ETN - Earnings call 4 2023 | Eaton Corporation plc

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Fourth Quarter 2023 Conference Call. [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. Please go ahead.

Yan Jin

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

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

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

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

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

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

With will to over that, Craig. turn I it

Craig Arnold

We're Okay. for report performance results record and year. the to Thanks, pleased our QX Yan.

team Our on to by commitments, good and continued strong markets supported deliver execution. our

begin me Page We for highlights And XX.X%, continued up was was up adjusted year up the of with the guidance. full was X. year, $X.XX $X.XX high to quarter and XX%. of QX above the our we records. EPS on of for end XXX and margins. EPS Adjusted some generated quarter post the let all-time So basis both points XX% strong and

cash to Electrical see increased of and you've as in double-digit organic growth, and a Aerospace activity. And margins, year the full by shortly. XX% for in strong read, was backlog in for I'll X.X And also details quarter. another rolling XX% guidance Electrical continued incremental we through book-to-bill On Aerospace. adjusted we're strength EPS the flow. go We and market XX% for delivered continue and And and strong our increases guidance XX-month basis, strong expect XXXX initiating for

eliminate our program program $XXX restructuring million Lastly, we're year improve and will a efficiency. multiyear The that mature of costs fixed and benefits. million announcing will cost deliver $XXX overall

So market outstanding internal focus growth come. for efficiency years will continued to operating on and of us initiatives our the allow tailwinds, results our combination deliver to

stepping of speaking today In our Slide And uniquely expected shared of are growth last ensure positively framework most this we about reflects R&D for think in our to well to acceleration tailwinds, come. secular We Eaton market-driven X positioned an see let's will capital in while growth key positioned we're chart up opportunities. think and we market and investment for turn drivers X. in to to of our trends that capture quarters, growth And years that is we're company. that business our the The growth. the impact the couple to businesses

and X prior we'll data on reindustrialization how Aerospace progress to our a it earnings spending, eventually, North on markets impact announced, calls, our America. center the summary about provide In in a a project and mega you business. and we projects mega when to how a the of is impact We'll utility a to to number and for on of sale. record think provide Today, negotiation, in framework a update timing drive Electrical reindustrialization, an continues order an projects infrastructure from from with also to provided

a data reindustrialization we're at a the for take let's seeing. and shared We've trend the it's proxy look good previously, So presentation. X in Slide this

this last a data, is year, those project, XXXX. project similar are of the $X more but there's again recall, large. seeing since XXX trend as value billion in is once And a Note we're announced summarizes we You'll an the or announced this of of dollars number have although with projects of and that end of that North not Europe, mega mega in America the XXXX. been through beginning a January January

note. A few points to

this billion, markets. increase into the the normal is and at directly translates number Xx First, rate, $XXX electrical

the electrical content these reminder, anywhere X% typically is from X%. a As on projects to

the to from for and strong grow up continues Second, number not will backlog. and QX. we're X% industrial go there to multiyear we're sure, be projects, a is on forever, building continues momentum This but U.S.

only started. about these XX% projects planning XX% the of and still actually And are third, in phases, have

have is lower XX% delayed, significantly rates. or canceled than been actually but number Some this historical

rate we're projects. For billion billion win on in with active those electrical of And of we've of on orders a have negotiations total subset XX%. content $X a over in $X that these approximately small won started, another

can you as about reason a to the optimistic are see, future. be compelling mega So projects

significant the Turning in for mega timing not X. electrical size Slide We of it's to highlight as these become the opportunities mega our but to and impact large The the of from number a they projects want the projects yet, step-up primary conclusion we've duration seen or is coming. business.

an X While health reindustrialization view together and put begin representative example. and This of announcement number care each an an slide of of is projects, an EV from different, including from the a the of -- negotiate to project project battery announcement order a a time months examples our of it, an indicates we between announcement to a we an mega the order and semiconductor, an shipment. to the from announcement time time

when takes is can from on when you our X shows to project years average announced As to X it it in see, up a revenue.

over up line future and With orders that this billion So expect of $X is backlog recognized over visibility growth. in we've we showing while each individual won, already the time to revenues our be in products' to is gratification of providing outstanding several years these lines. delayed, the certainly next what's with

XX% of of us. Hence, the contrast, our from conclusion reference, as just in XXXX orders. revenues. projects our of step-up represent that X% of in ahead and total for America the projects most they in about X% impact And was Electrical revenues the our mega still point significant a negotiations mega only of By is our of

I turn and best over effective We partner absolutely take decision. a leadership Tom. an And in to disappointed this better do Tom, you fully do, to see and of just Tom. for before But to for now I let I last we over or years. go, outstanding his thank been made all tenure outstanding we're luck, more you with CFO. X understand want the just thanks reason you have once this couldn't it the again wish the us, to leader me has this opportunity for Eaton And Tom mean I asked a

Thomas Okray

for commitments start year Throughout raise our results demonstrated I'll the fiscal our We've reviewing execute year Craig. compared by how free to all-time increase a record we margins Thanks, consecutive to delivered EPS, metrics. and organic our all double-digit growth on with our year, in cash XXXX of adjusted key ability in a guidance original and XX% increase third the flow. guidance. XX%

up A versus EPS growth the respectively. segment basis and margins respectively, XXX XXX grew guidance, cash and original were particular organic original X%, versus note, XX% flow the adjusted and guide. and points, free Further,

to we chart, the which record XX% billion, results, summary strong, up the up On respect several have Organic quarterly With of sales records. includes continues next for all-time posted the of to XX%. $X quarter. an growth top our line, we be a

last quarters stack. X the over a on double-digit of organic X X last with growth generated quarters, in growing have XX% We the X-year

prior at We strong both to and an grew XX%. margin basis. profit very and margin by Incremental year. was Adjusted expanded posted XXX absolute records points and profit of is the of QX our segment range. increased operating all-time on record high above This end XX.X%. Operating EPS $X.XX guidance the a over margin XX% XX% basis

quarterly flow records. all-time free in resulted and performance This cash operating

flow conversion. year, of generating cash operating than free was $X.X cash XX% higher flow prior free margin billion flow and X% Our cash XXX% the

records, EPS earnings For including also and sales, free operating year, record the we margins, segment full flow. adjusted and numerous cash and set

X, markets. Organic growth sales, our very sales set strong very and Americas in Electrical up Americas quarter. delivered for Slide at well stack, organic all-time end On XX% a nearly remained The we strong continues with record On broad-based all is operating another execute profit X-year detail growth an Electrical growth We and margins. XX%. to business results.

growth Americas the quarters. XX.X% for margin prior basis X XXX effective was year points, cost double-digit Incremental organic manufacturing were management segment. of basis, consecutive price of All-time down up benefiting rolling improved has and XX% volumes, a higher record for operating efficiency. versus X%. was generated XX-month Electrical orders from primarily margin On

high, value of year. of of dollar growth the orders be remains the to that the the context note viewed decline to last in QX in order the needs and XX% important it's However,

meaningful sector, electrical be Xx to an discussed we that metric we with of those prior record order confident for coverage backlog. calls, at coverage intake intake with and can backlog needs robust in XXXX. organic into scenarios, in looked We've As growth quarters, our average. well is Currently, our generate important earnings are decline analyzed multiple together have historical backlog given several almost scenarios our order that in

increased rolling a on Americas Electrical a of specifically, sequentially, XX% was and book-to-bill backlog ratio year-over-year More up in also resulting XX-month X.X basis.

strength For institutional and orders, data particular center, had we markets. MOEM in

along pipeline with prior records a prior XXX On Electrical points QX Americas posted Electrical margin over year with XX% on XX.X% up a up full XX% up Americas organic year was XXX% negotiations full margins, versus profit project basis. in sales, and year growth XXXX. major since posted our QX Also, for basis, basis and both absolute year.

is trends, backlog, With and robust strong we XXXX. Americas from as well the Electrical enter tailwinds execution secular positioned

chart to Leveraging flat from summarizes increased Electrical the organic in next X% record our segment. Global The revenue, results growth for QX QX.

commercial up the data strengthened center, XX.X% have We prior of Operating was institutional and versus year. margin industrial markets. XX% and

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

Importantly, X. posted and for business operating both X% On and The full remain profit. Global year than greater Electrical to year XX.X% basis, a organic posted book-to-bill sales records margins. full continues growth

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

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

quarter, respectively. with segment. in our broad by which Organic sales strength highlights an X% all-time in all strength XX%, a QX from Growth X% defense for foreign OEM was with and Aerospace aftermarket, the XX aftermarket, profit and driven posted XX%, markets, was operating both contribution commercial up record. across Chart commercial XX% particular exchange. and growth quarterly We were

and commercial X% XX.X% price XX-month Year-over-year programs defense aftermarket in favorable orders cost in growth a remained year-over-year XX-month strong higher volumes rolling XX% sequentially. and a Aerospace margin XXX and On down commercial On management from increased of effective prior mix defense for offset the was was and basis, points a OEM. and our with benefiting unfavorable book-to-bill basis, Operating X.X. basis of on increased our by at up X% and especially strong backlog segment rolling basis, year.

revenue our higher aftermarket electrical foreign favorable to points from all the stronger sales, the Vehicle share deliver in product In exchange. on but XXX a heavy-duty were Vehicle Moving on quarter, able was China. and transmissions outgrowth, in year-over-year, of down launch primarily up basis X%, Page to business markets gearing segment vehicle by XX. was new total end driven

the on shown at by manufacturing point efficiency. the second execute year, cost demonstrated we've in in show half grew improvement Throughout was margins of all-time another half the sales generated an points We and XXXX, of the business. we driven management first above in Page Revenue X% our margin ability from up for as favorable of by ramp-up XXX XX.X%, and results quarter operational which year. On foreign basis we of product strong the X%. to outpaced segment improvement launches, came XX%, Driven exchange. our prior XX, the organically XXX XX% to by growth, Operating new price record. improvements including basis eMobility effective from market,

$X growth organic compared by opportunities leverage billion eMobility segment. encouraged profitable and margins the business. We a increased when to basis, invest continue differentiated prior of slightly we Through segments. mature to $XX posted as very year technologies In won operating due wins, loss growth new by year we program XXXX, find the However, the year. revenues. million in across start-up to programs On expertise more than on to prospects of eMobility the to lower we these continue remain full the XX% costs, with

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

have backlog Electrical increased a can with their Both total to backlog XXX% almost Aerospace you we of Electrical As $X.X see, for billion XXX%. billion significantly to continue growing build reaching more $X.X stepping billion. with QX backlogs $XX.X businesses than and up XXXX, since by

prior XX% began Electrical exceeded Aerospace, and our our as in year. Versus in backlogs have XX% grown by we which the year, expectations

and above As ratios have noted book-to-bill Aerospace both Electrical earlier, X.X.

the Our our beyond. strong us backlog growth to outlook for continued year XXXX in close confidence and gives

over the In rate. pipeline, in continued Americas increased strength addition page backlog XXXX. further the our years growth In in shows strong past stronger than and growth expectation and which supports higher structurally organic acceleration our business, the our negotiations to X Americas, and pipeline even in the XX% suggests in doubled which the next This of growth a our forward. going growth is Electrical XX% organic Electrical for XXXX, stronger markets

in negotiations projects pipeline XXXX, Americas saw alone. Electrical in billion For $X.X our we of

through and walk the it up I'll presentation. Now to Craig pass the guidance wrap back to

Craig Arnold

Tom. Thanks,

we end our lay XX, out XXXX. Page to market for assumptions Turning

an look assumptions. XXXX end Today, we're provided at our October. earnings we during call that the assumptions updating those recall early at QX of You'll our

And outlook assumptions And markets increased to expect with large growth In have backlogs. of slightly continue by economy, markets. what where in about the where exception we XX% is decreased outlook in down our to much growth from supported same. the from in declining remained our of to commercial slightly the contrast all we seeing declining, flat have macro have of this our to of residential our we're we end vehicles

XX. Turning to Page

announcing you've multiyear and efficiency. to restructuring As enhance costs our reduce read, a new we're program fixed

of vast projects to number where have a have to at organizational opportunities that company. we have point capacity we deliver the in While we improve been a time we're some time. way of growth, run for we're also number the levels positioned a these take organic of structurally to our And in efficiency higher pipeline the on

These consolidation allowing them will and The of free services on to also deploying reducing focus actions time growth businesses, on in increasing shared through driving program technologies. and costs resources the up focus operational improvements. will structural and rooftops, digital our

mature in Overall, restructuring $XXX I'll are of years $XX we our approximately slides. million with those million savings XXXX. savings, of over which X in XXXX in included year of million next and of XXXX charges cover both and several million expect of next the costs This in includes the $XXX $XXX guide,

to part is the we performing how for we'll company do to While as so important well, of see years actions these come. continue an

and We margin XX. summarize Page to Moving our XXXX revenue guidance.

X.X% is growth Aerospace, between XXXX see and electric expected growth. vehicle the expected launched new is while X% strength and are in organic and to Americas as for be with X.X%, between continues Our Electrical solid to particular market eMobility grow some both and expected to XX% up to be programs XX%

XXXX healthy add large also our actually with backlog provides outlook. that I'd visibility the And markets, end for our better-than-normal combined

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

that's to guidance. making with These what's in investments growth. our all are capacity, should our with are and plan assume, consistent As step of XX% to in and R&D you up ensure reflected we're incrementals we've about the expand margins investments incremental communicated earlier, manufacturing what to future done our

On the guidance have QX. we XXXX balance next page, for of our the and

between XXXX. guidance $X the midpoint. billion, For adjusted some a drivers from here the between expected is XXXX, $X.X really up midpoint and combination up our billion XX% at capital. higher working cash to is our of $XX.XX XX% earnings operating EPS flow, improved $XX.XX for key are $X.XX be And at a and and share, The and

our $X.X cash at of between of we'll the of of also still year, the position our room shares strategic this the for plenty billion end cash our have end strong expect We given generation M&A. year, 'XX repurchase at and billion And and $X.X to outstanding.

we expect margins XX.X% adjusted range For QX, the to organic and of in X% and per X%, segment and $X.XX XX.X% between growth $X.XX be EPS between share. and

just Page on XX. me Let close here

in But has all does our a growth, that changed see higher earnings proven that so we're As conclude higher we be we can we think delivers record once better XXXX, everywhere. of transition Eaton opportunities we're performance a And consistently. XXXX. that I to team's company again, proud into and company,

growth experience that look that and these markets, opportunities megatrends end forward, are our we continue market we're gaining we're capturing in As we ensure higher investing to powerful share. to driving while

we We're in in and improving capacity also company, continuing and to our scale us optimize the R&D, the like operational people. run our costs. way This in invest leveraging never execution, our before is our fixed allowing expansion reducing to

expectations our year. and our looking high, another delivering teams So forward are are to exceptional

that up So that, for things have. may you open any questions with I'll

Yan Jin

operator it Craig. to With guys give turn over the the I Thanks, will to Instructions] [Operator that, you operation.

Operator

now come from line the of Research. from will Instructions] [Operator Jeff this Vertical Then question Sprague

Jeffrey Sprague

for seems, little on luck, being of Demand such We We're businesses. a Tom. Good restructuring. me It both recession, odd pull weak. think Aero the is is through kind or Craig, heavy big restructuring with the do a a first demand things to question this tend risky undertake Electrical these to contracyclical, strong of like right? just don't a itself. move in maybe I a know, and we

So address assume to through you increase can you mitigation that. additional thoughts love capacity also some on how maybe the of just capacity kind while I and maybe trying but this? restructure, you manage you're risk the

Craig Arnold

but Jeff. question. better. okay, a I'm Appreciate background I'm not -- getting the call. not I'm on that's And -- for sure noise else little sure everybody the

history sense these the Because, long a we we've the today this time, But at in one things and than capacity going point, or in than ever the spent a time. at perhaps time actually opportunities more have in are well time. we same as lot more it projects we whether had of have not sorting this had we've of company to very growth your on company. made restructuring to of out Jeff, terms a take

be you'll many last we the of done couple As years. certainly aware, over haven't acquisitions

In fact, we really haven't done any.

as take organization is forward opportunities to have that some a improve always we on to these the projects. have eliminate And do are that to as our these we redundancies, to build of new technologies actually so that essentially of forth. better, And coming scale, things we company of today leverage to a view more an bandwidth to efficiencies, one be

projects, to agree today, right and we, an team, better the as so a position years on up company to the see leadership expansion take all these set There's going margin of And for probably we're now for our that time improve that. as business. cost no top really next organization, than with on to the a growth as X

and So on, plenty today organization ability to as in our confidence lots of capacity so. take it we of to have an do

Thomas Okray

would add it. didn't of simplification -- waste, Because focus to be we And add, actually riskier well on shift growth. of if what time frees resource into we've human the elimination up would Jeff, I foundation been restructuring is which it think program making do the just is an the as I that

would it, strength. do it forward if at we time actually it's of it to a be and didn't great riskier lean execute and So

Craig Arnold

improving while great a that said in I so and up point. our teams focus services. time of corporate this That's freeing essentially, on Yes. our growth outbound of notion number they our take that operational we're can support a on execution, in some that these my commentary, operations

that right, you're amplification. Tom. Thanks for So absolutely

Jeffrey Sprague

and cell dialing different background just me, going be follow-up my multiple phone noise phones calls the A through might crazy on. day -- And here, computer Yes. I'm juggling here. a

with it's it of because is backlogs a develop have seen big pockets but fungible, just question, disappointments, But comfort. provide Air also the there. and sales right? on not Unrelated here and does backlog. of we've companies a lot big, couple backlog visibility Obviously,

the need on illustrated navigate that risk. Do of long kind cycle Maybe those standpoint, you see the of kind anything just the conversion that of you address from of backlog? of through to kind stuff timing project particularly given a kind that's you way in order some

Craig Arnold

Eaton backlog Jeff, nature I'm based had and industry, an today demand we've the and really, the of you, just the than you're Yes, quite capacity sure what seeing couple we've as aware we, our over understand I appreciate at But years. well tell of largely that nature we're question, frankly, and of least as as no, of I upon can it. had that, more and last

the have some of or we conversion at that event And rate to so we sort sort attractive essentially in itself. in growing necessary, in the if line book of moving think order have of the top that you would an ability out accelerate, lack decelerate plenty be to linearity of keep order some or backlog

concern. a not to We've seen so date. it not And

the are orders kind stratification of that As backlog we we at and due, the look don't of have when concern.

Operator

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

Andrew Obin

Seems like great, doing are yes. you guys

be capacity of Can the some really Jeff's are just the move you talk you post way a yes, differently is that to areas will Just available just doing When adding and this I But appreciate -- Can different what asking, on question. of capacity additions. I geographies capacity? and this competitive. guess, you And you're whole anything you COVID mentioned -- -- experience? needle?

Craig Arnold

growth. the tell appreciate in this you, bit we're do earnings we to things And And question, to add one billion it's little is really no, of a around the the support as a in that I Yes, of tried company call putting broad-based. would investment color pretty $X of last Andrew.

utilities, growth circle our in fitboards in and investments in we're about in equipment. voltage in data that growth and we're huge seeing both regulators line growth talked in in core We've and and the protection and talked making markets making support and that the component panelboards. We we're investments investments breaker transformers, to medium had and our insulation We that low centers capacity. to obviously, institutional there assemblies about, make

investments we're well. eMobility as making obviously, And in big

with it's product to lines. broad-based the So fairly think actually respect I

faster geography, and of gone. in investments, bigger principally lot where a have As that's to much the the it -- seeing growth really big Americas, relates much these we're the clearly investments

the another some to capacity year. a suppliers our in issue work think in own we through the your to what assuming in about industry question -- us capacity others is chain. as of phase lot But terms this and we capacity, of for of begins timing, value But we we're this

the second other it gives labor and bottlenecks when it done the and more, certainly to whether And us assuming or be sometime others the chain. quarter investments year between, let's we'll have in most of -- do of capacity restrictions, end aren't and so the our value the there say,

Andrew Obin

Got builds I you. And guess, first just a naturally answer. then on the follow-up,

In gotten And terms of still your still the better are has X, are supply what challenges what biggest the chain, past over you what's a experiencing? X problem? months? And

Craig Arnold

many What a we've supply we're Yes. in back I where would you, historically, we really been lived the didn't tell chain Andrew, where ways, in to we've never and issues. have world intermittent

significant would large, say, fairly I by every So we've seen and progress place.

used say, than challenges be is, let's behind broader, particular issue. were unique in pockets it us. electronics more and have is various components. are that now today, a still a of say, and I'd suppliers It with a We Most it really constraint bottleneck commodity. issues I various those capacity pattern a individual episodic would of major or to say But in

keep hard so investments visibility that up to capacity over like the our our ensure we've investments, them to multiple they, into in lead years We've build working also with demand. working internally. own suppliers, we, with time our making and next are And capacity been in growth too, our giving to been

I so largely it's would the episodic today, opposed issue issue. systemic And to say as a

Thomas Okray

the on point. Andrew, in, last to Just jump

with really pandemic, probably gotten on grow efficient, of think been And as so the key, a need we with more much partnering together we we've that's demand the them. can what a I understanding basis. go-forward suppliers result

Andrew Obin

missed, be and you'll congratulations. Tom,

Operator

Our question next from Chris Snyder UBS. is from

Christopher Snyder

has single-digit it double-digit and growth in total of through you think guys XXXX, for even Americas I appreciate and important tailwind said step X% was information look still grown -- big project of an become Eaton there. and X provided rate if So the of obviously, mega you a have revenue, last of projects the we I outlook, driver mega the back so the story at driver all a quarters. the But look low organic

project investors think just you why strong? Can just demand the when growth out. I about has see been huge mega talk underlying most everyone it's so already playing numbers, the assumes Because opportunity

Craig Arnold

about question. were we appreciate I'd talking talking talking were were we of think projects, about about we And talking secular mega I were the the about digitalization. growth talking I the drivers, long No, we economy. about say We energy before electrification transition, were

these big think back U.S. in mega seen but deal the have where about above with -- billion billion projects very You other today, we've taking growth threshold $X until are moving projects you $X big production projects the today, well of markets similar place. in and investments announcements, below reindustrialization that and

And so the trends mega are much broader than projects.

to mega much project negotiations, growth. for mega future. That's orders, impetus years. a bigger broad-based become talked of a of be we've in the about this into investor we projects runway right. reason and to our XX% a we X% a piece because over but real But growth will put We're that beyond sales, projects chance future this seeing of emphasis business it's of absolutely tailwind, on X% emphasis, continues is give a of multiple have the mega The you're great indicator multiyear the our community visibility why the outlook that

Thomas Okray

the care of the health of throw XX%. could look just if over some XX%; Yes. project just centers at mega growing We over, government terms large if in for about and in major over institutions volume; projects. at projects, And negotiation Chris, on I numbers, less XXX% data And than that's you these prepared high level, negotiations, that. and talked our much in a our remarks year-over-year

the just So top it's really, a says. forward. Craig as you broad-based, on and runway long really going cherry really give if like, us put The mega projects, just

Christopher Snyder

it the over opportunity a of about on back-of-the-envelope the appreciate market And least mega that years. I suggests topic, next this math absolutely. billion at then $XX brings. projects incremental sustainability in no, kind Yes, durability drives that and few same just ramp my that

massive a for ramp So that is pretty an with trouble up industry keeping demand. already having

multiyear expectations drive guess meet I for forward demand? for to you a and And does your our see this the industry push the question do higher? price ability how So margins impact is, to pathway that

Craig Arnold

Yes.

enough a I of would does growth the pretty is we think think is to back-of-the-envelope actually. to this the for bandwidth I in growth of enough why the good, fairly very is in suppliers one opportunity there capacity And math own capacity have continue the get demand of going can or question manufacturing and fact It company. that on create do out capture working around try these your some to and to not today industry making grow industry. this sizable that is say we're with the whether our restrictions which I facilities not opportunities, our to to and large general the electrical all the is industry, so investments same, in

then top of backlog significant enough with growth skilled that, of on the constraint of terms to on trades the greatest labor be demand. the And limiter in may perhaps finding people deal

And growth is to we requested. simply but fundamentally not the labor extended will and the time will so and all deal will in be we enough the to because with what frame capacity that going happen be have the is think is there, cycle which demand

beyond reside. cycle expanded it where the simply would normally will so years multiple And out be

Operator

line JPMorgan. from the The of Steve question from next is Tusa

C. Stephen Tusa

with a out going on results. here. great bang Great, congrats Tom,

assuming roughly Just for pricing guidance? guys in electrical your 'XX you are dynamics, price your for in the what -- embedded businesses in

Craig Arnold

XXXX. our and back tell the of XXXX, compare, a will And relative terms you in a don't price and XXXX price Steve, contribute you let's historical of say, we're specific that probably that's of price smaller on to realization I as of we separate be will so than XXXX, don't going probably are much We to guidance. -- volume you basis, more level growth provide piece volume. Yes, will. aware, when price a

function that was a really inflation that's of And of this not the years significantly inflation. price essentially that to seeing fact lever We in dealt the we the last we're had system. couple the as with fairly over work

labor inflation Now the side. we some on still have principally

prior its So in growth than will significantly we contributions be to still but less had it price, been our get years. will

C. Stephen Tusa

right, specifically but mean $X repo I'm a guess Anything I'm the number. not flow billion pretty if in I And on I share Right. think like of sure that's just cash think I this -- going statement, there? I seeing decent-sized on 'XX.

Craig Arnold

the billion okay, -- Tom. go ahead, $X at midpoint

Thomas Okray

we're the $X.X of managing Yes, with and doing better capital, no, going billion very going to cash we're constraints a have supply how guiding, we And chain XXXX. good are XXXX cash. in working given given we away, how given are of generating job in year a finished

to allocation go tenants, capital sheet. very the going on collect cash not balance to we clear, our we're and we're So

we've midpoint, So billion. at the $X got

M&A., dry in with As $X so remarks, gives was us that even do prepared this to though, billion. plenty said strategic the of powder

on final the sheet, end our the know, And is I probably with is leverage balance X.X. would you thing net which Steve,

of from got we've just capital ton a perspective. a allocation sheet, So a balance flexibility strong very

C. Stephen Tusa

Right.

for So it's EPS growth-ish? lift general in count guidance in embedded a X% the from share

Thomas Okray

pennies Relatively minor, a of versus couple consensus, yes.

Operator

is Our the Joe Ritchie Goldman of next question from line from Sachs.

Joseph Ritchie

on Chris in So but ask more question, touched explicitly. his I kind maybe of think this to it

just we won, you've those thinking in in plus how ultimately that of about projects $X be that think mega P&L? you first the about margin materializing what's that profile the should and wins As billion

Craig Arnold

we the can margin not the It's -- on when capacity the business. where these around is you projects terribly -- mega imagine, profile margin than constraint would say win. that these position, different as a Yes. you be underlying to in to going are profile selective in I your be

expect bit expect not would we and big though should even you we not projects these -- so haircut, project, that mega projects they're a And into revenue. large of should -- as a margins take find oftentimes translate a you

Joseph Ritchie

that coming guess, perhaps wave And of you maybe last great There's a first of rate. for projects this but lot couple broken Got That's second ground material of continues, the get a election have look, the Craig. second it. that growing on at now quarters on the -- concern stall I then wave. funnel in the with keeps to a pretty the hear,

any that that? sure other labor of any thoughts -- actually you outlook? would we'll Just then constraints, have in grow around just your more thoughts continuing you on that but I see kind -- touched know to that, I'm making that funnel and potential the actually the for ultimately really on

Craig Arnold

to and concern. in many I the going ways, no, the question then, mean elections out. kind is an turn the terms of appreciate the upcoming election and how in given it's of unknowable I Yes, And will even respect the know lot projects. quite with essentially position frankly, a difficult the underlying what with these take supporting is that to to the administration, they of mega stimulus change in and spending

And are I it's red projects gives into going a will states. is these you, us tell not going of change materially, a that what of fairly high level that to lot confidence

to and may projects the of all it political a of happen these states. what And actually front, the lot how And on of so walk kind it's wait benefactor see plays. red those are despite

to Today, don't think and we capacity it's material we at going today demand have we to more And a have are looking serve. impact.

of there company. many going of is afterwards. and give election if to ways, a back, it's But business a and growth support kind even know how happens in the bit the don't unknowable. the to still the We little long-term the great is then what just in for shape So was assumptions unfold

Operator

from next is question Julian Mitchell from Barclays. The

Julian Mitchell

Thanks all question a somewhat Xx even lot, book-to-bill first and around, of would so help. Tom, impact high a the being of with you be when off mega XX-month base. you've orders, sort a about well sort America North for over in the just a projects those on XXXX down the think orders trading had the Maybe

capacity the any constraints? could broadly, output? electrical still a capacity When and but adding maybe too where in you look concerns of peers at sort orders I you the XXXX, Xx that down, much is book-to-bill you then are And because similar it collectively construct just have of over more suppose your

Craig Arnold

question, like. think I thinking book-to-bill to orders a the that spend change. mean could it's much of the But and you certainly the of see a look it's doesn't the that I possible that time a short answer backlog tenor of Julian. would appreciate of XXXX lot well we about -- it's one as And the what of no, a in terms Yes, will things is, to yes. moderation total continue and question very

came we to the the XXXX, In into fact, grew and when backlog eat be to some actually into expected by XX%. able we backlog,

constraints, about the growth faster we in industry bigger as The guidance. of is And continues the there than would so obviously be our X.X% demand numbers for post to guidance. And but the than provided to -- constrained. grow that talked we we've midpoint industry

So highs that -- could absolutely grow. you continue orders possible essentially could be that record continue moderate is or in to your to backlog to

Thomas Okray

add remarks, to calls the the this put to I that. it's it for just think about bit talked color more a And previous important on we prepared and And Yes. in very but tried call. in to Julian, little everyone

year-over-year And we those said decline, well the as in to prepared able We have in into our modeled given remarks, order growth decline. XXXX. robust organic have coverage, meaningful we scenarios, order backlog are

confidence even got decline orders if way, a great us still good year-over-year gives that meaningful we've to in So that runway. continue a

Julian Mitchell

And switching follow-up. Maybe then a helpful. just quick to That's eMobility.

had You few raised the revenue back. very, world of a The news medium-term EV noise in the that guide uneven. months sort is or very

the how high outperforming for a sort of just and rate you're any maybe growth growth So see on that industry. rates can of in how for Maybe that the it maybe very just of sort eMobility year. perspectives you dialed We this tell us see business.

Craig Arnold

know, a, has the EVs. little call the growth as are is the XX% say, Appreciate with question, business. we're bit And for We you to I our from XX% underlying I'd can customers demand us today as what on gone asking eMobility through guidance, itself that And a for. talked our do anticipating that our we back a respect dialed number in of tell Julian. you wake-up industry recognize Yes.

By growth. great good demand, still still the way,

quarter rate maybe were overall, of for months growth a perhaps Some what XX%, ago. But XX I think, slower than the in us. people fourth anticipating

nicely. grow and think we So the industry will grow to continue

our do we the hedged of we own deliver event to try respond time, our and that build our And come to some customer they make to are what in forecasts we're to appropriately plans -- flexibility outlooks sure that their is same to ensure fruition. at actually guidance commitments. But actually we're these able the to we back the as have and

return So sales. took yes, on $X.X we billion, XX% about

and changed. still those absolutely -- see are line committed have sight not goals, We of forecasts our and to

Thomas Okray

Julian, other one thing prepared eMobility, just market you And remarks. would grew In add, and we I the to XX%. Yes. X%, back taking grew the

there. So good winning we're business some

Craig Arnold

have from that's on. was Yes. content will above And Tom, as well. growth, Julian, really is And is. I clearly platform-specific. comes And industry's question, And well eMobility really be platforms your point, think to think new launching It of why rate. we growth really maybe the it we the your growth this our our that

Operator

from Steve Jefferies. comes question next from Our Volkmann

Stephen Volkmann

program. to offset in kind of as go you The the cost-cutting I of investments terms Great. we have of XXXX, the benefits think of in want million to margin? that? that net of back will $XXX some that some Or should increased

Craig Arnold

should through the expenses. is in -- about, those we're next mean way I No, way we restructuring you spend of and our those the We'll it, few to embedded fall And restructuring dollars million we but guidance, of mature talked benefits to of million about year of we think will offsetting about million it. $XX that $XXX talk had bottom to And line as the spend benefits, the spending benefits. going $XXX deliver with over years. XXXX million $XXX

Thomas Okray

to just and as cash Yes. our I it say, with is going was cash in associated And well. the guidance

Stephen Volkmann

Understood.

to these most? guess my tend So results a see but it's things any is on little sort be, probably we'll since guidance where more Europe-centric of these

Craig Arnold

no, Yes, question. the I appreciate

leveraging it, company, just be allocation the in pretty the really can pretty you it's X/X widespread. Industrial. about digital. think I think can of you being total X/X across some with be going We'll will these benefits shared be kind focused will benefits driving in company. of And lot cut aligned Electrical, But services, on company, taking the in will a think rooftops out the to the about much be of

Thomas Okray

well. described you've as And cutting, what want to I an that. to business cost way and of would it's it is really But doing is there I say of back smarter a come also as element

units and to our business work take talent, I of mean cost complex and the off opportunity number well. And allow leveraging reportable We're a for more got we've got with we've functions a sites. capital central leveraging organization resources, segments. of opportunities very be as efficient leveraging X with

cutting. So of business doing It's efficient not way well. cost it's a -- smarter, there's as just pure more

Craig Arnold

increases And other right? way growth, the things the investments, to the we're we and in in need funding company. do grow way R&D we it's fund the help It's that to

Operator

from from is Nigel question Coe next Wolfe Research. The

Nigel Coe

Sorry about. Mute button problems.

capacity continue a mean, I cover could back the obviously, backlog X% mean to XX% be this So orders expansions. relatively capacity feels it there, to Americas, ground, Craig, like issue conservative. growth to coming to the the like I enter feels but little builds, that -- in or it given

are if are just sense constraints that through the conversion or there? any burn And there's backlog some So capacity growth forecast? there's going as to we that go be assuming gating you of wondering kind Any year?

Craig Arnold

the great we're than Yes, of around where an there's in to bottlenecks. chain no. where have in Nigel, And capacity shape. But reflecting growth enough you trades. had have we're of fairly demand we'll post know, my end I labor think think constraints certainly the eliminate skilled also the to commentary, get we industry the the sizable And time higher guidance. value And in participating we're I you that in year, our making be lot players mentioned in as by marketplace a investments we you in to

that that. And governor industry to so on prevents much I think do faster and these factors than the upon from growing it's going be a us based growth

this over of plus some is years. the last about XX% on to X% think growth You this X XX%, top

say, going would XX%. that some that. of terms to Once of backlog I were to increased can in the can't. right, happens thought actually a and we and so And say again, we again, lot backlog there's Once what difficult burn XXXX, growth in it, or see much today, we really the variables we burn we'll with how in backlog

the we around than this business that capacity the very imagined. continues So become better X% the in in growth But in governor are our Electrical the what to perform we market XX% industry think to even there constraints real Americas.

Nigel Coe

up I yes. appreciate that's obviously, like XXX% And to be 'XX. is center growth Yes, it going then strongest off feels in vertical mentioned -- base. negotiations And high a the data that. probably think you I your just pretty

And single put ] of So that growth about that [ that thinking we then? the 'XX billion in see kind mean that a 'XX, in through concern? ], the I capacity you cover in end does coming just does [ is $X market. should

Craig Arnold

certainly XXXX centers industry, center a a Yes, for own the well into of we data talked in will strong no, forecast market growth at as grows compound rate think, us be said XXXX. growth the -- or in years We so. X next orders revenue, XX XX%. And were that. the grew by over orders. XX% is lot about very QX. from in XX% some supported up our in more for terms we We in market, data of Negotiations rolling that than were a more We certainly than the

labor levels. rate is center for this as cycle, terms is constrained, in which So again, decade a growth we once or to the industry, -- data growth. think, growth very acceleration see capacity too, we market could in that be at extends attractive ultimately ended And happening, just of an just is because constrained, up a of the continue

Nigel Coe

better? a And even be do That's in XX% Yes. time. Exactly. long that you 'XX think there or 'XX, will

Craig Arnold

that. We're per centers assumption markets the data that for to guidance but see. today, of not you is assume on going we'll mean certainly XX%, individual se I within Yes. for higher providing end to our that can X% that be end

Thomas Okray

Yes.

we digit. for chart the have strong centers add, to markets, IT Just data growing distributed double the and end

points very -- said, robust an as perspective, to Craig So in everything growth from order XXXX. and

Nigel Coe

it's vertical. Tom, Yes, Thanks, and congratulations.

Operator

is from Thein Citigroup. Tim question next The from

Timothy Thein

systems in guess, one after the guess, the given last with Electrical, time start, Americas just I continued of from guess, the would such the Mike I'll seen there big to understand strength comment. why versus good year, this projects been growth as it in on from I you've can was I Yelton, time just But spending some better this I a around move. that was I -- guess, kind mix guess here. just of on in products. more But it Yes. fire coming shift But a Great. has these trend, I

managing that's that. dynamic when of outlook systems your profitability -- relative you to extent maybe there's continues, to guess, of managing But do that of times given more the products? from of terms in in terms in in years' of How been terms 'XX kind of growth mix that again, past, confidence challenges in the you the coming your and I

Craig Arnold

kind away Because to I the practically move Yes. And connected. investor little versus I appreciate know the created but speaking, question. monster we're get from this bit, this to of we product all distinction. community systems trying they're a

our time components. system, an any electrical sell it encompasses you products and of all So

for out. company really end about about us, right that is think the the And look really to we we way markets so think take the laid to a at

most centers, company industrial to context where informative have and about utilities, We in is growth think perhaps data the the that of the commercial way going. facilities, will facilities, be

that a in not just And today the from I profitability tell is general, system. systems can you, standpoint significant go a of today, between there into difference and the the profitability components

products inside now for -- with a business, considered rest the a time of large company lighting lower in back the was we say, a than business. was So there relatively the It relatively business electrical. were example. lighting was margins let's when, And

really in Slide that significant profitability. end really think is back different function And right But perhaps the drove the lighting two. between again profitability think it And to markets don't that XX... held company these meaningful we a way once difference laid out by the the a of today, was on we different we've about have

Timothy Thein

it. Got

growth yes, for aftermarket commercial, terms difference in 'XX? OEM similar much in and growth is Yes, And do -- of Arrow expect those there sure. you rates? quick, both piece between Craig, the are Okay. on real within Or the projected

Craig Arnold

guidance. commercial a to to holds of as see aftermarket. commercial well going be But the in which expect reflected aftermarket question we know, Yes, in growth both and OE expect little bit, We grow the versus which aftermarket it's as piece an Both an business, slightly is a very because, order. nicely is back OE important OE margins faster you XXXX. in order profile will very grow aftermarket, in no, do our different than as strong profit and there to the

Operator

Dray And Capital from Markets. our next from is RBC Deane question

Deane Dray

your for on can direct through I'm distribution would And best know Tom, but frame you precise going I of can And parse but color versus Electrical any of luck. this you congrats, helpful. -- North get if what how not you sure America way there, don't would be be can ship? out, any there expectations is

Craig Arnold

specifically, would say, that in I do order of North number, of Deane, goes we I Yes. magnitude, lot a America through distribution. think, so. And what XX% about that is or

So piece. it's a fairly sizable

of And tends always say that as and these continue grow, to a perhaps asset. virtue projects through nature. mega just they're greatest the hyperscalers centers, But I've -- more our of of lot distributors grow, today direct our our business to continue perhaps distribution, -- to said, those perhaps by as are I'd data be some

We to committed are distribution. tremendous value. add They

very We strong distribution have network. a

of it's yes, So the real one the of company. assets

Deane Dray

think the up at come don't destocking word I And today. Great. heard all I

any pockets there is just all But chuckle So You -- there. would be over any the that destocking, of X past it? steered clear X and or but it there have a seem of of color did create helpful. months quarters, to any any

Craig Arnold

frankly, XXXX. our destocking of We really to about in did specifically. Europe European destocking we began quite started little beginning a which, at saw that business, talk bit see of in the We

that Fortunately, the good that. beyond is we're news

balls Americas. odd other grow now. And about, destocking places, a have we've but talked Europe, it's we But that's not But the continue because of pockets behind markets, specifically, fortunately to in really pretty bit little did these as than seen in and the us Americas in dramatically. business, it the largely we of

Operator

are And go there Jin, at this questions Thank closing Mr. with further remarks. in please you. ahead time, queue. no

Yan Jin

Okay. and we busy do know Thanks, a appreciate it's everybody's day, questions. guys. I

good is to follow-up IR team calls. Have us. address the a Thanks Bye. available your always, day. As for joining

Operator

participation does your you. using for Thank AT&T teleconference. for conclude our for Thank today. gentlemen, and that and Ladies conference you

now disconnect. may You

Eaton (ETN) 1 Feb 242023 Q4 Earnings call transcript