Earnings call transcript Q2 2023

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton's Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] And as a reminder, your conference is being recorded.

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

Yan Jin

Executive Thank second guys. are for us Tom joining Arnold, Officer. Chief Good XXXX you earnings Eaton's Okray, and CEO; quarter Chairman today President call. for and our Financial morning, and all Vice With Craig me

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

calls, we'll of As be questions we our have end commentary. done at Craig’s past closing on the taking

the go we'll and have today available be This our on reconciled including posted webcast appendix. release other adjusted replay. per for in been press The and A on are website of presentation presentation, and through website. measures. flow free our They this will cash the accessible non-GAAP call adjusted share, earnings is

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

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

will I Craig. that, With it over turn to

Craig Arnold

our Yan. performance performances prospects. we're Hey, mark of to end ever, the long Thanks, first conviction one with and pleased of a about our that quarter growth strengthens the our today strongest term

three. with teams to of Page highlights some begin and the our on deliver execution. commitment on good propelled the Our We'll continue markets by both strong of quarter

strong mega and trends, of We driving growth. quarter this revenue, infrastructure posted Well markets, backlogs. with our well. we to executed earnings financial point, understood and our performance margins record And are orders at reindustrialization, spending continuing revenue expand another

margins full to the highlights raise along my is and electrical quarter growing midpoint performance growing backlogs But a adjusted ratio walk backlog and EPS raising at for up growth guidance our up through guidance now book-to-bill what really shortly. the our electrical of our allows We're the once With us XX% and growth is XX%. In guidance. the XXXX our organic you perspective, our X.X our aerospace. details on of our of EPS, for from Tom first will half in are aerospace. again year with XX% both

also strong and billion and $XXX flow, We of and cash than free XXX% respectively. operating generated XXX% $X.X more million

cash Free in the the prior year $XXX above flow year. first almost of half million is

with to deliver despite track on the positioned the receivable full higher for well and we're guidance half. and second So pleased higher year the our balances. Overall, growth results we're

framework summarizes Moving about to Slide simple that four, think our how businesses. key a growth we drivers we provide across wanted to

important getting see we And the the The are megatrends And segments end projects impacting lot at markets. detail, the message these a the left intersection rate without having into trends is long of top are many on is listed the markets. end material our listed these important our impact growth on across of here of the that Eaton is At markets. of page. mega this our of a where list

as and aerospace Reduction minutes mega utility Inflation the look spending on we'll the in infrastructure well and position an a Act, reindustrialization Eaton's update on and really these into impact to of future really intend markets. earnings about the course talk we during today and What quarterly how do end is our Today, trends the to call our spend and at projects markets. few to they

well the since received utility quickly rate this the position our and about extensive markets. sales this market. the initial spending. highlighting segment our Act government of upside We ahead they that of one picked in grow approximately year, It We XX% year. investors questions running largest was continue last some considerable future Electrical projects on Americas also of mega from since is to of its it's to dramatically. Reduction estimates We're becoming Inflation And because

Valor Lastly, business win on platforms, including Bell the we'll outlook, a defense V-XXX commercial growth double-digit and the substantial new highlight our platform. aerospace through ramping

of impact, billion, on expected rescored we're Most due improving Moving estimates infrastructure. can $XXX up five, to is cost times is legislation an X.X government look the nearly the spending to billion. focused and be increased was to tied really have time Act. of incentives Reduction is and uncapped you Slide including what U.S. passage, $XXX At The updated estimates an credits spending And spending as now showing was on the see, Inflation the and the recently significantly. program. to expected

are these to to expected uncapped, continue credits Importantly, because grow. tax they're

much strong a infrastructure the naturally will Eaton benefactor. in the spending, is significant very IRA a targeted for at interest are of it The dollars These of catalyst be industries where implementation stages, has impacted revenue early yet. currently significant impact our XX little provide over years. this next will it and tailwinds the of in book, we and Very think none order is of

in Page category. chart introduced North America. billion projects recall you growth We of we projects $X six, And an quarter. last this are On that included continued announced have this we in chart that mega will than showing updated greater the

has value and or by The projects billion mega increased $XXX June. announced of March XX% between

we'd the to category to continue So and trends. expect grow above historical the continues at momentum well

announcements semiconductor battery seen for plants We've recent and plants. EV, new

of $XXX billion few and include major a other $XX gas and So LNG really across projects or of of export energy power projects. $XX billion the chemical, of and board, examples billion terminals, oil some and generation downstream the renewable

construction reminder, a industrial another Just pace. projects activity. started, the beginning mega for to U.S. on just XX-month we're trend. data at And on you these so if at have mega -- of XX-month this reindustrialization continues Data manufacturing only point, basis, a record With rolling XX-month expand and up basis as up confirming a LNG XX% XX% projects Dodge of starts, XX% the a include

we X% remind to projects you Lastly, content. between X% have I and each mega that these electrical of expect

we segment the of utility Page business. to seven, Moving highlight Americas the

as an slow growth even revenue bigger percent a market represents segment As of and in XXXX this the viewed we historically but Electrical generally We've digits. reported, in for to stable XX% approximately low business, single date. the utility accounted Americas

X%. globally, Over at a utility growing distribution for CAGR decade, XX% utility next total of will of CapEx the account CapEx the

Over the an expect 'XX CAGR. XX% 'XX period, we would to

the The sustainability are and energy, infrastructure. initiatives customers grid safety And impact increase, across maintain to world are and an significantly the enhance grid This our globe increasingly government it outlook. this electrical number. aging includes have of needs, electrification the incentives reliability, renewable all modernization, boosted challenging needs of growth of continue finding to this while to utility everything, contributing

and XX% to increased major families, our new worth organic XX utility Americas, in this capital line growth highlighting and making three quarter, As point voltage transformers, product segment. already regulators, insulation capacity over XX% over Americas backlog of It's has a our U.S. business in the and grew old. reference, investments revenues have in We're committed and in years XX%, XX% naturally our address products. lines the here that global are of distribution transmission to

market this grid what graphics And primarily place the integrate not Page this demand the on resiliency, increased in pleased highlight be The given segment. Eaton's increased we to significant services, the unique need distribution. America for changes could including on where eight to renewables North with taking we're offer position the focused we have for undergrounding utility in in more market,

this a that we in from can market. You see have broad position slide the

utility engineering of software, critical In automation design solutions. This industry's includes as a grid utility services, portfolio planning fact, we and project offering extensive have as the software, of products, management complete broadest expertise. well

offer hardware, substations. range also enabled for a controllers, We digitally underground broad of overhead edge grid and for

as well substation automation, solution includes planning software, distribution Brightlayer as management. for utility communication and grid distribution our Lastly, demand centers and smart

also portfolio hardware of grid regulators, and range of So distribution, software smart overall, solutions. power for quarter, voltage substantial utility in we're metering services. in a we hardware, including market, digital our support wins the digitally solutions given in solutions in SIM, for well we our call the And software, in planning, positioned enabled broad and

nine, highlight growth we'd well-known another aerospace to Moving to Page trend, markets. like the in

As volumes expected production spending. and very rebound to commercial platforms. Airbus we driven significantly of their each are double-digit commercial as important Boeing by materially increase defense production are be expected increase you XXXX, and in in strong can increase years in on the The see, commercial to now aftermarket expect OEM, both market is between most the and growth

of is production on to increase to from XX to month XXXX. by to production is timeframe. XX to per And and increase between currently the from per XXXX expected expected to XXX AXXX year, is in grow and XX XX per levels Airbus 'XX per this global month the to now month on XX% Boeing the at CAGR example, travel 'XX month end return the by For air passenger to a XX XXXX. And expected currently

our conflicts, equipment type spending driven fleet expect also allocating increased We improve defense more to by and global governments to dollars to readiness. various see of

those ramped up. key our is positioned being both business well especially new and aerospace targeted organization, from on Our platforms, are platforms our that defense

ramping On cases, Slide representation of aircraft. term, single XX, the next growth platforms about, than near are of years, next the future listed the so more on key In the a are we decades. to group for platforms and ever These a high content good platforms have much of here. in five aisle growth the and driving all important today that these in growth over future into you addition volume new platforms critical each hear

the Valor program. win the and helicopter, is The category, are we Blackhawk five more the future replacement with showing the VXX times on we're content opportunities. bidding next a will the for ramping the still In and year. bow in that KC-XXA, VXX will have term, growth to put the in We revenue next beginning and near our the F-XX and be aircraft contribute materially for more category, a

X platform. per you content aircraft our legacy see, As to Xx is here can

The COVID And starting the up. weak and beginning body and during haul again see wide to has period, market. growth the in pick especially COVID lastly, post been once market to is we're now long

increased programs these here these we'd message -- is faster our content important programs. grow than programs end markets, these expect the up, each that ramp to The of given on as

aerospace per between increase business significant So our over expected see the or recovery content growth is next even years longer. to market and platform, five

to us turn slides. who'll take Tom, I'll Now, through financial the it over

Tom Okray

an incremental margins all-time to quarter posted QX. time start double-digit providing by be record. Craig. a also organic points all quarterly Organic record of quarterly growth. with in the Thanks, growth We XX% row Operating expanded sixth from sequentially solid of XX% continues XX% basis to results. summary segment a an in our QX up XX% margins XX.X%, record the for quarter, I'll up XXX and profit strong, grew

above Adjusted year an end prior well EPS time all increased of over record, and high range. the our by guidance XX% quarterly the to $X.XX

strong XXX adjusted up basis XX%, margins at year points, with organic growth had half margin of XX%. segment EPS first start XX% up to the very we've incremental results, and Looking a our up growth

we were the customers million. supply to invest half working flow that explained to The free and we orders. capital we their working making a protect a increase first of Finally, earnings our XXX together better able optimize improving, deliberate are year, year now to last in the cash result is with decision strong in With capital. in to XXX% chains

quarters chart, six is on top organic for to XX%. business. another of XX% are of two Electrical Beginning We Moving growth margin. a having stack On growth The favorable generated very the five U.S. for our than next the quarters, up quarter. and with strong quarterly records organic very profit strong. double-digit Americas with XX%. consecutive on sales growth set line, megatrends the business our sales, Electrical operating impact Americas segment delivered a remains time year organic has greater all

quarter, in up margin industrial nearly of effective Operating and from commercial of of in growth price all there prior end XX% markets, higher end was and and was volumes year, growth XXX management center, data especially with institutional markets. broad-based cost. to basis versus points robust utility, XX.X% the In XX% benefiting

million, rolling and It's secured strength large We above support we for AI including a and backlog markets. worth and projections. centers orders distributed nearly IT, commercial X. worth two and that sequentially center Book-to-bill with basis, particular industrial customers' growth grew content On by ratio noting X%. these remains increased data XX-month $XXX institutional data to end X% orders year-over-year in XX%

data negotiations stack, continues negotiation major to project government, our in QX was On up a transportation very Americas growth than more Electrical year. institutional, a was XX%. sequentially and prior center, especially year and markets. Finally, two-year nearly care have Overall, XX% pipeline pipeline in up strong our health X% versus from strong

of of was sequentially, segment, partially billion. offset Global the XX, $X.X Page small cost our all-time end Organic distributed by sales decline of margin find prior improved mix, price On and was points XX% of a was effective record in divestiture. you'll growth unfavorable results Electrical stack broad-based center of industrial basis compared strength year. -- by The XX which growth. offset data X%, represents up two-year IT prior utility, product by organic XX basis growth driven This driven which was nearly volumes. a The posted was Operating to year-over-year down but points and XX.X% higher mostly and management markets. partially by

Orders strength utility end a in and were and center XX-month up on IT basis markets. X% with rolling data

Importantly, than remained greater book-to-bill X.

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

with grew our XX%. For strong segment was business. very points at sector We XX-month On up Electrical QX, margin in of posted remain Electrical positioning prior basis, growth remains in margins for organic XXX our margin our for our very growth strong continued we over and confident book-to-bill XX%, record and incremental overall our X.X basis of which of a backlog XX.X%, year. XX% rolling

driven slide Aerospace XX% strong Organic in double-digit by XX sales particularly and next in commercial growth last year posted operating quarter. an was with was XX%, profit record respectively. segment. the five six across Operating volumes. posted up aftermarket, was highlights XX% all and driven We quarters margin primarily and growth a Growth were segment. this markets OEM up quarterly over which our the strength broad XX.X%, points We've QX basis of all-time growth for The higher by last commercial in record.

defense. up organically XX% very XX-month be from with in orders for strong On QX, in defense, especially XX% QX. book-to-bill Year-over-year in to to aftermarket growth X.X in for and and OEM strong. with line a basis, Aerospace QX continue in QX rolling at both orders XX% growth backlog commercial a basis, and increased in growth times. Growth in backlog up On very our rolling remains strong XX-month accelerated

QX, America light up We Vehicle all Operating organic to EMEA XX.X%. margins up vehicle, digits. double at In was strong APAC on and segment growth Moving on our particularly Page XX. saw X%. in North growth in came markets,

manufacturing During which our facilities, XX sequential points. contributed the basis quarter, we delivered to in improvement of improvements margin

valve to to technology tied win continue including We clean business multiple programs. solutions, actuation clean new commercial

multiple program per in length Additionally, $XX volume OEMs. over we've million and won year with extensions increases

versus Margin prospects remain year, Page results we of show segment. XXX strong our Organic basis improved by generated another growth. driven higher On volumes. quarter up mostly XX, We business. for the of eMobility was encouraged points XX%. revenue growth we eMobility very prior by the Overall,

to new So of target XXXX, Through wins, revenues, mature expertise very far to across in year with we have billion of of segments. well we to find continue won these programs more all leverage our XXXX than $XXX us $X.X million exceed positioning opportunities revenue.

to For heated OEM an emissions example, meet electrically a reached control an for supply we've unit power regulations. major agreement to catalyst electronics with

also This from extensive portfolio, vehicle connectors Power fuses. expertise industrial We've content our to electrical technology win and entire man power on capitalized ability demonstrates protection capabilities and and added across Royal in both Eaton's in leverage businesses, acquisition. our as brake torque, including such bus core our

We XX. show backlog updated and QX. Page our to Aerospace Moving Electrical through

see, build backlog $X.X billion, we QX XXX% to can X%. a backlog of about sequential is stepping Electrical you XXX% since of up continue increase than As XXXX. QX with to XXXX and higher over Electrical up

With our book-to-bill than is QX backlogs, orders a steady since high X X.X it Electrical billion. our and Aerospace likely key is to is levels QX markets, was backlog the over in XX-month with XXXX metric and have at into that record over going This will which over come. rolling horizon. forward, our of higher gives our both remaining outlook holding backlog tailwinds at levels high think is end a us the enhances all book-to-bill On XXXX. XXX% Aerospace XX% times and we increase planning in we quarters a that again $X for yet the of confidence absolute visibility basis,

guidance. growth operating the and On year organic fiscal we next show margin our page,

raising XXXX our organic to starting business. from Electrical points basis XX% growth Americas XXX are for for total the represents company. improvement guidance We XXX XX% and We now point from basis in prior organic guidance our up guidance. a for This XX%, our the both XX% to expect in Electrical Americas growth of XXXX

we're from guidance. XX% organic our a outlook total, midpoint XX%, our midpoint In raising XXXX of to up growth in prior a

negotiations forecast, Our market and expanding tremendous and growth strong outlook. backlog visibility XXXX pipeline this in end building provide confidence

on the from to improved strong halfway of increased XX.X% For a to result new The of This segment year midpoint is Americas execution. outlook margins, to point our a another a are basis margin the increasing prior we now points where well an XX basis summary, basis margins. of financial XXXX continued range our points XX.X% remain outlook increased In of of all-time at we to XX.X% XX positioned by Eaton the a operational very we strong XXX range mark, range from in range and total Electrical record guidance demand represents by performance. increase deliver strong XX.X%.

guidance for On the have next page, metrics and QX. we additional XXXX

full Following performance we're the represents growth the At currency for expect expectations in neutral we roughly to growth our prior translation the $X.XX. half We This have first unchanged. to guidance raising year, and and $X.XX, remainder full adjusted over year. raised be by year in $X.XX year our EPS midpoint, the to organic improved strong and now guidance XXXX of range EPS our remains $X.XX. XX%

year basis adjusted the and X% prior range the at For the XX.X% margins XX% of to QX, and XX%. a versus to of representing prior growth XX% $X.XX year, we're $X.XX, XXX in at point increase of EPS midpoint guiding Segment between organic versus midpoint. a improvement

presentation. back I'll wrap to to up hand it the Craig Now

Craig Arnold

Thanks, Tom.

to turning XX. Now Page

double-digit to our for institutional quarter, last flat our strong to and we growth our growth. and increased the assumption from data market commercial outlook center declining. residential double-digit raised increasing As assumption the utility we strong We're now a to growth, growth for reminder, market markets for

addition And are stronger data see double-digit center market as anticipated as to electrical to expect being their than EVs market. infrastructure high demand In the penetration in new levels increase we remain well. to continue growth existing buildings demand now projects, continues very and with retrofitted for more to at in this

The well our end markets projections. perform balance tracking continue prior along to our and of are

our the while we expect growth So all outlook of almost macroeconomic choppy, to remains continue markets. in

Page summary I'll close on with a XX.

As you that year, are strong will many think come. markets how feeling we our years good be can for performing about and this tell, we're more to

discussed fact, we've trends expected In more impactful time than are anticipated. the that be mega for to some now we even originally

markets also had records. another delivered Our financial and quarter we the that strong are but results a execution set of included solid of strong, in number

the look back half into great year as And provides the growth our visibility and we increasing our backlog on to outlook. XXXX, of

our and As noted, growth second and EPS Electrical Americas the we our guidance time, business, records. to continues largest raised post for new for

questions up open may With that, we'll it for have. you

Yan Jin

Craig. Thanks,

For to that, everyone operator guys the your the Q&A to today, instructions. for the follow-up. one please you question With turn limit cooperation. I give Thanks and to over it just your will opportunity one

Operator

[Operator Instructions] Our first question Goldman Joe go from Sachs. will come from the line ahead. Ritchie of Please

Joe Ritchie

Good everyone. congrats, And Thanks. morning.

you AI maybe first quarter. called question, just going that there's help of a orders this that -- my what means large conceptualize Craig, lot center discussion wins content that and of for to look, those for around out guys? what means booked So few data business curious, that's that from just I'm kind data your shifting how you you into guys and that's a per how now center generative like of

Craig Arnold

talked market, on center strong there's But and around been it's we've for to for it's you On only time now, as not kind world, been and that And the I has some has calls would AI appreciate data these digit. data know a been of been market side, double multiple growing question, years. tell strong the about centers. AI Joe. at going the I discussion that how of impact lot I

of players of that we intensity. And yet. center with that is that with the do centers, future. wins A and to A lot big their trying the sort to to configure increased I'd impact say that energy this the you out they're the quarter, the way the are of still most major in the lot data has booked deal AI tell going to during nothing AI really data I'd environment

So of for has that very really data AI. whole I'd impact not another quarter say, emergence yet wins seen just of it was strong us, the this of generative center

are strong it's -- market keep well feeling and market about and we're positioned to we're longer there. time, period So and think generative we AI just a great implications that much going for downstream of its that

Joe Ritchie

maybe to hear. for you. broader backlog That's the and around providing just a And that of your visibility great question type it's

able like last And Trying double well to year and for it you're through I so. kind whether you really wouldn't to think very your be -- today think year. digits you to the why do I asked grow backlog of means and implications on looks track this of XXXX beyond. now that what

around would be comments helpful. that any So

Craig Arnold

for the your as guidance But backlog early Yes. would the a not year this you to still grow. at do fact mean, an given normally XXXX, I to do to of end imagine, I point, position opportunity the probably to and year, we'll towards point as in we it's mean the have continues can that that so. we're in the provide

months. as backlog, much gives the visibility, better historically, had we've multiples better than up you the outlook saw of upcoming reports, XX And we've where been to which in visibly the XX into these ever for us is

for good year on for we're look another the some guidance process of XXXX very what so and the giving our feeling And what is strong company, the will year and looks as certainly going we'll to timing outlook. It a about like be part like. normal growth provide

certainly is and to given look with year has us it that where it the what where backlog historically. the think lot respect going to of courage we been growth the to like, a relative gives But is

Tom Okray

context lead a certainly, a that on to at. very it's we look order lot little Maybe at you with But bit. we and I times can We've have and that piggy in it together delivery on that's important the look that have. important historically a just the intake of to times of focus back backlog this that high metric seen protracted

So at Craig confident scenarios with to that went various intake historical through modeling coverage. you nearly timing backlog years times order backlog organic two we're robust we to, X where declines we're that will out. not as combine three growth, alluded hit until historical And our we look and our coverage

So the really we're very that and bullish order gives mute to transparency the backlog does the and on order intake us, it bit. decline a little

Joe Ritchie

you. Thank helpful. Super

Operator

Morgan Your next Pokrzywinski Josh question is from go ahead. Stanley. Please

Josh Pokrzywinski

good guys. Hey, morning

from of Slide feel have you guys I some guess, of I just really job So of five, would mega I done stuff the majority an of a that. with announcements, on vast like whether are some us in great projects order the the imagine Maybe in really book. that it's or, kind of the looking where we update not IRA. is scoring give background the through

was. where or interaction engagement log, kind of about we forget what initial exact orders of through But customer those front the or discussions term yet? I high talked are or the really You kind

Craig Arnold

do certainly and is, the or think spending We about. government respect think, impact whether important of point these spending No, projects it the our most order and talking we our has not is or of kind and is big book, at get fact some an of the I this that we're up really commentary, Josh, I one this has in the showed not government messages around stimulus to key impact stimulus important your revenues. appreciate message to that that of it's to shown in mega with up the head its this think

we've that the about tied half that about some that of talk projects infrastructure of visibility. of have really $X we projects these a been billion of ultimately that. $X won quote, of total and we visibility But have small that out to, billion some to spent we some talked the did will to infrastructure projects, on be other We of that about. won dollars is piece mega

respect us for structural very with you is that innings long-term us still rates. goodness this more, with to with basis. a learn as early is our underlying the growth fact the future. so in do we've on we're what And the it's that respect most business calls, of really we'll a confidence what to continue quarterly report shared that we're it and a to programs on we'll we is talking dealing and that gives the But forward-looking here encouraged these And with by out shift about certainly

Josh Pokrzywinski

Got seeing it. And then But or you think up? normalization and explained. your and now respecting of that helpful. have through going what that that normalization a Obviously, show orders seeing longer had with a That's kind destock you into either peers lead just are you're some right up show follow-up, of lead switchgear part parts that. quick of Electrical in shorter and cadence orders? I Are it. seen where guys any like time kind of cycle have are guys things like maybe just own time maybe their backlog the fall cycle of don't

Craig Arnold

markets, whether seeing the we seen three nicely lead moderate than any of times But a those business, end clearly have result that's other pieces shorter short-cycle being strength the distributed more times of in in not obviously, end resi cycle happening destocking that in come IT, slowdown be in markets. have those have quite the we've that OEM in in what's serve. in those three we seen larger segments orders the in, and businesses, as We're business, around point, overall Yes. your lead to short-cycle markets fact, or in across would or orders we but clearly three channel seen by certainly the a much that three come offset those

Josh Pokrzywinski

lot a Thanks always. guys. colors Helpful

Operator

of The next from Snyder Please go Chris the question is line ahead. from UBS.

Chris Snyder

Thank you. not I on like specifically And back of there most follow it will up around Inflation orders Is across IRA much various IRA. you that Josh's when the you. sounds which lines, in want the Reduction to look could orders the to specifically? ones XXXX? reasonable company's Act. question, start on And all It yet from Thank benefit do coming think think through business we the the

Craig Arnold

timing, these as have. terms term. and the start think year best about expect end clarified tend much longer would that early And I negotiations and much than at be the of case going think some of XXXX, but be of know, sure, to a Yes, as to orders support the stock shipments projects mega mega for we by projects, see we those are projects do maybe to the you we business longer some in just the show at these be to tend flow definition, projects up cycle in XXXX, to to lot and dollars typical begin

so we show next would year. begin to expect see to And up that start to

benefit I mean point on your I'm would the sure not clearly... Now which companies most, --

Chris Snyder

Sorry, verticals which company. -- there's within within apologize. the verticals I so

Craig Arnold

sorry? I'm

Chris Snyder

Sorry, which company? the within vertical

Craig Arnold

participate they we've mega various give Slide verticals we presentation Yes. in our and out verticals our think Slide how because key trends really various I'd on you the commentary tried clearly, appreciate -- your as a about for to say that on and four, what this we of do in. four that impact is PowerPoint sense the we was and in kind to laid the

segment. but is plays I'd that look segments impacts across broad, show very say, it will the if board most most news Industrial the and infrastructure the So great for say in materially, our you it at of us is spending, I'd certainly up

end most battery new across factories what facilities. up what's lot the in we factories, what's But investments going the a show pretty will and If EV chemical of it participate. in we going about you does broadly industrial of which cut today it really on markets the space, on think call in in in in

Chris Snyder

should You maybe about on How that comment. lag that leading starts now kind the activity we it think, think to are which manufacturing that. has cycle long starts very the business the these to place. absolutely. of I seen for when Then revenue start generating your guys to massive up flows projects. Everyone, very in much I put that's said No, following higher appreciate from in Eaton? industrial

of you? facility of generate Just kind you. wondering kind single how of revenue kind Thank long for

Craig Arnold

question. Yes. No, I that appreciate

projects, to mega significant seen to shipment. project months, of we same longer long a question. could fair of spent it six From as in time nature. three these short order internally lot And a varies the referring negotiation mega to when imagine, think about can the a be years. these could as And an order type widely say to. the And as you trying answer upon to I'd As negotiation, announcement and tend depending as an to a you you're it we've be amount be to as it they do projects, of transition

virtue by end tend be these size they to of the just cycle So that would projects. the on of longer of

Tom Okray

And give the nice think the some Act EU just to back time. Act, and I to the we about going in in, we've put we quite I to Reduction attention, prepared for going Infrastructure Europe, like plan. a And then got just it but billion exciting your and Act, quarter it, in as in us come remarks, to act coming thing Inflation is each purposes, mean, recovery the that forward said CHIPS draw see $XXX for the particular we illustrative the also cadence

stimulus there's government all you just together, a business. of parts this So of key when supporting our ton put

Chris Snyder

Thank you.

Operator

Nicole question Please from next go ahead. Deutsche Our Bank. is DeBlase from

Nicole DeBlase

second free Maybe I Good of cash flow the thanks. guys a guys. drivers that half? just flow. morning, but with free sure consistent. of you on EPS that? Can pretty the raised your the noticed capital by just I'm And to do talk plans working about guidance considerable part has Thanks. amount Yes, cash you for remain

Tom Okray

do, right Nicole. it great and by want it's That lot to we going. guidance Obviously, do working free around, we range give majority get improved we on another be cash it, within a happy up margin is conversion $XXX with earnings. the days. to cycle That's we'd about. capital take debated, We way our call because from The optimization have quarter. higher. $XXX even $XXX let's cash and were of of said, now, And cash almost We're was up up flow. XXX% million still We've thought was something Yes. work fits free happy to flow it kind question, the nine that We million a we the million. up of

Craig Arnold

into add, well, obviously putting grow just cash receivable. more we we're as I'll as And

the having to of as -- fund capital as higher growth. And we're result so a it's increased well the all working

Nicole DeBlase

strength there signs Got it. questions within any the there. guys vertical, slowing And patches on like whole are then activity? ongoing Were you sense. of Are any Makes obviously, the the seeing non-resi about non-resi complex?

Craig Arnold

seen little slowdown is we your mentioned, I And seen Yes. No, of well. market context I most a have the of the non-resi. as specifically, what appreciate distributed on the as the laid a about think mean, do it call just question. slowdown what And MOEM call that we've we end IT. out have once we the a of again, we if question in you of bit And we what the we in segment Slide of market in in segments four, context

for than segments verticals other those offsetting in are clearly tend weakness. -- growth those Fortunately, of the be that to smaller market and us, is more the the

as have other of bit those a two slowdown little well. verticals We seen a in

Tom Okray

first I in year growth, markets. said, up mean, That if the you of we're every look single the half at organic end

Some of others. than more significant them obviously

Craig Arnold

including And numbers. took we which our resi,

and recall as If doing call, took where have began took market our the the anticipated quarter up been in that, resi we down, market much you the point originally for that would we the than, year. to resi, we in from quite we actually the up is year better prior where the we thought outlook frankly,

Tom Okray

year. half is MOEM And also the of up first Absolutely.

Nicole DeBlase

pass I’ll Excellent. Thanks guys, it on.

Operator

ahead. is Raso next Evercore from Please The go ISI. from question David

David Raso

been the say, this has per you percent back year, XX.X earlier. as missed Electrical of half 'XX, first about pricing, Americas, thank quarter organic The apologize of I very 'XX, the second And more of you're the and obviously, the cycle smaller, just get sense megatrend a businesses. assumption just for is the to the a whatever I'm shorter sense then in backlog the little a willing the discuss? half, backlog? projects the Hi, right? we're for bit like, looking even than of, much. or trying I that the guide. to if What growth growth, that's The pricing

trying a overall relative growth? get to I'm sales So to that pricing sense of the dynamic just organic

Craig Arnold

the really appreciate the of the comparable. growth Dave. Yes, And strong half are I reasons we say in the I'd a second one between is and first half slowdown that forecasting question, the why

a If was were year. lot contributions we we're you the of of and of less some getting lot quite half price, and for this year, frankly, a back the look that, at price back half up XX% in the

you for XXXX, a a the When at priced. back was half, a really actually is versus which look two-year stack, the of about lot growth It's take essentially same. essentially the normalizing strong on essentially XX% it

our much terms say in of likely will we price repriced In it. as would we of of the one you I the was backlog, actually that backlog and that things recall, did

Electrical we're what business so business, is is you underlying a material lot as long think the and of the performance the it's Americas the seeing backlog expect out if so on don't of that of a And it. you're today, have ship performance about to in backlog underlying impact essentially. we shipping backlog We because the

David Raso

just volumes of away shouldn't of then shorter I half I'm trying even to cycle these supply or the chains businesses get that about you And to year that fade versus some down. if Obviously, improving. half in of what demand guide the drivers price essentially and quickly discuss volume the just balance little the year? the exiting detail more to the trying of are some turning to back think The year. maybe guess back want a trying on that. for XQ, are

Craig Arnold

I we've to we're that Sure. to trying between not and provide going these really get price know it. calls, you're on you told volume the at Sure. before split

greater And are volume tell from than price you the just in so from half we year. the that what I we is are much getting contributions would second of

David Raso

so much. Thank you appreciate. I

Craig Arnold

Dave. you, Thank Appreciate.

Tom Okray

can we've which guide. fiscal points I growth do the the the organic pretty prepared Electrical back is on you at year Yes. And basis is I it, mean half. But the keep we implied Americas fairly step back since original when XX%, the in all in our the raised and for overall, XXX guide aggressive. remarks, context sporty. math Obviously, think look of

Craig Arnold

growing. are we think get love volumes can't. I XX% we could price, to And but

Operator

Mitchell Julian from Please ahead. is from Barclays. question next go The

Julian Mitchell

Thanks. start the to Electrical Good business. morning. wanted I just with Global

just sort the us of some a I of and help very when to driving of growth half of understand are are that to bit markets You pickup? strong you an margin to profitability think double-digit expecting the mentioned in Maybe second is maybe sort the And acceleration levels that How in close main the got the in Global, which in that turnaround weakness back you've Electrical nice some profit that those look year-on-year drivers at weaker. of little half. last? we long

Craig Arnold

seeing would would basis, we're same wouldn't growing the call not those say that certainly, say relative growing appreciate rate I I attractive a the I And Julian. the weak. question, on that Americas. markets at growth. as in is Global Electrical those still But are I pretty markets

commentary Tom, first the our a the have in half challenge mentioned in to QX. the particular we second to mix versus we some respect of did business Electrical With in half, Europe and as you

to half we of not due were normal back the to believe a And level margins have and specific do And half, so that do business. some profitability we second they second upon gets the based back the the held repeat, in of year. those visibility very into in mix-related issues that the that more business

We going that high have to that's take confidence pretty place.

Tom Okray

couple in of A manufacturing. in areas higher productivity mix of of half other Yes. we're back the counting in in is being that terms on and addition volume to better our terms

Julian Mitchell

sure from you. one XX-plus That's of about Eaton. was a but thought electrical because when last to your towards think really gone I'm three hazard I'd revenue not check XX% I it helpful. at Thank guess at of years at And focus of morning. you're this, then peers the company, just backlog in you coverage, total your percent sort in But this it's sort

backlog maybe of of mega of it of also normalizing have backlog stay trend to put customers I'm you for which there of normalize of at Because to a not sales. fine lot that once seem pace to may very of talking point a it exposure, as just a view peers backlog sort XX% Eaton companies good lead your the that sort times. normalize? long, sense experience starts guess your I that on is to move but the to who Some the sales about down they're peaks, doesn't of asking other

Craig Arnold

right, business, in it you and the the portfolio and you so it's about impacted talk would unknowable, four we important to megatrends. talking And of by I how say Eaton's terms Julian. many appreciate future in presentation though, uncertainty that's these the the our given like. if think ways, various what question, was in looks thought PowerPoint to breadth I Slide why we're the of about our go about back around

And these would really are Eaton some electrical of tell how markets as not megatrends. but say the I makes And and from end markets these other each of and here portfolio others. to you that unique of that the just serve same exposed we them some would companies, what we benefiting the I aren't are is breadth and our

trends a would so these to, other electrical likely much number exposure you're referring but have And say what I'm not sure electrical particular period to we companies. would that I than of broader

Tom Okray

think Yes. think I remarks, in And bears I mean, prepared but repeating. included we had that, just add it the it I to to

going 'XX. XXX% down. quarter mentioned, mega up trends with end the the backlog stimulus the we all the the secular of is that projects, spends, don't just discussion And the Our of Craig since a have backlog in lot about

Craig Arnold

play factories And are example, infrastructure on play certain there side. electrical who the inside for if you heavily don't would -- companies, think maybe I who mean of

We are a player. infrastructure massive

than We in want in peers. just peers think you our Eaton in function and terms other fact growth just of I have necessarily correlation we different peers announced a out so seen in other obviously And can't very us a straight-line versus you this quarter the some too, play the to there's of markets electrical end that very difference of our point number between a about and them. a that of companies, draw as really

Tom Okray

as mix to the direct nice with customer. through going that have projects of also channel mega big as We the well these

So we've area. in got well this that nice balance as

Craig Arnold

the look an experiencing want And number Tom one think you of is important take draw to if on our line notion I is a up that, to around these picking to our channel not And projects distribution. own happening what talking direct this Tom's with that you mega the are a flowing a are straight in through that really at about, the big we're what's seeing you're is oftentimes, between point, point in distributors, infrastructure-related investments, lot of that we're what the distribution these in big projects business.

between will distributors also you perhaps some versus decoupling of perform see how we could well. a So the electrical as

Julian Mitchell

Thank That’s helpful. very you.

Operator

go from The Jefferies. ahead. of is Steve the Please line Volkmann question next from

Steve Volkmann

robust. outlook, I I'm curious Great. your that Thanks looks five the real to for fitting how to years? ramp OE will to in. you me of three Aerospace, could. you comments mix I the impact right? very outlined of medium-term in know, on appreciate there the think I sort margin over there. next sort I I switch wanted actually appreciate if your comments

Craig Arnold

the little revenue of are at be both understandably to the aftermarket ramping. But miles, I fact and poking pieces news both is we're well of essentially margins. OE to what good a question really finding and you're here that is OE appreciate kind revenue passenger below business aftermarket, the tied which that those tend margins is passenger or of kilometers bit the

OE And reported quarter saw if aftermarket we in we side. numbers, our you did in the heard what the on in actually growth than even we more

we as for the anticipate ramp look so this years. we side next And the forecast the to don't on a of impact negative number from mix OE out

certainly point, many that's margins, in your to on a aftermarket, in not it way, negative but if our it you would OE something is get impact ever have it there anticipation. But inverted watch to is isn't, and certainly growing

Tom Okray

And remind is numbers is the here, a couple of and in that's trailing you, with XX Yes. months both XX aftermarket commercial. really XX% XX%, on to or just rolling defense months and

Craig Arnold

is the And OE which really and aftermarket, important point.

Steve Volkmann

don't at multiple we're longer-term period levels quick And the these very one just then businesses, all have just mean, compounded question, over a here. And past. strong helpful. these in types super I going given years to That's we've all growth trends Great. across I of obviously think your of Craig.

a you seem longer of growth really the kind do inflecting term? for So how think about they're capacity rates like of because here

Craig Arnold

No.

First perhaps and different electrical your Eaton is This one a different grandfather absolutely very of a right. grandmother the knew. all, industry, that very you're than

a we result in some of We talked space. are And of about the utility so we're equipment. the the as big that, last it in capital sizable call, that in earnings making fairly making investments investments

And right investments are I capital ongoing in insulation over mentioned made capacity the investments in some capacity, last transformer we in my our years. and line products. commentary, now. essentially at both couple We've are outfield regulators breaker fairly sizable made that These of circuit investments

so we capital having to invest in And equipment. are more

things, of of more of maybe overall would the maybe big but the manageable another investment the I sales, of sales, company. the X.X% in context tick is even say level percent of going But of scheme growth in the to well very up

Tom Okray

Yes.

of is and the thing is important our hyper our really strategy session. with capacity just the part The And there. big Board that meeting focus We're recently was this growth. a to related

hungry. a We're very There's the on very lot we're table. food So of hungry.

Steve Volkmann

Well, Thank lunch. let Great. after you. I’ll that you go

Operator

question Research. next from Nigel Wolfe is from Coe Please The go ahead.

Nigel Coe

Thanks. me. good Good sounds afternoon. Lunch to

gram. of lot a cut we've So

So to back Electrical.

activity think think in C&I load increasing couple years? you're in it mentioned, I activity, Craig, of But you was what know within about relation that You the the I particular. retrofits over and content, was end in past, And develops this about charging you talk I next how to specifically. seeing I which just think in relation maybe markets talked to and retrofit think,

Craig Arnold

infrastructure do Yes. around more think put happening in support feeling about institutional. growth all the simply experiencing around electricity and today today, for grid. And a is charging to -- we're what commercial if being of the in growth you No, that in question. the appreciate are certainly this incrementally what's the investments we we and demand growth the positive on in are the why And bit the EV electrification, and

important can terms of what terms growth, And of that will an it needed we're the in it we're we're contribute the seeing to in that of -- with new to is of you impact that tell piece not versus build, growth. impact enough like of smart say, the not of degree so do quantifying probably I precision. I the today

we impact had the quantify to try the to retrofits stuff? are build new you do out. How things and it But to of answers. right really and pen put to We're really moving paper frankly, now so those quite versus chance through a of haven't questions quickly work trying that, some figure

support it modifications, we lot But to point, retrofits in to charging, of battery your an your investments a into we're going of are and a whether it's lot to EV see, that made to electrical buildings see that these improve additions storage, capacity new the and we're go existing of addition both of buildings whether electrical commercial of it's to going to residential are in being to all and solar, a resiliency, buildings. see to in going put the infrastructure offices or support will in home

us, still but one one to get answer than quantify. we're this little topic But certainly little that. you for be better a But smarter on a trying an important and

Nigel Coe

are No, just then does there maybe the increase in when softer. does thinking side I seeing market? AI the I'm Doesn't just out the then GPU this revenue racks, Any per of look agree. be be I you there might China this weakness? of perhaps And the total about like signs want of would centers, -- helpful. on a think megawatts? but the other and to it, are the there? Or data of weakness of megawatts sort signs take bit any And -- any you increase thoughts generative

Craig Arnold

weakness, Yes. signs we're hyperscalers, colo, data it's at seeing Globally, not whether any seeing would question, of first on-prem. We're mean, the the really. just market. either geographically I it to seeing whether your we're center around in say, or mean, we're strength the are not we world. seeing seeing I I

going impact to back And don't then we you is they're centers But need still once -- these power. up. going Certainly, to to the data around configured. racks that on question and the understand go power point density, they're way The more we important going know. get around to to AI's again, be this

innings, We one well early we know it's to the the owe to we and going to owe an you going to how centers configuring providers as But of all data be to they're they're data be it's we and reconfigured. as on think yet say, going days, don't answer. how around have that an we ourselves answer to early talk that how we one big we're center I know these in answers the and change. they're still to some continue

Tom Okray

the on just Craig's year, of seeing And digit. point the in the a question board. or hyperscale, the it double digits Yes. robust grew in more mid-double bit world centers, of a or little XXs. first grew for including slowing. part matter on the Each your data the It's growth We're of XXs half across just in whether

Nigel Coe

Okay, lot. that’s Thanks great detail. a

Operator

the Tusa JPMorgan. from Steve Please And from go next is question ahead.

Steve Tusa

and When in. that? the second said me by fitting the what greater do half Do you mean you for in you on volume just bit of Thanks half? volume be first color from that? year, mean more exactly contributions versus maybe just towards that you you by what in Or a half the skew to little the expect second more the meant price

Craig Arnold

showed most we price about modest we you in Steve, big half Yes, got in We of year. the we're that last some the that's most business, last of those if think because of year. in increases most our of this that half increases got of up increases primarily to, price big but the second price year, the what referring put through second

and really XXXX, those baked increases they're now. comparable for the we're right into XXXX, anniversarying big So

in second more contribution And to so of price just to growth, a we're the on going half from relative year. the it than volume offer basis, giving the on relative we

Steve Tusa

off quarter just the here? tinker half, business. Okay. our Americas That's little should I helpful. sustainable the we Is margin have on for in Electrical about like think a that the the call I point for doing, that? year? next know that this -- it mean here And I any guess, mean, to want moving second there going And models How sequentially in as then with down is parts year? second you jumping out I you're especially you is that bit. we next

Craig Arnold

seeing should say to year. and it that team of just in maybe certainly nothing simple the into the volume yes, had the about should performing what expect bit is, that continues to the be straight off But jumping well. there's beyond. in QX and as favorable we well. little you're and no going That's what -- growth Yes, in back well, our business mix execute QX, obviously, relative of point between of unusual numbers. we'd half in I'd like so team. perform the perhaps And have the execution by change is performance terms we're yes, XXXX this operating answer our to a that's think and those and We there's business continue look And to

Tom Okray

Steve, And I we implied. what for would just we're add, hoping the the margins, know say Yes. implied segment we the better do than

Steve Tusa

sustainable can year? improve jumping the on you year? number a next point that for that that is off is But Like next Right.

Tom Okray

Yes.

Steve Tusa

you. Thank Straightforward. Okay.

Operator

go RBC ahead. from is question Capital Deane Markets. next Please The from Dray

Deane Dray

Good a you. a I references but a ground, Thank and day, of hear Covered unknowables to lot of everyone. couple choppy did macro.

of for So it a about clarity the mild year so the it skewing much question in of this begs higher? seems Is it be ago, seems Or to long recession. initial any your there? assumption for terms is kind assumption everything

Craig Arnold

mean of world. be many in and around continues think, pushed year recession had thinking Yes. No. I point, we, I the your a I this does mild most as out it recession Deane, others the so like anticipated think to our for, economists to

we're the I reasons why the taking our It's juncture, one this year. up pretty of mean, we're at so about guidance. good And feeling

mild the all believe. our the mild strength That's what and we a what in recession, in continue given the the going the a we to think of said we message bigger of spending on much what at Eaton's the impact originally, end event even believe I said mega we stimulus have that's it's the material trends markets, And and a very at and event consistent becomes recession, the don't year, of beginning of to with growth.

Tom Okray

through downturns I'll we can very back response. modeled even if megatrend. of you that recession, earlier terms for use to a given Deane, with in mild We've we that an the confident power take order in proxy that And Yes. intake, in are you backlog a our

Deane Dray

capacity. quick together able seems in Yes. in of I'm way shortages on Volkmann's smart the transformers. very we question about gear And a a while switch you'll not and change? sure holding clear. That then Steve follow-up about just were York at When all utility New talked back, that any supply? be does And how Is that least that demand back we to

Craig Arnold

of certainly year And the times markets but we're the -- much and chain woods. they are and today say, time of the let's out industry to say still are better. verticals utility I'd materially last challenged an Yes. are as and were, lead say choke with are No, we supply And this very clearly market than better that some of there certain those. things respect are I'd the industry, not is points one

that, calls is into probably lead mentioned, transformer device segment. company we we these probably goes the utility on in the the time longest As that a have before

but general, things call times the which market talking let's And so back still and are not extended. which are very a function to, it, We're lead much still getting of about. product you're there's In pre-XXXX better, and end but not XXXX, are the still in where our times. times product We are peers were back Think marketplace we're we in still and lead we of certain extended our with lines. to competitive lead yet, -- levels in

Deane Dray

Thank you.

Operator

Brett Linzey And our next is from Mizuho. go question ahead. from Please

Brett Linzey

just up Good afternoon. that wanted utility on comment there. to I follow

to the framework growth gave You 'XX.

capacity additions? any context How per I or shifts these Eaton's share of think you wallet said XX% the we should growth of relative think from about share opportunity growth. in some

Craig Arnold

utility the play of with same. and say, the performance, I peers, segment. We it's Yes. our across Eaton's all broadly talked to is that think I'd included mean peers before, one as relative reasons respect end the I we our about of very that why we chart aren't

we are in commentary, think said I As my we broadest the player.

have any a We of competitors. utility of market portfolio than the in broader our solutions

we grow market. to market, think to and we very well And at perhaps than faster grow so the positioned grow are

constrained. most today are peers capacity We -- our of our as

is real seeing. of in on And get going than lead deal to extended. much are our so I going it's capacity market. growth think difficult at is capacity online, add to the quite this with And where times to grow market until that one be that the utility ability new be to we're faster limiter very for still the segment these rate do the And us really that the a terms we overall days growth to

Brett Linzey

and have funnel, then Okay. I and that it, year-over-year of growth project if but been one Great. you just on I apologize giving rate missed guys the follow-up, And sequentially.

quarter. that how the curious Just fared in

Tom Okray

the The projects. XX% negotiated, it two-year was stack. Yes. on a year-over-year major Yes, and XX% up

Brett Linzey

Thanks Great. of Best a luck. lot.

Operator

The next from Fargo. is Wells ahead. from question go Please Joe O'Dea

Joe O'Dea

their perspective to the on at you're ask of questions. Hi. for Thanks my the one if mega related, project worst, some lead to related. there, I there. One them are, stimulus and product they're all you back of tailwinds some color of think the biggest time you for the where kind what out support is any categories, both they sort taking on But of discussing then related together I'll revenue normalization think is get of kind that kind because times were out about backlog. just additional need support lead where to that,

these was Tom, even think to it back expectation two correct, backlog your guess going time down it's the think, see But we any as quite for really three some might back to notable take normal. I take to of step lead start normal, comment I to get to these in it's levels? years kind before really you or to times

Craig Arnold

talked IT. maybe about businesses. Yes. question, some on certainly lead is more the of extended. They've which shorter-cycle kind part lead your still the of fact, somewhat, OEM, times And kind of so the just improved We times say first prior I'd distributed addressing of mentioned are, in of kind question, resi, I as and in on

of stuff, times for well are lead haven't big the a For still extended. at And utility lot markets, probably much fairly they those project-related all. today improved

widely said upon referring vertical vary sold And once out. are So which to. again, depending it you're does I really it we

we centered capacity has a growth in capacity times we big industrial in product have anticipate excess these would not deal much these today comes than to And until acceleration better. that faster get businesses. a really some lead don't lot of with clearly materially been of of online, what We originated what kind lines and

the say lead markets, backlog, to anticipate, release going interrelated reduce don't would which significant very we times, obviously, either. you're backlogs I true And would thing much the a until same your your with point, in be barring not deal you slowdown can to really reducing

normal a we're elevated planning the do for that it, time. so stay of thinking horizon, backlog period about think way we And some under

trying to Tom I to even growth we provide little was slow think backlog. try very down, be what able a was continue simply to we comfort around to markets revenue can because that if post do to simply eat should attractive

Tom Okray

The conservative. turndown That's three be two right. in and quoted years situation arguably as to a I that is

Joe O'Dea

lot. it. Thanks Got a sense. Makes

Operator

further are questions at Thank no in this continue. time, queue. And there you. Please

Yan Jin

Thanks, guys.

and Chip us any will guys' available always, joining to As of Thanks Have today. I follow-up a your be address day. great for questions.

Operator

ladies for and your participation Event you for and AT&T does our gentlemen, you. conclude Conferencing. today. for using Thank conference that Thank And

may disconnect. You now

Eaton (ETN) 1 Aug 232023 Q2 Earnings call transcript