ETN - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Eaton Third Quarter Earnings Call. [Operator Instructions] I will turn the call now over to the Senior Vice President of Investor Relations, Mr. Yan Jin. Please go ahead sir.

Yan Jin

Good morning. Eaton’s President Jin, Investor Yan am Senior of Vice Relations. I for all third for you the joining Thank call. us Eaton earnings quarter XXXX me Chief Arnold, Rick With Craig and are and CEO our Fearon, and Financial Chairman Chairman, Planning Officer. Vice today

by opening in quarter. today the third highlighting remarks agenda company’s Craig Our including performance the

on Please website and posted our end will presentation, note both our our the comments. this non-GAAP our Craig’s The to measures. through of replay. on release from reconciliations accessible and done As the we been and it that call be website the at we is in webcast A have we taking will of will announcement www.eaton.com. press be the this includes today the have morning for earnings calls, release go available past questions presentation at the press

I therefore remind including results we like are and statements Before to that today of the related would started, expected future forward-looking our company comments get to statements. the you

actual described X-K results of that in are related differ uncertainties outlined projections forecasted release and risks wide our are to also from a our the due presentation. range earnings our and They Our filing. in materially may

to Craig. that, I will turn it With over

Craig Arnold

earnings and last $X.XX results our GAAP per Thanks, excess markets. above of and year, with to overall, end our costs our strong you acquisition on QX in and results strong it. I quarter’s weaker we $X.XX results. cash X% as in despite of Earnings arbitration the would Page range $X.XX. Yan. the results XXXX Appreciate guidance a transaction saw press our $X.XX, will and release really basis, start as And And flow decision excluding X a highlight excluding of on within $X.XX share characterize this were businesses, divestiture were

negative X.X X% us However, to our what points expected, currency adding acquisitions certainly results. point organically, sales lower than and down we X.X impacting were by

record and margin and for for Segment products, strong all-time guidance includes XX.X% Eaton for and earnings high-end above aerospace. points our performance XXX with another all-time and deliver also for on above basis and margins continue were of last These margins. records of this services, margins an operating We to year. the systems record electrical electrical for

We cash billion, continue strong to X% very record. an of QX operating $X.X another generate XXXX, up flows over quarterly

purchased Lastly our XXX of purchases beginning year. the we million bringing in the the at with shares quarter results summarizing our $XXX shares where of million or outstanding to year-to-date X.X%

QX highlights X, I performance Page out will and a to point Turning we versus a of our prior summary just year few show here.

First, we and decline of cost control delivered was organic our of $XX revenue X% and in in this profits increase operating a by strong in execution, a driven businesses. mix million really couple effective segment favorable despite

the $X.XX after-tax EPS per excluding incurred adjusted we arbitration our to Second, related cost the company share divestiture share boarder increased market X% say of message strong execution, how primarily business. planned increasing decision. control cost weakness, consistent intend our the lighting results of I lastly, These proactive with XXXX periods repurchases. our with run to of would are we and doing on And

X% in residential X% was controls commercial X, for an margins industrial XX.X%, profits and made markets revenue Page flat Segment operating points organic to up were of partially were segment. results show up Overall in segment. saw America for offset softness revenues growth all-time in both On and our strength Electrical our Products we the by X% XXX increased globally. currency. quarterly North negative operating which record basis offset by We

who employees create for will in actively and price our shareholders we XXXX $X.X in for of a a is This a Americas. higher first and and and set construction example quarter up largely I good the are be products was orders of how also business transaction higher part would Eaton. signify billion in to by margin and the to of for the was a now our of lighting strength the larger core also and residential our of sale decision another business now to expected close more once that were portfolio which company. businesses X% The good led we commercial announced lighting, focused lighting again We seen the of for growth have say our excludes for outcome managing

Page results summarize X%, our our to X% segment. Services we increased organic X, Moving and growth. Revenues for Electrical Systems

X.X% a and growth commercial Ulusoy negative of here centers, strength had data growth construction and services. in Organic Solutions also and in also acquisitions the by Switchgear was Innovative of from engineering actually We currency. a X.X% driven

Our in XX-month on execution but record also basis, with good were XX% some across very we on ES&S basis margins of sure, was ES&S had here. data in which orders sales say XXX This X% was up year, organic business operational with XX.X%, X% operating produced which up exclude conversion. if were all-time prior higher XX-month from business regions in I you growth benefited points of rolling from for profits a increasing saw centers, And also growth. really line our up really And hyperscale QX. orders the what all X% would rolling average

much So performing a levels. very at high business very once cycle long again,

in year despite we organic show margins to mentioned we revenues result XX.X%, de-stocking OEM XX% mobile our sequential think weakness, On a $XXX were Segment global from about on X% were actually markets level points negative revenue XX down QX both XXX in next around QX. Organic an but order equipment global also the down operating were margins results up weakness declines world. primarily have in XX% came driven decline we our basis currency. continued with really that for a and page, in and million distribution. seen Hydraulics lower basis, quite And I markets for QX. below declined revenues were within mobile and last basis of as equipment by as at seasonally frankly X% the the that Revenues in

quarterly our on again, summarized for aftermarket. X% and Aerospace the in strong results watercraft market, results we line organic Once X, business segment. and a specifically with Page and with X% for top increased negative currency. record Revenues XX-month rolling to Orders X% very strength performance. particular posted Turning increased growth with line bottom this basis for XX% also fighters, military

strength saw in commercial business also We the jets. on side

a margins in XX% incremental strong our demonstrate margins. over basis point on revenues this to in margins increase end and continue the which XX% nearly growth we so in acquisition close expect the are in profits organic the before July good with And aerospace. in XXX and improvement operating drove transaction as to you recall, Souriau-Sunbank we announced of year, things We of all

page, our the results Vehicle for the next we On QX segment. summarize

organic and vehicle Our organic impact venture. of markets in The revenues quarter joint were down Cummins negative from approximately down decline XX% the which think transfer impact currency. revenues a the were decline the due and XX% the Eaton X% in combination to revenues in includes into which a was we X% sales a light of weakness global primarily

Class X For market solid. XXXX, remains the NAFTA

market XXXX. very volume, high operating were be XXX,XXX revenues run XX margins units year. last X% up the some Despite We continue at roughly at to vehicle year. for down expect points this global margins to be for to and light level We do X% down and lower from XX.X%, however expect only production year organic basis

team did XX%. of margins So nice vehicle allow of approximately which job once our to spending them again a flexing deliver detrimental

a continue legacy Flat declined QX. Revenues the Once that combustion results Page margins which for electrical with pursue that XX, eMobility and here up in making operating content business our the to electric show revenues organic XXX new of are revenues was mix case primary we hybrid of the keep number internal a are organic again, points flat platforms were progress reason from programs we electric a engines. this to really of we our made to we we that very X.X%, currency. why spending we’re basis on we and have of ask pleased to and on, additional to primarily R&D X% increased in hybrid really but to-date. Moving mix plus large of you mind with platforms and X% down is due in that negative this I’d the

growth systems Next we and in in the summarized construction XX, weakness approximately approximately down is markets on as some both X% revenue cycle business. for outlook this OEM as full-year reduced Within Hydraulics short also but this our includes slower electrical mobile know organic growth, Page is global non-res products electrical electrical X% of being growth of X.X% particularly really distribution and global our you and prior really has organic businesses approximately which is for estimate impacted well, amplified, We based upon this still now we remain slow expect and now our in electrical, de-stocking and but but weak of and expect growth X.X% XXXX. for channel. growth growth equipment services. our from

estimate growth think revenue the which at And as global for we so for Aerospace estimates year midpoint modified and down of to of our Vehicle, remained the full In XXXX. automotive also expect decline we’re X% X.X%. our As estimates be we board strong XX% growth our organic X.X%. a now approximately midpoint we’ve result, remain reducing to e-mobility slightly revenues organic weak approximately year. markets across we’re well of the be by of the will reaffirming

while rates. outlook, kind within overall. trade, events the strong still look hope are expected have organic have see. be have back growth maybe Business year, the and short-lived we solid, to future, of would we the long single-digit electrical half what but impacted number deliver that we confidence fundamentals clearly and is rates to for political confidence been the Overall, products our employment, of one-off low weakened cycle businesses second a growth would High by wait a for project low our and say, attractive as interest and of aerospace continue that ES&S pulled we by environment the consumer to to as we conditions economy

of show XX, the up by points or Moving to the basis XX I increasing margin XX of this points margin Page are Aerospace this margins And updated XX.X% the and segments, points. hydraulics by guidance, midpoint by vehicle two segment XX up are despite we expectations lower basis another increasing to Electrical services I With operating basis Electrical profit Systems by deliver basis upon XX and guidance of a due basis six really new includes midpoint on XX.X% and margins point we Products of for segments: basis to by in would points our at XXX we QX up margins can to declines basis with year our margins points, lowering XXX points. expected the for XXXX three record anticipated. range think revenues say and our and track are XX.X% XX based at strong that strong to year a we over increase we volume our consolidated

XX, finally And Page our to QX we guidance turning for in show XXXX.

over $X.XX, adjusted tax to represent decisions. of XX.X% full year the market would share to to a current our our we per conditions. QX the expect will include, expect still segment an $X.XX midpoint per earnings flat $X.XX XX.X%, when arbitration lowering approximately year and increase the revenues by our earnings other This of we corporate slightly does last to guidance two XX% rate of due adjusted assumptions approximately adjusted organic $X.XX, QX, expenses impact of X%, X% lower for are think you and For of exclude earnings share below we in decline consensus we XXXX of the guidance margins XXXX

I billion time another because so $X.X the of will now mentioned increased our cash second flow an really increasing for billion deliver our flow cash the strong we by operating that that $XXX cash to increase to $X.X businesses. recall which far the we operating our through highlight flow guidance point also by expect capability year, and generation as are million $XXX this guidance you We million it we

XXX%, is is reach conversion expected sales estimated free to while For be to flow to over XX%. cash XXXX, to flow earnings free our approximately cash adjusted

purchases basis Other Innovative million actually full a segment a than growth, the and we of be strong prior guidance to midpoint. to our from year be XX.X%, our of include and tax guidance think and guidance impact about CapEx Solutions, $XX spending XX revenue guidance, we we our $XXX of and margins and $XXX this flow. million year lower than foreign $XXX of range rate, from deploy this continue roughly assumptions million exchange million the XX.X% to prior our $XX this million $X million at of in roughly negative change as for Ulusoy our will worse is increased the organic Switchgear is No estimate prior share free in cash billion is $XXX X% up up this to our acquisitions points

performance So overall, the with we this are year. company’s very pleased

We our growth out EPS are end cash despite delivering of very what solid economic a strong much to flow, be many environment for weaker markets. turned

and to So for I back that over with it turn stop will Q&A. Yan

Yan Jin

Thanks, Craig.

the Q&A questions. begin call do have interested we a we with Before for of in individuals today, see session lot our I the have queue

you the time cooperation. please one your the go one of in and questions as follow-up. of today to for thank the to to question as desire and I just possible, hour your our Given advance to a many will constraint And limit opportunity

guys it the to turn will the over you instructions. I that, operator give to With

Operator

[Operator Okay. you. Thank Instructions]

Nigel We first Research. will the with take question Coe Wolfe from

Nigel Coe

morning. Good Thanks.

Craig Arnold

Good morning, Nigel.

Nigel Coe

normal Obviously Craig adjusting recon, that additional trending driving I in a additional great in a in nice the showed on we where the in weaker stand more wondering call, XQ that volumes? restructuring actions XQ than and on a margin bit margin, I’m any job the through did very assuming there coming us restructuring of what’s to detail good lights seasonality you lot step of just XQ. down you is conditions are of

Yan Jin

you number Nigel. and that QX absolutely, are think level of one additional and taking your of kind in really I higher we seeing XX%. than imagine, seeing appreciate were the were you in roughly a if if you that in performance of rate I we’re those items the question, had to impacting QX in largely market We mean certainly is tax operational restructuring higher could bridge we’re in statement, the tax between and margins are QX businesses it’s there outstanding us down, weakness. QX a where the QX saw QX of QX, rate about

addition few to normal that in QX there is tend run than In to healthcare prior a quarters. cost in factors, higher

wrote impact that for And so that guess number strike that number I a of one-time are in one-time down, are this that a the one-time with would items and a the of I’d we is seasonal I extrapolating keep for bit QX I extrapolating say that into QX. impacting year. there really think know margins mind you I items just next an these to the number as little of XXXX, as that analysts the of ask and dealing be year, the that QX but we Obviously, items feel justified that well lot dealing QX a full take are you of, about outlook GM in you a with not are and about in

Nigel Coe

That’s great color.

and into dig a probably dream at want here and to will but be and offline this do we We business the margins ESS I X details ago to XX% thinking years will switch XX%.

level address high curious we margin you maybe drive confident and to what’s margin? feel am this going just just can So such forward defend of that a I changed how

Craig Arnold

the as long-term team clearly general. in Once outstanding of XX% in and agree, strong a that on commentary, volumes again revisit need our really margin mentioned segment. performance we our I is execution quarter to it saw for will in we by by higher is organization ES&S we guidance the the my function And

outlook will basis. this do well giving about business and perform performing we’re that this for on those segment the setting about so a and XX% expectations, talked cycle, we we levels we think recall, numbers believe business higher you go-forward If at as the to already XX% above at through performing the

Nigel Coe

Craig. Thanks,

Yan Jin

Okay, good.

Jeff from comes question with next Hammond KeyBanc. Our

Jeff Hammond

morning, guys. Good

Craig Arnold

Jeff. Good morning,

Jeff Hammond

kind talk we speak the in are in guess then within, If just seeing just you electrical of de-stocking are de-stocking for can any seeing Hydraulics? where And in stand about EPG? through just guide I you the you where softness particularly maybe and

Craig Arnold

Yes.

our well broad-based a the lot in of commentary, we seen as see run productions say, about at you and thing. data in seeing terms sales de-stocking talked below are as the distribution same have de-stocking we retail continues OEM in significant, channel the I that Hydraulics, of also think on let’s in we public to

of end-markets long to I end-market when to the and hydraulic that and certainly sit demand. performing take market really a that does on okay. attempt with this it’s confidence many of function and the the in think demand a in the it’s around I in say little the world that speculate the does fact question indicated be will markets today we these end becomes ultimately are happens de-stocking and we go here how could going what the

average We but in market at on like are what flat markets in low like that. say, construction talking a to a than down about, experiencing supplier are our we is worse as slightly much numbers single-digit growth let’s a ag,

would of you we confidence de-stocking I given levels the this business cautious of would in the largely on electrical we in been kind at are significant that the are distribution but kind really say living So a amount being general, think the shelf are much the say de-stocking inventory with I kind and but think they some business. we putting And it what really goes are more ultimately which issue electrical not de-stocking. our be was about in markets this periods hydraulics quarter around are to of terms at happen through approaching of we they in Products of seeing end business not the de-stocking. been these of political bit point in of what’s take will growth little significant in in of I really issue of that uncertainty, uncertain a going delays function if now. it’s electrical point in than It’s an that a Electrical that of environment right that more certainly project in impacted the end, in broadly, our

Jeff Hammond

then can in great. give and kind kind cash on around of items the initial I I non-operating anything views out-year lighting you on about kind think you Anything uses in didn’t the see incrementals you quarter Craig Thanks. of sales? And provide and and in of thinking markets, Okay, third past years how are there? of

Craig Arnold

the level this observation given dealing your absolutely typically insight Jeff. Jeff, We currently uncertainty or trade it’s would some of in in whether kind customer one-off a or Yes, not geopolitical of to this the of these earnings be call we it play into that give is are some of some with the accurate, through XXXX call guidance thought prudent events. then juncture as QX part our of XXXX January. We be guidance providing would in for at we and would that environment provide

kind will use so are be would it question that. the lighting The around sold the that’s thinking we way we And sell business of we intention and cash, our shares. those of buyback for billion to $X.X business proceeds lighting about – the obviously specific uses to

are of buyback attempt would intention strategic be make strong we and divestiture to that be any plus associated the but to those program, lighting. of generating smart with offset the the sure proceeds flow cash to to use in fully timing going We dilution the capabilities our very

Jeff Hammond

Craig. Okay. Thanks,

Operator

from Dave Our with next Evercore. comes question Raso

Dave Raso

clear? missed is quarter the for beginning still into business of Good for lighting to EP, morning. ‘XX, businesses Apologize, the guide very officially XXXX but in the correct, be call, for just the fourth the electrical exiting I

Craig Arnold

yes. Yes,

Dave Raso

Okay.

for better to the can in of, get and bottoming help back beyond point seeing trying of obviously they sense in half, get X% the healthy a short the a wondering in year we’re understand, we in are businesses people ex-lighting together ES&S hope cyclical quarter because the half little start normal, all but what sense the the you were you’re some I’d say out what’s at the orders. overall us year? the can people more and of Electrical are just first growing feared end orders the visibility, further the ET So, than up in probably

Craig Arnold

to XXXX, input business question, from that the the the business long but Systems and to we’ll really with Electrical XXXX. growth call is see Electrical be course piece up Electrical Services have too which it across at doesn’t of conservatism the events cycle the to some and of and posted I The and greatest of early book-and-bill in say good one will if well it’s we guidance, of mid the Systems mentioned, QX book shaping why during single-digit tend business make the in was our have appreciate order the in we see of level anywhere QX happens confidence as a us how I Services, serve, and the we’re I’d longer strong and did think a with we say high the feel order on in which of obviously other and that’s business with Services distribution we to very of that more cycle Most of the quarter reasons of just say we these and quite bodes to business what in much that board. within our not just bit on what I’d Systems the take happened be and that business it about of our kind I for are Electrical order Dave. intake order look and Products markets what and taking a end little into world XXXX tend part we visibility a and so a into certainly we providing distribution,

Dave Raso

guide January in ex-Lighting fourth in I core another should in so it business? quarter, give be assume business way [indiscernible] when will the that lighting I we out the And down or of is quarter the the the say fourth

Craig Arnold

is it’s on we somebody prefer signed, given go-forward into not be question, ultimately as Dave, lighting that entered the have basis. say the to transaction appreciate we comment business a to fact we I’d else’s I going What on a

somebody that that and prefer is we business as about on going think on fact go-forward lighting would comment the and else transactions own given it. ultimately so we to basis not to a the And

Dave Raso

that. appreciate can I

you. thank Okay,

Yan Jin

Our from next with Melius. Davis question comes Scott

Scott Davis

Hi. Good morning guys.

Yan Jin

Hi.

Scott Davis

your of every is to elephant it a this, on when actually room goes make you Craig, mean where worth to you just of have will the I address missed and headaches? kind extreme very guidance line around top that. happen and in the which doesn’t does mean kind at portfolio often, the quarters rethink cycle I’ll like bit? you just the it it got that you the little Hydraulics I vehicle this leave

Craig Arnold

impact the has think a I are day, the X% At work we facility, is as going the step and and under end I’d to you the out in of profit end appreciate or around if we significant lot at say time and day talked hydraulics delivered stay company of have today take X% done that on that laid you question, a I say the example going in And grows the call this the we over our the have we of Scott. record like and of track our think of the ultimate the will about conditions Eaton we’re X%, that. it of the before latest out business doesn’t and look we for portfolio a to conditions which at company. quarter lighting would businesses shrinks divestiture like to earnings which whether criteria our on really our Hydraulics the

will business, on really electrical and we order electrical what said the end aerospace services be part execution that’s company. and XX% company. the behind as internal we cyclical a be continue drives is the issues do So us what And we of earnings to on Eaton, improve drives it at but and plans they getting a know the will value some it business, continue to to of earnings execution the Hydraulics, of think deliver to work like of day the in to to creating a and they really products always we’re what systems call of our need in the cyclical from our come that

on this cyclical that the these point the control say to businesses. would comfortable day recognizing with we it we at end at of business, side and be will things can always I focus So are continue the and of portfolio will the

Scott Davis

Fair or as dollars have enough, you you mentioned And just it’s buybacks, more billion coming push want is Craig. you of is this or to going this so environment the or more this in it’s mean aggressive and know M&A it uncertain but environment got to I right follow-up, that that the another types are type to take to at better a do of look you I there?

Craig Arnold

We always the look trade-off. at

We over, disciplined we is to cost our order and around capital over what we to points of the terms very understanding in it’s expect years the XXX capital have been magnitude basis and of return our X% a think cost would roughly XXX to X%, of of as minimum.

we run and the would at way a the in and maintain that And that’s continue we’ll economic so we through company. to low have been buyer cycle both point very disciplined the

terms going shares at of we both prices. back it’s for for And be off so attractive in of in the strategically what company us, to trading the that do buying of matter an versus option acquisition always have EPS would very a and

Scott Davis

enough. Okay, Good luck, Thanks. good guys.

Craig Arnold

Thank you.

Yan Jin

from question Credit John next Walsh comes with Our Suisse.

John Walsh

of strong obviously are sustainability of cycle we to I wanted margins, of view margins? back Aerospace line to know Aerospace very kind that questioning, a how the look you business, that mix conversation ESS strong. quarters really OE do go but aftermarket above to of the through on I a versus the around those ago, your had couple we similar

Craig Arnold

have industry I’ve the because low calls, demand, by market Aerospace aftermarket and say really question relatively overall you spending. as been of program and on a standards the this Goldilocks have you appreciate period have prior I I’d is for said a very historical really strong strong a you little bit

really one will you’re and margins today of we or the the But another And very likely of one about that is terms to clearly like look deliver to that whether cycle. we’re consumers we probably margins will through a that won’t on right to planes Boeing seeing but very result take for this and business some business very to every certainly backlog what drives XX% going And levels business that have business I’d again just Airbus outlook say we we’re and are that extraordinary very business long now are large the levels so today our at good quarter up, very at so because pretty and look time today. this level at for that get gear should of in and margin are of in that say at is margins will into a come continuing time. kicking go and that business will be longer-term once strong on the I as the clearly performing and segments think primarily high but think given The the that’s revisiting is the when military be and for the comfortable sitting and attractive levels the perform will aftermarket. perform not very provide

John Walsh

high to yourself take float the casing historically for expectation where next that’s of get then you allocation ahead to the should that I I of questions around next we has a you coming Great, had X% of base in addition know we want don’t going to capital you’ve of of, it? And should down strong to for lot cash, assume be year thank year. obviously door. there In that. been mean, be but this it’s X% end the kind

Richard Fearon

take top Rick, float expectation proceeds X% X% X% way, it than from I end the with then think Our more and up of down of X%. to would it’s. on be would Yes, you’ll considerably that, so Lighting to this

John Walsh

for you thank that. Great,

Craig Arnold

in of markets expect capabilities terms did essentially the we XXXX And offset And you up, that’s the company the as market flow to how where things what to into in could that in one depending is sheet generation about is important clearly during and shares community our committed the to this play. will of use our we investor general that EPS QX. pressures would to upon that as that and run end because balance in periods we manage continue look help that is kind weakness we we buyback would we cash same point we strong you think that an of of said

John Walsh

Great thank you.

Yan Jin

comes from Deutsche Our with DeBlase next Bank. question Nicole

Nicole DeBlase

morning And balance it looks cash increase guidance, I around the where the drivers a bit, so reconcile just question inventories guess, is trying operating the Thanks. first the Good up down like guys. of from? coming the Yes, just little receivables flow that’s maybe that in to key

Richard Fearon

right. strong. You’re capital was Working very

the we about makes receivables expect good have further making big a for that sure million and relating improvements programs to believe managing to all we suppliers we on and difference as opportunities payables receivables, any to example payables. that you’re of and combination variety $XXX and time-frame change initial of our a billing capital, a next are reasonable our improve also at inaccuracies paying into and further at a we correcting look both commercially from have of but and in QX so year in receivables just have job already that QX, you payables, working continue QX the shy done thinking to year If would we

Craig Arnold

in expect in overall point levels to And of front very of flow. really Nicole, on terms XXXX a be out take slightly. downturn, strong inventory would into inventory frankly another and our actually typically quite of organization are to to an we the of you’re cash your inventories When we still facing economic have so Rick’s opportunity year so reducing up is big point, we us

Nicole DeBlase

Thanks, Craig.

a you for guys monthly the initial second lot getting today the worse the You fourth my actually to in just I on that you’ve any guidance pre-answered for are growth thoughts quarter? quarter? guess October say and progression question have relative organic of you then to provided that throughout anything the on September Things

Craig Arnold

at really kind that out throughout months the and Nicole One thing of indicated market weakness, Conference the couple Investor say persisted some that first we been the it’s already Laguna, and I’d quarter, of the quarter. seen of was really in of there the have which

the terms So seen quarter is I’d if And what consistent October, weaker and of unfolds. progression so in of the other we’ve months say, terms in month with not I that in have wasn’t provided. than forecast no, say largely far we particularly, particularly it the how two September the

Nicole DeBlase

on. it pass will I Thanks.

Craig Arnold

Thank you.

Yan Jin

Joe Our with question Goldman Sachs. next from Ritchie comes

Joe Ritchie

guys. Good Thanks. morning

Craig Arnold

Joe. morning, Good

Joe Ritchie

ESS what wanted and mentioned plays just color and in what the Craig, from on to on disconnect you’re between a the you’re I seeing on growth touch the So, side order to project and that seeing kind so I’d you your actually and perspective expecting love XXXX? little project get a you’re how of more deferrals on comments prepared bit where deferrals out into growth

Craig Arnold

probably you it about And a tend and Electrical proxy the Yes. for that we referred what we the think fourth QX. be order Services to expect QX would relatively as disconnect that in in business, received largely, longer and you Systems intake best probably I And does XXXX a business. recall, weak cycle orders been to you what if say of a have we have had in for if would would quarter business

is think see in there that that XXXX. your to for and very bode lag well once strong to again orders we does a time did but So QX we business point,

that. I was would in of regard your to And the… And half so think way that’s about really the question the with second

Joe Ritchie

played that guess seeing And to in clarifying your how were just, you a at deferrals for this I kind basically, Just really XXXX. at point. it ask is or any of out I cancellations all are question, just orders if

Craig Arnold

ball it it cancellation the but as delays. that’s in say that do see you increased always I’d is always it’s deferrals Mostly, businesses odd Mostly significantly. these really nothing would

Joe Ritchie

Okay. And then…

Richard Fearon

industrial That’s projects. the particularly true on larger

Joe Ritchie

of I to and Okay, earlier, some my but got get follow-up quantification. asked can somebody guess I wanted this it. if Rick. type Thanks, see we one

stepping this for On margins, both XXXX? year down R&D what’s the aero and then the expectation into

Craig Arnold

R&D that’s reflected the currently I think in step we’ve our in down already businesses. to with seen R&D, respect

are reflected our the platform in now businesses It’s expect in probably step on today. customers, we would an as probably our not spending. new run both military side development running a I’d function to low of say again of right today, we’re percentage so with running And historically levels, once at a revenue, R&D primarily respect from so earnings the additional really commercial today in rate the I down already R&D and and

Joe Ritchie

you, Okay, guys. got it. Thank

Yan Jin

comes with question next Our Vertical Jeff Sprague from Research.

Jeff Sprague

Good you. morning, everyone. Thank

Craig Arnold

Jeff. morning, Good

Jeff Sprague

on on help how cost is kind Just additional we Maybe a and little restructuring around is about the a on in that restructuring should elaborate a thinking lighting, bit, about? there it there doing lighting front? much can just think us you’re stranded with little bit QX wrap be element of question what and a you I’ll

Craig Arnold

say you couple think source if do of been stranded I’d with in Jeff, magnitude, $X.X of talking is the fully QX mean, cost. QX. associated and we costs billion a a all to You or we’re from order think and I you we’ve there the cost, that question of that about what deal $X.XX that stranded the in is the would do sell incremental restructuring so where $X.XX with about some stranded obviously business I to with expect

corporate Electrical we and will of up of cost context the million costs, associated talked of costs obviously and embedded with the Products. deal the that level the number ex $XXX also both in about number we the cost overall exit so Lighting restructuring in inside the we And put that stranded that at with of a to of was

deal with business. And our so stranded would expect the inside we to costs of fully

Jeff Sprague

ESS business. And price price just algorithm the need kind Could bit, it EP the to then your cost you pull in year. of versus trajectory QX little of a part and into you if apart of also just next know early the I in but elaborate looking kind don’t of

Craig Arnold

net said today is up. that say we have where are always and Yes, around cost neutral I’d will that’s we ultimately really price what end we

we’re company QX, again on we a we’re that tariff Eaton expect slightly it increases of slightly go offset overall. forward to expect net moment making basis to but we be the and we’re think better same just at price commodity but that experiencing positive a do cost fully really that driven that we’ll that would the sure once job cost neutral positive will I in getting inflation the cost

Jeff Sprague

you. Thank Alright.

Yan Jin

Our Andrew comes of next America. question with Obin from Bank

Andrew Obin

you? How guys. are Hi,

Craig Arnold

Good.

Andrew Obin

we When Just great revenues, or of at see do into production of think about when is that Cat we cuts to execution. queue? what… QX that’s Question bulk them we’re do it, on and incorporated Hydraulics going are those in as see get something some your in we Deere, the seeing

Craig Arnold

we’ve been would on back well, Andrew they’re front typically customers terms about it’s both this and what sourcing periods market the time I down, go of these big would an and time, correction. impact our were as the because way dealing. is whatever our we take We way, that days we over components just have if in all in on when up QX experienced to way typically way the question given chain the appreciate in QX, at this a by XX the of you run of customers lead forecasting in look the business typical, OEM many through the the on a outsize of supply see

Andrew Obin

that of Got markets X% know just shortfall, most a you a there you by in geography is disappointed it. from And that give end us one and you can then question the buckets the but it you and terms was to know got gave which big X% obvious. were I mean… expecting you quote I I

Craig Arnold

specifically, market let’s of a the growth in for market the would Sure. was in down U.S. us end and And shifting I say, always rate the say… terms it really I’d is market say biggest that,

Andrew Obin

what to. I Yes, Yes. referring was that’s

Craig Arnold

a sure saw growth in downshifting Services Crouse-Hinds saw for business saw but Products. business. it projects channel we growth oil rate gas growth positive saw in Americas, our in certainly across we board Electrical Still and of our the We in the in Electrical large we distribution the space, and the specifically and the in and downshifting in a Systems

Andrew Obin

you. thank Okay,

Yan Jin

with question Our next comes Oppenheimer. Chris from Glynn

Chris Glynn

Good morning. Thank you.

margins little see you through your inefficiencies, with of can are moving a of the down the fourth on more just the attainable? little Do a of So in range. wondering and is you bottom about next you revs some past year kind raise quarter, kind XX% and back-tail that moderately and cycle on, restructuring being the comments the Hydraulics

Craig Arnold

goal I that business XX% for this business absolutely set think appreciate we attainable. of at the the we goal think the bottom the for it’s we certainly and question the the it’s right cycle, and

deliver, the level ultimately I unreasonable XX% would becomes we’re business. but question that that bottom in where economic these I the not business margin be at the expectation an activity seeing at real of think now the right think out do it markets

Chris Glynn

any bookkeeping just we should guidance next of a comments Okay, thanks. comparable? on the then early corporate notional And it one, kind for leave year,

Richard Fearon

planning. our through work to got have We

little general been our taking matter, quite successful it at then we have down holding As down years a year-to-year. a flat bit. costs And corporate

So color. that some will you give

Chris Glynn

Perfect. Thank you.

Yan Jin

next comes with Our Ann from JPMorgan. question Duignan

Ann Duignan

a my should little a questions and of are Most good Data you’re improves seeing bit been has they you. not the Thank Index year, projects leading indicator for index, the seeing because is ESS Momentum actual for answered. have Dodge at that’s considered in be September the subscribing and reflects orders? current look may but being next but is all it be If up Where momentum I new weak that ESS, year. been disconnect

Craig Arnold

given rates and your growth saw is And numbers. well I of what and numbers across was was world. mean, appreciate can we markets. internally medium-term of positive or QX very the large And experienced we macro out we’ve book excluding indicated you that the long-cycle vary in find seen obviously lot as QX bit longer-term some a And I’d I with of across own continues It question playing this well. indicators a of the in growth to this XX% kind in lot trying time with a I because see spent and a always projects any that X% the as still that this little I’d to delays end figure a quarter, growth. oil business a non-res one our on to wide and the gas, those pull slowdown in moderation this for of what could and we QX on the what a macro you centers, a data order construction say and the certainly are business in most in X% point but quite of do but say what think we business, pretty in data strong and of end project certainly from up in bit we rates. orders rolling up largely a and set back,

about for optimistic prospects remain And so, this we the business.

Ann Duignan

us normally accomplished. business Okay. you I just win follow-up on you appreciate but the that a has e-mobility, color. year on And that? Could mature revenue report update then

Craig Arnold

In the new we this wins quarter I haven’t quarter. and material in any had say

in business these and update billion we the come sure we’re to optimistic. we ability large new get a we out we originally as by we very $X schedule The segment what in the large as be for how But to try in you to know business business billion to as and to set and we chunks that for do create be we we’re continue $X large wins So wins reported material extremely historically the ahead you are of still on will our this confident company. doing.

Ann Duignan

Okay. still And I quarter about? what think I have XXX from that should is the last million, you’re were wins about that material revenue

Craig Arnold

material up report, that wins, give the update. but Yes I we’ll they number you end to moves have an way, when get a try material we’ll moved from would mean in slightly

Ann Duignan

from Okay, it That’s Thank that. me. you. appreciate I

Craig Arnold

you. Thank

Yan Jin

Our with next comes from Julian question Barclays. Mitchell

Julian Mitchell

Hi, good morning.

Craig Arnold

Julian. Hi,

Julian Mitchell

a wanted sort make that a performance, that course saw project is particular these think good think as do just discipline? around incrementals, fade, to very, good and be tailwind May you you would ESS around something question mix business of or sure nothing there first you was of normal just what reflect very this just

Craig Arnold

largely mix it And quarter there given quarter. strong events is this and particular in drove unusual of was a one-time obviously always at very in and mix margins XX.X% we look not that I’d that quarter And say favorable specifically ourselves the our above high no, the when strong the performance. I really mean no any issue business this see there we we look that obviously expectations. in the projects very, own no at mix of did that in took execution a was it wasn’t because ES&S.but are

Julian Mitchell

in saw demand be how talk EP, if of EP recent large and coming that you Thank you. to trends QX piece Maybe Electrical exposure months within and secondly expect different QX? Products, particularly That’s about have any is Lighting to there helpful. reasonably in in you maybe you do controls EP, now industrial of out? some in than switching QX demand more piece that that industrial And industrial industrial then

Craig Arnold

question, of that the and we the year-to-date weakest industrial we’re the third business generally today, sector. We the the really a talk in about doubt, in appreciate without on what business And a being is markets of manufacturing piece going that about what’s forecasting itself.

business. part big And us so controls to it’s we have industrial for the weakness of clearly material and see a in segment continued the

Richard Fearon

true Julian that on and then third the orders sales in was both quarter. And

Julian Mitchell

you much. very Great, thank

Yan Jin

from comes Stephens. next with Our question Rob McCarthy

Rob McCarthy

exactly Cooper, and then like, a I here. into good a of I if average. hand certainly be times you’re thinking maturity X it I at mean, talking paid and that about. McCarthy guess the even it think question have I was for you is, to what first XXx Rob an XXx sale will was X later. that X.Xx grenades But is trailing, X.X I buying basis. Horseshoes less XXx it we and on company mean value yes, would was of the forward had trailing between call Hi, creating than about or I this are assets Lighting, years and have

look you we can company? they of mean we kind breaking kind think a activity up should I what the the, that fact part do of why perhaps that So, at of the look had this

Richard Fearon

the at idea it the ways bought I we Electrical grown as that has appropriate enterprise awful broader to paid Lighting and business reason the the I lot the thought different in public of so in not end It it a Lighting the business if And impacted perspective an the or we address developing an mailed you was have let time we it’s businesses think happen period. and If billion argue one that. as that our as original closer possibly do we’ve don’t under way it dramatically of is $X.X for you expect. could game Well, up Rob, what we your of believe that we Lighting. Cooper, case in a over company, $X.X sort we now and quite sold when correct, but disaggregate part would we that’s was another part the business more don’t what just and you not billion, And Cooper. value of really which certain significantly exactly sometimes migrate me franchise Lighting just than of mean now business it’s haven’t plan for.

Rob McCarthy

And to kind businesses, in and that kind as economic I as itself, cash of so the we context way the the the trough, of how then go the I in change cash earlier to as either the to think articulated we trough with a particularly tougher of rely about trough respect in cycle or anything we you can year there down generation on environment? work the the as trough into anchor trough macro win and still of conversion about the in EPS you’re mean, terms cash and to of highlight Are certainly, overall. would strong the Alright. thinking subscribing think generation you your cash you rightfully the

Richard Fearon

trough, simply by likely and cash in through flow lower about our talking change loss too, the you’re volume. down If year, that we liquidate we capital it’s right not well markedly because profits still a working believe offsets

our and framework continuity businesses end attractive generating in they generation cash the we’re that. to guess cash generate year. still of at At cash specifically you’d really very change are think cash couple years, what alluding one So, I some like increases would cash trough of point absolutely point about we a I would even cash was flow the and make down we scenario flow year had next of a the don’t strong. value to is and about next if see if that’s other in in market generation of believe and that guidance a in number. out XXXX to the was XX% up most day, compared based for expect think the notable XXXX, the And I ‘XX cash real flow guiding I think I on and a I important laid in we’re we to the you arriving flow, Craig we free think we’ve pretty debt it’s given to and

Craig Arnold

Yes.

case economic done QX have to what a expect by that we the lighting about, would end and talking is FCD in caveat and post FCD EPS spin to but at call to post a quarters off are GDP trough fully two in we some Lighting of the we three And we the our continue least the those have of divestiture this transaction transactions committed is said plan. You to of that we’d add base believe we year and only sale the and and flat is get flat we typical recession the define the plan year, of post timing we EPS delivering contraction. absolutely which of

Rob McCarthy

appreciate Thanks time. for it. I your

Yan Jin

Good.

last question from Our Deane comes with RBC. Dray

Deane Dray

you. Good Thank morning, everyone.

Craig Arnold

Deane. Hi,

Deane Dray

come I outlook? to of tell tone business, data and centers then China, during any the a hoping specific geography get about us a call, of on the was you the there specifics outlook and Thanks. can what in has a spotlight vertical, up terms the

Craig Arnold

I appreciate question, the Deane.

Residential as we’re well. see some in and to non-res think year with deal X% in and date. But kind XX% off data think and the businesses QX, maybe China year-to-date. well that first positive and very construction actually broad swath construction continues perform this deal a even I’d across are I of will starts of XX% China, in starts to say if QX the up of are that you X% up you about and up quite frankly actually res we

quite light By XX% the construction about QX so so and flat. X% down in and kind side on quite year-to-date significantly, of and in production market nicely And China is well. in QX, continue that world actually doing sales the business excavator real well is X% the And down grow Hydraulics is to up duty as as well. doing quite even piece truck XX% of production in contrast, excavators frankly, whole heavy is in quite motor vehicle China up and

side construction depending in the well. which And up the market referring call end market let’s upon different to. really quite in our a most important of it, you very But Electrical part it the company, non-res holding so, is story is

Deane Dray

Great.

Craig Arnold

And tend then we’ve commentary, business performed we lumpy, see mentioned We the market in so large, but lumpiness, as And quarter. in and very well. to that growth we good and centers, high hyperscale earnings data continue centers. by growth other the very in to calls stuff data to we seeing on see does the very be our perform opening that ended center up centers continue well that single-digit as data to data typically in the and mentioned continues in

Deane Dray

the for one Is that? CapEx lowering by $XX the any story me, last just of Craig, million. behind there

Craig Arnold

No, that’s I’d just say year. really the fine-tuning for the outlook

Our process can done planning The true a businesses capex around anything to that’s they low the of optimistic. put get only spending. any be really largely on course clamps just tend not up. our to what done, We’ve

that get can done. every program on spending we still We’re

Deane Dray

Great, color. thanks for the

Yan Jin

you all. Thank Great.

do we everybody’s have to reached the We end our question. appreciate of call. And

As any be always and questions. follow-up all. a Craig Have I available you will to address Thank good day.

Craig Arnold

you. Thank

Operator

today. you Ladies for and gentlemen that participation. Thank conference for does your conclude your

disconnect. now may You

Eaton (ETN) 29 Oct 192019 Q3 Earnings call transcript