Eaton … a formidable platform?

7

eatonThis morning I was listening to the Eaton quarterly analyst call and I was reminded of conversations from the recent AD meeting as well as discussions with some IMARK distributors after the recent IMARK meeting.

And there appears to be some “concern” in the air from competitors.

First the earnings call, which didn’t have much depth from an electrical viewpoint and since Eaton is diversified, I won’t focus on the overall, but, some points of note:

  • Eaton’s lighting business (Cooper Lighting) is up 19%! So much for there not being much lighting retrofit business available … or is Cooper taking that much share? 45% of Cooper Lighting’s sales are LEDs, which is a significant increase from last year.
  • Overall Electrical Products Group business was up 3% (and no, they didn’t share which divisions are down to counter-weight the lighting growth) and Electrical Systems and Services was up 1% (after Forex and also includes much non-US business).
  • An interesting tidbit in the Hydraulic section … the ag market is down and specifically with in the Americas OEM segment.  The reason I mention this is that if you are a distributor who sells electrical material to OEMs in the ag sector, this could be affecting you … and Eaton sees this being an issue for possibly “3 growing seasons” which could be 18-20 months.
  • Eaton is realizing $210 million in Cooper synergies. Presumably a combination of costs savings but they are also seeing sales synergies. In fact, when Sandy Cutler was asked specifically about this from one analyst he responded, “definitely are” and “we know we are gaining.”

Which gets me to the “concern” in the marketplace, or at least the marketing groups and from Eaton competitors.

The feedback from the group meetings is that they are seeing a number of their distributors supporting multiple Eaton brands and converting from a “standalone” brand to one in the Eaton platform.  While Eaton does have a program called Advantage that is a cross platform rebate program, it’s presumed that there is some leveraging going on and that distributors may think that they are getting a “better” rebate by being part of the platform.

The “standalone” companies that are part of the groups are quality companies and have been in business for many years. And while there may be some subtle leveraging occurring, from our perspective distributors are converting business based upon whom they feel

  • is either a better strategic fit
  • who has better sales coverage (reps) in the marketplace
  • who can provide better support / systems
  • and who can help them grow their business the most.

The unfortunate reality, and I used to work for one of the marketing groups, is that a rebate isn’t beneficial to a distributor unless they can generate the sale.  If a distributor feels they can align with someone to get more sales, they will do that knowing that they can remain competitive on the rebate side (presuming they have enough volume to earn a rebate with the manufacturer) and through margin generation.

A challenge we see is that many manufacturers have difficulty

  • expressing a vision of where their company is going and investing
  • differentiating itself other than its sales organization / rep agency
  • defining how they can help a distributor gain share within their marketplace for that product category.  While every manufacturer seems to want to increase their market share, it seems like market share simply revolves year to year with distributors either making changes or losing focus in that product category.

Years ago there was much talk about some manufacturers becoming “platform plays” – Cooper, Thomas and Betts, Emerson / EGS, Hubbell.  Nowadays we have Eaton (and Cooper), ABB (Thomas and Betts), Hubbell (currently), maybe Schneider (Juno Lighting)?

As a distributor

  • how do you look at this strategically?
  • If you converted some business to an Eaton brand did you feel that you were at all “leveraged”?  If not, why did you convert.
  • As a distributor giving advice to a manufacturer, what recommendations do you have for Eaton competitors on how they can either convert business from an Eaton brand or keep the business from converting?

And what, if anything, can the marketing groups do to help retain the revenue coming through the group?

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