ETN - Earnings call transcript Q2 2018

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Eaton Second Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time.

conference recorded. this reminder, a is being As I to of our like to Investor conference over turn the host, Mr. would now Relations, Senior Vice President Don Bullock. go Please ahead.

Donald H. Bullock

Relations. Senior Good and today for Rick and Chairman are Second Call. Vice President Bullock, Craig I'm Earnings Eaton's all and Eaton's Fearon, XXXX and me morning. of joining our Don for Planning Investor Chief CEO; With Thank Quarter us Arnold, you for Chairman Officer. Vice Financial today our

highlighting Craig, the by the remarks opening includes today and for agenda the in outlook quarter remainder both second Our performance XXXX. our of

done calls, at questions in we've As Craig's historically our we'll be comments. of end past taking the

I do, of we things. Before to a remind you of couple want

we'll at go to reconciliations our for join today to posted include release of at going a Please the and is release us. been is both for www.eaton.com. call and on non-GAAP through the this today's earnings First, able press presentation from have to any website website that who our presentation and aren't available the the accessible note webcast press announcement be morning measures, our those and replay

future X-K. and over through and that will related results and it to to Before our of presentation today to described go that do both that are I'll due our the risk our to materially from include in differ release results whole uncertainties range Craig can are our a earnings and behind to of company presentation. expected we turn statements projections want With remind the therefore us, comments forward-looking related Actual get I started, you statements. forecasted those

Craig Arnold

Appreciate Don. it. Okay. Thanks,

through three to emphasize on QX did to most delivering growth. Just foremost, of want before already, organic first worked focused financials I'm our and take a we the an of I once but opportunity as results, elements you've strategy. remain company corporate get the sure with we again primary started

investing that and include across we third products technologies, generally more specific products business, participate to and see. distributors very us by are to initiatives leveraging services create partnerships allow but opportunities they value Our and creating the fully with industry-leading parties,

what that in trying problems to often customer opportunities find delivers but more way it a and returns. also So to do we're solves doing say in short, is yes attractive

spend right Second, margins we expand to to improving initiatives that factories where just doubling our selectively and our being restructuring functions in in continue activities, and productivity we to away our eliminate our by the waste but redundancies, importantly, undertaking time from us more really with allow eliminate we as and have attractive win selective areas those on on marginal returns. how moving down by

these highlighted examples. kind that shareholders a of of where long-term. to in to of thought in all places disciplined we've with Third, opportunity generate evaluate repurchases, form a take I've strategic shareholders we dividends, we'd progress components, the we'll superior once four, consistently these continuously of an our our the highlight for our investing share capital and made on return our this the the also cash in on both of short-term maintain And to which M&A to value existing our industry-leading opportunities number a approach the of We by initiatives. again begins overview, we'll think few by delivering and win we maintaining bit We'll quarter as hurdle context businesses. rate. allocation also And page in against rigor against just strategic of

our the I point grow, to fast-growing market efforts off. data to our in presence to continues center which First, in pay

hyperscale new in we're seeing strong and space. of half Internet this in importantly, demand global winning the we in facilities fact, year. applications, booked record and orders In for the X.X We're first

duty transmissions the the to leading China light joint new a allows in combines Chinese broad We technology The participate into JV market. also in entered to world's and market. Gear company Eaton's the with vehicle with serve transmission for light venture us Fast transmission Shaanxi largest

and digitization of solid progress while We lighting enabled IoT many too a solution. made on out few initiatives, the IoT examples system would We to also point We I We hydraulic home deployed made note, quarter. an progress our in in enabled IoT launched we allows an in of harvest our well to cane cybersecurity products. as us deploy intend Technology common which on Institute to as partnership secure with industry sugar advance applications of platform fracturing. hydraulic that formed Rochester the the all an and

company focus as continue getting with secure digitize grow we we voltage these to opportunities started, And And to new high order technologies. just did and our so progress on converter solid first the segment. really eMobility capacity segment to of lastly, the to expand formed market. hose us business our lead significant volume times added in hydraulics newly our and presence in And reduce sharply we the our enabling high while

a sense forward of priorities investing strategic So these we're moving provide we're hopefully while complete that not future. and a how with are list, also in you the our examples how

Now turning already to to just for seen some you've five, page context add the on in I'll results financial our what QX results.

our a performance XXXX by at range. First QX our Earnings over strong up $X.XX, of quarter at all, end high businesses. of the of and we guidance XX% of very think

think true. demonstrated Services multiyear restructuring solid which double segment were once strong digit. upon both Systems purchases record Operating X.X% capital well flow program repurchased impacted volume increased Electrical and of strong quarter based strong in $XXX finally, by record expected, XXXX. X% actually up cash of to in adding in by since quarter, added have ongoing of XX% those Organic cash shares performance generated We million by again selectively the revenue million $XXX our And not at are and support especially the in the up we Bookings date and the impacts million, Our as of segments, pre-buying outstanding both FX year. was margins the most year QX margins. offset of inventory revenue Aerospace, tariffs. might working the X% $XXX coming to all-time was how growth the shares but you benefits growth strong benefits start highest to of by mitigate & our divestitures. as trade and and in growth reported was driven X% bringing incrementals, and accelerated to as we while was as

we So the balanced think really performance company. across strong,

for share of Turning about which We provide six, sales highlight couple really statement. a results of XX%, XX% QX, in we'll XX.X% segment the operating increase consolidated And just income XX% we us per to of up earnings and did QX. to page summary deliver talked margins in the increase and quarter. net here a lastly, quarter, income the I allowed compares by to the after-tax XX% margins in and by elements the this

Products. Electrical with start I'll segments, the to Moving

X%, EMEA bookings also X%. revenue markets, we Middle Europe, Our the actually market, increased a in the revenues were and strength which growth, and were up East excluding X% the quarter, industrial saw from and X% QX this Americas is reported up excluding were bookings Total Lighting, up Lighting, organic step X%, in the from and quarter, where, bookings is X% particular growth they up from especially Africa. up coming QX. In in the we in

growth expect ramping both digit half I residential also lighting to favorably. in see industrial So appear market note the that year. markets. of also this and to would is and Order low have markets the was driven single business second we broad, strength by stabilized,

in points were which record. margins second our XX.X%, to up is Importantly, quarter quarter the XXX a basis

Electrical So strong in our conversion Products business.

quarter, QX. Next, & the saw a growth this and in for Service page from solid increased up X% eight. in the our Revenues the X% we Electrical results Systems on business is is that

and added Pacific the in divestiture solid offset in hazardous in XXXX XX% growth data well centers. quarter, Foreign into centers, a leverage and and in well. the the X% increasing in in the X% and bookings were growth We data increase very think joint Americas in margins and harsh by negative we exchange XX% projects, strength as and in which sales we X% points, to from certainly basis growth with the continued Asia increase profits. as delivered grow in the second XXXX venture. position up XX% in a and large were backlog of our was XXX a markets. we of especially generate and industrial half In XX%, strong resulted And revenue quarter, strength operating bookings continued for industrial projects Operating strong in business saw small strong

number improvements and certainly to restructuring from market down Pacific take remains benefits confidence date place delivery mobile increased capacity distribution is OEMs positive at need quarter, we Moving up our included and and Sales and down backlog, organic, to up Margins our operational it both lower little while made us volume. this the see strong. XXX this impacting gives of reduced long-dated EMEA customers' this certainly that the XX%. we've to page leverage orders the Hydraulics were a X% we but does at some X%, to nine, this naturally the increased lead XX%, year here times, we efforts an XX% And offset so of explanation, take cover as orders, the the the result XX% bit across in as and quarter, of well were that look with this continue here strong EMEA investments in FX. Asia points, shorten when the our basis Americas And actually Bookings channel. Revenues results. XX% actually were higher XX% to up a the X% by has

challenges with strong I most demand. supply growth note as challenges are pace support However, calls, to the really prior the ramp has levels continue we which on keep discussed the we from coming production to up higher experience and to struggled base the we of would as

all jets Next, XX%, X%, The military our all jet, commercial and and in in military military by biz were organic. Sales up growth both up is on strong listed were OE strength driven Orders business even military segments, rotorcraft. aftermarket, business was stronger, page across with sales fighters Aerospace aftermarket. activity commercial and XX.

strong, over lastly, remains XX over prior again basis also year. up strong margins backlog points is and prior up and Our operating year. once were And XX% very XX.X%

up page our more that revenues venture divestiture was to the in we business Sales QX. truck of had Turning increased following than joint Vehicle formed heavy X%. up Cummins Organic quarter. strong XX, a impact duty XX% XX% was actually NAFTA with QX and production X%. XX% another in negative the were

market strong. to So this be very continues

really modest production be XXXX at a continue industry difficult duty a comps. expect I'd note year second is which implies for production limit more originally And on XXX,XXX challenges production half but and markets, U.S. both automotive the also to seeing will coming in China heavy units anticipated about We pushing supplier And is than to in on likely NAFTA growth the few and in second the the truck XXXX. that that market the we of Europe stronger half into are expectations.

XXX market. selling into it growth the opportunity revenue. the for Cummins So of basis quote strong And QX, continue to On organic, having begun the and opportunities up broad having at prior our on high I'd but in growth eMobility XX.X%, are from our the strength have finally, that we're joint quarter, Eaton doing key won expectations. perhaps we've we've that was to an announce our updated in Sales grew investment XX. XX, segment the really up we points in organic QX, fact so order, slide really pipeline note is in very our just in results strong for And additional Revenues basis converter business. our in XX.X%, joint formed to well. year the in outlook of on is XX XXXX. venture down XX% $XXX quarter on in margins Margins business also were pleased very importantly much And one customers. to first reflecting million what Vehicle voltage we our products points our vehicle with opportunities so tremendous that we're in page R&D shown were XX%, line just the were XXX in growth electrical more see that venture. the

as to strength above has continue X% now to forecasting expectations continued number X% to well. growth from guidance Systems in full-year so the original we're grow organic to organic The our business to and & businesses our acceleration year organic orders and full increasing organic an X%. of commercial our our outlook our level Vehicle a on a Electrical to increasing for end growth of from perform Services business in for the also growth of military X%. continues at And growth growth and finally, we're led and strength X% markets increasing We're Our in Aerospace we're both high our markets. estimate

for organic following increased this a Vehicle of X% and well. that recall increase a part that as is Overall, as top strong a growth segment provided we QX the You'll of we our also our guidance. Eaton change X% estimate QX on

to we'd conditions the cycle to really like on where XXXX our perspective think in for XXXX. second XX, the are half provide just page businesses bit up well Moving and we a are we and why setting economic going into think of

Now, as our that the we in think chart terms at our end are currently of currently this economic where markets markets demonstrates, are end cycle. –

mid businesses for mid-growth like segment. to market of are the this includes see, continued are growth. Electrical of can Systems markets of you growth Eaton's businesses comes and the bodes of from As in well which early to in part early majority long-cycle cycle, most think our The larger many Services the our end & that stage, we revenue

tariffs. So market as than well provide raw time an come, businesses have impact for overall, end and as XX, on markets. grow the we to inflation regarding page our will well, continue estimated thoughts On update think to, tailwind to as faster from material our our would a we expect some we

actions inflation. currently to tariffs, underway very a be no in our regard for logistics We and As businesses commodity cost a we and overall, continue think expect additional pricing in communicated of But expect moved strategy first EPS material our With we negative increase million. to mitigate or some of we year, from raw at to the through impact quickly cost on XXXX shortly cost $XX beginning will and that will our fully actions the of actions. offsetting out businesses. price the in half there with inflation we impact also modest are with be as XXXX, result, we this execute implemented

which would to a be So of that committed manufacture I of one, lot through continues same And to and I to points. in strategy take emphasize the actions but the been the won't go two detail, has do we businesses. any the details And this tariff move Eaton. see on tariff zone swiftly to main impact long-term certainly our in in our and secondly, to impact kind sell, pricing in we reduces we're offset tariff

we're Vehicle three guidance Moving XX solid increasing Electrical to and slide our These expected seeing organic we're up of Aerospace, XX than on stronger XX margin include performance. points; growth XX, Systems for margins Services, basis points. and up segments up where & basis points; basis

for on of grow margin in Hydraulics we page We the reduction XX, is XXXX our a XX.X% And to set XXXX. QX challenges of are strong and a margin This as provide to summary guidance guidance that which is remains continues paces. lowering places us of XX% our our to XX.X%, to on range chain achieve basis at inefficiencies XX for our response a and range XX% volume these we midpoint. the XX% in supply points to at guidance. really solid XX.X% to targets full-year a and to trajectory finally And

QX, $X.XX organic For expect EPS $X.XX, assumes we and this growth. of and X% between

We XX%. to XX.X% be a XX.X%, of expect rate margins to to XX% tax and

XX% now a full Organic guidance up X% which the versus full-year expected range EPS growth $X.XX are increasing a revenue of year increase is previously. to $X.XX, again be midpoint. For the to XXXX, X% we our is at to

now expenses, our $XXX prior will we margins from and earlier our free only $XX positive be estimate. the or No prior in be the is million that assumptions cash million Foreign noted. repurchase share expected XX.X% had exchange flow is guidance, cash a unchanged in rate, which to CapEx corporate down change remain flow all guidance. to as from tax in XX%, Segment

Don, So once I just think why want opportunity. this again to before investment an I hand to is summarize opportunity it attractive back to we Eaton did take

markets our better few The talked will few. and we much see, As last you be than the returned can to growth. about, years have next

to In grow paying we to than markets. have initiatives allow restructuring that attractive And continue our us our off. think we faster organic number will really addition, a is of growth end

will Our improve high, to we to have at be an room them. XXXX all-time continue and margins of plenty

Our XX% our XX%, plan now great at is is balance debt-to-capital and pension sheet Net funded. in is shape.

to strong, to the We're years. Our next cash income shareholders expect cash and the X.X% we story flow of outlook, on to today, positive and we'll consistently really quarter, flow some to back continues above over to a an XX% we we dividend solid returning XX% basis. again think deliver as we ongoing or also yield, for at net flow committed, of Eaton. and free be And three so over X% EPS X% a free compelling cash cash billion while buying a in performance deliver investing once years, shares high generating through think three growth XXX% next this and $X lastly,

So Don with I'll stop for Q&A. turn back it to that, and

Donald H. Bullock

Okay.

participating going in the guidance to operator's Our on Q&A. provide

Operator

Thank you.

Donald H. Bullock

into see a have we Before so on time of I to be we number and this of also that. to we jump we the number people of sensitive calls the going Q&A, want timing on the very call have do a to simultaneously

question, Vertical if from Jeff first And call. excuse – And and with a our So first a me. limit follow-up question to would our that, Sprague question please question yourself call Research. comes and we with follow-up comes

Jeffrey Todd Sprague

Good Thank you. morning.

Richard H. Fearon

Hi.

Jeffrey Todd Sprague

momentum. Great Hey.

looking you in say in was let-up you're any a guidance in at tariffs? of element think one little what other pre-buying but did interesting seeing July. July? QX given question than were guys June or obviously, I activity later see it's some implicit as I'd your there others that is report you people And in somewhat

Craig Arnold

see did measure, is we've short the to much pre-buy of question, the been any patterns Jeff, date what that we've in and to very Yeah, with no. We answer not July is I seen any consistent the think really seeing.

forecasted absolutely very is company outlook that in been much the performing. consistent for So businesses have with we've the everything way the the

Jeffrey Todd Sprague

And have actions kind on visibility on you're clarify Right. what is just then price-cost, taken that? being up clear of to need underlying Can you tariffs? but be on saying or you're price-cost, that to caught up still caught be there's

Craig Arnold

a as relates uncertainty of XXX. implementation it still of There's fair the to amount

in very would I you much X, and about to that visibility as date uncertainty into, of implemented X take the to or that's what and to we But don't we've has much we announced There's know our you already into we of obviously as very baked to so implemented plans is those road. everything impact. we think And announced that what XXX happens about either lot the if actions, date implemented. additional announced what a then have and much been date implemented speculated, to plans have and to offset of tell or actions step date what are would actually have that step everything being the already very guidance are phase is down they seen and been

Jeffrey Todd Sprague

Thanks. it I'll baton. pass two the and hold to

Donald H. Bullock

Okay. Thank you.

of Our Ritchie Sachs. next Joe Goldman comes from question

Joe Ritchie

Thanks. everyone. Good morning,

Richard H. Fearon

Hi.

Craig Arnold

Morning.

Joe Ritchie

obviously is about a you're in touch growth and go business on good materialize. that that So the organic how that industrial seeing on ESS, what seeing to maybe from on perspective question really indicator some feel the the like bookings data there of see first center you and forward. stuff, the my you're leading projects, seeing Craig, finally progress

Craig Arnold

inside Electrical across very I'd are appreciate seeing Services Crouse-Hinds. include controls strong all very & of those your our quality our of our I And we and distribution that businesses, commercial business businesses four order say Systems and assemblies power Certainly the business. would in power big growth large the question. are also assemblies, and Yeah, distribution few

fact four performing the of are that from growth. about strong well. and four the all are We XX%, the businesses so those the backlog businesses essentially up is those we saw and orders, And that talked are driving

come. now ahead perhaps we time as late schedule, to Electrical perform cycle a Systems right to to are those our & much expect and businesses Services very continue so of are little And for anticipated some for even businesses ramping we but business,

Joe Ritchie

are on great Basically offset. inflation hear. are then Jeff's or inflation. in cost more That's to finding segments ability tariff power to When across the segments? following some pricing easiest your second about And you you finding a on question it question broadly the where offset different ability difficult my it up the trade and around question of Okay. and to segments, you think your maybe and cost your

Craig Arnold

Sure. equally challenging I'd for to it's the the Again, different to distribution, would distributors, historically cycle those than generally distribution it relatively always that pass bit the increases speaking, increases I of and But forward through a always more big easier. but easier. this we're bit ability our place And and but We're just It's it say tends our price easier to have large the every we're tell into places OEMs, that customers. have more extent more it little including is you are distribution to plan's in tends Price not they been marketplace no I a little passing OEMs, much that two. a all cycle. our challenging. than be selling differentiating good pretty be forward between through pass the to any think with to

Joe Ritchie

I'll you. Thank it on. Okay. pass

Donald H. Bullock

Davis with question Research. next from Melius comes Our Scott

Scott Reed Davis

Good guys. Hey. morning,

Richard H. Fearon

Hi.

Craig Arnold

Morning.

Scott Reed Davis

up kind kicking of the seen some think a With really M&A off, amount growth. doesn't keep the keep But – think peers something buybacks is you're as concerned? But M&A putting not can cash lot can off this some will as you're almost to are these not. feel that benefit come almost far the kicking a year? it fairly to like up have of back priorities up we've active comp, of direct and do of some numbers is cash. positive you The pipeline your And of what

Craig Arnold

But As about transactions. at more M&A minimum of the and cost the having cash value time. basis quite can an than we XXX I a in a debt saying to of associated said market. some from today our And have opportunities of that today in today a about from we both tell Cooper you company be having disciplined is the that acquisition, certainly being as a re-enter ability over prior talk we of the quarters, with we paid X% in X% capacity think have standpoint and we looking down points we've position tranche capital to we'll how We organizational the stated that, standpoint we capital. of are price cost and want these last

So we cash these to extent will that, acquisitions, to look But to not which having the as other intend we not disciplined be at shareholders. to we up certainly opportunities. on we returning land build allow that to the said look would we're balance do, hope able ways sheet. cash we'll To of for

Scott Reed Davis

business, And follow-up, then Lighting price is half finally market a there enough. also Is return – of year. as mentioned Fair to growth seeing of in the back the sense that stability a in that you you're the a that in explicitly?

Craig Arnold

we're entire lot have and the anticipate think made playing the we are focus where sell the to perhaps an places strategy Yeah, would to the some of and we that our has and own places about dramatically. in terms a we we Lighting solutions, selective with dynamic see a around markets differentiated that and that as the own to say market end the be But that think is opportunity I say stability. at better you better generally market in have our play, you that value-added have can talk better we business the we changed respect pricing pricing And we do we that low if pricing where to segments think we places power that of attractive Lighting power, more of decision where business our others efforts. those about adjustments about I I made that the markets. chasing, we want you can't we as than think tell

Scott Reed Davis

Okay.

Sounds good. Good you, luck. Thank guys.

Donald H. Bullock

Wolfe. Coe Our comes next question from with Nigel

Nigel Coe

guys. Thanks. Good morning,

Richard H. Fearon

Hi.

Nigel Coe

really called out So it's center a time think the specifically strength. end shouldn't huge you I first strong data which surprise, center called you've end be market, but a data as market

about centers maybe starting two tilt wondering headwind I'm pretty we're think it projects. as So through? Do across second just super-sized go to that and to mix of a this becomes geographies, that or starting thinking larger the is half broad of data we coming then is ESS margins see you're you XXXX? And towards year, into now the one the

Craig Arnold

don't generates more and continue will centers your bodes the to we and we that Yeah, your margins, it's more for think secular trends big capacity trend of margins data, the Nigel, point, well I'd where in say one today we help and in sits data Eaton assemblies, long-term for around certainly generate be anticipate we other for have this will constraints. to most first that growth question will really and business, pressure is and and at the time continue I'd to part, growth move world And look We're some center data for world, company. around as say quite colos just no, and seeing your and broad. question it think that will frankly as To broadly. today hyperscale electrical a the the our if we in industry you take around under markets the

others we're demand we're to today and business increased really volume that our with the deal of that of in a deal adding lot is certainly some pressing looking capacity to we're of demand. really potentially this Some seeing looking with at, us at and

will capacity get and the a position that the to actually I anticipate margins market's under balance great at think I pressure no, in so, today don't price. and demand, of all come And given

Nigel Coe

quick follow-on. Great. a And Thanks.

Richard H. Fearon

that margins. – thing. projects pursue to are of have nature. complex seen We've of add larger bigger to wanted tend actually there fewer industrial Inherently a large people type proportion just I that one a those higher projects, can and

outlook. So that's another element margin to the

Nigel Coe

on Great. impact it Maybe clarify like Lighting looked And XX% in leverage. Thank EP, the that. what the But was was you then the operating down roughly you. can quickly quarter. on

if EP, You but obviously strong did margins look we at margins Lighting had how very look? ex for that

Craig Arnold

mean, it's not could today X% I'm you in say Lighting Yeah, better. XX%. I the we've for that down Products our business, tell below not the I we and sure of for that But in the are math, margin not closer know but would just you I certainly segment. I'd quarter, specific that just was margins your to tell below, given Electrical the well numbers Lighting Lighting average

And I of in But they XX.X% the fairly Lighting business testament margins for overall to segment. is large impact a have we have the still margins the real and a Electrical on franchise. which Products posted strength so that, certainly the of inside negative think a

Nigel Coe

Thank Great. you.

Donald H. Bullock

with Our DeBlase the next from Nicole question Deutsche Bank. comes

Nicole Deblase

Thanks. Good guys. morning,

Richard H. Fearon

Hi.

Nicole Deblase

start since a acquisition, to Cooper want on history recovery. real If the we've I ESS into guess never I So ESS. back really look we seen

So I translates revenue Because give the us that past growth. order to cards. seems guess be if growth in you how of three the an to idea quarters could acceleration an could from in it me revenue growth

Craig Arnold

Yeah, to typically as no, if the it backlog, be to expectation what's becomes months, backlog consumed about well, next would of – of most XX think the today, that in what's I'd and that you XX% it. our XX within the say in XX% probably

years is nearer time but And two lead so than or that. project much from it's XX months not a out. term business out to delivery, it longer It's

growth. of Services relatively seeing strong And time convert business that Systems so in into a in revenue orders short we do anticipate we're higher our & period that the Electrical

Nicole Deblase

also lot lumpiness. Okay. That's I that were know really, maybe just of to business helpful. Orders on Aerospace. it. Thanks, there tends strong quarter. see Got a Craig. one really And that's a this

was growth are little next where what So strength if the the the the bit, several quarters. strongest, could and expectations your frame for just you a

Craig Arnold

the both in as military a with place dealing It your fleet that's aftermarket we our aftermarket. and spending military flying some military. federal that's through getting and aftermarket up keep U.S. and Both lumpy. seeing in of strength I pretty come well. orders passenger revenue all comment I'd into were planes that did very to came the readiness a be broad of people respect and so this higher on underspending orders, perhaps out too. of of growth But in historical in markets. say, translating you're also But and strong broad commercial Yeah, with across kilometers, military, saw quarter where strength. strongly, of really A in Certainly is see, pretty to increase segments we bit appreciate lot the tend some

more one these been half it's so, but is at every strength. their delivers our there's – probably numbers increase commercial sitting on strong in little of Airbus OEs biggest a the you growing the a place know, So record broad-based Airbus, think we year, segment transport, that I'd are And, you being excuse big broad-based we Boeing and as by commercial a think very have you'd posted look if me, backlogs well. fairly second are say Aerospace less The it's as strength business, which Boeing, pretty there day. so

the set So industry time. Show it very a was extended orders, successful is aerospace think really we Paris both for very an for strong really booked period of where so Air and companies growth up

Nicole Deblase

Craig. Thanks,

Donald H. Bullock

Winoker next with Our comes question from Steven UBS.

Steven Winoker

Hey, thanks. Good morning, all.

Richard H. Fearon

Hi.

Craig Arnold

Morning.

Steven Winoker

that over just basis XXX you Hey, to to Scott's Craig, of kind for. X% points front. capital the of X% plus on back so I M&A you're wanted about talked cost go that to usual question looking the

timeframe there. you I'm just of trying are of kind that activity things? you what about step-up you thinking get have a to your across the want competitive lot sense a segments, to the Given M&A in those for positioning achieve of that kind Just

Richard H. Fearon

look above our points XXX the we you so at little capital by typically then below if as Typically of but the that and a past you three. year capital, bit of get up have start done, we three end past acquisitions how over cost at or basis that cost year then

the into synergies the work you as that's So equation.

Steven Winoker

are means not commentary of out stretch stretch out M&A. willing discipline lot think that you're that days your a we But see these for I that seeing because to

Richard H. Fearon

look value out the Well, put the We and in, – buyers. and cash cash we we that on the always at comes we we're said of time a cash have makes are cash money difference.

we so also, significant all what generate longer are into the you Craig was with that all them. experience we to into will believe factor remain that communicate there that But are And than disciplined. think we've that'll our takes sometimes we our truly of thinking, trying it to then If is numbers. had, and we know goes I think synergies actuable,

Steven Winoker

Okay.

Craig Arnold

And of as matter it's well. the always a what are alternatives

we and that other very else investments also options in growth we'll the deploy compete other organic or opportunities improving it's ways. whether the have of, at acquisitions think we number other we look other everything against the a about plenty of So say strong like have I'd to for have business, of always value we think cash ways of And cash, returns. will creating discretionary as effectiveness

Steven Winoker

of And such, that commentary, other can between get and up Hydraulics a time know but just organization's your investment based keep supply some capacity lead you EMEA? with of across Craig, I to ability wanted reduce Okay. just order it's network. the rate to comment more a little demand the that to on sense in

Craig Arnold

would fact are and Yeah, in say improvement. I we seeing

six the big on customers is. reduction we really in to to that, to long we're we we within the demand come that we our orders. a within the take seen in lead-time up that. when But a so testament orders due, So are respect are new it at to doesn't at specifically today while within internally, when what And that's don't significant are than having things close Europe are want Europe, fact the months. due ability; we seeing is a XX months, capacity, a improvement months, what made due in and look at We're supply show it's look what six basically improvement more getting delivering. next placing what orders our our the is in in and better a slower With that the and in We've do we to chart, favorably orders the that and actually real the said base. orders orders And operationally orders anticipated. our overplay think seeing due confirmation in take investments look next we next we've we're three

Richard H. Fearon

And if I could just add a couple to of nuances that.

you more If due actually months, were Europe, due months orders within up. in three that second the three in Orders XX%. than quarter look down were past had we

reserving more because conveyance believe than put large that simply in. these very capacity have to orders have we you no capacity We added that's longer in in So our capacity. And Europe. XX% facility we've

Steven Winoker

a sense. Makes right. lot All of

Craig Arnold

And the be continue to strong. markets we think end

number very well, report, still and think the continue You obviously and have seen perform think of those space is point to this this underlying demand the markets in we very we at strong. companies a

Steven Winoker

luck. Good Makes sense. Thanks.

Donald H. Bullock

question next JPMorgan. Ann from Our Duignan comes with

Ann P. Duignan

had Because multiple morning. I'm ask companies a Good to we've you reporting morning, Yes. going this simple math question.

but your You've your maintained organic taken up margin outlook, you've guidance. growth

is guided outlook what incremental So versus profit revised the XX% to? you your had

Craig Arnold

range of provide range because us a fair of move essentially we amount The margin the way gives really to that. a that kind about think ability would I is it maintaining within

range your be would way I into overread that expectations we to so one much move that range. And haven't depending the read not our what are. and midpoint or or are changed certainly the another can within upon the fact assumptions Certainly

I the with difficult which the other fact that to going move and think guidance, not of respect to it's is overread in half it's a to control the fact that uncertainty around say see and anything, a to the we year, that with So we the respect variables trade really second reflection of would change marketplace predict didn't way in head. and more we I margin that would didn't that of the that. amount There uncertainty fair fact the is than I

Ann P. Duignan

backlog to were that you Is the your your read orders enough in But outlook. Okay. given the that? growth should confident we organic way raise

Craig Arnold

Hydraulics of so continue certainly to it's Services, exactly a ability The build Electrical the Aerospace continue in think backlog that lot It's to provides ramp, big or backlogs backlog, and Exactly. about our of the businesses, we right. whether grow. number confidence a as in Systems to ones our or & we talked

Ann P. Duignan

follow-up. quick a just And Okay.

and in It a if give I cliff you mean, stage. on been more construction. that we're we've certainly eight not-residential non-residential Just wonder of in mid-stage, on certainly late-stage, U.S. to only but the in you expansion think growth, mid fall could later off feels early-stage your going us I we're in the feels like color expanding why construction term, not years. near for like stages U.S. is it

I'd So that, clarify if could appreciate you it.

Richard H. Fearon

three guess I Ann. I'd cite things,

quite the all non-resi modest in you typically much far we've modest, of been expansion in has more in thus this seen First see cycles. cycle expansion than

oil at see and this when in up are into in two, you more one. that think at half signaling data, this seen at you look gas And past a Point non-residential an again So growth and it'd sometimes XXXX. just you is and activity spending, oil back our into get to look you time gas in and you variety if you've But thirdly occur if oil spending it see this now gas will point the contract downward we flows categories, as that view, oil of cycle acceleration gas down. goes typically that's and of the we're, in year clearly pretty in that Dodge and as the markets. the going then minutely to flow

construction. that those that some good confidence so give non-residential the And three are see conditions to in us elements you're going pretty

Ann P. Duignan

expect or And subsegments you. acceleration it leave non-residential And I'll any the acceleration? of less there. more you'd within Thank

Richard H. Fearon

call Obviously activities. would type like I centers. think also data things seeing oil the what see you're in related I in going more the gas to acceleration you're heavier, and it industrial, the

Ann P. Duignan

Okay. it. appreciate I Thank you.

Donald H. Bullock

with comes question Hammond next Jeff from KeyBanc. Our

Jeffrey D. Hammond

Hey. Good morning, guys.

Richard H. Fearon

Hi.

Craig Arnold

Jeff. Morning,

Jeffrey D. Hammond

Hey.

lot of kind yourselves. you've on discussion of bottlenecks alleviated in some So like seems It Hydraulics a supply chain.

and any and Thanks. bigger Hydraulics about problem. chain where within signs move talk businesses any then improving maybe other supply Just a through, see we conversely, you it of as truck becoming

Craig Arnold

away case base. in in in is these the what how I'd of of have finding to say way in to these signal are those through. to worst I'd months the that and a flow chain the something back says supply demand you industries, ability demand truck changing that be typically you've theirselves say all said could a signs seeing But we from from, around a improvement of and in are bottlenecks Jeff, lot truck. working some that And space the six in in fact have Hydraulics obviously, things both of others heard specific

for a are markets of last going. obviously these the and and seen for been But better both XX it we markets we're And where sense much over these really XX chasing ramping on have months, have months. so top today, it I of think we we have

signs of everyplace. seen we have improvement say So terms, I'd in simple

We are better. getting

a took in better. shortening of better suppliers bit our than say of I'd But Europe lead point in a is about we'd We're these giving longer Hydraulics we – we which here job why to our inefficiencies. us much it that's certainly business talked experiencing Our and confidence. and get this are we're some that customers at getting times, doing little that hoped,

So should I'd I going things say forward. think be better overall

Jeffrey D. Hammond

been little then in and rates second And the some Okay. pointing of just seems clouding bit a has think for to growth like your Lighting it EPG, the growth time, in half.

as businesses, the growth get Thanks. looking easier? Just see just EPG acceleration some is comps opportunity Lighting there other to the in at

Craig Arnold

Yeah.

the Lighting and Lighting half of think in I business better the think actually comps has get a second own easier our I year.

when you acceleration You in the into relatively saw EPG would as performs, year, and half Lighting the anticipate that go better. speaking, compare QX you to the of back we QX,

said EPG business, the easier performs comps, better as a Somebody result, underlying but business performs and better.

Richard H. Fearon

and as in those EPG number, gas just well commercial a that and of segment amount fair in industrial assembly benefit are And the you of remember, still parts fair and Jeff, by Products as to a of activity. oil components have growth industrial course in businesses going in the business

Jeffrey D. Hammond

guys. Thanks, Okay.

Donald H. Bullock

comes Our Volkmann next from Steve Jefferies. with question

Stephen Edward Volkmann

visibility Aerospace, we've good center Can that stuff a stuff into visibility a follow-ups. got look good pretty truck taking question. you of feeling say, some for talked about, of when us to this pushed into ought sense you your you're of ago? relative XXXX quick Couple my data actually It at some feels morning. Thanks have give just ESS you me Hey, out. like how the orders, guys XXXX to, year of about to

Craig Arnold

positive ago. than cycle we Well, to turned a year better have long lot of noted, the turn that certainly you've positive. anticipated a much businesses as I mean, And

growth guidance XXXX, we're we about of think There's better feel our the even where many a to extraordinary are our much of that, we businesses. trend, are did at for And talked in when middle certainly that so the think the But but context that our in markets we cycle. a pushing they think having in few as And point either about than are of part our ago. we the cycle XXXX at events of we in XXXX. continue visibility grow. months early terms or specifically terms into into businesses, we the you up, today see long-term in XXXX in at don't look the cycle, of we many of the of markets we certainly three And top said think

Stephen Edward Volkmann

it then second, Okay. of go to stabilizing. Lighting Thanks. on back I'm And just down. see But your just still for sort to that mentioned, a as you margin curious of nice it's sort mixes chance Lighting with And way that of going kind to the any as changed kind about think you going forward way a to and there is business find you've if perhaps core of of forward. deal another Eaton

Craig Arnold

we're marketplace. on focusing winning the in Yeah,

of at strategy of business, with Lighting. think what got very direction. think Electrical a underlying more in great with it's complementary strategic of in change piece commoditized some We the our we to we do the slight is technology. kind no our that, all strategy lot in change to Lighting rest and no It but how We of terms other space, adjustment a of of our made than have the about for so in respect

Stephen Edward Volkmann

to have going do improve forward? way And a you margins

Craig Arnold

commoditized more the and some Yeah. not Part where of in to improve the we how the business. things talked or as focus that we about, margins decide doing of is, we're we to participate of parts

continue different have is our we that rest area a of and of of business, of to attractive of tends organization, to to initiatives there undertaken end margins. controls that costs in Lighting we'll at Lighting, number Lighting connected the our the market of segment some So it. and invest costs, get and the the high fixed more have restructuring and than no in In structural element

Stephen Edward Volkmann

very Great. Thank you much.

Donald H. Bullock

Deane comes Our Dray from question next RBC. with

Deane Dray

everyone. morning, Good you. Thank

Richard H. Fearon

Hi.

Craig Arnold

Morning.

Deane Dray

to the and inventory levels, to tariff some like color get regarding build some with capital Rick, dynamics on increased for noise but on. Hey, size that surprised you ahead of could you working working on maybe capital touched order the the color Not see pre-buy maybe some the the more for us.

Richard H. Fearon

context percentage looked think at working end and classic about receivables at our a you is think – namely Deane, to inventory if the billion, annualized and was as $X.X our number capital XX.X%. June, you payables, to Yeah, QX, sales way our put maybe a that of it if into working simple less was compared it, in about I that and sales of that compare you capital to

last order of the The higher to most you you're say. XX% growth numbers as to took year – the these XX%. businesses, if is having for And in type caused on couple both higher million-ish forestall inventory dollars, particularly we continued kind of receivables capital pay to are prices. the the to about inventory to years, of exactly longer But For kind have it's it's math of of in growth but but been the average, levels XX% through also and to order And $XXX XX% so we also working of in as in down opportunity progresses. talking of reason you bring project sales in you'll XX.X% some the the compared sales, definitely positioned the run some increase that increase. positions to see cycle between

Deane Dray

while. data quite That's get then a times centers follow-up, so heard many out called I've positive helpful. I think a a real don't in in And as way

approach could, if set require Is servicing back customer. And switchovers gains touch share one. quarter? to any the to and hot want just the you of architecture, the completely So circle forth. there maybe this Craig, different a so on just, then on in They hyperscale

that working So the serving what's in part market? of well

Craig Arnold

a underlying XXXX growth of data I and disappointment a and terms in centers demand the frankly to surprise generation data quite your given and point, and in in a underlying little think was Yeah, happened consumption. bit of data what the

that, a think long-term they growth hyperscale the compounded and for centers around their they'll laid year, architecture they all at have catchup long-term trends year where the positive. continues rate configure growth and to the out. centers are and taking the a growing place a the I'd your be market, XX% and probably center take rethink data I big centers than data the a generation, there's of bit so a very very this more pause very, way unique in the protect little to it's they data So but companies, data rate lot their way say they'll they centers, mean, sometimes we in way of will through point their data and go around data periods hyperscale

that configurations some centers perhaps underlying think very but We we, a to course market. in but the importantly positioned certain to taking where are always this for in think difficult up. global space in end footprint, market the certainly we're share, tell of space. some the well UPS exactly do going are But our that as is more company, in switchgear out strong growth for And and coming of new as during so took this the build place really there's I data the that you'll of major demand their players out XXXX, seeing of and capability But today. find there very across they all we're terms

company positioned. Our very is well

very with a time to have a We strong some place reputation come. companies, center going we're data the it's think and for where all continue to we grow to

Deane Dray

That's great you. Thank color.

Donald H. Bullock

move question Mig comes with guess Fargo. on with Wells Andy to Casey I from next Baird. we'll Our Dobre

Andrew M. Casey

off into QX? for around on me. Question X% by XXXX I the a Can in guidance Thanks rounding range, to I'm the you Excuse included know get current QX implied X% comps. the in of what's expectations. in deceleration backing lot. thrown organic QX but a can this comment somewhere

Craig Arnold

go – Well ahead.

it? to want take You

Richard H. Fearon

full-year our we've comps rate see you you the I look would was time. Andy, guidance of going and as in say, the not guidance, given to just higher present if quite on high QX. the That's the that at will be at expectation growth third quarter

in see a impact as this how you just are. know, that have you normally, strong seasonal underlying We'll to have QX. given Now whether sometimes the year occurs do impact seasonal markets

Andrew M. Casey

Okay.

just I of as at kind Rick. you, thank So placeholder all uncertainty? given that should a the look

Richard H. Fearon

Yes.

Andrew M. Casey

Okay. Thank very much. you

Donald H. Bullock

Barclays. next with comes Mitchell Our question from Julian

Julian Mitchell

Good for first around be backlog. in. question squeezing just morning. would the My you me Thank

quarter's lot Classically more and is slides the sales. a worth less guess out in of than in backlog called I your calls. one prior call You than this it worth

March I in at $X.X was $X.X end about QX sales the think against of it billion. of billion

please. some that you So guess backlog, the in three within us Aerospace you backlog, where much ESS, I call visibility idea of have give how businesses in of Hydraulics, those specifically out and terms

Richard H. Fearon

I can take at a it. stab

report least are there businesses regard have don't we various all, backlogs or as don't like so don't at where we them of we First Vehicle them. stable,

next look that of XX% look Aerospace, backlog at you factor can't businesses to general, our be case So if businesses, XX% to need the will the in number. I like you a backlogs, XX and well you ensuing in orders XX in that in. backlogs particularly months, at is the But high. reason over the months. can a the advance. are precise be And placed give In really you the project

in logs. larger we it XX% business. a tends XX%. We project a say of Products, Aerospace, to then specific probably a we sort general And but In in. to back don't it's flow so typically mixed it's backlogs. much And In bag. highly Vehicle, locked be it's we idea, of have do type have In have businesses don't Electrical very more

revenue. XX of So the much next months' the backlogs coverage are lower

Craig Arnold

a the positive thing of just backlog say we also And sense direction? the fact backlog at economic and in the and get this half calls and reason are probably things growing prior we continuing perhaps businesses there's moving about for second very for, a different And been come in to are and looking our this we the grow around a into build that to our strength is from our most cycle, the on backlog emphasis are Julian, future, we we're I'd own backlog in we're and lot in put written more the the away XXXX. where than so or outlook speculated assessment of time

Julian Mitchell

is touched up, for that you useful. particularly Vehicle on of It's following concept where not very a the Maybe Thank Rick, helpful. color. backlog you

the out So flesh bit Vehicle. guidance just maybe a for little

about in first is in X% Brazil for about the in low-double year grew at You growth the on in Maybe America any you're terms versus organically. of vehicle your second penciled light digits think help growth I The half. truck North rates. and thinking us half how give

Richard H. Fearon

back various production with we're seeing half A half the see of growth some can of market. also has for you in the full-year to the that the with the of less will that parts be year we've guidance with than year. that to in Well, has in on constraints deal Vehicle the of prior-year do the rate given comparisons. front It lot

I first the think the of of second very saw So mentioned, as X strong half Craig year. the you Class won't growth in year. the as half strong in be It

better markets than South the broadly as a U.S. thought have this markets the and APAC those But are strength see bit the continued look automotive markets, we Europe the the a if NAFTA. year We we So and good and direction see at American factors. continued of in underlying vehicle in with little all, Class step some back X bit growth you of and performed in little growth in the in expected. a of decline

vehicle underlying of the the So feel market. pretty about we good tonality

Julian Mitchell

Great. Thank you.

Donald H. Bullock

Our of A. next B with question Obin comes Andrew from

Andrew Burris Obin

Yeah, thanks for in. squeezing me

question a Just Hydraulics. on

indicated How things through about, of long of we the Our caught a has in items longer up months that I significant are And negative now orders I sort I'm up, concerned the will multiple in over that it it growth take wondering channel how capacity think it clear of just to going adjust lead system? take year. long channel? went rates? your checks see I'm And what or to from lead sort volatility will guess on to times to quarters

Craig Arnold

of changes business a the take if and in nine Europe you where are I'd what will, I'd the certainly most that's changed. it. in these lot lead time trying are to placeholders, the on, a evidenced people appreciate put happened why say long relatively just are hold as slot, to asking adjusted bit part, by a you're quickly relatively orders, orders that months speculate say own out We a out those little to months where difficult very six and Andrew. question quickly, for place Yeah, our of

distribution. that going take to don't those very it or pattern, in much see time ordering adjustments it's all where for to through so more strongly OEMs I at whether be And with our anticipate made the you it's

it's think relatively short adjustment. a I So

Andrew Burris Obin

just then And a you. follow-up Got question on Aerospace.

think about business hug Boeing asking concessions, participate where of described going and demands? you sort on particularly or bear Boeing MRO it One was of supply at the is on from we for themes I chain, how basically Boeing's Can long-term asking should to this to Farnborough price guys somebody what as significant business NMA profitability for think aerospace of the of experiencing are given XXXX. you comment the share

Craig Arnold

I'd bear, say. learned I'd we've the to say with dance

objectives Boeing are, effective things involved win-win both and Airbus, are. been more with also what say do, both what in our and understand that to responsive certainly continue have think Airbus, with the And what and do and grow of to participate to solutions relationships have We working to that be strategically. it we their and plenty requirements Boeing fully they and very that we with suffice We Boeing say for their Airbus. trying to room business I'd that both there's and finding ways they're

don't Airbus of think teams don't manage in the taking the Boeing, two problematic those to think place we be initiatives business. our one will that today we or for of either course that inside So of are

Andrew Burris Obin

going structure? structural change no new profitability contract of with the forward So

Craig Arnold

whatsoever. No, none

Andrew Burris Obin

Fantastic. a Thanks lot.

Donald H. Bullock

Mig. day. like going with today earlier, over little Looks to to problem Mig question turn it comes the Our you last had a I'm question we from for queue the Dobre. of the last

Mircea Dobre

Great. Can hear you me now?

Donald H. Bullock

Yeah, perfect.

Mircea Dobre

Perfect. Okay. Perfect.

So on Lighting for me. last question one

competitors area shifts One the lower one at I what this market, wondering of that not know And actually change I'm XXXX? think might dynamics is on pressure tariffs. you're from it you the end and speaking, some of your be that obviously might industry mentioned how but tailwinds XXX to get benefits to that feasible that, as and here, is broadly profitability perspective your of sort actually into

Craig Arnold

play the going overall. of whether lighting just help we the it should at the be issue bit it's is if this industry be looked of way whether tailwind certainly that China that in too and to that But turns a the from juncture judge early to just and today not being possible products in to and out or it same of very and business. the for we Yeah, It's China into market think a on a lot our coming our to a early. about say too it's of fact tariffs context baked it's net for upside would not would lighting and certainly At that no, coming it I be is I that that way, with out benefit net have way, forecast XXX of low-end it and say Lighting and would out a it's positive, there bit put us.

Mircea Dobre

Appreciate Thank it. you.

Donald H. Bullock

call up wrap today. we'll and that, question-and-answer With our

As always, you be much any Chip have follow-up and you I today. very afterward, thank available will for might for joining questions us and

Operator

Thank does participation your for conference for your for you Executive conclude AT&T today. That and using Teleconference.

You may now disconnect.

Donald H. Bullock	Eaton Corp. Plc
Craig Arnold	Eaton Corp. Plc
Richard H. Fearon	Eaton Corp. Plc
Jeffrey Todd Sprague	Vertical Research Partners LLC
Joe Ritchie	Goldman Sachs & Co. LLC
Scott Reed Davis	Melius Research LLC
Nigel Coe	Wolfe Research LLC
Nicole Deblase	Deutsche Bank Securities, Inc.
Steven Winoker	UBS Securities LLC
Ann P. Duignan	JPMorgan Securities LLC
Jeffrey D. Hammond	KeyBanc Capital Markets, Inc.
Stephen Edward Volkmann	Jefferies LLC
Deane Dray	RBC Capital Markets LLC
Andrew M. Casey	Wells Fargo Securities LLC
Julian Mitchell	Barclays Capital, Inc.
Andrew Burris Obin	Bank of America Merrill Lynch
Mircea Dobre	Robert W. Baird & Co., Inc.

Eaton (ETN) 31 Jul 182018 Q2 Earnings call transcript