarter of 2005. Third quarter 2006 revenues increased 9 percent to $1.31 billion, compared with $1.21 billion for the same period last year. Net income rose 26 percent to $128.2 million, compared with the prior year amount of $102.0 million.
“Our businesses continue to deliver excellent results, powered by continued strong demand in the key industrial, utility and nonresidential construction end-markets,” said Cooper Industries Chairman and Chief Executive Officer Kirk S. Hachigian. “The third quarter is again characterized by solid execution and progress on our strategic initiatives, including Cooper Connection, Globalization, Strategic Sourcing, Enterprise Business Systems and Productivity, all of which contribute to organic growth, increased margins and strong cash flow.”
“Cooper’s financial position remains very strong, even after several acquisitions and the repurchase of more than 3 million shares year-to-date. We ended the third quarter with a debt-to-total capitalization ratio, net of cash, of 24.6 percent which gives us the flexibility to continue investing in our business, and paying a competitive dividend, while also pursuing further strategic acquisitions,” said Hachigian.
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Revenues for the first nine months of 2006 were $3.84 billion, an 8 percent increase from the $3.54 billion in revenues for the first nine months of 2005. Earnings per share from continuing operations for the first nine months of 2006 were $3.78, compared with $3.02 for the same period in 2005, an increase of 25 percent. Income from continuing operations for the first nine months of 2006 rose 24 percent to $355.7 million, compared with $287.1 million for the first nine months of last year.
Segment Results Electrical Productssegment revenues for the third quarter of 2006 increased 10 percent to $1.13 billion, compared with $1.03 billion in the third quarter of 2005. Excluding the impact of favorable currency translation, revenues increased approximately 9 percent compared to prior year. Recent acquisitions contributed approximately 2 percent to the year-over-year growth. Segment operating earnings were $186.4 million, an increase of 18 percent from $158.2 million in the prior year’s third quarter. Segment operating margin improved 110 basis points to 16.5 percent for the third quarter of 2006.
The increase in revenues for the Electrical Products segment was driven by continued strong growth in industrial and utility markets, and improved activity in nonresidential construction markets, partially offset by reduced sales through the retail channel.
Electrical Products segment revenues for the first nine months of 2006 grew 9 percent to $3.29 billion, compared with $3.01 billion in 2005. Segment operating earnings for the first nine months increased 19 percent to $524.0 million compared with $441.8 million for the same period last year.
Toolssegment revenues for the third quarter of 2006 increased 2 percent to $187.2 million, compared with 2005 third quarter revenues of $182.9 million. Currency translation increased revenues approximately 1 percent in the quarter. Segment operating earnings for the period were $24.3 million, compared with $15.5 million for the third quarter of 2005. Segment operating margin for the third quarter of 2006 improved to 13.0 percent, compared with 8.5 percent for the same period last year.
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Revenues for the first nine months of 2006 increased 3 percent to $551.8 million, compared with $538.0 million for the same period last year. Segment operating earnings for the first nine months of 2006 grew 33 percent to $61.2 million, compared with $46.0 million in the prior-year period.
Outlook “Our outlook remains positive for the remainder of 2006, driven by the strength in our diversified portfolio of businesses and products, our ability to consistently execute upon our strategic initiatives and a continued favorable global economic outlook,” said Hachigian. “We expect to continue to see solid demand from the utility and industrial sectors, and improvement in nonresidential construction markets.
“We continue to be committed to deliver a balance of revenue growth, margin expansion and cash generation. We expect 2006 revenues to increase in the range of 8 to 9 percent, with earnings per share from continuing operations between $5.04 and $5.10, an increase from our previous outlook of $4.90 to $5.05 for the full year. Fourth quarter 2006 revenue increases are expected to be in the range of 8 to 10 percent, with earnings per share of $1.26 to $1.32.”
About Cooper Industries Cooper Industries, Ltd. is a global manufacturer of electrical products and tools, with 2005 revenues of $4.7 billion, approximately 30 percent of which are international sales. Incorporated in Bermuda with administrative headquarters in Houston, Cooper employs approximately 29,000 people and operates eight divisions: Cooper B-Line, Cooper Bussmann, Cooper Crouse-Hinds, Cooper Lighting, Cooper Menvier, Cooper Power Systems, Cooper Wiring Devices and Cooper Tools Group. Cooper Connection provides a common marketing and selling platform for Cooper’s sales to electrical distributors. For more information, visit the website atwww.cooperindustries.com.
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Comparisons of 2006 and 2005 third quarter and year-to-date results appear on the following pages.
Statements in this news release are forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the Company’s earnings outlook. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, and actual results may differ materially from anticipated results. Important factors which may affect the actual results include, but are not limited to: 1) competitive pressures and future global economic conditions, including the level of market demand for the Company’s products; 2) changes in raw material, transportation and energy costs; 3) the ability to execute and realize the expected benefits from strategic initiatives including revenue growth plans, and cost-control and productivity improvement programs; 4) any disruptions from manufacturing rationalizations and the implementation of the Enterprise Business System; 5) mergers and acquisitions, and their integration; 6) political developments; 7) changes in financial markets including currency exchange fluctuations; 8) changes in legislation and regulations including changes in the tax laws, tax treaties or tax regulations; 9) the timing and amount of share repurchases by the Company; and 10) the resolution of potential liability exposure resulting from Federal-Mogul Corporation’s bankruptcy filing.
Conference Call Cooper will hold a conference call today at 12:00 noon EDT to provide shareholders and other interested parties an overview of the Company’s third quarter 2006 performance. Those interested in hearing the conference call may listen via telephone by dialing (800) 329-9097, using pass code 12810143, or over the Internet through the Investor Center section of the Company’s website, using the “Management Presentations” link. International callers should dial (617) 614-4929 and use pass code 12810143.
The conference call may include non-GAAP financial measures. Cooper will post a reconciliation of those measures to the most directly comparable GAAP measures in the Investor Center section of the Company’s website under the heading “Management Presentations.”
Informational exhibits concerning the Company’s third quarter performance that may be referred to during the conference call will be available in the Investor Center section of the Company’s website under the heading “Management Presentations” prior to the beginning of the call.
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CONSOLIDATED RESULTS OF OPERATIONS
Quarter Ended Sept. 30,
2006
2005
(in millions where applicable)
Revenues
$
1,314.6
$
1,210.4
Cost of sales
887.2
828.1
Selling and administrative expenses
240.8
235.9
Operating earnings
186.6
146.4
Interest expense, net
14.0
16.5
Income before income taxes
172.6
129.9
Income taxes
44.4
27.9
Net income
$
128.2
$
102.0
Net Income Per Common share:
Basic
$
1.40
$
1.11
Diluted
$
1.37
$
1.08
Shares Utilized in Computation of Income Per Common Share:
Basic
91.4 million
92.3 million
Diluted
93.3 million
94.8 million
PERCENTAGE OF REVENUES
Quarter Ended Sept. 30,
2006
2005
Revenues
100.0
%
100.0
%
Cost of sales
67.5
%
68.4
%
Selling and administrative expenses
18.3
%
19.5
%
Operating earnings
14.2
%
12.1
%
Income before income taxes
13.1
%
10.7
%
Net income
9.8
%
8.4
%
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CONSOLIDATED RESULTS OF OPERATIONS (Continued) Additional Information for the Quarter Ended September 30 Segment Information
Quarter Ended Sept. 30,
2006
2005
(in millions)
Revenues:
Electrical Products
$
1,127.4
$
1,027.5
Tools
187.2
182.9
Total
$
1,314.6
$
1,210.4
Segment Operating Earnings:
Electrical Products
$
186.4
$
158.2
Tools
24.3
15.5
Total Segment Operating Earnings
210.7
173.7
General Corporate Expense
24.1
27.3
Interest expense, net
14.0
16.5
Income before income taxes
$
172.6
$
129.9
Quarter Ended Sept. 30,
2006
2005
Return on Sales:
Electrical Products
16.5
%
15.4
%
Tools
13.0
%
8.5
%
Total Segments
16.0
%
14.4
%
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CONSOLIDATED RESULTS OF OPERATIONS
Nine Months Ended Sept. 30,
2006
2005
(in millions where applicable)
Revenues
$
3,843.3
$
3,544.4
Cost of sales
2,604.3
2,430.4
Selling and administrative expenses
722.6
696.3
Operating earnings
516.4
417.7
Interest expense, net
38.5
52.0
Income from continuing operations before income taxes
477.9
365.7
Income taxes
122.2
78.6
Income from continuing operations
355.7
287.1
Charge related to discontinued operations
20.3
—
Net Income
$
335.4
$
287.1
Net Income Per Common share:
Basic:
Continuing operations
$
3.87
$
3.09
Discontinued operations charge
.22
—
Net income
$
3.65
$
3.09
Diluted:
Continuing operations
$
3.78
$
3.02
Discontinued operations charge
.21
—
Net income
$
3.57
$
3.02
Shares Utilized in Computation of Income Per Common Share:
Basic
92.0 million
92.8 million
Diluted
94.0 million
95.2 million
PERCENTAGE OF REVENUES
Nine Months Ended Sept. 30,
2006
2005
Revenues
100.0
%
100.0
%
Cost of sales
67.8
%
68.6
%
Selling and administrative expenses
18.8
%
19.6
%
Operating earnings
13.4
%
11.8
%
Income from continuing operations before income taxes
12.4
%
10.3
%
Income from continuing operations
9.3
%
8.1
%
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CONSOLIDATED RESULTS OF OPERATIONS (Continued) Additional Information for the Nine Months Ended September 30 Segment Information
Nine Months Ended Sept. 30,
2006
2005
(in millions)
Revenues:
Electrical Products
$
3,291.5
$
3,006.4
Tools
551.8
538.0
Total
$
3,843.3
$
3,544.4
Segment Operating Earnings:
Electrical Products
$
524.0
$
441.8
Tools
61.2
46.0
Total Segment Operating Earnings
585.2
487.8
General Corporate Expense
68.8
70.1
Interest expense, net
38.5
52.0
Income from continuing operations before income taxes
$
477.9
$
365.7
Nine Months Ended Sept. 30,
2006
2005
Return on Sales:
Electrical Products
15.9
%
14.7
%
Tools
11.1
%
8.6
%
Total Segments
15.2
%
13.8
%
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CONSOLIDATED BALANCE SHEETS (PRELIMINARY)
Sept. 30,
Dec. 31,
2006
2005
(in millions)
ASSETS
Cash and cash equivalents
$
243.9
$
452.8
Receivables
960.8
842.4
Inventories
642.2
538.7
Deferred income taxes and other assets
262.4
297.2
Total current assets
2,109.3
2,131.1
Property, plant and equipment, less accumulated depreciation
662.8
673.7
Goodwill
2,315.8
2,084.0
Deferred income taxes and other noncurrent assets
334.4
326.3
Total assets
$
5,422.3
$
5,215.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt
$
6.3
$
7.6
Accounts payable
455.3
427.8
Accrued liabilities
526.9
518.0
Current discontinued operations liability
207.5
196.3
Current maturities of long-term debt
300.5
11.4
Total current liabilities
1,496.5
1,161.1
Long-term debt
703.3
1,002.9
Postretirement benefits other than pensions
152.7
163.0
Long-term discontinued operations liability
330.0
330.0
Other long-term liabilities
392.1
352.9
Total liabilities
3,074.6
3,009.9
Common stock
0.9
0.9
Capital in excess of par value
255.4
383.2
Retained earnings
2,229.8
1,997.4
Accumulated other nonowner changes in equity
(138.4
)
(176.3
)
Total shareholders’ equity
2,347.7
2,205.2
Total liabilities and shareholders’ equity
$
5,422.3
$
5,215.1
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RATIOS OF DEBT-TO-TOTAL CAPITALIZATION AND NET DEBT-TO-TOTAL CAPITALIZATION (PRELIMINARY)
Sept. 30,
Dec. 31,
2006
2005
(in millions where applicable)
Short-term debt
$
6.3
$
7.6
Current maturities of long-term debt
300.5
11.4
Long-term debt
703.3
1,002.9
Total debt
1,010.1
1,021.9
Total shareholders’ equity
2,347.7
2,205.2
Total capitalization
$
3,357.8
$
3,227.1
Total debt-to-total-capitalization ratio
30.1
%
31.7
%
Total debt
$
1,010.1
$
1,021.9
Less cash and cash equivalents
243.9
452.8
Net debt
766.2
569.1
Total capitalization
3,357.8
3,227.1
Less cash and cash equivalents
243.9
452.8
Total capitalization net of cash
$
3,113.9
$
2,774.3
Net debt-to-total-capitalization ratio
24.6
%
20.5
%
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CONSOLIDATED STATEMENTS OF CASH FLOWS (PRELIMINARY)
Nine Months Ended September 30,
2006
2005
(in millions)
Cash flows from operating activities:
Net income
$
335.4
$
287.1
Plus: charge for discontinued operations
20.3
—
Income from continuing operations
355.7
287.1
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization
85.0
84.1
Deferred income taxes
12.6
5.0
Excess tax benefits from stock options and awards
(21.4
)
—
Restructuring charge payments
—
(0.4
)
Changes in assets and liabilities(1)
Receivables
(87.8
)
(114.3
)
Inventories
(81.5
)
(54.5
)
Accounts payable and accrued liabilities
(0.9
)
8.3
Other assets and liabilities, net
113.0
85.2
Net cash provided by operating activities
374.7
300.5
Cash flows from investing activities:
Capital expenditures
(58.1
)
(71.8
)
Cash paid for acquired businesses
(279.4
)
(2.4
)
Proceeds from sales of property, plant and equipment and other
18.4
6.6
Net cash used in investing activities
(319.1
)
(67.6
)
Cash flows from financing activities:
Proceeds from issuances of debt
—
1.4
Repayments of debt
(13.3
)
(270.1
)
Dividends
(103.0
)
(103.8
)
Subsidiary purchase of parent shares
(261.7
)
(166.2
)
Excess tax benefits from stock options and awards
21.4
—
Activity under employee stock plans and other
81.1
54.7
Net cash used in financing activities
(275.5
)
(484.0
)
Effect of exchange rate changes on cash and cash equivalents
11.0
(25.7
)
Decrease in cash and cash equivalents
(208.9
)
(276.8
)
Cash and cash equivalents, beginning of period
452.8
652.8
Cash and cash equivalents, end of period
$
243.9
$
376.0
(1) Net of the effects of translation and acquisitions
Free Cash Flow Reconciliation
Three Months Ended Sept. 30,
2006
2005
(in millions)
Net cash provided by operating activities
$
198.7
$
119.1
Less capital expenditures
(17.9
)
(23.9
)
Add proceeds from sales of property, plant and equipment and other
13.6
2.3
Free cash flow
$
194.4
$
97.5
9
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