Eaton Corporation PLC Q3 2024 Earnings Call Transcript

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

Question: Andrew Obin - Bank of America - Analyst : Yes. So it wouldn't be an Eaton call without a data center question. So maybe if you could give us more detail on how did your data center business perform on organic growth orders and negotiations pipeline in the third quarter?

Question: Andrew Obin - Bank of America - Analyst : Terrific. And just a follow-up question. You have sort of highlighted the hurricane, and I understand that you do have presence in the Carolinas, that's why we're highlighting. But maybe if you could put a finer point on the impact in the third quarter and how much of an impact do you expect in the fourth quarter? You did say that it's past you, but just is there any lingering impact in the fourth quarter that you're willing to quantify.

Question: Nigel Coe - Wolfe Research - Analyst : Thanks. Good morning, everyone. And Craig, thanks for the '25 early indications. Just a question, I think, for maybe Olivier. On the electrical Americas margins, Obviously, you tend to be a little bit considerate here, but I think 4Q does tick down a little bit from 3Q. So seasonally, normally, we see a little bit higher. So just a question there. But the broader question would be we've seen a huge amount of operating leverage in the Americas. We got some investment spending. How do we think about operating leverage and margin materials going forward? Within that 30%, 35% sort of construct, do you think the Americas can be above that level going forward?

Question: Nigel Coe - Wolfe Research - Analyst : Okay. Great. Any comments on 4Q would be helpful. But my follow-up question is around the '25 framework. You said 6% to 8% end market growth in '25. I think you've got an ambition to outgrow your end markets by about two points. So do we think about kind of the start and frame or the next year, 6% to 8% or maybe a little bit higher than that?

Question: Jeffrey Sprague Sprague - Vertical Research Partners - Analyst : A lot going on today in some time. So I wonder Craig, if you could talk a little bit about capital deployment, it looks like with what you're saying on the share repo, you're quite comfortable just to continue to put up the organic growth and buy back stock. But the nature of my question is right, liquid cooling is getting more and more attention on the data center side. Schneider making a sizable bet [verde] there. You've got some kind of alliance or kind of partnership so I know you're sort of on the periphery of this anyhow. But maybe just speak to -- do you view that as an important part of your offering or where else you might have holes that might need to be filled from an M&A standpoint?

Question: Jeffrey Sprague Sprague - Vertical Research Partners - Analyst : And then speaking of capital deployment, just on the CapEx side. Is the additional CapEx still oriented towards those kind of big pinch points of transformers and switch gear? Or is this sort of broadening out into other parts of the portfolio that are just looking tight given kind of the growth that you see in front of you?

Question: Christopher Snyder - Morgan Stanley - Analyst : And appreciate all the color on the outlook. Maybe if I could ask on the mega projects. I think it's pretty surprising to see that only 16% of the $1.6 trillion have started. I guess, does that similarly suggest that around maybe 85% or 84% of the orders related to these projects are still on the horizon. And then I know you guys said that the cancellation of those projects is below historical levels. But are they progressing more slowly in that -- the lag between announcement and order has extended versus maybe what we thought a couple of years ago?

Question: Christopher Snyder - Morgan Stanley - Analyst : I appreciate that. And then maybe transitioning over to data center. Could you maybe just talk a little bit about Eaton's relationships with the big hyperscalers? And as those companies get better clarity on their forward CapEx plans on brings more capacity to market, does that change the way that you can enter into commercial agreements with those customers?

Question: Stephen Tusa - JPMorgan - Analyst : So just on the utility side, I mean, a lot going on there with all these customers raising budgets. But Hubbell's results were a little bit weak. You guys actually are guiding just below double digit next year. I think in this initial market outlook, maybe you could just talk about what you're seeing in utility and what the slowing is there? And then lastly, how you kind of participate, just remind us how you participate in generation applications?

Question: Stephen Tusa - JPMorgan - Analyst : Okay. And then just lastly on the backlog and order side. These orders are becoming obviously a bit more lumpy, like you had a huge first quarter, nice bounce back here from my math. In the third quarter, your backlog went up really nicely. It's up 25% year over year. Is this kind of a sequentially like a stable level of orders? Do you see them continue to pick up a bit sequentially from here? And then why would the backlog where it is today, up 25% year-over-year, and you're bringing on capacity? So you should be able to release much more of that backlog next year. Why wouldn't things actually accelerate on a revenue basis, at least volume-wise next year for the electrical business?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Hey guys, good morning. Good morning. So rather than like try to get you to say that you're going to do double-digit portfolio growth next year, even though that's what it seems like the framework is pointing to. I'm just curious, Craig, from a pricing standpoint, I know you said that's moderated. Would you still expect to get pricing across the portfolio in 2025?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Okay. Got it. That's helpful. And then I'm just trying to understand the linkage between the project negotiation pipeline being up 60%. And then your comments around 2025 starts expecting to hit a new high. As you kind of think about the pipeline, does that include some of the projects that haven't even started? Or are we talking about kind of like additives that the starts will be higher next year? And what you're bidding on today is already what's kind of broken ground?

Question: Timothy Thein - Raymond James - Analyst : Great. In the interest of time, maybe I'll switch two together, Craig, maybe one on just on aerospace, maybe kind of talk through whether it's orders or actual sales trends just kind of as you navigate the strike impact to the extent that continues the implications in terms of the mix for you between the more on the commercial side between OEM and aftermarket. And then just, I guess, part B is just on the electrical side, as you talk about this project pipeline and the growth you're seeing there, some of the big sectors that you've highlighted, like obviously, data centers, but I in power and industrial also being pretty fairly equipment intensive. So just how you think about that traditional rule of thumb in terms of kind of the electrical content per project? And if you're seeing any changes in that just given the complexion of the pipeline.

Question: Nicole DeBlase - Deutsche Bank - Analyst : Actually, good afternoon now. Thanks for fitting me in. I guess I'll just ask one in the interest of time. Could you talk a little bit about what you're seeing, Craig, in China? We've heard a few companies kind of say the things got a bit worse there this quarter. And then I guess you kind of mentioned hope that short cycle in Europe could be bottoming. So if you can maybe expand on are you seeing any evidence of recovery there today?

Question: Andrew Kaplowitz - Citi - Analyst : Craig, can you give more color on TE's ability to offset ongoing vehicles market-related weakness. If you look in your vehicles, margin tractor, obviously, that 19.4% of declining growth was impressive. Is that a reflection of strong positioning in the market given variable price versus cost? And how long could that last at the vehicle end market stays weak? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 3:00PM, ETN.N - Q3 2024 Eaton Corporation PLC Earnings Call

Question: Andrew Kaplowitz - Citi - Analyst : And just a quick follow-up to that. In relation to your restructuring efforts, I think you gave us $75 million for 2025. I would assume a sizable amount of that is in electrical Global, and that is going to start to help you close the gap with electrical Americas? Or how should we think about that? .

Question: Joseph O'Dea - Wells Fargo - Analyst : I'll keep it to one. Craig, I just want a little bit more color on the timing of all the capacity investments coming online. I'm sure it's staggered. But by the middle of next year, do you expect to have most of that online? And the reason for the question is when we look at the electrical backlog moving up again sequentially at $11.8 billion, trying to think through the degree to which Eaton is, in some instances, the bottleneck. How quickly you can work that down with some pretty significant capacity additions coming online, even to the degree that can Americas grow faster next year as that capacity comes online? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 3:00PM, ETN.N - Q3 2024 Eaton Corporation PLC Earnings Call

Question: Brett Linzey - Mizuho Securities - Analyst : I appreciate the thoughts on '25. I just wanted to follow up on the incremental margins. So the 30% to 35% on organic, should we Think of this as the base level and then the restructuring savings would be on top of that? Or are there some offsets on some of this OpEx investment ramp relative to the restructuring savings? Just want to square those pieces.