DOW JONES NEWSWIRES 
 

Eaton Corp.'s (ETN) second-quarter profit plunged 91% on slumping sales and margins as results missed expectations.

The electrical system and hydraulics maker projected third-quarter earnings above views but cut its full-year earnings outlook.

The company projected third-quarter earnings of 90 cents to $1 a share. Analysts surveyed by Thomson Reuters predict 89 cents a share.

But Eaton cut its 2009 target again, this time to $2 to $2.20 a share from $2.50 to $3. But it is above analysts' latest view of $1.90. In May, Chairman and Chief Executive Alexander Cutler said the company would be able to meet its previous full-year guidance because of its dramatic cost reductions: cutting 10% of its employees, suspending pension contributions and not paying workers for time off.

Industrial manufacturers like Eaton, especially those exposed to the U.S. automobile industry, have seen demand fall off a cliff. Eaton has cut jobs and compensation and has worked to reduce its exposure to automotive and truck-building woes, but the downturn has hit all of Eaton's markets.

Cutler said Monday sales in the period were only slightly higher than in the first quarter, "reflecting little improvement in the challenging global economic conditions." He added that the company was able to "substantially" reduce costs.

The company posted a profit of $29 million, or 17 cents a share, from $333 million, or $2.03 a share, a year earlier. Excluding items including acquisition-integration charges, earnings fell to 23 cents from $2.10.

Revenue decreased 32% to $2.9 billion.

In May, the company had predicted earnings of 25 cents a share on revenue of $3 billion to $3.1 billion.

Gross margin fell to 24.5% from 28.3%.

Eaton's shares closed Friday at $44.95 and weren't active premarket. The stock has risen by half from a six-year low in March, but it remains off last year's highs by more than a third.

-By Joan E. Solsman and Kerry Grace Benn, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com