Eaton reports success with realigned hydraulics unit

ORLANDO, Fla.—Eaton Corp. P.L.C.'s restructuring of its hydraulics business earlier this year split its hose operations into two units, and company officials say the new structure so far is working as expected.

Under the changes, Eaton's former Fluid Conveyance business was realigned into the Hydraulic Hose & Fittings group, with Greg Gumbs as general manager, and the Industrial & Specialty Conveyance Products unit, with Ryan Williams as business unit manager.

One main factor leading to the split was Eaton's acquisition of Polimer Kaucuk Sanayi ve Pazariama A.S., which brought some hydraulic hose and accessories with it but greatly increased Eaton's presence in industrial hose, adding more than 180 product series to Eaton's industrial offerings, Williams said.

"With the size of the business getting that big, we felt that in order to get the focus we needed in those two segments of the business, we needed to get a new structure that would drive that focus," Gumbs said. "It gives us a little bit tighter alignment with end markets going after industrial, hydraulics and specialty hose, and the metals to go along with that."

Gumbs and Williams talked about the businesses during Eaton's recent distributor meeting in Orlando.

From an end market basis, the new structure allows the hose units to focus on the areas where Eaton expects growth, Williams said. Those targets include such industries as energy, oil and gas, mining, construction and others. He said some areas of these businesses currently may be down, but the firm doesn't see macroeconomic trends stopping, giving the Cleveland-based conglomerate room for growth.

"We're definitely tracking the market growth in the verticals," said Williams, an 18-year company veteran that came to Eaton when it purchased Aeroquip Corp. "The segment directors are leading their charge as far as which platforms and applications we want to target."

Even when particular end markets are down, Eaton still will try to take market share.

"When things are accelerating, people don't have a lot of time to look at switching business," he said. "Our efforts are more around picking the spots where we're trying take share, and that's what we're focused on right now."

With Eaton marketing the majority of its hose and related business through distribution, company officials emphasize doing business with channel partners that will look Eaton's way first. That's where there's a bit of difference between the hydraulic and industrial/ specialty sides of the business.

Hydraulics sees a lot more loyalty from its distributor customers—with Williams calling the relationship like a marriage—whereas the industrial market is much more fractured. He said with industrial hose, distributors will do more "cherry picking," buying related hoses from different vendors.

"We know that our distributors would like to optimize their purchasing and streamline their supply chain," Williams said. "There's an opportunity there with the suite of products that came to us with the (Polimer) acquisition to be that one-stop shop for a total value portfolio versus them having to manage a variety of vendors."

Gumbs said Eaton also is listening closer to customers and using the "carrot approach," rather than a heavy hand to try to force customers its way.

"We want to earn the right to win the business in the other part of our portfolio," Gumbs said. "And that's working well. We're building relationships. We're demonstrating that we have a much broader breadth that we can bring to the table. We're kind of "decommoditizing' the industrial hose space."

And just because hydraulics generally has more committed buying relationships doesn't mean Eaton isn't trying to gain market share there as well. He said the ongoing consolidation taking place among the distributor base is helping Eaton to convert some hydraulics business from its competitors.

"In many ways, that's a good leverage point for us because when you're an Aeroquip branded house or a Weatherhead branded house, and acquisitions and rollups start to take place in our channels, we obviously get a vote as to whether the line stays or goes," Gumbs said. "Typically if the line stays, we're going to ask a distributor to shift the business."

One challenge many distributors are facing, he said, is trying to service different tiers within the OEM markets—from those wanting premium products to others looking for more price-sensitive lines. "We're being challenged to provide kind of a "good, better, best' portfolio so we can get them in a competitive position to go after some of the small OEM space and some of the off-brand competitors that are coming into our markets," Gumbs said.

Some of the hydraulic lines from the Polimer deal—which was known in the business by its SEL brand name—are helping Eaton accomplish that, he said.

"Premium is the sweet spot, but with our expanded portfolio, we're getting further down into the mid to low end of the market. But we still choose where we want to play. We don't necessarily want to go there full force. We're being very selective where we're going in that space."

Eaton is in the process of closing its hose manufacturing plant in Guelph, Ontario, and transferring the production to facilities in Aurora, Ohio, and Middlesex, N.C., with some inventory management activities moving to a distribution facility in Cleveland, Tenn.

The Guelph operation makes custom thermoplastic hose and tubing, and was acquired in 2007 when Eaton purchased Arrow Hose & Tubing Inc.

"The decision to close is not a reflection of the Guelph employees who have worked hard to meet customer needs," Eaton said in a statement. "The decision was made to better position the hydraulics business for long-term growth."