Eaton Corporation PLC Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Chris Snyder - Morgan Stanley - Analyst : I just want to say congrats to Craig. 5x in the market cap of a 100-year-old company is pretty incredible. So best of luck going forward. For my question, I wanted to ask on data center, given all the market focus there. Could you just provide some color on Q1 performance. And then the comps are really tough, obviously, in data center this year. I think you guys had 45% organic growth last year and 75% orders. So what should we expect for data center the rest of the year as well?

Question: Chris Snyder - Morgan Stanley - Analyst : I appreciate that. And then maybe just following up, has there been any change in the US market competitive positioning here following Trump 2.0 tariffs Obviously, you guys have a lot of big EU competitors. And you've also heard a lot about the last couple of years around season competitors adding a lot of capacity, whether it be transformers or switch gears given the undersupply. So any thoughts on what that could mean?

Question: Andrew Obin - Bank of America - Analyst : Congratulations to Craig. What a run. And now I'll turn it over to Paulo. So first question on Electrical Americas order outlook. Look, you had a tough comp in the first quarter. But how should we think about your Electrical Americas orders going forward for the balance of '25?

Question: Andrew Obin - Bank of America - Analyst : Okay. And just a follow-up on the Electrical Americas. So maybe first quarter utilities performance, we attended distribute tech several weeks ago that seem to be pretty optimistic and your utility business has continued to post strong revenue growth over the last several years. So can you give us some color about your performance in the first quarter?

Question: Nigel Coe - Wolfe Research - Analyst : So Electrical Global has been lagging, but had a nice acceleration this quarter, 9% organic growth and pretty strong orders. I think you called out APAC orders up and machine OEM also up, I think, double digits. So just curious, just maybe just a bit more color in terms of what you're seeing in those two verticals.

Question: Nigel Coe - Wolfe Research - Analyst : That's great. And Paulo, it looks like you're leading at the slide pack. There's a few slides that are missing from what we normally see. So I'm just curious, the mega project slide has always gotten a lot of attention. So I'm just curious what you're seeing on mega projects in the US. I think the last time -- we saw that slide is about $1.7 trillion, about I think 17% had kind of been tendered. So just a mark-to-market there would be helpful.

Question: Jeff Sprague - Vertical Research - Analyst : Could you share with us what the gross tariff impact is that you're wrestling with here and give us some sense of how much of it is price versus cost and other actions, certainly get price must be an important part in the margin friction. But help us size that up, please.

Question: Jeff Sprague - Vertical Research - Analyst : Understood. Okay. And then maybe as a separate question, not a follow-up per se. But Paul, you mentioned kind of the focus on global, right? That's one of your to do list items here as just step into the leadership role Obviously, nice to just see this market tailwind starting to kick into gear. But how quickly can you sort of action kind of organic initiatives there or start to tuck in with some of the bolt-ons less you're thinking about to kind of round out your position in some of these growth verticals internationally.

Question: Nicole DeBlase - Deutsche Bank - Analyst : Craig, congrats on your retirement. Maybe just starting with -- I know this is a bit nitpicky, but the guidance now implies kind of like 47% EPS in the first half of the year. I think it was about 48% as of last quarter. So can we just talk about the puts and takes of what might have shifted between the first half and the second half?

Question: Nicole DeBlase - Deutsche Bank - Analyst : Olivier. That was really helpful. I appreciate all the detail. And then this question is kind of hard to ask because I know you guys don't like to give a lot of color on price and that's totally understandable. But just trying to understand like the moving pieces with respect price and volume in your guidance. Did you guys actually maybe take a little bit of a haircut to the volume expectations in the second half to embed some potential macro uncertainty in the more short-cycle businesses.

Question: Deane Dray - RBC Capital Markets - Analyst : Special congrats to Craig, and I want to note that Olivier was so polite, not to name any names on retirement packages, but congrats.

Question: Deane Dray - RBC Capital Markets - Analyst : All right. Yeah. Let's move on. So can we dive a little deeper into the implications on data center backlog going from seven years to nine years for the industry because that's really significant. Just talk about implications and opportunities. And are there opportunities for Eaton to increase the share of wallet in particular? And where might those be and just how do you pull those levers? And then related talk about those five-year supply agreements. I would imagine if it's being pushed out to nine years, you're being asked to do these more and kind of touch on the economics.

Question: Deane Dray - RBC Capital Markets - Analyst : And five-year supply agreements? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, ETN.N - Q1 2025 Eaton Corporation PLC Earnings Call

Question: Deane Dray - RBC Capital Markets - Analyst : Great. And just a related question, and Chris earlier question touched on this. Can you address barriers to entry. You see lots and lots of new competitors I could supercompute. Just I know being on an approved vendor list is extremely important, but what are the other barriers to entry?

Question: Deane Dray - RBC Capital Markets - Analyst : Yeah. Just the idea that with this kind of growth, there's more competitors coming into the market. Chris Snyder mentioned it in his first question, just the idea of how is Eaton positioned already? I know you're on a number of approved vendor list in the hyperscale players. But where and else are there barriers to entry because this market is attracting lots of new competitors?

Question: Joe Ritchie - Goldman Sachs - Analyst : Congratulations, Craig. My first question, I'm just -- I know that you don't want to give the exact tariff impact and there's a couple of ways to maybe just parse this out. But if I take a look at just the change in your segment margins in the two segments, Electrical Americas and in Vehicle, like roughly $150 million impact for the given space on the original guidance versus this guidance. And I fully appreciate that the vehicle markets are a little bit worse, but that doesn't fully explain it. And so I'm just trying to -- I'm trying to understand like maybe even outside of the one-for-one tariff and pricing impact, what else has anything else really changed on the margins, totally recognizing that vehicle has probably gotten a little bit worse? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, ETN.N - Q1 2025 Eaton Corporation PLC Earnings Call

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay. All right. And I'll walk through some of the math maybe offline, but then also just on the change that you guys have on the top line. So some of it sounds like better growth so it's a little bit of an impact from pricing, but it does also appear like there's a lag because you've got this $0.05 impact that you called out for the second quarter. So I guess my question is on the pricing side given that you have a portion of your business going through distribution, but you also have projects that you've now booked into your how easy is it going to be for you to get the pricing that you need to cover the tariff impact? And does it impact the margin profile of some of the projects that you've already booked into your backlog?

Question: Amit Mehrotra - UBS - Analyst : Can you just talk about the opportunity for data center orders to actually reaccelerate given the changes, obviously, that happen to our rack density from the transition to Hopper to Blackwell. I mean we're talking about 60 kilowatts to over 100 kilowatts per rack. Is that transition already reflected in the backlog? Or can we actually see orders actually tick up in absolute dollar terms to reflect that opportunity in terms of total energy intensity.

Question: Amit Mehrotra - UBS - Analyst : Okay. And just it's a fast-moving technology and market, so things can change, which is what I'm trying to figure out. So the question -- when we think about this $1.5 million of content per megawatt that you guys have put out there. Is there a difference if the AI data center proliferation is done via retrofit versus greenfield? And maybe also related, do you expect Electric America's backlog to be up this year? Or maybe do we start burning some of that just as that capacity comes online?

Question: Amit Mehrotra - UBS - Analyst : It was just about the retrofit versus the greenfield part of the equation in terms of content if it matters. And the EA backlog the backlog growing

Question: Tim Thein - Raymond James - Analyst : Great. Just going back to the electrical global discussion earlier and nice to see maybe we've got some tailwinds there from an organic growth perspective. I'm just thinking about the implications for profitability I think since that the restructuring has been underway. There's been over, I think, just over $100 million of restructuring charges that, that segment has incurred. So how should we think about kind of the timing the realization of some of the associated savings in that particular business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 02, 2025 / 3:00PM, ETN.N - Q1 2025 Eaton Corporation PLC Earnings Call

Question: Tim Thein - Raymond James - Analyst : Meaning the savings with that? Or I'm sorry --

Question: Tim Thein - Raymond James - Analyst : Got it. Got it. Okay. All right. And then maybe, Olivier, why you have the mic. Just a comment on cash conversion and Specifically, I'm just -- obviously, there's a typical seasonality in terms of your cash collection, but the day sales outstanding did seem to kind of jump out. And I -- just curious if that's a reflection or should we think about as you're doing more and more business with some of the hyperscalers, is that of an implication in terms of ultimate collection? Or is there something else going on there.

Question: Scott Davis - Melius Research - Analyst : I think most of the questions have been asked that are relevant. But I wanted to back up a little bit and just talk about lead times and your own capacity in the context of where are we now? I mean, I'm sure transformers are still a pretty long ways out, maybe even still 23, 24 months. But as far as the rest of your offering? Are we back to normalized lead times for the most part?

Question: Scott Davis - Melius Research - Analyst : Okay. That makes sense. And I think you said something in your prepared remarks, Paulo, about capacity adds in North America just above and beyond perhaps what you had planned for before, but maybe I'm misreading that. Can you comment, are you actually accelerating some plans to build local to local in light of the tariff announcements? Or is that -- am I over reading that?