Eaton Stands Firm - Goals by 2000: $10 billion in sales, 10% annual growth

It has been two years since Eaton Corp. Chairman Stephen Hardis announced a bold directive: to grow the business at least 10% annually and reach $10 billion in sales by 2000.

But that was before the economies plunged in the key developing automotive markets of Asia/Pacific and South America, regions where Eaton, like other suppliers, has invested considerable resources to support its global customers.

With so much trouble overseas, it seems logical that Eaton might reconsider those aggressive sales goals. After all, the initiative was launched when the emerging markets showed nothing but promise for suppliers and automakers alike.

But Mr. Hardis and his top executives are standing firm on the target he announced in November 1995 at an Eaton management conference. The tools to hit those goals? Product development, strategic acquisitions and continued global expansion.

"We're on target to hit our goals, and our commitment is to hit that 10% goal each year," says Robert McCloskey, Eaton's senior vice president of controls and hydraulics.

"I don't think there's any doubt that the pause that's taking place in Brazil and Asia/Pacific will make it that much more difficult to reach our goals, but we're still committed to doing it. It's premature to determine just what the overall impact will be."

In the third quarter of 1997, Eaton's six business units increased sales an average 14% above same period 1996. In the Vehicle Components segment alone, Eaton's third-quarter sales rose 19%.

But the real test will be the fourth quarter, when the economic troubles boiled over. Eaton's full-year results were expected after press time.

Eaton ended 1996 with sales of just under $7 billion. To hit the 10% growth target in 1997, Eaton needed to record sales of at least $7.6 billion. Through the first three-quarters Eaton earned $366 million on sales of $5.6 billion, before a one-time charge of $85 million to write off part of the acquisition of Fusion Systems Corp., a supplier in the semiconductor industry.

Based in Cleveland, OH, Eaton does about half its business in automotive, supplying electrical controls, powertrain components and hydraulic products for heavy trucks, passenger cars and off-highway vehicles. The company has 56,000 employees and 165 manufacturing sites in 26 countries.

On the engine component side of the business, Eaton is the only worldwide manufacturer of engine valves and a market leader in superchargers.

Larry Oman, Eaton's senior vice president of automotive components, says he expects the supercharger business to grow because concern for the environment will cause more automakers to consider supercharging for enhanced power without increasing emissions.

Also, Mr. Oman says a new generation of small superchargers will require less underhood space. "They are not just a niche-market item," he says.

Despite the dicey economic times, Eaton is moving ahead with major investments overseas. Among them: a $70-million truck components plant in Brazil, a truck transmission plant and an engine valve facility in China, a new plant in Gdansk, Poland, to manufacture automotive controls, and a 51% Eaton-owned joint venture with JC Corp. to manufacture automotive controls in Korea.

Mr. McCloskey concedes the automotive business in Korea is expected to take a dip in 1998. "Our goals may not be accomplished this year in Korea, so we will have to try to make them up somewhere else," he says.

"We recognize this is a difficult time," Mr. McCloskey says of the Korean crisis. "But we're in the business for the long haul, and we want to be there to supply our customers. Our joint venture is a good move in that direction."

Eaton's Automotive Controls business was growing well before Mr. Hardis' 10% growth target was announced.

Between 1992 and 1995, Eaton acquired IKU of the Netherlands (mirror controls), Lectron Products of Rochester Hills, MI (actuators and sensors), Franz Kirsten KG of Germany (switches), and ITW Auto Controls of Mexico (switches).

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