Eaton Corporation PLC Q4 2024 Earnings Call Transcript

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

Question: Christopher Snyder - Morgan Stanley - Analyst : Thank you. Maybe starting off, one for Olivier. So the guide on cost for, I guess, the midpoint about 6.5% organic in Q1 and then 8.5% the rest of the year. Can you talk about the drivers of that pickup in growth? And then what should we expect for the cadence of adjusted EPS throughout the remainder of '25? Thank you.

Question: Christopher Snyder - Morgan Stanley - Analyst : I appreciate that. Really, really helpful. And then if I could follow up with one -- maybe for Craig. I really appreciate all the updates on the demand outlook. Certainly a lot of good trends out there, but I wanted to ask about the supply side. We've heard a lot about the product availability in the industry being incredibly tight the last few years now, I guess, in a switch gears, obviously, a lot of trends have emerged. Are these lead times starting to come down? And when you look at the industry-wide capacity [ads], do you think that's enough to meet demand? Or do you think that this industry could still be short product beyond just the near term? Thank you.

Question: Christopher Snyder - Morgan Stanley - Analyst : Thank you, Craig. Appreciate that.

Question: Andrew Obin - Bank of America - Analyst : Just maybe a question for Craig. You're talking about Electrical Americas and the megaproject impact. So can you quantify or can you just talk about how much did megaprojects actually have an impact on your business in '24?

Question: Andrew Obin - Bank of America - Analyst : Thanks so much. And just a question on sort of supply chain, the state of supply chain, and I appreciate that you guys are watching. But we recently heard a comment that effectively, US market is stacking up capacity, supply chain capacity on the electrical side from all over the world. And the constraint is that while the industry leaders are certainly adding capacity, you still need to incentivize the supply chain maybe with better pricing and better margin for them to add capacity. Could you just maybe unpack to us what it is you're saying, how are you incentivizing your supply chain to add capacity, in particular at the components at a bottleneck to more critical components? Thanks so much.

Question: Andrew Obin - Bank of America - Analyst : Thanks so much.

Question: Steve Tusa - JP Morgan - Analyst : Hi, good morning. The pipeline you guys talked about and these megaprojects, what does that mean for orders as you look forward over the course of this year? I mean, is this -- obviously, this pipeline keeps growing and it's massive on. The backlog is a flat this year, even book-to-bill in a bit above 1. But like, what is the visibility on these megaprojects and things like that actually like converting into another reacceleration in orders?

Question: Steve Tusa - JP Morgan - Analyst : Okay. And then lastly on this data center saying, the starts you say -- you talked about nearly doubling in '24. I guess your orders' up 75%. So I mean, are you shipping to the starts or are you shipping to add to at some point in the middle of the project as it gets built? Or are you shipping blanket orders from the hyperscalers where they order a big number and then they distribute as they go? Like, how much visibility do you have as to when you're actually shipping to these guys?

Question: Steve Tusa - JP Morgan - Analyst : Yes. Okay, great. Thanks a lot, guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, ETN.N - Q4 2024 Eaton Corporation PLC Earnings Call

Question: Jeffrey Sprague - Vertical Research - Analyst : Yes, thanks. Good morning, everyone. Maybe just one more on data centers from maybe -- there's others coming in the pipeline. But also just historically, when we were talking about megaprojects, it did not include data centers because of that $1 billion threshold. But now, for example, we've got Amazon doing this $16 billion campus in Mississippi and other things. I just wondered if you could give us a sense of how much data center is now and the megaproject number that you're sharing with us today, if you have visibility on that?

Question: Jeffrey Sprague - Vertical Research - Analyst : Great. And then just looking -- obviously, you want to save most of it for us, but Paulo, I'm just thinking about Electrical Global specifically. I know you have an aspiration to improve the margins there over time. Obviously, there's just scales and economic advantages to Americas that maybe can't ever be replicated in the global franchise. But what could you share with us about your view of what can be done to kind of improve the margins in Electrical Global? And maybe at least narrow the gap versus the big brother in the Americas.

Question: Jeffrey Sprague - Vertical Research - Analyst : Thank you.

Question: Deane Dray - RBC Capital Markets - Analyst : Thank you. Good morning, everyone. I realize this is a rebuild time story here and it's a moving target. But just when you talk about tariffs, potential impact, vulnerabilities, preparations you've gone through already?

Question: Deane Dray - RBC Capital Markets - Analyst : Great, that's helpful. I'll be staying tuned there. And then Jeff was right, there was more data center questions, so I just -- first of all, that (inaudible) was really helpful. I appreciate all those specifics and Craig, I also appreciate the confidence that you've expressed today about the long-term growth prospects in data center. Would have loved to have heard Monday as well, but so we guided today. Just kind of share for us wha the teams are watching for for any changes at the margin in terms of build-out expectations?I mean, we're watching hyperscale CapEx growth and you can check the boxes at that mine in the past couple of weeks. Help out -- your customers have been asking you REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, ETN.N - Q4 2024 Eaton Corporation PLC Earnings Call for five-year supply agreements. Just remind us, those are not take or pay, just how are those set up and whether there's been anything how you're watching those play out or any other indicators you think are important?

Question: Deane Dray - RBC Capital Markets - Analyst : That's really helpful. Appreciate it. See you in March.

Question: Nicole DeBlase - Deutsche Bank - Analyst : Yes, thanks. Good morning, guys. Maybe just starting with Americas. Margin expansion there really impresses yet again this quarter. I guess the 2025 guidance on the embedded like 10 to 40 [bed] severe on year expansion, could you talk a little bit about what's going on there? Is there maybe some conservatism embedded or are margins just getting to a point where it's going to be tougher to expand them from these

Question: Nicole DeBlase - Deutsche Bank - Analyst : Thanks, Paulo. That makes sense. And then you mentioned appetite for M&A in the prepared remarks. Could you talk a little bit about the current pipeline and areas of greatest interest?

Question: Nicole DeBlase - Deutsche Bank - Analyst : Thank you, Paulo. I'll pass it on.

Question: Joe Ritchie - Goldman Sachs - Analyst : Hey, guys, good morning. So I'll focus both my questions on Electrical Americas margins. And if you go back a year ago, rewind the clock, you were expecting margins to be about 300 basis points lower than where we ended up in 2024. So I'm just curious, I know that growth was slightly better, but what other levers really kind of drove that margin expansion this past year?

Question: Joe Ritchie - Goldman Sachs - Analyst : Got it. That's helpful, Paulo. And then i guess, a\just one follow-up. So the backlog is up 29% year over year. I mean, it's hard to imagine that the margins and the backlog today are lower than the margins in the backlog on 12 months ago, but I don't want to put words in your mouth. So is there any color you can kind of give us on how the margins look like today in the backlog versus a year ago?

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay, great. All right, thank you, guys.

Question: Scott Davis - Melius Research - Analyst : Hey, guys. Can you give us a sense, a couple of cleanup items here, but the $990 million of CapEx, how much of that is growth versus maintenance? Is that kind of [700, 600] growth trust maintenance? Is that the way to think about it? I don't think we've (technical difficulty) our debt up in the past.

Question: Scott Davis - Melius Research - Analyst : That sounds about right. Just completely different from the conversation today, but does it still make the same sense to have e-mobility as a standalone segment today as it did when -- gosh, I can't remember when it was, like six years ago or maybe seven years ago. It seems -- does it still make the most sense to add that as a standalone and operationally standalone?

Question: Scott Davis - Melius Research - Analyst : That makes sense. We'll see you guys have March. Thank you.

Question: Julian Mitchell - Barclays - Analyst : Hi, good afternoon. I know it's been an hour, so I'll keep these questions short. First one, just on slide 6. Again, I just wanted to double check the 45% data center sales growth number on the left-hand side. Just wanted to check what the sort of base revenue figure for 2023 that applied to. I know you've given a sort of $3.3 billion number before, but 45% growth on that would imply only electrical sales growth was from data center, which I think it was broader based than that. Any sort of help around that, please?

Question: Julian Mitchell - Barclays - Analyst : That's very helpful. And based on the sort of capacity expansions you talked about and the other strengths in data center, when we're thinking about sort of the 2025 electrical revenue growth guidance, is that assuming a sort of similar-ish, very strong gross rate in data center this year as well?

Question: Julian Mitchell - Barclays - Analyst : Got it. And then one last silly one. Aerospace, flat margins for three years guided to expand this year. Any color on the drivers, please? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 31, 2025 / 4:00PM, ETN.N - Q4 2024 Eaton Corporation PLC Earnings Call

Question: Julian Mitchell - Barclays - Analyst : Great. Thank you.

Question: Chad Dillard - Bernstein - Analyst : Hey, good afternoon, guys. Thanks for taking the question. So as AI gave us and a shift from training to our consumer, I know we can debate the pace at which just happens, but how does the electrical content and attempting to hover between these two different use cases or maybe it doesn't interfere at all? I guess I'm trying to understand like what's your products will do some more stuff on depedning on these use cases. Maybe before you answer this question, how much of your data center sales are --?

Question: Chad Dillard - Bernstein - Analyst : Yeah, is the shift from like training to inferencing, just trying to help understand the difference in electrical content and intensity products.

Question: Chad Dillard - Bernstein - Analyst : That's super helpful. And then just a quick one on -- I don't mean titles and talk a little bit of today, but where are the first public the core products like switch to our transformers? And once you have the capacity ads come online during the second half of this year, where would you expect that lead time to go?

Question: Chad Dillard - Bernstein - Analyst : Thank you.

Question: Tim Thein - Citi - Analyst : Good afternoon, guys. I think I'll ask where you talked about machine builders in Europe and residential starting to bottom out, but obviously you move residential to negative for '25 from your initial assumptions like the growth. So does the markets get worse? Again, in third Q4, they just not recovered yet? And then I'll turn it. It looks like China continues to hold out for you. I think you mentioned utilities. Is there is anything else that you're seeing over there?

Question: Tim Thein - Citi - Analyst : That's helpful. And then backlog up 29%, Electrical Americas at the end of this year, I think it was up 18% last year. This time here, you're forecasting slightly slower organic growth in '25 versus '24. I know you had some hurricane disruption in Q4 revenue. Is there anything else that slowed revenue in the quarter and then as a modestly lower forecast, just a reflection of conservatism or maybe larger projects was longer duration?

Question: Tim Thein - Citi - Analyst : Appreciate the color, guys.

Question: David Raso - Evercore ISI - Analyst : Hi, I'll be quick. I know it's late, sorry. The amount of capacity being added, can you quantify to any degree across electrical? I've actually heard what percent capacity do we think is coming on across electricals, second half of '25 and then what the full year impact should be in '26? And then the dovetail off the comment sort of normalized now on pricing, this is more of a volume story. When I think of what you're describing the next couple years is on the electrical businesses, your willingness to add capacity and you're already hinting at the Upper A in your other businesses. Is there any reason to be thinking that you don't see this organic sales growth rate for, say, '25 as structurally something the company can do for multiple years?

Question: David Raso - Evercore ISI - Analyst : Okay. I appreciate it. Thank you so much.

Question: Phil Buller - Berenberg - Analyst : Thank you for squeezing me in. There's obviously been some parts of the business which have been soft. It's not very soft for some time. So from what you're seeing on the ground, has there been any green shoots this quarter or market share gains, perhaps that you can talk to in European electrical, European machine OEMs, resi, or autos? I think Craig, you talked Andy's question on some of that, but perhaps more on the US side. Can you specifically talk to what you're seeing in Europe or non-US, please? And just as a follow-up, I appreciate this isn't a strategy told that it was discussed, the M&A was going to be focused on electrical and aero. So I guess I'm wondering on if the strategic importance of the automotive exposure is something that you're going to be looking to talk to at the Investor Day in March?Thanks.

Question: Phil Buller - Berenberg - Analyst : Thank you.

Question: Phil Buller - Berenberg - Analyst : Okay, great. Thanks very much, guys.