Earnings call transcript Q4 2022

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton fourth quarter earnings call. [Operator Instructions].

I would now like to turn the conference over to Mr. Yan Jin, Senior Vice President, Investor Relations. Please go ahead.

Yan Jin

everyone. morning, Good for Earning all for Fourth Eaton's Thank joining XXXX Call. Quarter you us today our Financial With and Craig are me Arnold, Executive President Tom Chairman Vice and Chief Officer. Okray, CEO; and

opening remarks to the over will fourth Our agenda who today by then turn Tom, performance we company's the Craig, highlight quarter. it will in includes

the through we done on commentary. be have the at questions Craig's on have our closing will our go As end press The presentation been posted and release taking today past calls, we'll of website. we

earnings presentation includes in share, This of on available flow cash and A replay. and appendix. non-GAAP adjusted this reconciled per They're website adjusted is accessible be our free measures. call webcast other will the for

our that comments future statements. you remind today the include related are to like of would results therefore statements expected company to the and forward-looking will I

differ actual the a risks range of to results our our Our release due that in may forecasted projections wide described earning uncertainties materially and from are presentation. and

With will to over that, Craig. turn I it

Craig Arnold

for adjusted begin Thanks, for for in And we year. quarter highlights X. quarter Page noting on by year, record start the generated $X.XX all-time and I'll delivered the Yan. and performance quarter each both very We period. strong again with the EPS of results in of the We'll $X.XX the the that records

XX% up year. EPS prior adjusted from QX was Our

row in side. and eMobility center $X.X and were particular data commercial the a quarter sales billion, in Our with on industrial vehicle second utility, and up markets aerospace, organically electrical commercial the strength XX% for markets institution, industrial, for

basis guidance year, the margins incremental the And were range. margins. XX% high of end we points continue up QX strong our XXX near post And quarter. in margins of XX.X% prior from to were

up the from basis points year. year, delivered XX.X%, of XXX we record prior full margins segment For

Aerospace. frankly, rolling orders On to Electrical And XX%, which to up very XX-month quite Aerospace and here, Electrical led, increased as XX% and well, a as orders up continue XX% XX% strong. remain in were in record backlogs basis, noted orders up

an record XX.X% quarter. adjusted Now year, cash was And flow free of what percentage generated sales the challenging quarter a with XX%. flow in our up as lastly, in was cash we free in flow cash otherwise free the

While the the really enough cash achieve second improved in cash it flow flow wasn't of full year, half the to targets. year

on As don't growth, winning orders and and we have supporting do all impact organic our that capital. to still focus to we indicated, protecting growth. working customers, continue areas to we revenue levels higher work higher those prioritize contributed of which But a with new

performance strong a On I year. results. metrics. Page three our our of X, summarize Overall, I'd financial highlights team environment, operating key noted here, delivered we in exceeded as for our four And last financial challenging say,

actually guidance which XX% worth growth, on and team the midpoint XX% of guidance. original Xx revenue in organic XX% It's Electrical original our the First, delivered our was business, the more we above all we delivered expectations midpoint. growth, Americas, for that at that revenue, set. noting our we posted our Throughout organic growth growth largest segments, organic 'XX, organic than raised the

guidance that note points we growth I'd XX.X% which was XXXX, of demonstrate drive to our our record XX with Second, profitable margins continue above to in original the ability basis midpoint. at

of unfavorable of note midpoint the that impact our we some Third, million of $XXX currency $X.XX or $X.XX roughly share. fully $X.XX offset original And than adjusted of guidance. the EPS higher a was I'd

But I Most do the for once Lastly, record of miss the into that better. cash can say working sales free know to of year. flow here, and and note guidance we I'd our capital again, did levels I'd support backlogs. this went miss higher we orders

role major customers protecting disruptions expect, supply played might growth in the this over and with inventory our decision prioritize you to higher chain a As year. inventory

I'd and XXXX filled year go the chain headwinds, with overall, labor inflation, momentum. team was and a shortages, with disruptions say positive supply we a results But FX into and despite year delivered good it record financial

turning the reflects but Page would I wasn't delivering XXXX to this to the And that agree company at fundamental that we year point, decade. you another an exceptional just hope that promised. what X. So made changes of year the it we've over last

company proven necessity better embraced very Eaton ago. a the formula are the end were different We than growth-oriented years a to We've run through changing as in we how world attractive well. change for System. markets, realities company the we have We're for we a a of XX us today now and and Business

model, Electrical transformation, consistency. businesses. And we've some Aerospace margins The I'm apply and result earnings operational of criteria, stronger of a be that delivered potential and come again, all profits to to stakeholders. better the from done, has our your continue now this become we'd higher framework we new company to capital. strategic and end maximize and to a But where steward growth, our XX% our once With expect to is good Eaton our continue value of continue our higher we'll when

can shareholders. X, And to as on delivered see what Page this our you has transformation

XLI of next and I'll significantly charted financial case, we we've benchmarks. And believe has of medium as years. of in X X, As our sake expect, our shareholder the best strong you our And every with slides, we the are translated Eaton comparison, Industrial XXX, in outperformed And peer And do the days for explain few our strong Index. front results in for us. into group still results have our would total returns S&P X the results. compared and very the

X. Page to Turning

-- trends into at management our all Eaton we the the significant of it a climate of global change The has most and implications power some what that the positioned center are lifetime. of intelligent that Our in some see think company transformation we'll being downstream most brings. important

from new These demand will solutions transition the As fossil investments tremendous to for both and require climate change infrastructure grid fuels renewables, are and in the regulations know, need increased to we solutions. for all new renewables and existing driving driving buildings. is

planes, electrify more we us And allowing than need electrical to allows away economy. digitalization is more also this buildings us renewables. to to providing more us data is be take and ever. move as trucks, requiring fuels, Cars, trend closely to the of efficient insights connected, advantage are from And content. more access fossil all to coupled that are and This productive

our an while the It's to you, cycle aerospace tell don't also can targets important a that I more need and markets. military way, on recovery not dynamics data growth Additive market the but a of exceed better I our also, company -- both by set know drive I you, I growth these end we trends, don't can't an centers, change to a market Eaton. of And will X% Eaton. of for than previously about our front long-term end creating growth. for we're announced goals, commercial to ready be of X% we're didn't I'd surprised think annual with if in

on highlight Page by we these really unprecedented the X, spending Next, how government around megatrends supported stimulus world. are

the than set Act to markets. growth XXXX direct grid And EV particular have impact in billion and U.S. Infrastructure XXXX programs grid the Reduction climate-related that alone, Eaton these Act some and more from Inflation of are rate for the billion incentives. $XXX charging will the of end from and updates half $XX fact, a aside our of on the will modernization other is and programs. fund power importance networks And of In

set member and more $XXX which of states are laid plans In excuse on in solar. provides, green goals energy clear wind working carbon EU recovery out transition, government in including lower their me, grid XXXX, the has Europe, emissions. billion to plan strengthen implementing. to And recovers by the -- now investments They've China,

market EU continues addressable also $XX billion electric of say programs billion China, between outlook in growth over if world supports adoption the next still that to our the the even U.S. of And to lead China X the this confidence another tailwind the will years. I'd we by just $XX Eaton's expand that company. powerful is some But estimate vehicles. you the exclude in and

Tom take the up here numbers. you and will pick it through

Tom Okray

On of with QX up regarding foreign begin X% Craig. by X% a a Thanks, points few was our key growth offset Revenue and XX% a X, partially I'll headwind with Page XX%, exchange outcome organic highlighting XX%, we favorable of our revenue focus from profit posted leverage. prioritizing illustrates net of XX%. acquisitions. This grew grew growth growth solid adjusted Operating With total EPS impact operating and customers. in our results. XX%

XX%. the guidance foreign earnings $X.XX excluding All in, adjusted would growth from report midpoint. million us margins growth of record above adjusted $X.XX, been to which have organic enabled EPS strong adjusted was and of and in Further, $XXX all-time EPS our exchange, impact

operating segment bar we continue that profit. Lastly, our I'd for operating like to and to QX with records both the raise segment note margin

our Moving Electrical financial next we summarized chart, strong for Americas business. on the to performance

margin. quarter, set center robust strength For every particular all-time and growth QX institutional yet we set in and market data to from for with Organic full these sales in XX% Further, another profit have for in year. in we've operating accelerated metrics for growth also all-time XX% markets. the records and QX end and utility, records sales, commercial

from basis higher XXX XX.X% benefiting prior points was of year, volumes. margin Operating versus up

In addition, margins were at incremental quite XX%. strong

basis Further, price Americas We pressures. original points. XXXX noted than outperformed to that be continue effectively their more should Electrical XXX manage by inflationary to offset it guidance

remains QX. a year rolling center, XX-month versus high very orders prior Orders markets. level particular strong up data a sequentially in backlog the up ended board which utility industrial across year growth be continued from at and the On basis, in strength to XX%, Backlog increased and strong. and XX% were with

trends utility continues center, major round manufacturing, orders Americas we a quarter XXX% was markets. Overall, versus year in had addition start from good nearly a industrial positioned and In data robust be negotiations strong in as our in QX strong to growth especially Electrical the XXXX. up and out year to pipeline to and prior end very well backlog, project

produced we from by profit sales, up margins. exchange and headwinds of to for our was which for XX, Moving Electrical for show results records year X% entirely Global another Organic QX segment, quarter, strong including foreign was which full of growth divestiture operating records and X%, X%. and Page offset

down With organic single-digit XX utility, exchange foreign XX.X% Operating versus headwinds. growth year, saw On in in was and regional organic industrial APAC. posted growth basis, high basis growth, prior markets. organic of we center to margin primarily due we points strength data to a respect and mid-single-digit in IEMEA end

and XX% a rolling see basis Backlog strength were We continue intake. good also order on center markets. of strong. Orders with XX% in to up remains institutional data commercial and XX-month growth

industrial our like to Electrical I'd the moving Before briefly businesses, combined to segments. recap

of year-over-year of margin XXX points growth margin improvement. of XX.X%, XX%, posted basis For XX% was and operating margins QX, we organic incremental of which

posted XX% year, growth XX% For XX incremental our the increased full months XXX XX% points, order rolling XX%. grew generated backlog organically, Electrical basis increased margin, margin and segments

that strong are growth positioned well our business. continued we're We overall confident for Electrical with margins in

profit record with exchange. by next was recaps We our from accelerated operating with quarter full posted a more The to commercial chart than on in markets sales all-time driven for and aftermarket the both up year This Aerospace commercial OEM up XX% basis. segment. headwind commercial XX% Organic XX%. growth growth strength X% a foreign and and

worth XX% Relative it's that markets. by XX% basis And up backlog QX to across are Order growth profit, acceleration operating XXXX XXX guidance original XX-month outperformed On QX end basis, continued, margin in encouraging. with all to points. in was very strength a Aerospace their and rolling XX% strong and XX.X%. at compared order noting

growth for XXXX. Similar growth QX breakout to us in spending, and up up XX% saw in OEM in Year-over-year for our especially from confirms increased in to strong XX% expectations XXXX including performance which military defense QX, XX% in well positions QX. backlog quarter, in we the increased orders,

on growth the organic and Moving with exchange. America our America In QX, saw Page North and unfavorable off XX% had revenue growth Vehicle in growth of to revenue Vehicle vehicle. growth particular QX. was the strong foreign X% on strength in markets second half with This segment coming up light all XX. year. We South in organic XX% XX% across

in saw double-digit growth also We APAC.

to to unfavorability manufacturing with margins primarily inefficiencies. year, in came Operating XX.X% due prior at

offset As able the we impact inflation of to in expected, completely pricing QX. were with

growing sustainable We also and opportunity in large EV secured as with technologies, wins new pipeline. gearing such and and transmissions, a

up we foreign Revenue the and On for versus improved points from by results from XX% eMobility of in from Royal was the business. Margin by growth negative XX% impact acquisition XX, partially Royal XXX year higher generated offset including X% prior very driven Power. volumes Power, growth our Page show quarter. and organic the strong XX%, We basis exchange.

with mature segment. ability $X.X $XXX units power and Since of protection billion encouraged by European revenues year eMobility customer. the of growth XXXX, win recent We U.S. markets program remain our with including in distribution we've a businesses. the in won business, including a leverage prospects XXXX. million for this technology major core win industrial a in capabilities This electrical our production and and both both new starting portfolio, is entire in win This to Eaton's demonstrates European across

electrify We partnered mobile to Bussmann with their fuses. with Breaktor our including solutions, customer and platform

We content goal our continue Royal Overall, with make extensive from also by acquisition. to our expertise progress XX% our we and long-term create $X margins leverage to billion a billion $X to business added vehicle XXXX. toward Power

to our billion $X.X expectation XX% of exceed revenue We deliver and XXXX. are now to margin on track by

organic strong supporting and accelerated call are Overall, that to to of XX. unpack driving capital our orders theme Page related backlog, growth. working top to orders at in support a working going and to I'm surging investments which spite mentioned backlog, of Moving Craig improvements. enables strategic the in the capital we

trend, the a illustrate examples. provide of Net to I'll inventory working couple of percentage and To orders backlog. a capital as

the of side on XXXX more average Focusing and XXXX. the of was higher left quarterly our orders XXXX XX% and XX% in Electrical than than value more Aerospace the than chart,

is increased increasing the support orders, capital. on side working we of result value the have graph of the to only our page. absolute in slightly left the However, The these shown

at of net to down working year-end capital trailing XXXX. has ratio XX-month orders significantly Our XXXX from to stepped

the right the Moving of to chart. side

reached XXXX. look approximately growth. end is which and efficiency Another is since of Electrical way end backlog XXX% XXXX, the growth to at billion, the Aerospace to our almost capital $XX comparing inventory backlog At up of working

and However, this much since our Electrical to backlog, XX% increased for only has support larger by inventory Aerospace businesses XXXX.

highlights the improvement since graph significant The on slide XXXX. side of right the the

as of the a end in from end inventory the Our been of backlog of cut XXXX percentage to half has XXXX. roughly

inventory. We with of larger a a are backlog much supporting smaller percentage

has prudently capital more our flow in working the cash investments short we taking metrics said, in and capital are care impacted summary, have working prioritized capturing we growth, of and In required has managing customers which That term. efficiently. free

guidance are for on financial year XXXX The performance. of Page shows we positioned strong that well XX another

in organic growth strength a guidance range of X% organic with XXXX X% particular organic Electrical a to with growth XX%. and is rates also standout of for Our X% growth Americas XX% eMobility is to Aerospace with that new end-market our few and the tied growth the call to our organic in will correspond we QX programs. rates on provided midpoint of that Craig earnings at These slides. guidance update to ramp growth assumptions a

XXXX increased The provides in end-market backlog, outlook. tremendous growth, our visibility combined with confidence and

segment our range all-time XX.X% from midpoint our XXXX XX.X% For XX.X%. margin points and of a of is XX-basis the at record margins, guidance improvement

we're invest to to in growth In organic XXXX, for future growing addition strong organic also projecting and continue growth. margins

Moving Page to XX.

our I'll guidance highlights. and QX. have We balance of some for the touch XXXX on

a in which For over $X.XX is has the XXXX, $X.XX, of guiding we are XXXX. EPS $X.XX growth X% adjusted range to midpoint of

million $XXX estimate exchange and foreign which million continued between $XXX we expect We headwinds, adverse.

guidance at $X.X as XXXX. earnings midpoint billion key increase drivers a the billion to our capital, working of flow, combination lower cash improved here inventory over is higher chains a operating $X.X XX% and are supply For The normalize. particularly levels of

year-over-year. cash While such significant flow that flow free expense in during due in I'll headwinds note will our as interest includes flat as improvement QX well cash plan as that to relatively XXXX, timing-related QX higher taxes we be and free CapEx anticipate in

we million. For anticipate million share to repurchases, $XXX $XXX of a range

Moving to QX.

range we margins are to $X.XX. adjusted in X% XX.X% XX%, XX.X%, of between $X.XX organic EPS QX, of guiding For to and growth and a segment

wrap it walk outlook I'll through market hand Now to presentation. up the Craig us back and to the

Craig Arnold

Thanks, Tom.

the And you markets backlog, strong our our market what shared in assumptions given the any been in markets and see see the with for six from a we of to end some orders end XX, remind about, growth provide we call, by negotiation has we but that secular look Turning the This by really we've do earnings up strong here. our pipeline. material a are our chart mild very of changes healthy expect way, recession updated to in nicely. representing talked at QX our we year. these markets would XXXX. current supported company most also, a expect Page XX% trends we that don't I'll of growth But

for XXXX. expected in now are The positive Of within X% only in our stronger relatively residential, expect and down in our which of the revenue. growth nonresidential that be the we're markets see to note, even segment commercial our we the total, quarter accounts market growth only is given to contracts. encouraged to orders and growth construction strength Dodge report institutional of strong continued XX% In expected

XX And on with lastly, Page let summary comments. just me close a few

Eaton pay expected. than we thesis changed say I'd even has to continued First, as our for better a company

have and growth, Second, company to trends, and margins, organic record better. headwinds, profits, continue chain a delivered And the significant with challenges, FX the environment inflationary growth We better line despite right orders adjusted an record earnings top investments and growth was XXXX and we supply EPS. delivered record of record backlog. run adjusted XX% year the

And a XXXX. I growth I'm XX% by EPS indicator in in particularly which adjusted encouraged see increase for as positive our QX,

delivering EPS. So cash flow XXXX strong another our ahead goals the year. is macro be revenue, the track XXXX And concerns, company on despite for of and to and margins, very expect likely schedule we adjusted for free

have. So open questions up here I'll things and any for you may stop that

Yan Jin

With I to guys Thanks, guidance. over in Instructions]. turn that, you will it advance [Operator the your operator Thanks for give cooperation. Craig. the to

Operator

question Nigel Wolfe from first Research. line from Coe our of And Instructions]. the [Operator is

Nigel Coe

all we on coming details primarily between macro be money the similar curious, in tailwinds secular think very Americas And opinion? just there's with seeing would Electrical do and Global. especially more your front are strong especially log still very through? in Americas Americas in I'm divergence, that So of projects Or backlog trends the on the hitting -- in Is in Americas. you a the any helpful.

Craig Arnold

we're about where the into market, some very well. you as obviously, that U.S. we the business well pleased, for Americas Americas this is it, fairly No, of U.S. the Nigel, in if projects global the performing business, pumping as as the strengthening growth large I significant about some talked think but -- stimulus in about, we're seeing important our Yes. with these And think clearly extremely both that's the that think us, in spending business U.S. dollars reshoring that's it's are certainly is of place whether taking you let's markets and that call well. business really really things the

today when I macros think about that you now. there's right going intensified are just, the So what's U.S. in do across market strong of I'd company lot on for say, the the board that a are think

world. So of We the U.S., It's think talk secular I trends And reindustrialization, other the are electrification. an boost some additional energy about of taking just this place regions the the increased focus on transition, seeing across the because of infrastructure world. above everywhere. is

Nigel Coe

there's out between XXXX. call Tom. $XX or out you sure on million the The pension. expenses break call could and corporate question Maybe when not you interest I'm is But Okay. corporate's any you'd follow-up in just for particular projects out if front true that my probably of log.

Tom Okray

interest interest happen shape both to and the would being Yes. pension there's now, are expense a of rate, one. with to being as going I of what's we're related yield that And happen going to the greater projecting dominant with to interest headwinds discount pension. Thanks, of the on really Most interest to moving Nigel. expense caution that it parts But types of things. to even those, in interest of lot those rates, expense curve, pension be what's is expense the than going and

Operator

next question Josh is of Morgan the the line Pokrzywinski And from from Stanley.

Joshua Pokrzywinski

how any, and I that of way context in you're of So data the planning context And you kind this would orders Craig, of concerns. center think guidance. and put ideally recession a construction, maybe a you more of commercial mild strong. mentioned outlook? how to cyclical that starting hear bit for think you backlog the so the recession you'd the of maybe specifically, year conversion? be Can much if But backlog in converting, are Obviously, little in

Craig Arnold

one question, just really the general. tell appreciate internally XXXX. what obviously large I trying of on finger strong lot very that so stayed sort to we've put And Josh. of during to how would of It's tough you a Yes. time course upon through be ourselves. the to backlog have able much I in a certainly that It this that convert. And spent depend really we'll will orders happens

looks trends stay are tell you what what's just modest Because can the that all. actually point, forecast even is our markets, I we for talked driven at backlog, relatively baked by the And this it longer going at if in anticipated. secular for into these stronger to reductions we year than growth like about,

of we'll in supply to to intake be But the And side. some lot the of the be and so some here could on of at point, going that see. have that But wait at order challenges, be this and we're bit with convert chain we're perhaps backlogs. to point, of anticipating a not we'll respite more, this a burning revenue up if or little terms a end we of able upside

Joshua Pokrzywinski

just I Then the stimulus. know think helpful. kind from for some of high a appreciate taken -- expansion follow-up. I of of TAM Really the Day kind of stab lot you that. correctly, gave Analyst the That's at it. that before not TAM a Got folks that have remember $XXs a sized you the the from Eaton color billion. I in

sort have the X% of context any increase to kind of discussion? or the billion of extra like take that -- oranges $XX apples an to and Does uptick relates X, of $XX because this is this divided kind helpful. growth to years and growth TAM billion be this over mean by how it's X Just would uplift we you kind

Craig Arnold

end dollars into essentially TAM be stimulus which that expect the spending, of to will there logic right that based is are simple your market. markets, incremental the we these in size upon served going think these this our the increase I would logic

kind have. And right working so is the of think assumption high-level I your assumption to

around be it plays X to years, will how difficult obviously, I be time out what's more time years? frame? of make, call out. but these the do Is it investments of the X of it discussions And what the over mean, the and think play market. there'll it period increases size absolutely I lots

Tom Okray

And Yes. to to our up little major on more of that, just And you over end that. prepared XXX%. bit at also mean to a markets going even add translating the look if the are color remarks, higher back I that's project order U.S. pipeline, many volume quarter-over-quarter than

So we're these some major on just seeing good projects. tailwinds

Craig Arnold

Yes.

sales I Tom And build to think as point, the pipeline we also negotiations and up look and negotiation on mentioned, orders, Tom's have pipeline. Just obviously quite at the I'd say dramatically data once everybody's negotiation aware, And also talked construction our we but the through, being up quarter. which is contracts, XXX%. are again, is about, supported than that nonresidential essentially more other fourth by point I as which that

we to underlying these continue Americas. in strength the in So markets, especially see very good

Operator

And from of Andrew the question Obin America. is next Bank from

Andrew Obin

any first today calls talk 'XX? as we've question, if have left? you visibility have in And And AI conversations And topic. you more focus sort you any of for and the we're Are related do data the right? computing how was new much that? terms capacity getting do of to related of guess, have one where at required to the on all I any you ChatGPT, So incoming Do if you are can inquiries to getting on just interest that of been you centers. the getting sort

Craig Arnold

and in this as data some we in are because you too anticipated platforms of more you about, context very data, to the be about, then continues reading data more going in continue that these and Yes. on what's as And technology more conflicting other for data business talked need of AI once rolled again, the of That's center ultimately headlines imagine, talked generating Josh, be can center just, to the market. We various we -- out. question centers. terms processing the what And strong. we our

And us, continues years. still of over the guys very what of you the And I center hyperscale did to X there's with mid-teens concern about some for kind to cause to market strong. the little talking for know even next respect guys But that of tell be I bit given data are hyperscale a their outlook. the growth X own a can some

very is numbers. a And data we company get and XG. and about we every device are by continues so that strong need driving haven't those intelligent, to processing. And more expansion talked today autonomous that every And made driving of make for and greater

our And so investments lots going at of a we really by to intake be it's we of capacity. spare center capacity. But this expand and have think the data to negotiations. order for feels good. quite we into data the lot center don't your at a market to and visibility great it on supported years come, market our our point, a is of and number To this question specifically We're making capacity, have market, point,

Tom Okray

out... also I Yes. would point

Andrew Obin

just And yes, -- sorry.

Tom Okray

that isn't only this phenomenon. would America's out point entire the globe. seeing We're across strong order I Andrew. sorry, growth also an Oops,

Andrew Obin

stimulus, does what's any think in maybe have little about And these just -- seeing you're trends. sequestration? decarbonization think, And exposed from hydrogen, bit said, a just Just as IRA I And a at also it Europe, what talk Crouse-Hinds. all Crouse-Hinds? what's is I question. happening latest carbon follow-up benefit Crouse-Hinds to Because of efforts, related to but out both the with in also LNG I

Craig Arnold

Appreciate Yes. question. the

is announcement infrastructure it I'll we've business, the and so Crouse-Hinds now that formerly GEIS. The name. just first a energy little global was maybe changed B-Line thing our of give the team bit What known as we're a calling news

And hear Crouse-Hinds and us formerly business. so GEIS, the just known that's if B-Line about talk you

all energy implies, that the we investments with well continue as energy, to as do other as And I'd energy. our in that for for name required infrastructure business. perform investments to see those that, the hydrogen has I of support and GEIS a business certainly, is say GEIS positive at continues real forms of positive as we very mean, be to well. look our new business we anything absolutely, to will And And would infrastructure that's greener expect

Tom Okray

I if very Yes. utilities, XX%, you were trailing and they orders example, for close mean, in look XX-month at strong. to GEIS

Operator

from line from is Jefferies. question next the Volkmann of Stephen The

Stephen Volkmann

and just that what provide color could outlook of sort you're start little commercial made market on up? off, Craig, that seeing more bump you maybe bit a you in institutional

Craig Arnold

bit generally saw going on QX. just the in I'd nonres say, quarter. And strong look construction commercial pretty in fourth posting really intake negotiate But nonres contracts, we in commercial very we numbers once Yes. order And again, also, contracts, what's construction. the a minimum, significant the talked little very at we

we activity so thought us caused of and our market. what's the some be it to more positive. as that going broadly given And industry would negotiations in data, the well that, be in But on that even level, as positive more on market the segment that macro

in positive so I'd quarter say, it we was story. in saw We'll than it's, we total. how fourth certainly, plays data And the that what a definitely the news out But more and good wait see anticipated.

Stephen Volkmann

But Not that about brought you you for know of breakout then since early can bit? up, sort if it performance I But XXXX. Okay. sure aero-specific. mentioned that Great. you on this Tom, And was in military question. I something little think it's expand a just

Tom Okray

QX I through significant happening sequentially, order it's And into And all the see high now up even what's to it to very it year-over-year trailing just come of numbers. just world. it's No, metrics, the waiting in given our early, mentioned We're months prepared in seeing order remarks. and XX or we've in very, a in whether growth or starting is OEM. been that military but I little it Yes. walked

Craig Arnold

XX orders In fact, our the military last XX%-ish. was for up months OE

Tom Okray

quarter. the in XX% and Exactly

Craig Arnold

In the quarter.

So really strong.

Tom Okray

Really strong, yes.

Craig Arnold

times business, lead in strong do the that really we given support And XXXX. assumption year. baked will it in the be growth will expect XXXX certainly have that that But a for we

Tom Okray

military pockets with megatrends. here -- that's got to so of the also these that sound weakness maybe back Craig is comes we've have demand. started portfolio the out it the aero growing. the there, And pent-up got And but what presentation megatrend way of and We've we'll

demand We pent-up vehicles. have with

we're us robust to thing not very down. It's to So that's susceptible going knock portfolio. one really a any small

Operator

the line question next Research. Vertical The from is of Jeff Sprague from

Jeffrey Sprague

perspective more, more wondering to possibly the elaborate I was Electrical the Could the little the is, revenues, into was quarter? happened And outlook. on wrong on there. similar bit just and Global Maybe it step-down could what similar pretty FX margins in drill sizable a a just of the quarter I'm if me margins itself bit I like sequentially. then you little looked in and sequential we guess my it in question a

there line The the on moderating. address else But the to was something somewhat the is top factor Global. could quarter? margins also outlook you in going or in with wondering in other And mix some is X% just I then if X%

on seeing the little anything a trends there underlying in maybe color Just you're on demand is going the or if channels.

Tom Okray

Yes. Thanks, Jeff.

to about Electrical... start the out at the mean you it talking compared really Americas with margins. I me Let look when is story

Craig Arnold

margins. Global margins. Global

Tom Okray

No oh, -- yes. Yes.

in X% had We growth. volume Americas the in Electrical XX% have Global. We

into where dollar-denominated there. as So there's FX there. closer we we that not transactional, And issue, if you on weakening, have going costs. necessarily look had the disparity with translational but real still the dollar And some transactional us well, hurt Global

So the that hurting of compare Electrical of also the the part Global. margins and was on

Craig Arnold

And of mid-single-digit the of Global typical kind at business. be on the I'd that saying growth is say the about in recession, growth of equation, what face thinking to the in say side right growth business. today I'd And likely we're kind place we're of looking mid-single-digit is we our that think of kind

happier if a in even than were place would this point, about relative European our we market, seen think mid-single-digit be thinking the say Those have basis, given little numbers turns the kind little the a current XXXX our on month we a Global what better ago. that it. world margin, than business Now could growth right a to And assumptions, is today for think about be at feeling I to on I and once of But we're we we're be better. maybe strengthening. all some anticipating again, the out

stronger disruptions got of anticipated. maybe would fact at of we Nobody the margin out on this it, as impact Asia some did. and I out challenges that and than say But think Part an quickly today they're in coming we around China, other that running China. be be And it Global better sure. is unanticipated we we're margin, China coming the China they what than just through through Asia, quicker was anticipated what's And of COVID. could had in thinking It than specifically as the we COVID the currently juncture, much one it through for QX in had happening on what had anyone the inefficiency could slightly imagined.

Tom Okray

Craig. for FX, addition we saw the to weakness margin Thanks Yes, assist, Yes. coming question, in to opening in transactional up. the China back Right. also Jeff,

weaker expected. was we APAC than So had

Jeffrey Sprague

if some then kind you you're the bridge I just margin I the But know of on I just not you're a could next you us you going gap it, I price/cost as there And assume look what a said there? what to sorry Can year, Maybe when little give it. for But expecting. missed lift. -- for that is Great. follow-up. at perspective does assume us give price.

Tom Okray

We're out effectively. focus something it we effectively policy. going specifically expect that I price/cost. break and to to to really per our we manage say Yes. to is it manage we It's as What expect on, will continue not

Craig Arnold

have And the to is still thing not Tom So that in there's would inflation right? what I it margins, we accretive anticipate the to I only that would would be business. add clearly,

I impacting in getting what drive expect more we're a business, from we're to doing We in it's really would not margins. function inflation. as efficiencies that are the That's accretive terms it offsetting to of margins would of improvements the volume overall. in as that lift But how the company the be well than

Operator

from Deutsche of The next question is DeBlase line Bank. Nicole from the

Nicole DeBlase

in levels, Craig. of Have channels inventory within just little starting you excess inventory are inventory concern channel with Maybe bit or What building. having definitely your some maybe guys distributors about heard Electrical? seeing a

Craig Arnold

we've that our Tom seen a heard if context have of our nor if inventory, about we at aggregate, look say order once that in intake, that say Today, you you I our aggregate. partners Nicole, in Yes. -- not our -- I'd in would again, think growth of from in our channel to against great we're forward efficiency job backlog meant inventory. the we're revenue. actually and it's throw own relates laying a as of out building view it increasing -- did that And you up what while big

a well And if while for would would certainly as you I in of little Europe, be say adjustment specifically, in bit a slowdown have true in a orders in inventory little an seeing look still of Europe many still the at own take distributors. Europe. our the place while our has that growth a I there we some European slowdown bit that been that's seen And and of underlying market, a taking of strength we're bit given with the Americas. of think distributors in a our growth,

China, grow -- think other I going direction be through that begin And the market again. COVID and think, as will in I comes to

So in and still of I'd at with bit very Europe speak bit market all. tight. say of little U.S., to destocking destocking a slightly regionally perhaps in is the a inventory little no aggregate. Asia Regionally,

Tom Okray

Yes.

versus but up Nicole, in very our chart, a punch specific orders number. XXXX I on numbers gave to quarterly average are big XXXX Just the one XX%, some number

Nicole DeBlase

the the for there? through a some to And to decelerating segment-level just of XQ. function guess, got tougher X% it. XX% of mostly the the guidance first at range just And I drivers guess, Got in organic versus that you comps? talk looking is I XX% quarter, you can

Craig Arnold

revenue numbers in I'd anniversarying guide QX, last year. say, one, for Yes. versus QX we're bigger just QX The

certainly, offset the of the bit inflation. have of a anniversary So quite it's it. XXXX gotten effect of during course price to certainly We

say as those a the really two. in a price. on basis quarter-over-quarter don't you relative on So are basis, maybe lift have much And I'd

confidence question there's going whole and this that's how impact outlook. in to recession then the And around

of lots so And uncertainty.

If the for are the much see unfolds, X% at you is very growth we'll reasons. growth those our midpoint year, at about with but And think year the year. aligned for our QX how primarily the the

Operator

of is question next The Davis Research. Scott from line from the Melius

Scott Davis

prioritizing please? a slides Guys, M&A or anything wasn't which on where there since you're quiet Can really capital of Royal 'XX. Power that, in for deal, the but on anything the you've you allocation on fine, buybacks kind is your target side been little comment

Tom Okray

We're Yes, to in secular is important, the remarks megatrends with Scott. organic we our right It's well. nothing Obviously, to especially with going and same that of. allocation we're dividend pay we're all think prepared Sure, because investors. we're as really Yes. tailwinds first, which a the important growth, staying capital tenets. so prioritizing the the in competitive our course middle

look also noted, a for had that, that we're said you one of tail acquisitions. to we we market the in divestitures. the shrinking and We're if Having continue be did quarter. in We also terms -- good the in small

So doing we're that. actively

$XXX tenets. And We're I did We're $XXX looking. then in our terms as of hasn't yes, this on we million, million. guided always changed. really course mean, optimistic the capital We and buying staying in shares, But market. back there it allocation be appropriate. the -- And year, $XXX we'll to about million opportunistic

Craig Arnold

I a of the organic out just if ever company. growth in than have that more Tom terms lot history And there just is can emphasize the of the point of opportunities we that made

out do enterprise, And the don't we of grow so as acquisitions us organic to plenty support. There's to need enterprise. think we're to about opportunities we that front of and investing in growth growing the go

entered If And see position We've we're -- us market. of but do local I'd the that our of strong uncertainties. really some way that's strategic joint play the a trying risks position a into the into to and geographically the the of in maybe given with But months ventures strategically, of we right over of local is and course in the entered things something shored we we'll China seen a continue -- have card we've really helps interesting companies number you've ventures, joint China. now up who number the opportunistic. XX to last us that really, be one say,

minority a position. taken We've

key We sell product outside but will those really markets fill markets in of some in do low-cost products in basically they China, countries. gaps really emerging

opportunities growth And organic pursuing. we've the where there there are up some JV out that position side the but things That so really many just shore so on I yes, we've done is gaps, had that our priority. we're think

Tom Okray

Yes. Scott, number. with And to just punctuate that, a

as Electrical Aerospace over we said little a now. 'XX, was for remarks, look end you back and we're in And QX of $XX If at the in at backlog billion. the our at prepared it $X roughly billion

on So food a the lot of table. there's

Operator

Mitchell is question from Julian next from Barclays. The

Julian Mitchell

Just cash wanted that to understand flow guide. on

I think $XXX about guided increase. of is the think, Net I up about at million, midpoint income it's $XXX million year-on-year.

million all you Is is that So miss maybe that doing just that should working Or think shouldering million I'm delta? it And payables is the anything capital that about from there. the capture assuming sort inventory $XXX delta the receivables of kind in it point, we sort of 'XX? it? or of Is $XXX of on 'XX. how interesting?

Tom Okray

Yes. Thanks, Julian.

there. might of -- in nuance growth slight guided have one we able a in terms we miss order the future were chart, mean, to a we Just did if perfectly if different foretell to in you characterized we how number it, go that the back backlog, terms the while of I

to to But impact coming back higher capital 'XX, addition performance. to 'XX in going to the from the bridge income, it's working be of

primarily you not can better in it's would a We think can tell lot inventory, and we I as we we do do collections. prepared well. but DSO It's our We on on do we better remarks, inventory. think just better noted As can there. DPO

in focus not this improvement continuous want we to great We a got we're we've where think be. know area. I

a net but will prudently, invested we better can better, and this said, do year in of we we lot working we As terms do capital.

Julian Mitchell

quarter That's on of margins. follow-up, the segment my about first bit. Maybe quick clear. the a And organic just talked sales you sort little

sequentially that about So similar of segment? from I drop of sort call there on through from every and sort margins out the then to the year on Anything front, quarter. point the segment we kind builds year? that start move segment as drop calling to Are we quarter margin think first of into the fourth has you're for X assuming then and by

Tom Okray

mean anything full think XX our don't growing overall. segment. growth And and single to guide them to every taking there's particular got margin you call out. I in take bps would we're Yes. margins we're year I we've I where

first to match half second and Our of half. to cadence is our cadence XX-XX EPS going historical

So into QX. I don't think there's anything read to specific

Craig Arnold

than volume Julian. piece, Other the

generally that's a other, really And the but certain why extent there's could know, the we have see and you you reason or cyclicality that's business the issue. our one cyclicality that to we have various slightly As drop segment, play-through more in the between generally in margins primary And different QX. that the QX by businesses.

Tom Okray

Yes. And that's a good point, Craig.

aero that Americas I of segment in down terms go Electrical see think where too. we we well, our in and Electrical as

Craig Arnold

Yes.

Operator

Raso question from David from Evercore. next The is

David Raso

a to a about X.X% a sense I'm in X% cadence be there's all discussed get more kind trying is we particular same the about markets growth, the year, of rest that quarterly just concern slowdown just accelerating. it in The the the half the the areas of other thinking maybe level? you're of could first where organic sales the way sort some quarter, little in back of about at the then

that sort confirm, how you think you can is first of cadence? of So the

Craig Arnold

Yes.

think about large think news great on that's the a we're way think backlogs. sitting mean, the I us very to for I cadence. is I fair

long pocket before some an the revenues. of impact bit so would very extent had can at we our air time little we our to that a backlog for And actually live off it of place, a

forecasting. what labor we numbers -- be think it's would we're the than we're And year, constraints, but I where year those a for think as capacity so constrained, constraints, think about where we still bigger supply currently constraints,

you placeholder think way for And so of good the pattern of I in growth a think a the is should about year. do terms now similar

David Raso

bit proving Just truck later Europe within year, And question back about half is the in leave interplays think the how to of resilient, that. divisions. year? it in those those two and a China Europe at I'll two the interplay And similar in a sort and Global. Electrical of far year the in there? so the Vehicle, auto the on later thought of

Tom Okray

starting felt COVID away COVID As I incrementally it we're the more we anticipated. quicker I to optimistic the mentioned like. They Chinese kind economy over went reignite policy in the through on think China. of what government And Zero overnight, see came we're And than my much commentary, there.

we strengthen. It first than builds, half that And so I better Asia a think think therefore, half. the to China, as second continues that the relatively we and year -- has

a Europe has for is And to more than bit what as more Europe, to we're continued of difficult on think better call incrementally, anticipated I'd there of noted, you I make. XXXX. a sitting today XXXX. be positive most we in little say, here and hang

So respect difficult steady view she of half going a to as different goes really with to call growth. whether planning and year-over-year or the second the in kind of half balanced see a more first for We're we're versus to Europe. not

Operator

question is Chris next from from Snyder UBS. The

Christopher Snyder

of this prepared forward follow Does beat to growth you to the that in company laid just be comment Craig, the annual your if you to would not is fact to I through XXXX? think Or top out does these targets? targets up wanted on the the so Day. ahead remarks at reflect surprised the X% company continue far Investor the do this that range running growth X%

Craig Arnold

Yes.

you X% I running we've I think, look been a target. guidance top around one, XXXX XX% take assuming the to your line point, we to X% certainly are the running a number, ahead. at, growth mean, is if good against

more some well quite growth. positive So ahead growth incrementally of secular trends. we've frankly, become these on And on

topped you I since stimulus out up if those been we goals laid that has a a number than think at take ago. more spending, look year

here growth the of that are climate longer-term today, secular I sit as of change we've resiliency time into going some the you spent are trends. become that these about, on and that if -- we implications today, more positive what talking investments you we tell incrementally think growth about so the a even trends think and lot I of grid would secular

not out now Now may completely play between that and XXXX.

in be going back those. the of could gives these markets going this the capacity we're us a experiencing runway long just of think what's already with and on some in happen longer end of I over That much there's that constraints gating thing to to a some factor. But be industry, the terms term.

Christopher Snyder

China. and in sounds sounds feels the in of even and rate obviously, decently reaccelerate optimistic But given actually like through showing orders kind the that. see the global two appreciate orders that, like the on well. in Europe global could on like Yes. maybe company we it's is direction? It those pipeline. economies to as It right I certainly XXXX with With decelerated. maybe have certainly of starting It change move just the orders that, then

Craig Arnold

it's when I -- you mean, Yes. think say I reaccelerate.

recession I of the rate are anticipating strong very that question will XXXX. could think a but business. of have part, in of still half lot a relative the saw than other growth to would the a maybe hit first world. We we strong most this slowed in very, numbers. from growth, our it that very regions a more Europe in we're had it's what Global we assumption perhaps And impactfully year tied of anticipating around for A of year the global

growth still a And could there's a assume that We slower at growth so going a it our see we -- that That's reacceleration. possibility assumption. base could not we're to rate. see but

Tom Okray

Yes.

but a talked we Global about lot because Let Americas, numbers. punch me a just punch numbers to some just few on

For single Global over trailing centers XX-month have double I residential, well. and We're digits. data high is segment, in in orders significantly mean digit in commercial institution. our XX% is up we high utility doing and

but in Americas So the to very extent of not very Global, strong also growth still sporty.

Operator

final the is question, And Americas. Linzey Mizuho our next which is from Brett in one queue, from

Brett Linzey

I come back wanted Electrical. to to

incremental XX% quarter. margins the reported the So in fourth

year. undisturbed I'm XX% result reflective QX would up. catching with not just chains why about and be guiding resolving price more for the curious only of You're an supply

there's conservatism. course if the through something just curious 'XX So or of else

Craig Arnold

your I'm number can Yes. can things strong say where normal? the that, quarter, had you above I'd very XX% a mix with that in new operating of leaders. good in I mean there's every go that that's discussion against the run. could our QX drove my be and having imagine, quarter same they And Why we and And in in a normally well things of business isn't execution to that positively would go just always those incrementals QX you. direction as Americas

that investments much support from have. think need R&D we an in basis growth to initiatives, standpoint, we the do and make of this And customer go-forward number to We a is as capture right to the the very consistent continue that we've been some planning with to about especially XX% you a think on business and planning where think historically. given

Tom Okray

and take end want for we on the we don't to is coaching, disappoint the just XX% I'll good planning. But Chairman.

beat that. So work hard we'll to

Brett Linzey

this mean, what we And for in just this year? pricing are you maybe year? cycle? more for you're the price Have here? then announcements last of to do any And one context X% component X% this follow-up. made the Where I is there growth for to embedding

Craig Arnold

Yes. be a It lower contributor Certainly, obviously in much the to more for is there And a yes, XXXX. growth it's price to contributed contributes XXXX. do. rate will at than some

are, in the expecting fact, over price positive We see the year. course to of

commodities up have some bit, certainly cases, their We treat back little it a rate but -- we In of today, slowed again. ascent. they're

the front. again. You And copper back really system. on the through Labor the labor is see is certainly right we're now big challenge inflation coming up finding is

course and guidance do be we clearly, much in but we front, you're out, volume. those baked And it's of price are still what XXXX. most rate over it to growth laid experienced the than of lower into so we the on the what And a will have that at numbers certainly work seeing

Yan Jin

have reached end our do of We everybody's the appreciate and call to questions.

and your Have guys. great follow-up day, to address today. will always, available a for questions. you be I joining Thank us As

Operator

And AT&T you for you. conference our for does participation Thank that Service. for using Teleconference today. Thank your and conclude

disconnect. now may You

Eaton (ETN) 8 Feb 232022 Q4 Earnings call transcript