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Wednesday, September 25, 2013
And occasionally there are observations made about the electrical industry, or the specific company, that can be of interest. The following are excerpts from an interview with Rick Fearon, Vice Chairman, CFO and Planning Officer for Eaton. You can register and read the entire transcript here at SeekingAlpha.com.
About the Cooper / Eaton integration (and we've edited for brevity and Seeking Alpha's copyright policy and we've added the italics for emphasis)
- People...focusing on Cooper, we have 50 full time people deployed against it, they're the members of our integration team and we are working hard at both the revenue synergies and the cost synergies.
- Cost Synergies ... we raised our cost synergies at the end of the first and the second quarters and it's a reflection of our better understanding of the opportunities. And Cooper's a large company, 29,000 employees, over a 100 manufacturing facilities, many significant distribution facilities and it has taken some time to get our arms around the opportunities to achieve consolidation, ...we're pleased that we've been able to find additional cost savings.
- On the revenue side ... if you look at the profits that we expect to earn from revenue synergies, we think it's only going to be about $10 million in 2013. ... there are four areas of revenue synergies
- ... the quickest progress is on bundling Cooper and Eaton products together and realizing a larger package sale than we would had either of us been independent. That's probably the quickest.
- ... signing up new distribution, because as I think most of you know, about 70% of the sales of products in the electrical business go through distribution, so that's a key part of selling our product and we've had a fair amount of success at convincing distributors to change to our product lines.
- ... post Cooper, we can supply about 65% of the line card of a distributor. And so we really can be a very comprehensive distributor or a supplier to a typical distributor and that's been attractive to various distributors and they have elected to move to us.
- ... started to earn service contracts on Cooper equipment and Cooper did not really have a service capability.
- ... taking advantage of strengths that one of us was as disproportionately strong in, in parts of world.
- Cost synergies everyone expects (and yes, there have been some personnel changes, but that is unfortunately expected when 2 large companies are combined)
- Revenue synergies are interesting ... service opportunities are a great idea, Eaton has a decent business in this area and service agreements represent an opportunity for distributors as well as manufacturers. Question becomes, are distributors involved in some of Eaton's service programs (we don't know)? If not, could they be?
- We question that Eaton / Cooper represent 65% of the linecard of a distributor, or even 65% of a distributor's sales ... (but they were presenting to analysts, they aren't too interested in that level of detail)
- The signing up of new distribution is interesting. There has been lots of talk of "will Eaton leverage their business" to pick up Cooper business or use Cooper to get into some desired distributor locations. We don't specifically know the answer but it appears that the end desire is there (but perhaps not being too heavy-handed for leverage.) As they develop cross company service benefits, it is reasonable to suspect that there could be additional benefits to doing business with 1 company - especially if the customer is accepting of the brand and, as a distributor, the profitability is equal if not better.