Q1 2024 Eaton Corp PLC Earnings Call

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Operator: ?? Ladies and gentlemen, thank you for standing by, and welcome to the Eaton First Quarter 2024 earnings call. At this time, all participants are in a listen-only mode.

Operator: Later, we will conduct a question and answer session, and instructions will be given at that time. Should you require assistance during the conference, please press star then zero, and an operator will assist you offline. And as a reminder, today's conference is being recorded. Now, I'd like to turn the conference over to your host, Yan Jin. Please do so.

Or earnings call at this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time should you require assistance. During the conference. Please press Star then zero and an operator will assist you offline.

As a reminder, today's conference is being recorded.

Now I'd like to turn the conference over to your host Yan Chen. Please go ahead.

Yan Jin: Hey, good morning. Thank you all for joining us for Eaton's 4th Quarter 2024 Earnings Call. With me today are Craig Arnold, our Chairman and CEO, and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today includes opening remarks by Craig, then he will turn it over to Olivier, who will highlight the company's performance in the 4th Quarter. As we have done on our past calls, we'll be taking questions at the end of Craig's closing. The price release and the presentation we will go through today have been posted on our website. This presentation includes adjusted earnings per share, adjusted free cash flow, and other non-GAAP measures. They are all reconciled in the appendix.

Yan Jin: Hi, Good morning. Thank you all for joining us <unk> fourth quarter 2024 earnings call with me today are Craig Arnold, our chairman and CEO and the only way now Nike.

Yan Jin: <unk> West President and Chief Financial Officer, our agenda today includes the opening remarks by Craig.

Yan Jin: I'll turn it over to Olivier who will highlight the company's performance in the fourth quarter as we have done our past calls we'll be taking questions at the end of Craig's closing commentary the price release and the presentation. We'll go through today have been posted to our website. This presentation includes adjusted earning per share.

Yan Jin: Adjusted free cash flow and other non-GAAP measures, they're all reconciled in the appendix a webcast of this call is accessible on our website and will be available for replay I would like to remind you that our comments today will include statements related to the expected future results of the company and are therefore forward looking statements.

Yan Jin: A webcast of this call is accessible on our website and will be available for replay. I would like to remind you that our comments today will include statements related to the expected future results of the company and are, therefore, forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and presentation. With that, I will turn it over to Craig. Okay. Thanks, Yan.

Yan Jin: Our actual results may differ materially from our forecast the projections due to a wide range of risks and uncertainties that are described in our earnings release and a presentation was that our turn it over to Craig. Okay. Thanks, Ken I will start with some highlights on page three and I will lead off by noting that we've delivered another <unk>.

Craig Arnold: Hey, we'll start with some highlights on page three, and I'll lead off by noting that we've delivered another strong quarter this year. Our adjusted EPS was $2.40 in the quarter, well above our guidance range, a record for the quarter, and up 28% from prior years. I'd also note that our orders came in ahead of expectations, with strong order growth and elective... both in the Americas and global. On a rolling 12-month basis, total electrical orders were up 7%.

Craig Arnold: Strong quarter this year.

Craig Arnold: Our adjusted EPS was $2.

Craig Arnold: <unk> 40 in the quarter.

Craig Arnold: Well above our guidance range, a record for the quarter and up 28% from prior year.

Craig Arnold: I'd also note that our orders came in ahead of expectations with strong order growth in electrical both.

Craig Arnold: The Americas and global.

On a rolling 12 month basis total electrical orders were up 7% and aerospace orders increased by 2%.

Craig Arnold: Aerospace Orders Increased by 2% This led to another quarter of growing and record backlogs, up 27% for electrical and 11% for aerospace, with strong book-to-bill ratios. The growth in orders and backlogs supports our point of view on the strength of the megatrend, that we're in the early stages, and that our market should be strong for years to come. And given our Q1 results, we're raising our guidance for organic growth, segment margins, and adjusted EPS for the year. On balance, we're very pleased with our start to the year.

Craig Arnold: This led to another quarter of growing and record backlogs up 27% for electrical and 11% for aerospace with strong book to Bill ratios.

Craig Arnold: The growth in orders and backlog support our point of view on the strength of the Mega trends that we are in the early stages and then our market should be strong for years to come.

Craig Arnold: And given our Q1 results, we're raising our guidance for organic growth.

Craig Arnold: Segment margins and adjusted EPS for the year.

Craig Arnold: On balance, we're very pleased with our start to the year.

Craig Arnold: In the last few quarters, we shared our framework on how do we think about key growth drivers for the company.

Craig Arnold: In the last few quarters, we shared our framework on how we think about key growth drivers for the company. This chart reflects the six secular growth trends that are positively impacting our businesses today and, quite frankly, for years to come. We continue to think Eaton is uniquely positioned in most of our businesses and is expected to see an acceleration in market-driven growth opportunities for years to come. In the last three earnings calls, we provided a summary of progress on infrastructure spending, re-industrialization, utility, and data center markets.

This chart reflects the six secular growth trends that are positively impacting our business today and quite frankly for years to come.

Craig Arnold: We continue to think Eaton is uniquely positioned in most of our businesses and our expected to see an acceleration in market driven growth opportunities for years to come.

Craig Arnold: And the last three earnings calls, we provided a summary of progress on infrastructure spending Reindustrialization utility and data Center markets. We also shared the data center. The data excuse me, we're tracking on Mega projects, including when they are expected to have a material impact on our revenue.

Craig Arnold: We also shared the data we're tracking on megaprojects, including when they are expected to have a material impact on our revenue, and an overview of the growth expectations and drivers for our aerospace business. Today, we'll once again provide you an update on what we're seeing on megaprojects. And we'll also take a moment to show you the momentum that we're seeing in the non-residential construction project market for those projects under $1 billion

Craig Arnold: And an overview on the growth expectations and drivers for our aerospace business.

Craig Arnold: Today, we will once again provide you an update on what we're seeing on Mega projects, but we'll also take a moment to.

Craig Arnold: Show you the momentum that we're seeing in the nonresidential construction project market for those projects under $1 billion. Additionally.

Craig Arnold: Additionally, we'll provide you with a summary of the growth outlook for industrial facilities and how we're positioned in this market. And lastly, because it's such a dynamic topic, we'll provide an updated view on how our now higher growth expectations for the data center market are unfolding. Turning to slide five in the presentation, we summarize the number of megaprojects that have been announced since January of 2021. And as a reminder, a megaproject is a project with an announced value of a billion dollars or more, and the number is now 415.

Craig Arnold: Additionally, we'll provide you with a summary of the growth outlook for industrial facilities and how we're positioned in this market and lastly, because it's such a dynamic topic will provide an updated view on how our now higher growth expectations for the data center market is unfolding.

Craig Arnold: Turning to slide five in the presentation, we summarize a number of mega projects that have been announced since January of 2021.

Craig Arnold: And as a reminder, a mega project is a project with an announced value of $1 billion or more and the number is now 415 projects.

Craig Arnold: Once again, this is North America data, but we are seeing a similar trend in Europe, although the dollars are not as large. Just a few points to note. We've now surpassed $1 trillion in announced megaprojects, double what we saw this time last year at 3x the normal run rate. Approximately 16% of these projects have started, but this does vary by type. For example, a large percentage of semiconductor and EV battery projects have. Downstream chemical, power generation, renewables, and data center projects have some of the lowest project start rates to date.

Craig Arnold: Once again this is north America data, but we are seeing a similar trend.

Craig Arnold: Trend in Europe, although the dollars are not as large.

Craig Arnold: Just a few points to note.

Craig Arnold: Now surpassed one trillion dollars in announced Mega projects double we saw the last this time last year and <unk> the normal run rate.

Craig Arnold: Approximately 16% of these projects have started.

Craig Arnold: But it does vary by type of project for example, a large percentage of semiconductor and EV battery projects have started.

Yan Jin: But downstream chemical power generation renewables and data center projects at some of the lowest project start rates to date.

Craig Arnold: And cancellation rates continue to be modest, around 10% and below historical rates, using the current. We expect over $100 to $150 billion of these projects to start this year. It's also worth noting that megaprojects represent 15% of the total amount of residential construction starts in 2023, a number that we expect to grow over the next five years for projects that have started. We've won $1 billion in orders, and our win rate is approximately 40%. We remain active in negotiations on another $1.4 billion of electrical content. Most of the projects represented here have not yet reached an agreement. Turning on slide six.

Yan Jin: And cancellation rates continue to be modest around 10% and below historical rates.

Yan Jin: Using the current forecasts, we expect over $100 billion to $150 billion of these projects to start this year.

Yan Jin: It's also worth noting that mega projects represent 15% of total amount of residential construction starts in 2023.

Yan Jin: A number that we expect to grow over the next five years.

Yan Jin: For projects that have started.

Yan Jin: We've won $1 billion of orders in our win rate is approximately 40%.

Yan Jin: We remained active in negotiations on another $1 $4 billion of electrical content.

Yan Jin: Most of the projects represented here have not yet reached the negotiation stage.

Yan Jin: Turning to slide six we wanted to highlight the largest part of nonresidential construction market.

Craig Arnold: We want to highlight the largest part of the non-residential construction market, projects under 1 billion dollars. This market is projected to be over $500 billion in 2020, and represents around 50% of the U.S. market. A 56% increase since 2021, and a 16% CAGR. The market was actually up 10% through Q1 of this year.

Yan Jin: Rejects under $1 billion.

Yan Jin: This market is projected to be over $500 billion in 2024 and represents around 50% of the U S market.

Yan Jin: 56% increase since 2021, and a 16% CAGR.

Yan Jin: The market was actually up also 10% through Q1 of this year.

Craig Arnold: So while megaprojects grab a lot of the headlines, we're seeing significant strength in projects under $1 billion as well. And for projects less than $100 million, construction starts are up 15%, so once again, strength across the entire market. This momentum is naturally being driven by the same set of mega-trends and stimulus spending that we're seeing on megaprojects. Primary markets here include utility, power generation, renewable, water waste, water manufacturing, and data.

Yan Jin: So im megaprojects grabbed a lot of the headlines we're seeing significant strength in projects under $1 billion as well.

Yan Jin: Now for projects less than a $100 million construction starts were up 15%. So once again strength across the entire market.

Yan Jin: This momentum is naturally being driven by the same set of Megatrends and stimulus spending that we're seeing on mega projects.

Yan Jin: The primary markets here include utility power generation renewable water wastewater manufacturing and data centers and our win rate in this segment is approximately 35%.

Craig Arnold: And our win rate in this segment is approximately 35. Turning to slide seven, we highlight industrial facilities. As we've reported, this end market accounted for approximately 12% of Eaton's total revenue in 2023. Reindustrialization and nearshoring are having a particularly large impact on this. Examples include semiconductor fabrication, EV, and EV battery plants, as well as LNG terminals.

Yan Jin: Turning to slide seven we highlight the industrial facilities and market.

Yan Jin: As we've reported this end market accounted for approximately 12% of Eaton total revenue in 2023.

Yan Jin: Reindustrialization in near shoring or having a particularly large impact on this market.

Yan Jin: Examples include semiconductor fabrication, EV and EV battery plants as well as LNG terminals.

Craig Arnold: At the same time, industrial markets are experiencing growing pressure to decarbonize, lower costs, and develop more sustainable operations. These challenges are naturally driving a significant increase in CapEx investment. It's also coming at a time when technology and digitalization are providing more value through data as a service, and therefore the ability to provide operational intelligence.

Yan Jin: At the same time industrial markets are undergoing growing pressure to decarbonize to lower costs and develop more sustainable operations.

Yan Jin: These challenges are naturally driving a significant increase in capex investment.

Yan Jin: It's also coming at a time when technology and digitalization are providing more value to data as a service.

Yan Jin: Software.

Yan Jin: And therefore, the ability to provide operational intelligence.

Craig Arnold: This allows customers to move from being reactive to proactive when managing energy and uptime, saving them time and money. For us, we increase both our content per project and our average showing. These are the drivers that support our belief that industrial facilities and markets will grow by some 7% between now and 2030. 2023 and 2026.

Yan Jin: It allows customers to move from being reactive to proactive when managing energy and uptime saving them time and money for US we increased both our content per project and our average selling price.

Yan Jin: These are the drivers that support our belief that industrial facilities and market will grow by some 7% between now and 2023 and 2026.

Yan Jin: Slide eight provides an overview of the products and software that we sell as part of our industrial solutions portfolio.

Craig Arnold: Slide 8 provides an overview of the products and software that we sell as part of our industrial solutions portfolio. As noted, we think we have the broadest portfolio of products in the market. Our solutions are sold in both process and discrete manufacturing industries and are especially well suited to take advantage of the trends we discussed on the previous page. They help industrial companies optimize performance by lowering the cost of ownership and reducing complexity.

Yan Jin: As noted we think we have the broadest portfolio of products in the market.

Yan Jin: Our solutions are sold in both process and discrete manufacturing industries and are especially well suited to take advantage of the trends we discussed on the prior page.

Yan Jin: Our solutions help industrial companies optimize performance by lowering the cost of ownership and reducing complexity.

Craig Arnold: They increase operational predictability with data-driven insights and enhance safety, protecting people and assets. In addition to hardware and software, we provide a full suite of project management services, including design, specifying, commissioning, training, remote monitoring, and obviously aftermarket services. And our BrightLayer and DirecTel software platforms enable customers to preempt operational challenges because of the data and insights that come from our electrical systems.

Yan Jin: The increase operational predictability with data driven insights and enhanced safety protecting people and assets.

Yan Jin: In addition to hardware and software we provide a full suite of project management services, including design specify commissioning training remote monitoring and obviously aftermarket service.

Yan Jin: And our bright layer and direct our software platform enables customers to preempt operational challenges because of the data and insights that come from our electrical equipment.

Yan Jin: Moving to slide nine Youll see an updated view on the data center market.

Craig Arnold: Moving to slide 9, you'll see an updated view on the data center model. Last fall, on our Q3. 2023 earnings call, we highlighted the data center market and shared our view that we expected the market to grow at a 16% compounded growth rate between 2022 and 2025. We wanted to provide an update as we've seen continued momentum in this market driven by the rise of AI, big data, and certainly edge computing. As expected, the biggest increase is coming from the very strong demand for AI data centers, which is reflected both in our orders and in our negotiation pipeline. Orders for one of our traveling 12-month basis have more than doubled, and our negotiations in the U.S. have increased by more than 4x.

Yan Jin: Last fall and our Q3.

Yan Jin: 2023 earnings call, we highlighted the data center market and share our view that we expected the market to grow at a 16% compounded growth rate between 2022 and 2025.

Yan Jin: We wanted to provide an update as we have seen continued momentum in this market driven by the rise of AI big data and certainly edge computing.

Yan Jin: As expected the biggest increases coming from the very strong demand for AI data centers, which is reflected both in our orders and then our negotiation pipeline.

Yan Jin: Here <unk>.

Yan Jin: <unk>.

Yan Jin: Trailing 12 month basis have more than doubled.

Yan Jin: And our negotiations in the U S have increased by more than four X.

Yan Jin: We now think the overall market grows at a 25% compounded growth rate between 2022 and 2025.

Yan Jin: And as you know we have a strong position in the data center market and the data centers slash It channel accounted for 14% of our revenue last year.

Yan Jin: Now I'll turn the presentation over to Olivier to cover the financials. Thanks.

Olivier: Thanks, Greg.

Olivier: Start by providing a summary of our Q1 results, we posted a Q1 record of $5 $9 billion up 8% in total and organically.

Craig Arnold: We now think the overall market will grow at a 25% compounded growth rate between 2022 and 2025. And, as you know, we have a strong position in the data center market, and the data center slash IT channel accounted for 14% of our revenue last year. Now, I'll turn the presentation over to Olivier to cover the financials. Thanks, Craig.

Olivier: This represents eight quarters of growth of 20% on a two year stack, we posted Q1 segment profit and margins record.

Olivier: Operating profit grew 27% and segment margin expanded 240 basis points to 23, 1%.

Olivier: Adjusted EPS of $2 and 40 <unk>.

Olivier: <unk> increased by 28% yet.

Olivier: Prior year.

Olivier: This is a Q1 record and well above the high end of our guidance range.

Olivier C. Leonetti: I'll start by providing a summary of our Q1 results. We posted a Q1 sales record of $5.9 billion, up 8% in total and organically. This represents eight quarters of growth, over 20% on a two-year... We posted Q1 segment profit and margin records, operating profit grew 27%, and segment margin expanded 340 basis points to 23.12%. Adjusted EPS of $2.40 increased by 28% over the prior year.

Olivier: This performance resulted in operating cash flow of <unk> $75 million.

Olivier: 42% on a year over year basis, and free cash flow of $292 million up 40% versus prior year.

Olivier: As a percentage of full year guidance, both operating cash flow and free cash flow improved versus prior year.

Olivier: On Slide 11, we summarize in America has a very strong results. We continue to raise the bar setting new all time records for sales operating profit and margins.

Olivier: Organic sales growth remained strong at 17%, which reflect broad based strength in our end markets with particular strength in industrial data center and institutional end markets.

Olivier C. Leonetti: This is a Q1 record, and well above the high end of our guidance ranking. This performance resulted in operating cash flow of $475 million, up 42% on a year-over-year basis, and free cash flow of $292 million, up 40% versus prior years. As a percentage of full-year guidance, both operating cash flow and free cash flow are improved versus prior years. On slide 11, we summarize Electrical America's very strong results. We continue to raise the bar, setting new all-time records for sales, operating profit, and margin. Organic sales growth remains strong at 17%, which reflects broad-based strength in our end markets, with particular strength in industrial, data center, and institutional end markets. On a two-year stack, organic growth was up 39%.

Olivier: On a two year stack organic growth was up 39%.

Olivier: <unk> americanas has generated double digit organic growth for nine consecutive quarters.

Olivier: All time record operating margin of 29, 2% was up 630 basis points versus the prior year benefiting primarily from higher volumes effective management of price cost and improve manufacturing efficiency, partially offset by higher costs.

Olivier: To support growth initiatives.

Olivier: On a holding 12 month basis orders were up 8% demonstrating a positive inflection as a result of the impact of the values Mega trends.

Olivier C. Leonetti: Electrical Americas has generated double-digit organic growth for nine consecutive quarters. The all-time record operating margin of 29.2% was up 630 basis points versus the prior year, benefiting primarily from higher volumes, effective management of price costs, and improved manufacturing efficiency, partially offset by higher costs to support growth initiatives. On a rolling 12-month basis, orders were up 8%, demonstrating a positive inflection as a result of the impacts of the various mega-trends. We add particular strength in the data center and storage market.

Olivier: We had particular strength in data center end market.

Olivier: Also our major project negotiations pipeline in Q1 was up 169% versus prior year and up 197% since Q1 2022.

Olivier: And at record Americas backlog increased 31% year over year and was up 21% sequentially, resulting in a book to bill ratio of one two on a holding 12 months basis.

Olivier: These results underscore the tailwind from secular trends strong execution in August backlog that at the low dose to increase growth and margin guidance for the year, which we will discuss later in the presentation.

Olivier C. Leonetti: Also, our major project negotiation pipeline in Q1 was up 169% versus the prior year and up 197% since Q1 2022. Electric Coal America's backlog increased 31% year-over-year and was up 21% sequentially, resulting in a book-to-bill ratio of 1.2 on a rolling 12-month basis.

Olivier: The next chart summarizes the results for our industry called Global segment.

Olivier: <unk> global results, mostly flat to last year.

Olivier: Organic growth was up 1% offset entirely by FX headwinds.

Olivier: We had strength in data center industry, as well as commercial and institutional end markets.

Olivier C. Leonetti: These results underscore the tailwinds from secular trends, strong execution, and robust backlog that have allowed us to increase growth and margin guidance for the year, which we will discuss later in the presentation. The next chart summarizes the results for our electrical global segment. Coincidentally, global results are mostly flat to last year. Organic growth was up 1%, offset entirely by FX headwinds.

Olivier: Regionally, we saw strength in our APAC and <unk> businesses, partially offset by weakness in our EMEA business.

Olivier: Operating margin was 18, 3%, which was flat to the prior year.

Olivier: Orders were up 4% on a hoarding 12 month basis with strength in data center and <unk> end markets.

Olivier: Book to Bill continues to remain strong Q1 was $1 one on a holding 12 months basis.

Olivier: Before moving to our industrial businesses I'd like to briefly recap the combined electrical segments for.

Olivier C. Leonetti: We have strength in the data center industry as well as the commercial and institutional market. Regionally, we saw strength in our AIPAC and GEIS businesses, partially offset by weakness in our EMEA business. Operating margin was 18.3%, which was flat to the prior year.

Olivier: For Q1, we posted organic growth of 11% and segment margin of 25, 3%, which was 430 basis points over prior year on Rolling 12 month basis orders inflected strongly positive up 7% and our book to Bill ratio.

Olivier C. Leonetti: Orders were up 4% on a rolling 12-month basis with strength in data center and utility market. Book-to-Bill continues to remain strong. Q1 was 1.1 on a holding 12-month basis.

Olivier: Our electrical sector remains very strong at one two.

Olivier: We remain quite confident in our positioning for continued growth with strong margins in our overall electrical business.

Olivier C. Leonetti: Before moving to our industrial businesses, I'd like to briefly recap the combined electrical segment. For Q1, we posted organic growth of 11% and a segment margin of 25.3%, which was 430 basis points over the prior year. On a rolling 12-month basis, orders inflected strongly positively, up 7%, and our book-to-bill ratio for our electrical sector remains very strong at 1.2. We remain quite confident in our positioning for continued growth with strong margins in our overall electrical business. Page 13 highlights our aerospace segment. We posted Q1 sales, operating profit, and operating margin records. Organic growth was 9% for the quarter.

Olivier: Page 13 highlights our aerospace segment, we posted Q1 sales operating profit and operating margin record organic growth was 9% for the quarter.

Olivier: Growth was driven by broad strength across all markets with particular strength in commercial OEM and aftermarket end markets, which were up 17% and 15% respectively.

Olivier: Operating margin of 23, 1% was up 60 basis points year over year benefiting from higher volumes and effective management of price cost on.

Olivier: On a holding 12 months' basis orders increased 2%.

Olivier: Commercial OEM and aftermarket orders were particularly strong and we expect that the military OEM order patents will normalize in the second half.

Olivier: Year over year backlog increased 11% and was up 4% sequentially.

Olivier C. Leonetti: Growth was driven by broad strength across all markets, with particular strength in commercial OEM and aftermarket end markets, which were up 17% and 15%, respectively. Operating margin of 23.1% was up 60 basis points year-over-year, benefiting from higher volumes and effective management of price. On a rolling 12-month basis, orders increased 2%. Commercial OEM and aftermarket orders were particularly strong, and we expect that the military OEM order patterns will normalize in the second half. Year-over-year backlog increased 11% and was up 4% sequentially.

Olivier: On a rolling 12 month basis, our book to Bill for Idaho Space segment remained strong at one one.

Olivier: Moving on to our <unk> segment on page 14 in the quarter total revenue was down 2%, including a 3% organic decline, partially offset by a point of favorable FX weaken.

Olivier: Weakness in the North America region was partially offset by strength in Asia Pacific.

Olivier: Operating margin came in at 16% 150 basis points above prior year, driven by effective management of price cost and improvement in manufacturing efficiencies offset by lower sales volume.

Olivier: On page 15, we show results for our E mobility business sales were up 7% on it.

Olivier C. Leonetti: Our book to build for our aerospace segment remains strong at 1.1. Moving on to our vehicle segment on page 14, in the quarter, total revenue was down 2%, including a 3% organic decline, partially offset by a point of favorable effect.

Olivier: Ganesh and total basis.

Olivier: Our organic growth significantly outperformed the market driven by new program ramp ups.

Olivier: Our OEM customers continue to face execution challenges and while we anticipate improvements throughout the year. We have remained pragmatic in our volume forecast.

Olivier C. Leonetti: Weakness in the North American region was partially offset by strength in Asia-Pacific. Operating margin came in at 16%, 150 basis points above prior year, driven by effective management of price costs and improvement in manufacturing efficiencies, offset by lower sales volume. On page 15, we show results for our e-mobility business. Cells were up 7% on an organic and total basis.

Olivier: As a result, we will discuss shortly that our full year growth guidance of 25% to 35% remains unchanged.

Olivier: Gross programs and investments drove the operating loss of $4 million.

Olivier: We continue to incur launch costs related to our growth programs expected to ramp up over the next coming quarters.

Olivier: 2023, we won new programs with more than $1 $3 billion of much your yeah revenue and we continue to expand our pipeline of new opportunities in 2024, with our unique technologies driven by our electrical pedigree.

Olivier C. Leonetti: Our organic growth significantly outperformed the market, driven by new program ramp-ups. However, our OEM customers continue to face execution challenges. And while we anticipate improvements throughout the year, we have remained pragmatic in our volume forecast. As a result, we will discuss shortly that our full-year growth guidance of 25% to 35% remains unchanged.

Olivier: This will continue to drive our growth well above the market.

Olivier: Moving to page 16, we show our electric corn and space backlog abated through Q1 as you can see we continued to build backlog with electrical stepping up to $11 $3 billion and iOS space, reaching $3 $4 billion for a total backlog of <unk>.

Olivier C. Leonetti: We continue to incur launch costs related to our growth programs, expected to ramp up over the next coming quarter. In 2023, we want new programs with more than $1.3 billion of mature year revenue, and we continue to expand our pipeline of new opportunities in 2024 with our unique technologies driven by our electrical pedigree. This will continue to drive our growth well above the market. Moving to page 16, we show our electrical and aerospace backlog updated through Q1.

Olivier: $14 $7 billion.

Olivier: Versus prior yet our backlogs have grown by 27% and electrical and 11% in aerospace.

Olivier: Electrical backlog benefited from acceleration in order intake from tailwind from the secular trends, including Hyperscale orders within the data center end market as.

Olivier: As noted earlier book to Bill ratios for electrical and aerospace one two and one one respectively.

Olivier C. Leonetti: As you can see, we continue to build backlog, with electrical stepping up to $11.3 billion and aerospace reaching $3.4 billion for a total backlog of $14.7 billion. Compared with the prior year, our backlogs have grown by 27% in electrical and 11% in aerospace. Electrical backlog benefited from acceleration in order intake from tailwinds from secular trends, including hyperscale orders within the data center and market. As noted earlier, book-to-bill ratios for electrical and aerospace are 1.2 and 1.1, respectively.

Olivier: The continued growth in our backlog underscores our confidence in 2024 and beyond.

Olivier: Now I'll turn it back to Craig for the end market outlook and financial guidance updates. Thanks.

Olivier: Olivier.

Olivier: Turning to page 17, we show a summary of our end market growth assumptions overall, our markets continue to perform as expected.

Olivier: And most of these indicators have not changed from what we shared in our Q4 earnings call.

Olivier: We are however, seeing stronger than expected growth in data center and in commercial and institutional markets in the U S, which is why we are raising our revenue guidance for the year.

Olivier: In contrast, what many are seeing in the macro economy, we continue to expect growth in 80% of our end markets and most of this growth is supported by the large backlog numbers that Olivier shared.

Craig Arnold: The continued growth in our backlog underscores our confidence in 2024 and beyond. Now I turn it back to Craig for the End Market Outlook and Financial Guidance Updates. Overall, our markets continue to perform as expected.

Olivier: Moving to page 18, we show our financial year organic growth and operating margin guidance overall, our 2020 for organic growth is now expected to be between 7% and 9%, which is an increase of 50 basis points at the midpoint.

Olivier: We're raising our organic growth guidance in the electrical Americas, 210% to 12% from 9% to 11% and.

Olivier: And we are reiterating the growth guidance for the remaining segments.

Craig Arnold: And most of these indicators have not changed from what we shared in our Q4 orientation. We are, however, seeing stronger-than-expected growth in data and in commercial and institutional markets in the U.S., which is why we're raising our revenue guidance for the U.S. In contrast to what many are seeing in the macroeconomy, we continue to expect growth in 80% of our end markets, and much of this growth is supported by the large backlog numbers that Olivier shared.

Olivier: For segment margins were increasing the company's margin guidance range by 40 basis points at the midpoint to 23%.

Olivier: This is a result of the improved outlook in electrical Americas, where we're seeing strong demand and strong performance here.

Olivier: Here, we're increasing our margin outlook to 28% a 100 basis point increase at the midpoint.

Olivier: And we're reiterating our guidance for the remaining segments.

Olivier: On the next page, we have the balance of our guidance metrics for 2024 in Q2.

Olivier: For 2024, our adjusted EPS is expected to be between $10 20, and $10 60, a share the $10 40 midpoint represents a 14% growth in adjusted EPS over prior year and a 25% increase over the initial 2020 for guidance.

Craig Arnold: Moving to page 18, we show our financial year, organic growth, and operating margin guidance. Overall, our 2024 organic growth is now expected to be between 7% and 9%, which is an increase of 50 basis points at the midpoint. We're raising our Organic Growth Guidance in the Electrical Americas to 10 to 12 percent, from 9 to 11, and we're reiterating the growth guidance for the remaining. For segment margins, we're increasing the company's margin guidance range by 40 basis points at the midpoint to 23%.

Olivier: Elements of our guidance are unchanged.

Olivier: For Q2, we expect organic growth to be between $6 five and eight 5% segment margins to be between 22, 4% and 22, 8% and adjusted EPS to be in a range of $2 52.

Olivier: To $2 62, a share.

Olivier: So let me just close with a summary on page 20, once again the trends driving growth in our end markets continue to play out as expected and even better and our electrical Americas business driven by the datacenter market.

Craig Arnold: This is a result of the improved outlook in electrical Americas, where we're seeing strong demand and strong performance. Here, we're increasing our Margin Outlook to 28%, a hundred basis point increase at the mid, and we're adjusting our guidance for the remaining. On the next page, we have the balance of our guidance metric for 2024 and Q2. The 2024 adjusted EPS is expected to be between $10.20 and $10.60 a share. The 1040 midpoint represents a 14% growth in adjusted EPS over prior years and a 25 cent increase over the initial 2024 guidance. The other elements of our guidance are unchanged.

Olivier: We also delivered a strong quarter financial results on the back of strong execution across the company.

Olivier: As a result, we raised our guidance for organic growth by 50 basis points segment margins by 40 basis points and adjusted EPS by 25%.

Olivier: At the midpoint.

Olivier: And in the quarter, we were especially pleased to see strength in our negotiations.

Olivier: Our orders and the growth in our backlog all of which it all time records validating our medium and long term growth outlook.

Olivier: So we leave the quarter with a high level of confidence.

Olivier: Even will deliver higher growth higher margins and consistent earnings growth for years to come.

Olivier: Our expectations are high and that's exactly where they should be.

Speaker Change: With that I'll open things up for any questions you may have.

Speaker Change: Thanks, Craig for the Q&A today, please limit your opportunity to one question and a follow up sanctioning of the ones for your cooperation with that I will turn it over to the operator to give you guys the instruction.

Craig Arnold: For Q2, we expect organic growth to be between 6.5% and 8.5%, segment margins to be between 22.4% and 22.8%, and adjusted EPS to be in a range of $2.52 to $2.62 a share. So let me just close with a summary on page 20. Once again, the trends driving growth in our end markets continue to play out as expected, and even better in our electrical America business, driven by data. We also delivered strong quarterly financial results on the back of strong execution across the company.

Speaker Change: Thank you and ladies and gentlemen, if you wish to ask a question. Please press London zero on your Touchtone filings, you will head count, indicating that you've been placed in the queue and you may remove yourself from queue at any time by repeating the one man.

Speaker Change: On a speakerphone please pick up your handset before pressing the numbers once again, if you have a question it's one zero.

Speaker Change: The first question will come from the line of Joe Ritchie from Goldman Sachs. Please go ahead.

Joseph Alfred Ritchie: Hey, guys good morning.

Joseph Alfred Ritchie: Hey, Joe morning morning.

Joseph Alfred Ritchie: Craig.

Joseph Alfred Ritchie: Look it's incredible to see the pipeline now over a trillion dollars.

Joseph Alfred Ritchie: On the Mega projects I'm, just curious like as you talk to your customers. If you think about.

Craig Arnold: As a result, we raised our guidance for organic growth by 50 basis points, segment margins by 40 basis points, and adjusted EPS by 25 cents at mid. And in the quarter, we were especially pleased to see strength in our negotiations, our orders, and the growth in our backlog, all of which are at all-time records, validating our medium and long-term growth. So we leave the quarter with a high level of confidence that Eaton will deliver higher growth, higher margins, and consistent earnings growth for years to come. Our expectations are high, and that's exactly where they should be.

Joseph Alfred Ritchie: Maybe labor is a constraint like how do you see this all playing out over the next couple of years and like what are you. What are you hearing from your customers in terms of like whether there are either additional products that that you need to come to market with just given given all the activity that's happening there.

Speaker Change: I know we appreciate the question Joe and it's obviously one that we're spending a lot of time internally looking at.

Speaker Change: And it's one of the things Thats quite frankly tempering our outlook for the year is the fact that we do believe that labor continues to be a bottleneck in certain industries.

Joseph Alfred Ritchie: And really in the economy overall.

Joseph Alfred Ritchie: And so at this point I think it's really too early to say to what extent, it's going to resolve itself one of the things that we're looking at as well as <unk>.

Craig Arnold: With that, I'll open things up for any questions you may have. Thanks, Craig, for the Q&A today. Please limit your opportunity to one question and a follow-up. Thanks in advance for your cooperation.

Joseph Alfred Ritchie: Total labor participate participation rates in general.

Joseph Alfred Ritchie: Those numbers I would say have been grew.

Joseph Alfred Ritchie: Growing over time at a rate of.

Operator: With that, I will turn it over to the operator to give you guys the instructions. Thank you, and ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear a tone indicating that you've been placed in a queue, and you may remove yourself from the queue at any time by repeating the 1-0 command.

Joseph Alfred Ritchie: 2% to 3% I will tell you that the construction industries. The industries that we're participating in really reversing what had been a long term trend are actually growing at a faster rate and so our industries are in fact.

Joseph Alfred Ritchie: Growing at a faster rate in terms of labor participation than the underlying economy, which is really an encouraging sign I mean, I think in many ways skilled trade today.

Operator: And if you're on a speakerphone, please pick up your handset before pressing the numbers. Once again, if you have a question, it's 1 then 0. The first question will come from the line of Joe Ritchie from Goldman Sachs. Please go ahead. Hey guys, good morning. Joe, good morning.

Joseph Alfred Ritchie: Whether it's.

Joseph Alfred Ritchie: Plumbers contractors electricians welders. These are really good jobs and jobs that are going to be around for a long term and I think some of that is playing out and the shift that we're seeing but it's one of the things that we continue to watch.

Joseph Alfred Ritchie: Morning Craig, look, it's incredible to see the pipeline now over a trillion dollars on the mega projects. I'm just curious, like, as you talk to your customers, if you think about, you know, maybe labor as a constraint, like, how do you see this all playing out over the next couple years? And, like, what are you hearing from your customers in terms of, like, whether there are any additional products that you need to come to market with, just given all the activity that's happening here?

Joseph Alfred Ritchie: And it's one of the things like I said once again that really tempers our outlook, we could obviously grow faster.

Joseph Alfred Ritchie: If these constraints are fully resolved and don't become a gating item for the industry overall.

Speaker Change: Got it that's Super helpful. And then I guess, maybe I know you've got a bunch of growth questions from others, but maybe I'll turn to margins for a second.

Speaker Change: You announced the restructuring program last quarter.

Speaker Change: Yes, it's a pretty wide gap right now between the.

Speaker Change: Really stellar margins youre, putting up in the electrical Americas business versus the electrical global business can you, maybe just elaborate a little bit more on the restructuring plans is there some sense that youre going to try to maybe narrow the gap.

Joseph Alfred Ritchie: I know, we appreciate the question, Joe, and it's obviously one that we're spending a lot of time internally looking at. It's one of the things that's quite frankly tempering our outlook for the year is the fact that we do believe that, you know, labor continues to be a bottleneck in certain industries and really in the economy overall. And so, at this point, I think it's really too early to say to what extent this is going to resolve itself.

Joseph Alfred Ritchie: On the margin trajectory for those two businesses today.

Joseph Alfred Ritchie: Yes, I mean, I think the short answer is absolutely we would intend and anticipate to narrow the gap between those two businesses and narrow the gap the right way, which is the global business needs to do significantly better we have no expectations on all that.

Joseph Alfred Ritchie: We'd see retrenchment in our Americas business, and so but I will say as you think about the restructuring program that we launched $375 million of spending $325 million of benefits two thirds of that more or less will be in the electrical segment with a heavy concentration in global so we are.

Craig Arnold: One of the things that we're looking at as well is total labor participation rates in general. Those numbers, I would say, have been growing over time at a rate of, you know, 2 to 3 percent. But I will tell you that, you know, the construction industries, the industries that we're participating in, are really reversing what had been a long-term trend, are actually growing at a faster rate.

Joseph Alfred Ritchie: Clearly working hard to improve margins in the electrical global business one of the reasons why this gap kind of widened and opened up is that.

Joseph Alfred Ritchie: We're all aware in the U S market. The North America market is doing very well right. Now there is a lot of activity there is a lot of growth.

Joseph Alfred Ritchie: We have a very strong strategic position in the North America margin market overall, and so there's just a lot of things today that are really positive.

Craig Arnold: And so our industries are, in fact, you know, growing at a faster rate in terms of labor participation than the underlying economy, which is really an encouraging sign. I mean, I think in many ways skilled trade today, you know, whether it's plumbers, contractors, electricians, welders.

Joseph Alfred Ritchie: In the Americas markets that are allowing us to to continue to expand margins there and as you know a lot of the European markets have been much weaker than we anticipated you see some of the macroeconomic data coming out of Europe, Germany, specifically and a lot of the market segments in Europe, where we have a strong position.

Craig Arnold: These are really good jobs and jobs that are going to be around for the long term. And I think some of that's playing out in this shift that we're seeing. But it's one of the things that we continue to watch.

Joseph Alfred Ritchie: Are some of the weaker parts of the market. If you think about the OEM segment you see it in some of the automation data from some of the other electrical peer companies the residential market and so I think today.

Craig Arnold: And it's one of the things, like I said once again, that really tempers our outlook. We could obviously grow faster if these constraints were fully resolved and didn't become a gating item for the industry overall. Got it. That's super helpful.

Joseph Alfred Ritchie: Those margins will get better if we look forward, we're obviously anticipating margins getting better easier.

Joseph Alfred Ritchie: Easier comps in the second half of the year as well, but without a doubt there's plenty of opportunity to expand our margins in our global segment.

Speaker Change: Great. Thanks, Greg.

Speaker Change: Thank you.

Joseph Alfred Ritchie: And then I guess maybe I know you'll get a bunch of growth questions from others, but maybe I'll turn to margins for a second. So you announced a restructuring program last quarter. You know, there's a pretty wide gap right now between the really stellar margins you're putting up in the Electrical Americas business versus the Electrical Global business. Can you maybe just elaborate a little bit more on the restructuring plans? Is there some sense that you're going to try to maybe narrow the gap on the margin trajectory for those two businesses today?

Speaker Change: Thank you. The next question is from Jeff fan.

Jeff: Medical Research. Please go ahead.

Jeff: Hey, Thanks, good morning, everyone.

Jeff: Good morning, Jeff.

Jeff: Good morning, Hey.

Jeff: Just curious on data centers, Craig your comment about the.

Speaker Change: Some of the Mega projects haven't started yet they're obviously data center has been strong and a revenue driver for you. There. So can you just elaborate on that are you kind of.

Speaker Change: Talking about you really haven't seen maybe kind of the AI oriented investments coming through.

Jeff: Just kind of an interesting curious comment.

Jeff: And last quarter. When you did provide that kind of order conversion data for semi and other related investments Didnt put data centers on that slide. So maybe you could address that element of the question also.

Joseph Alfred Ritchie: Yeah, I mean, I think the short answer is absolutely that we would intend and anticipate to narrow the gap between those two businesses, and narrow the gap the right way, which is the global business needs to do significantly better. We have no expectations at all that we'd see retrenchment in our American business.

Speaker Change: Yes, I would say that.

Speaker Change: To your point, Jeff datacenter markets have been good and strong for a long time.

Speaker Change: I think our data center numbers I think we've talked about growth in excess of 20%.

Craig Arnold: But I will say, as you think about the restructuring program that we launched, $375 million of spending, $325 million of benefits, two-thirds of that, more or less, will be in the electrical segment with a heavy concentration in global. So we are clearly working hard to improve margins in the electrical global business. One of the reasons why this gap kind of widened and opened up is that, as we're all aware, the U.S. market, the North American market, is doing very well right now.

Speaker Change: But the order growth in the datacenter market as we've talked about is much higher than that much much higher than that and so if you think about a lot of these big Mega projects and where we're seeing.

Jeff: This outsized growth.

Jeff: In Green projects announced in our negotiations.

Jeff: Data centers is obviously one of the big contributors.

Jeff: The underlying rate of growth.

Jeff: That we're seeing in negotiations and in orders is outstripping the very strong growth that we're seeing in our business and so we were just trying to find some color in terms of mega projects in which of those are already showing up today in orders, which of those are already showing up somewhat in revenue. Although most of it is.

Craig Arnold: There's a lot of activity, there's a lot of growth. You know, we have a very strong strategic position in the North American market overall. And so there are just a lot of things today that are really positive in the Americas markets that are allowing us to continue to expand margins there. And, as you know, a lot of the European markets have been much weaker than we anticipated. You see some of the macroeconomic data coming out of, you know, Europe, Germany specifically, and a lot of the market segments in Europe, where we have a strong position, are some of the weaker parts of the market.

Jeff: Not in revenue, yet and where we expect to continue to see even outsized growth as we move forward in the ensuing years in data centers is clearly going to be a big contributor we talk about negotiations up four times. So it is the market just continues to.

Jeff: To grow.

Jeff: And we expect that market to be a much bigger piece of the total company as we look forward.

Jeff: And then.

Jeff: Oh, yes.

Speaker Change: What was the second question I think.

Speaker Change: Yes.

Speaker Change: When you provided that kind of hand, a chart last quarter, showing kind of negotiation to order to sales conversion.

Craig Arnold: If you think about the MOM segment, you see it in some of the automation data from some of the other electrical peer companies in the residential market. And so I think today, you know, those margins will get better. If we look, you know, forward, we're obviously anticipating margins getting better, and there will be, you know, easier comps in the second half of the year as well. But without a doubt, there's plenty of opportunity to expand our margins in our global sector. Great. Thanks, Craig.

Speaker Change: Timeline accident did not put data centers on that Shar.

Speaker Change: Does it does it differ significantly from those.

Speaker Change: I think.

Speaker Change: I think I'm correct, Tim can correct me around the room, if im wrong I think data centers were embedded in that data we gave you.

Speaker Change: So the aggregate data data centers, we're embedded in what we gave you.

Speaker Change: Yes, Im looking at <unk>.

Speaker Change: Kevin.

Speaker Change: Different kinds of projects and we were showing you. Some examples of different kinds of projects, but embedded in the overall data I think that definitely included data centers.

Craig Arnold: Thank you. Thank you. The next question is from Jeff Sprague from Vertical Research. Please go ahead. Hey, thanks. Good morning, everyone. Good morning Jeff.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: Yes, we can defer can follow up after this call okay.

Speaker Change: Yes. Thank you and then just the second question I'm, sorry, just on the <unk>.

Jeffrey Todd Sprague: Hey, just curious about data centers, Craig, your comment about like some of the mega projects haven't started yet there. Obviously, data centers have been strong and a revenue driver for you there. So, can you just elaborate on that? Are you kind of, you know, talking about you really haven't seen maybe kind of the AI-oriented investments coming through? Just kind of an interesting, curious comment.

Speaker Change: Electrical Americas margins.

Speaker Change: What would cause the margins to go down sequentially right, usually Q1 is actually the lowest margin quarter of the year.

Speaker Change: It's the lowest revenue quarter in <unk>.

Speaker Change: Value.

Speaker Change: Is there something in mix or otherwise that would cause it to step down from these levels.

Speaker Change: I would say is as we look forward as you know we've made a number of announcements around.

Craig Arnold: And, you know, in the last quarter when you did provide that kind of order conversion data for SEMI and other related, you know, investments, you didn't put data centers on that slide. So, maybe you could address that element of the question also. You know, I say that, to your point, Jeff, data center markets have been good and strong for a long time. And I think our data center numbers, I think we're talking about growth, you know, in excess of 20%. But the order growth in the data center market, as we talked about, is much higher, much, much higher.

Speaker Change: Capacity expansion, we're making some investments in commercial front and we're making investments in technology. So there is a number of programs that we've made announcements last year and that we are investing in this year that will certainly be a bit of a gating factor in terms of margin expansion.

Speaker Change: And I think the implied number is close to what it was in Q1, but do take your point that we typically see margin expansion, we'll certainly see volume expansion.

Speaker Change: In terms of the absolute revenue in the out in the out quarters, but it really is more a function of spending and investments that we're making in the business.

Speaker Change: Great. Thank you.

Speaker Change: Thank you and our next question is fine.

Craig Arnold: And so, if you think about a lot of these big megaprojects and where we're seeing, you know, this outsized growth in projects announced and in our negotiations. Data centers are obviously one of the big contributors, and the underlying rate of growth that we're seeing in negotiations and in orders is outstripping the very strong growth that we're seeing in our business. And so we're just trying to find some color in terms of megaprojects and... Which of those are already showing up in orders?

Speaker Change: Deane Dray from RBC capital markets. Please go ahead.

Speaker Change: Maam.

Deane Michael Dray: Your line is now open.

Deane Michael Dray: Thank you and good morning, everyone. Good morning, <unk> morning.

Deane Michael Dray: Wanted to circle back on the data center demand here and the idea here is you talked about labor constraints.

Deane Dray: But the industry.

Speaker Change: The folks that we're talking to on the data center planning side is they're nervous about the bottlenecks in some of the basic electrical backbone that you all provide and so we saw this quarter and announcement in Europe with one of your European competitors, signing a five year supply agreement.

Craig Arnold: Which of those is already showing up somewhat in revenue, although most of it's not in revenue yet? And where do we expect to continue to see even outsized growth as we move forward in the ensuing years? And data centers are clearly going to be a big contributor. We talk about, you know, negotiations going up four times. So it is, the market just continues to grow, and we expect that market to be a much bigger piece of the total company as we look forward. And then, uh, oh yeah, go ahead. What was the second question?

Speaker Change: To one of these data.

Speaker Change: Data center operators so.

Speaker Change: And then they've also we've heard about transformers being backlogs for two years. So are there opportunities for you I know you are increasing capacity and transformers, but.

Speaker Change: Are you looking at any of these longer term supply agreements.

Jeffrey Todd Sprague: I didn't quite understand... Yeah, when you provided that kind of handy chart last quarter showing kind of the negotiation to order to sales conversion timeline, actually, you did not put data centers on that chart. Does that differ significantly from those figures? Yeah, no, I think, and the team can correct me around the room if I'm wrong, I think data centers were embedded in that data. We gave you... the aggregate data. I thought data centers were embedded in what we do... Yeah, I'm looking at slide six.

Speaker Change: Yes. The short answer is absolutely, yes, we are living in an environment right now where the market has a number of constraints, including electrical equipment. It's one of the reasons why we announced at $1 billion of.

Speaker Change: Incremental investments that we're making in the company to deal with the specific bottlenecks that we have in our own manufacturing operations. So that we can address the demand that we see in front of us and quite frankly, given the demand that we're seeing even today in the business those numbers will likely go up so data centres continues.

Speaker Change: To grow.

Speaker Change: I was responding to a specific question earlier around labor, but to your point.

Speaker Change: There are other constraints around electrical equipment and we are in fact, signing multiyear agreements with our customers to ensure that we have capacity in place to support the demand that they need from us and so we are fully confident that we will not be the bottleneck in the industry will we.

Jeffrey Todd Sprague: There are different kinds of projects. We were showing you some examples of different kinds of projects, but embedded in the overall data, I think that definitely included data... Okay. Okay. We can follow up after this call. Okay. Yeah. Yeah. Thank you. And then just a second question. I'm sorry.

Speaker Change: We'll resolve the bottlenecks that we have in terms of our own electrical equipment.

Speaker Change: Difficult to say, where those other constraints will surface.

Speaker Change: Alright, Thats really helpful. And then just away from data centers, just the idea of these mega projects.

Craig Arnold: Just on Electrical America's margins, what would cause the margins to go down sequentially, right? Usually, Q1 is actually the lowest margin quarter of the year. It's the lowest revenue quarter in dollar value. Is there something in the mix or otherwise that would cause it to step down from these levels?

Speaker Change: Anticipate any mix change and what you are doing for direct ship versus going through distribution.

Speaker Change: And I'd say distribution is really an important part of our go to market strategy and we have really strong.

Jeffrey Todd Sprague: You know, I'd say as we look forward, as you know, we've made a number of announcements around... Capacity Expansion, we're making some investments in the commercial front end, we're making investments in technology, so there's a number of programs that we made announcements about last year and that we're investing in this year that will certainly be a bit of a gating factor in terms of margin expansion I think the implied number is close to what it was in Q1, but I do take your point that we typically see margin expansion.

Speaker Change: Distributor partnerships that will always be an important part of our formula in terms of the way. We go to market now there are in fact, some market dynamics that suggest that there are certain kinds of projects.

Speaker Change: In certain markets that do tend to be more of a direct served market than a market that is served through distribution.

Speaker Change: In some cases data centers are a great example of that where there are certain data center customers, who want to be served direct and so I do think there'll be a bit of a us.

Speaker Change: Mix shift not so much because it's a function of strategic we're changing our approach as much as it is because there are certain market segments that are growing.

Speaker Change: Big Mega projects being a piece of that that tend to be more direct served markets.

Jeffrey Todd Sprague: We'll certainly see volume expansion in terms of absolute revenue in the coming quarters, but really, it's more a function of spending and investments that we're making in the business. Great, thank you. Thank you, and the next question is from... Deane Dray from RBC Capital Markets, please go ahead. Your line is now open. Thank you. Good morning, everyone.

Speaker Change: That's helpful. Thank you.

Speaker Change: You.

Speaker Change: Our next question is from Julian Mitchell from Barclays. Please go ahead.

Julian C.H. Mitchell: Maybe just wanted to start with electrical global.

Julian C.H. Mitchell: You started out the year with a sort of fairly soft.

Julian C.H. Mitchell: Topline there.

Craig Arnold: Good morning, Dean. Good morning. I just want to circle back on data center demand here. And the idea here is that you talk about labor constraints, but the industry and the folks that we're talking to on the data center planning side are nervous about the bottlenecks and some of the basic electrical backbone that you all provide. And so this quarter, we saw an announcement in Europe with one of your European competitors signing a five-year supply agreement with one of these data center operators.

Julian C.H. Mitchell: Just maybe help us understand sort of the confidence of getting to that.

Julian C.H. Mitchell: Low mid single digit organic growth for the year, how quickly do we expect that acceleration.

Julian C.H. Mitchell: Say in the second quarter in EG, and if Theres any particular region or end market.

Julian C.H. Mitchell: The sort of heavy lifting on that sales growth improvement.

Speaker Change: Yeah. Appreciate the question Nigel I mean, I'd say that we are I would say relatively modest growth assumptions for our electrical global segment and we really in Q1 performed largely in line with our expectations, a little little weaker quite frankly in Europe than what we expected, but largely in line and as I meant.

Deane Michael Dray: And then they've also, we've heard about Transformers being backlogged for two years. So, are there opportunities for you? I know you're increasing capacity in Transformers, but are you looking at any of these longer-term supply agreements? Yeah, the short answer is, Deane, it's absolutely yes.

Speaker Change: And then my outbound commentary the comps get a bit easier as well in the second half of the year for global but today I'd say, we're growing in Asia, We had nice growth in our China and Asia Pacific business overall, our <unk> businesses growing doing just fine the weak spot as we talked about.

Craig Arnold: We are living in an environment right now where the market has a number of constraints, including electrical equipment. It's one of the reasons why we announced that $1 billion of incremental investments that we're making in the company to deal with the specific bottlenecks that we have in our own manufacturing operations so that we can address the demand that we see in front of us. And quite frankly, given the demand that we're seeing even today in the business, those numbers will likely go up. So data centers continue to grow. You know, I was responding to a specific question earlier about labor. But to your point, there are other constraints around electrical equipment.

Speaker Change: What's happening today in the European electrical business, where very much like you saw when some of the pure data those markets have been weaker than what we anticipated, but I would say today fairly conservative set of assumptions that we're using internally in terms of what we're anticipating from <unk>.

Julian C.H. Mitchell: Our.

Julian C.H. Mitchell: Europe business overall, our global business overall, and really it's largely a function of the comps getting easier as we continue.

Julian C.H. Mitchell: Continue throughout the balance of the year, we're not we're not anticipating a significant.

Julian C.H. Mitchell: James in the trajectory of the business, but some modest improvement in the second half.

Speaker Change: That's helpful. Thank you and just my.

Speaker Change: Second question was really to circle back on the <unk>.

Speaker Change: Margin outlook. So yes, your second quarter, you've got the implied sort of total company margin down 50 bps sequentially wins.

Craig Arnold: And we are, in fact, signing multiyear agreements with our customers to ensure that we have capacity in place to support the demand that they need from us. And so we are fully confident that we will not be the bottleneck in the industry. We will resolve the bottlenecks that we have in terms of our own electrical equipment. Difficult to say where those other constraints will surface. All right, that's really helpful.

Speaker Change: Some sales growth sequentially.

Julian C.H. Mitchell: Is the delta all in that sort of higher investments in electrical Americas pulling down that margin sequentially is that is that what's going on there in Q2.

Deane Michael Dray: And then just away from data centers, just the idea of these mega projects. Do you anticipate any further change in what you are doing for direct ship versus going through distribution? And I'd say distribution is really an important part of our go-to-market strategy. We have really strong, you know, distribution partnerships that will always be an important part of our formula in terms of the way we go to market. Now there are, in fact, some market dynamics that suggest that there are certain kinds of projects and certain markets that do tend to be more of a direct serve market than a market that is served through distribution. In some cases, data centers are a great example of that, where there are certain data center customers who want to be served directly.

Speaker Change: Yes, no I'd say that that's really what the difference is there is nothing else. It's embedded in our assumptions that would suggest that margins should fall other than the incremental spending and investments that we're making in the business.

Speaker Change: As you saw in our Q1 results very strong execution by the team.

Speaker Change: 60, plus percent Incrementals and so the team is really executing well, we'd anticipate that that.

Speaker Change: Execution will continue for the balance of the year and it really is simply a reflection of the investments that we're making in the business for future growth.

Speaker Change: Great. Thank you.

Speaker Change: Thank you. Our next question is from Steve Tusa from Jpmorgan. Please go ahead.

Charles Stephen Tusa: Good morning, guys.

Charles Stephen Tusa: Good morning.

Craig Arnold: And so I do think there'll be a bit of a mix shift, not so much because it's a function of strategically changing our approach as much as it is because there are certain market segments that are growing, big megaprojects being a piece of that that tend to be more direct-serve marketing. That's helpful.

Charles Stephen Tusa: Just on that last question can you, maybe just be a little bit more specific about.

Charles Stephen Tusa: What you mean there.

Charles Stephen Tusa: On the the.

Charles Stephen Tusa: The amount.

Charles Stephen Tusa: <unk>.

Charles Stephen Tusa: Of headwind from these investments I mean, you guys.

Charles Stephen Tusa: Or is there like an abrupt startup cost in one of these facilities or something maybe just a little more color on maybe quantify.

Julian C.H. Mitchell: Thank you. Our next question is from Julian Mitchell from Barclays. Please go ahead. Um... Maybe I just wanted to start with Electrical Global, you started out the year with a sort of fairly soft top line there. Just maybe help us understand sort of the confidence of getting to that, you know, low, mid, single, digital, organic growth for the year. You know, how quickly do we expect that acceleration, say, in the second quarter of EG?

Charles Stephen Tusa: That that headwind.

Charles Stephen Tusa: Yes.

Charles Stephen Tusa: Call it an abrupt start up costs, but as you know we made some announcements last year around capacity expansions.

Charles Stephen Tusa: And those those new capacity expansions start to come online. So obviously you turn on all the depreciation you have startup costs associated with.

Charles Stephen Tusa: Commissioning new lines and new plants, we're making additional investments in some of these commercial opportunities to deal with the better growth outlook that we've talked about and so in terms of the specifics obviously, we're not going to give you an exact dollar amount, but I would tell you that it's really.

Craig Arnold: And if there's any particular region or end market that's doing the sort of heavy lifting on that sales growth improvement? Yeah, appreciate the question, Nigel. I mean, I would say that we have, I would say, relatively modest growth assumptions for our electrical global segment. And we really, in Q1, performed largely in line with our expectations. A little weaker, quite frankly, in Europe than we expected, but largely in line.

Charles Stephen Tusa: Specifically to supporting supporting the outlook for growth and quite frankly, we could do better I mean, the reality is.

Charles Stephen Tusa: We did better in Q1, our team is executing extremely well so we could do better than what's currently reflected but it is today is reflective of our best thinking.

Speaker Change: Got it and then just on the <unk>.

Speaker Change: On the order front.

Craig Arnold: And as I mentioned in my outbound commentary, the comps get a bit easier as well in the second half of the year for global companies, but today I'd say we're growing in Asia. We had nice growth in our China and Asia-Pacific business overall. Our Geist business is growing, and doing just fine. The weak spot, as we talked about, is what's happening today in the European electrical business, where, very much like you saw in some of the peer data, those markets have been weaker than we anticipated.

Speaker Change: One of your peers talked about some of these orders being delivered a little bit further out you are adding the capacity. So maybe you can.

Speaker Change: Deliver.

Speaker Change: And a bit more of an expedited way over the next couple of years should we think about this orders quarter converting further out than normal.

Charles Stephen Tusa: Or are we now at kind of a more of a consistent lead time, albeit still probably a relatively long lead time, but are we still had kind of a consistent lead time, that's been established over the last couple of years.

Speaker Change: Yeah, No I would say that lead times have not pushed out further.

Charles Stephen Tusa: We talked over the last couple of years. The fact that the surge that we're seeing in orders has in fact extended lead times for many of our markets overall and I would say today.

Craig Arnold: But I would say today that we have a fairly conservative set of assumptions that we're using internally in terms of what we're anticipating from our growth, your business overall, our global business overall, and really, it's largely a function of the comps getting easier as we, you know, continue throughout the balance of the year. We're not anticipating a significant change in the trajectory of the business, but some modest improvement in the second half. That's helpful.

Charles Stephen Tusa: Depending upon the product line, we've made some progress in terms of lead times, but we've also seen as you saw on the data also a resurgence quite frankly of orders with very strong orders in Q1.

Charles Stephen Tusa: I would say in backlogs that continued to grow so I would say in general lead times have not changed materially.

Charles Stephen Tusa: They've been materially worst they've got not gotten materially better.

Speaker Change: Yes, hi.

Speaker Change: Another words, the orders that you booked this quarter should kind of convert.

Charles Stephen Tusa: At the same lead time as we've seen in the last year.

Charles Stephen Tusa: Year, and a half type of type of thing.

Julian C.H. Mitchell: Thank you. And just my second question was really to circle back on the margin outlook. So, yes, your second quarter, you've got the implied sort of total company margin down 50 bps sequentially with, you know, some sales growth sequentially. So is the Delta all in that sort of higher investment in electrical Americas? Pulling down that margin sequentially? Is that what's going on here in Q2? Yeah, no; I'd say that that's really what the difference is.

Speaker Change: Yes, I mean I would say.

Speaker Change: It varies depending upon which market segment I mean, there are in some cases, we are getting for some of the.

Speaker Change: Hyperscale data center guys are are.

Speaker Change: Trying to get out in front, and maybe placing some orders earlier than they normally would but for the most part there has been no significant change in the order pattern.

Speaker Change: Yes, yes.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Right. Thank you.

Speaker Change: Thank you. The next question is from Scott Davis from Melius Research. Please go ahead.

Scott Reed Davis: Hey, good morning, guys. Good morning, Scott.

Scott Reed Davis: Kind of intrigued by this concept of long term supply agreements because I don't believe that's really been something that we've seen in the past in this industry, but.

Craig Arnold: There's nothing else that's embedded in our assumptions that would suggest that margins should fall off other than the incremental spending and investments that we're making in the business. You know, as you saw in our Q1 results, very strong execution by the team, 60 plus percent incremental, and so the team is really executing well. We anticipate that, you know, execution will continue for the balance of the year, and it really is simply a reflection of the investments that we're making in the business for future growth. Great, thank you.

Scott Reed Davis: Can you.

Speaker Change: Whatever you are willing to share here to.

Scott Reed Davis: Help us understand at least like take or pay type contracts.

Scott Reed Davis: What is kind of the vision and forming these types of partnerships I saw the Schneider accomplish announcement, a few months ago, but.

Scott Reed Davis: Kevin.

Speaker Change: Not exactly sure what you guys are doing.

Speaker Change: And as you can imagine it's Scott we're living in an environment today, where these industries are growing much faster than they have historically and the outlook for growth continues to strengthen and in many cases get better and where you have capacity constraints and so we are in a very different.

Charles Stephen Tusa: Thank you. Our next question is from Steve Tusa from J.P. Morgan. Please go ahead.

Charles Stephen Tusa: Good morning, guys. Good morning. Can you maybe just be a little bit more specific about, you know, what you mean there on the amount of headwind from these investments? I mean, you guys, is there like an abrupt startup cost in one of these facilities or something? Maybe just a little more color and maybe quantify that headwind.

Scott Reed Davis: World today with respect to ensuring that we work with our customers and our suppliers on a multiyear basis to ensure that we have capacity to support the demand that's out in front of us and Thats really whats driving.

Scott Reed Davis: This change in the way, we contract and partner with with many of our customers. So I think it's a perfectly logical thing to do it's a needed thing to do in this environment and to your point I mean.

Craig Arnold: Yeah, and I wouldn't call it an abrupt start, of course, but as you know, we made some announcements last year around capacity expansion, and those new capacity expansions start to come online, so obviously, you turn on, you know, all the depreciation, you have startup costs associated with, you know, commissioning new lines and new plants. We're making additional investments in some of these commercial opportunities to deal with, you know, the better growth outlook that we've talked about.

Scott Reed Davis: Most of these contracts are contracts that are structured in a way that ensures that.

Scott Reed Davis: <unk>.

Scott Reed Davis: Wow.

Scott Reed Davis: They won't necessarily be exactly take or pay but they ensure that we have protections for the investments that we're making so that we're not putting capacity and that's not needed.

Speaker Change: So we feel very good about the nature of the contracts the way they are structured to ensure that.

Speaker Change: The company is protected.

Speaker Change: Wow, that's interesting and congrats on that so.

Speaker Change: This is.

Speaker Change: I'm not looking for an exact number I'm just trying to get a sense do.

Speaker Change: Do you think about.

Speaker Change: We all know Transformers are our lead times, along but when you think about the percentage of your Skus that are sold out right now is there some sort of.

Craig Arnold: And so in terms of, you know, the specifics, obviously, we're not going to give you an exact dollar amount, but I would tell you that it's really tied specifically to supporting the outlook for growth. And, quite frankly, we could do better. I mean, the reality is, you know, we did better in Q1. Our team is executing extremely well, so we could do better than what's currently reflected, but it is today reflective of our best thinking. I got it.

Speaker Change: Number that you could guess, 30% 40% of your Skus I mean, I know, it's broader than just transformers switchgear, but.

Speaker Change: And any estimate there I'm just kind of curious to see if thats. The majority are still kind of sub 50% of our skus.

Speaker Change: Yes, I would say that we know.

Speaker Change: We really haven't run the math to be honest with us Scott in terms of what percent I will tell you that maybe an easy way to think about it is that.

Speaker Change: The long cycle parts of our portfolio.

Charles Stephen Tusa: And then just on the order front, one of your peers talked about some of these orders being delivered a little bit further out. You're adding capacity, so maybe you can deliver in a bit more of an expedited way over the next couple of years. Should we think about this quarter's orders converting further out than normal, or are we now at kind of a more of a consistent lead time? Maybe it's still probably a relatively long lead time, but are we still at kind of a consistent lead time that's been established over the last couple of years?

Speaker Change: Generally today.

Speaker Change: We have capacity constraints on the long cycle stuff and when the short cycle stuff not so much and I think our split is roughly 70 525 between long cycle and short cycle. So maybe that's a good proxy for where were actually at capacity or close to sold out.

Speaker Change: And where we're not.

Speaker Change: Okay.

Speaker Change: That's on the start of the year guys. Good luck. Thank you very much appreciate it. Thank you.

Speaker Change: And the next question is from Nicole <unk> from Deutsche Bank. Please go ahead.

Craig Arnold: You know, I would say that, you know, lead times have not pushed out further. We talked about over the last couple of years the fact that, you know, this surge that we're seeing in orders has, in fact, extended lead times. And for many of our markets overall, and I would say today, depending upon the product line, we've made some progress in terms of lead times. But we've also seen, as you saw in the data, a resurgence, quite frankly, of orders, with very strong orders in Q1 and backlogs that continue to grow, so I would say, in general, lead times have not changed materially. They've not gotten materially worse; they've not gotten materially better either.

Speaker Change: Yes.

Nicole: Hey, Nicole.

Nicole: Just maybe starting with electrical Americas, obviously really.

Nicole: <unk>, 17% organic growth. This quarter you guys raised the guidance, that's selling that's pretty big <unk> throughout the year. So is that just can we kind of chalk that up to conservatism Craig or is there something that you guys are seeing with respect to growth in the rest of the year that kind of causes that step down.

Craig Arnold: Hey, I appreciate the question Nicole and obviously it was a really strong start to the year for our electrical Americas business and they posted really really positive numbers and I'd say I'd say.

Speaker Change: It's early in the year, and we have one quarter behind us.

Nicole: And we just thought it's prudent at this point given the fact that it's early in a year or two let's see how the rest of the year unfolds.

Craig Arnold: Yeah, so in other words, the orders that you booked this quarter should kind of convert at, you know, the same lead time as we've seen in the last, you know, year and a half type of thing. Yeah, I mean, I think, you know, it varies, you know, depending upon which market segment I mean, there are, in some cases, we are getting for, some of the, you know, hyperscale data center guys are trying to get out in front and maybe placing some orders earlier than they normally would. But for the most part, there's been no significant change in the order. Yeah, yeah. Great Thanks a lot.

Nicole: Certainly if things.

Nicole: With what we've seen there could be upside to that number I would say as well that as you think about as the year goes on the comps get in some cases, a little bit more challenging.

Nicole: There's a little bit less contribution from price and some of the subsequent quarters, but once again the business outperformed our expectation across the board.

Nicole: Most of which is obviously on the volume side in Q1, and and so there is certainly the potential that the business does better than what we're currently forecasting.

Speaker Change: Got it Thats very fair. Thanks, Craig and then similar question on free cash you didn't raise the guidance for the full year. Despite higher earnings is there something going on with networking capital or some other line item that causes the offset or is it just a bit early in the year and you kind of wanted to see how that line item trends no I'd say largely it's early.

Scott Reed Davis: All right. Thank you. Thank you. The next question is from Scott Davis from Elias Research. Please go ahead.

Scott Reed Davis: Hey, good morning guys. I'm kind of intrigued by this concept of long-term supply agreements because I don't believe that's really been something that we've seen in the past in this industry. Can you, for whatever you're willing to share here, help us understand, are these like take-or-pay type contracts? What is the kind of vision in forming these types of partnerships? I saw the Schneider Compass announcement a few months ago, but I'm not exactly sure what you're talking about.

Speaker Change: In the year.

Speaker Change: And just really we just thought it's prudent at this juncture and not to take the number up we'll obviously revisit it as we get through Q2, but it's just early in the year.

Speaker Change: Understood. Thank you I'll pass it on.

Speaker Change: Thank you and the next question is from the line of Andrew <unk> from Bank of America. Please go ahead.

Andrew: Yes sure.

Andrew: Good morning, how are you.

Andrew: Good morning.

Andrew: Yes.

Andrew: I guess the question is.

Speaker Change: Everybody is asking about data centers, but maybe slightly different direction China.

Craig Arnold: I mean, and as you can imagine, Scott, you know, we're living in an environment today where, you know, these industries are growing much faster than they have historically, and the Outlook for Growth continues to strengthen and, in many cases, improve, and you have capacity constraints. And so we are in a very different world today with respect to ensuring that we work with our customers and our suppliers on a multi-year basis to ensure that we have the capacity to support the demand that's out in front of us.

Speaker Change: What are we seeing.

Speaker Change: How is your electrical business in China performing with them.

Speaker Change: Electrical global.

Speaker Change: You have a very specific strategy there on JV is just maybe.

Speaker Change: Just talk about how the deals are performing relative to your expectations. So the two part question.

Speaker Change: Alright.

Speaker Change: Appreciate the question, Andrew and I would say, our China business continues to perform very well in fact, we.

Speaker Change: We grew high single digits in Q1.

Speaker Change: In our China business and to your point, we do have a very specific strategy for how we played the China market, specifically through joint ventures and <unk>.

Speaker Change: Many cases as you know these are minority joint ventures, and our joint ventures by the way. If you just take a look at our joint venture performance. We obviously don't consolidate this revenue, but they grew some 35% in 2023. So we're getting a lot of great growth in the joint ventures in China and as you know strategically what we tried to do there is really.

Craig Arnold: And that's really what's driving this change in the way we contract and partner with many of our customers. So I think it's a perfectly logical thing to do; it's a necessary thing to do in this environment. And to your point, I mean...

Speaker Change: <unk>.

Speaker Change: Finding a way to partner with local Chinese companies, who then give us the ability to broaden our portfolio of compete in tier two tier three markets, both in China and around the world and so we're absolutely thrilled with how well. These jv's are playing out and our team is executing and it just gives us.

Craig Arnold: Most of these contracts are contracts that are structured in a way that ensures that while they won't necessarily be exactly take or pay, but they ensure that we have protections for the investments that we're making, so that we're not putting capacity in that's not needed. So we feel very good about the nature of the contracts, the way they're structured to ensure that the companies... Wow, that's interesting, and congrats on that. This isn't an exact number; I'm not looking for an exact number; I'm just trying to get a sense of what you think about, you know, we all know transformers have long lead times, but when you think about the percentage of your SKUs that are sold out right now, is there some sort of number that you could guess, you know, 30-40% of your SKUs. I mean, I know it's broader The majority or is still kind of sub 50% of us.

Speaker Change: A lot of additional capabilities as we think about future growth of the company.

Speaker Change: And then just a more technical question.

Speaker Change: I don't know if I apologize if I missed it but can you just talk about electrical channel inventories on the product side.

Speaker Change: Thank you.

Speaker Change: Yes, I would say that once again I think inventories are largely.

Speaker Change: Well balanced and well aligned right now I mean as you can as you can tell by the growth in our backlogs.

Speaker Change: Our backlogs continue to grow and lead times or are not getting better in our book to bills.

Speaker Change: One two and electrical which I think is a great indicator of.

Speaker Change: Where we sit today with respect to inventory in the channel. So today I would say, there's obviously going to be the odd product line or two where the.

Speaker Change: The dealer inventories can be a little long, but overall inventories I think today, a very well balanced in.

Speaker Change: And given the backlog that we continue to build in.

Speaker Change: Certainly all the conversations with them and with our distributors and customers is that they are looking for more stuff sooner and theyre looking for shorter lead times than we can currently deliver too.

Scott Reed Davis: Yeah, you know, I'd say that we can all... We really haven't run the math, to be honest with you, Scott, in terms of what percent. I will tell you that maybe an easy way to think about it is that, you know, the long cycle parts of our portfolio. Generally, today, we have capacity constraints on the long-cycle stuff, and on the short-cycle stuff, not so much. And I think our split is roughly 75-25 between long-cycle and short-cycle.

Speaker Change: Thanks, so much.

Speaker Change: Thank you.

Speaker Change: And our next question is from the.

Speaker Change: Your line of Jeff Hammond from Keybanc.

Jeffrey David Hammond: Please go ahead.

Jeffrey David Hammond: Hey, guys good morning.

Jeffrey David Hammond: Jeff.

Jeffrey David Hammond: Okay.

Jeffrey David Hammond: Alright, just on this data center growth curve.

Jeffrey David Hammond: The slides you kind of bump it from 16% to 25% I think.

Jeffrey David Hammond: Technology day, you had a different timeframe, but.

Jeffrey David Hammond: I think the pushback of the 11 10, 8% growth was like why isn't it higher so.

Jeffrey David Hammond: Just wondering how maybe we should think about that differently and.

Craig Arnold: So maybe that's a good proxy for where we're actually at capacity or close to sold out and where we're not. Congratulations on the start of the year, guys. Good luck. Thank you very much.

Jeffrey David Hammond: And how to kind of incorporate capacity constraints or labor constraints versus kind of the numbers you put in the deck today.

Nicole Sheree DeBlase: And the next question is from Nicole DeBlase from Deutsche Bank. Please go ahead. Hey Nicole, maybe starting with Electrical America's obviously really impressive 17% organic growth this quarter. You guys raised the guidance, but it still embeds pretty big decels throughout the year. So is that just, you know, can we kind of chalk that up to conservatism, Craig?

Jeffrey David Hammond: Yeah.

Speaker Change: I would say that.

Jeffrey David Hammond: What we've seen since we posted those other numbers, which were quite frankly, a little bit stale.

Jeffrey David Hammond: Was that we certainly have seen.

Jeffrey David Hammond: Just.

Jeffrey David Hammond: Fundamental data center market.

Jeffrey David Hammond: Independent of what's happening with.

Jeffrey David Hammond: AI has been accelerating.

Jeffrey David Hammond: World as we've talked about for discontinued that generate process store.

Jeffrey David Hammond: Increasing amounts of data and then on top of that you have this.

Craig Arnold: Or is there something that you guys are seeing with respect to growth for the rest of the year that kind of causes that step down? Hey, I appreciate the question, Nicole, and obviously, it was a really strong start to the year for our Electrical Americas business, and they posted, you know, really, really positive numbers. And I'd say, you know, it's early in the year, and, you know, we have one quarter behind us.

Jeffrey David Hammond: Explosive trend in AI and these AI.

Jeffrey David Hammond: Training data centers.

Jeffrey David Hammond: Just <unk>.

Jeffrey David Hammond: Acquire and consume.

Jeffrey David Hammond: Orders of magnitude more power in a traditional data center and we're obviously starting to see.

Jeffrey David Hammond: Those orders in those negotiations come through now.

Jeffrey David Hammond: And so that's really what's driving the change in the outlook for the market.

Jeffrey David Hammond: Not so much that we've decided that the labor constraints have been resolved, particularly or any particular power constraints overall had been resolved, it's really simply a function of the fact that what we're seeing in our negotiations what we're seeing in our orders have just accelerated that much between the old number and the new number.

Craig Arnold: And we just thought it's prudent at this point, given the fact that it's early in the year, to let's see how the rest of the year unfolds. Certainly, you know, if things continue with what we've seen, there could be upside to that number. I would say as well that as the year goes on, the comps get, in some cases, a little bit more challenging, and there's a little bit less contribution from price in some of the subsequent quarters.

Speaker Change: Okay. That's helpful.

Jeffrey David Hammond: And then just on the capacity expansion I think in <unk> you laid out kind of the areas you are you're pocketing for investment can.

Jeffrey David Hammond: Can you just talk about what starts to phase in earlier do you get any capacity online. This year or is this more in the 25 and then if anything is kind of baked into the guide for these capacity adds this year.

Craig Arnold: But once again, you know, the business outperformed our expectations across the board, most of which was obviously on the volume side in Q1. And so there is certainly the potential that the business does better than what we're currently forecasting. Thanks Craig.

Jeffrey David Hammond: Yes, we do start to see as I mentioned in terms of kind of whats called the margin expansion back a little bit is the fact that we are in fact, bringing on and starting up new lines and new facilities.

Jeffrey David Hammond: Beginning.

Jeffrey David Hammond: Certainly a lot of the spending in Q1, but certainly in the second half of the year, we start to see some of that capacity come free to the point, where we actually have the ability to deliver more so it's really.

Nicole Sheree DeBlase: And then, similar question on free cash. You didn't raise the guidance for the full year despite higher earnings. Is there something going on with networking capital or some other line item that causes the offset, or is it just a bit early in the year and you kind of want to see how that line item trends? No, I'd say largely because it's early in the year and, really, we just thought it's prudent at this juncture not to take the number up.

Jeffrey David Hammond: Second half of this year, and then into 2025 and Ernest.

Ernest: Okay. Thanks.

Speaker Change: Alright, thank you.

Speaker Change: Thank you. Our next question is from Tom <unk> from Danske Bank. Please go ahead.

Tom: Oh, hi, thanks for the question.

Tom:

Tom: We've talked about capacity constraints several times it sounds like you're pretty much at capacity in places and I know you flagged this $1 billion of investment I guess I'm wondering if 1 billion is actually sufficient to capture that growth. That's yours to lose I guess as I'm sure you get a really nice return on making those kinds of.

Craig Arnold: We'll obviously revisit it as we get through Q2, but it's just early in the year. Thank you. Thank you. And the next question is from the line of Andrew Obin from Pink of America. Please go ahead.

Andrew Burris Obin: Yeah, sure. Good morning. How are you?

Andrew Burris Obin: Good morning. Yeah, I guess the question is, you know, everybody's asking about data centers, but maybe a slightly different direction. China, what are we seeing? How is your electrical business in China performing within electrical global? And you have a very specific strategy there on JVs. Maybe, just talk about how the deals are performing relative to your expectations. No, I appreciate the question, Andrew.

Tom: Investment so.

Tom: Do you see an opportunity to invest more beyond $1 billion for Capex expansion or are you choosing not to do so because of these bottlenecks like other people's labor, perhaps meaning you don't necessarily need to invest today and instead can do a bit more on the pricing side. That's question one.

Craig Arnold: And I would say our China business continues to perform very well. In fact, you know, we grew, you know, high single digits in Q1. In our China business, and to your point, we do have a very specific strategy for how we play the Chinese market specifically through joint ventures. In many cases, as you know, these are minority joint ventures.

Speaker Change: Hey, I appreciate the question and as you can imagine we're spending a lot of time right now internally.

Tom: Reassessing and reevaluating, whether or not we're doing enough the $1 billion by the way that's an incremental number of <unk>.

Speaker Change: Top of the base, so it's going to make sure I clarified yes sure.

Ernest: But we don't we don't intend to be the bottleneck here, we want to make sure that we have.

Ernest: All of the capacity in place to deal with the growth that we see the forecast that we're getting from our customers. So.

Craig Arnold: And our joint ventures, by the way, if you just take a look at our joint venture performance, we obviously don't consolidate this revenue, but they grew some 35%. So, we're getting a lot of great growth in the joint ventures in China, and as you know, strategically, what we tried to do there was really find a way to partner with local Chinese companies who then give us the ability to broaden our portfolio to compete in Tier 2 and Tier 3 markets, both in China and around the world.

Ernest: So we are not constraining ourselves with respect to the investments one of the good things about our business model overall and I'll remind the group is that we do tend to be relatively asset light a lot of what we do in the electrical business is assembly and test. So we can bring on relatively significant amounts of capacity for relatively speak.

Ernest: Not a lot of Capex dollars and so we do intend to revisit the number given the fact that our forecasts are going up especially in certain verticals like data center to make sure that we do have enough capacity.

Craig Arnold: And so we're absolutely thrilled with how well these JVs are playing out and our team is executing. And it just gives us, you know, a lot of additional capabilities as we think about, you know, future growth of the company. And just a more technical question. I don't know if I missed it, but can you just talk about electrical channel inventories on the product side? Where are we?

Speaker Change: Thank you and on that topic, I guess, an extension of the competitive landscape.

Jeffrey David Hammond: When markets are as great as they are normally someone tries to find a way to.

Jeffrey David Hammond: Play, perhaps by adding capacity.

Speaker Change: Are you seeing any shift in market shares either from traditional players awesome you mentioned space. Thanks.

Andrew Burris Obin: Thank you. Yeah, I would say that once again, I think inventories are largely, you know, well balanced and well aligned right now. I mean, as you can see by the growth in our backlog. Our backlogs continue to grow, and lead times are not getting better, and our book-to-bills is 1.2 in electrical, which I think is a great indicator of where we sit today with respect to inventory and the channel. So today I would say that it's obviously going to be the odd product line or two where the dealer inventories could be a little long, but overall, inventories are, I think, very well-balanced today.

Speaker Change: Yes, no I mean.

Speaker Change: Not particularly I mean, everybody is obviously, adding capacity the market is good for everyone right now one of the things that we tried to give you a sense for how we're doing is that by providing some of these win rate numbers that we showed you for mega projects. Some of the win rate numbers that we showed you for non res construction projects as an indicator of the fact that.

Speaker Change: We think we're doing very well in the context of this expanding market.

Speaker Change: So I have not.

Speaker Change: We anticipate dramatic share shifts.

Speaker Change: In the market, especially in a period of time when.

Speaker Change: When the industry is sold out in so many places.

Speaker Change: And the other thing.

Speaker Change: In terms of we oftentimes get the question around new entrants.

Speaker Change: Chinese competitors and others coming into our market and I would say that we really are not seeing any.

Craig Arnold: And given the backlogs that we continue to build, and certainly all the conversations that I've had with our distributors and customers, they want more stuff sooner, and they're looking for shorter lead times than we can currently deliver. Thanks so much.

Speaker Change: Material impact from let's say, the Chinese or other electrical equipment providers in the North America market, we have a strong position here, we have an outstanding channel.

Jeffrey David Hammond: Thank you. Sorry, your next question is from the line of Jeff Hammond from KeyBank. Please go ahead.

Speaker Change: Absolutely well known in the market the bigger the more complex the project the more likely they are to pick a company like Eaton. So I think we're very well positioned for the future here.

Jeffrey David Hammond: Hey guys, good morning. Craig, just on this data center growth curve, you know, in the slides, you kind of bump it from 16 to 25, and I think, you know, the technology day, you had a different time frame, but I think the pushback on the 11, 10.8% growth was, "Why isn't it higher?" So just wondering, you know, how maybe we should think about that 10.8 differently and how to kind of incorporate, you know, capacity constraints or labor constraints versus kind of the numbers you put in the deck today.

Speaker Change: Makes sense, thanks very much.

Speaker Change: Thank you. Our next question is from Nigel Coe from Wolfe Research. Please go ahead.

Nigel Edward Coe: Thanks good.

Nigel Edward Coe: Good afternoon, thanks for the question.

Nigel Edward Coe: The peace negotiation numbers, just extraordinary just want make sure I understand.

Nigel Edward Coe: The definitions so.

Nigel Edward Coe: Negotiation be where you have an active.

Nigel Edward Coe: Negotiation, though RFP in place.

Nigel Edward Coe: And this represents the dollar number of central contracts under negotiation.

Jeffrey David Hammond: You know, I would say that, you know, what we've seen since we posted those other numbers, which were, quite frankly, a little bit stale, was that, you know, we certainly have seen, you know, just, the Fundamental data center mark, independent of what's happening with, at www.thevenusproject.com training data centers just require and consume just orders of magnitude more power than a traditional data center. And we're obviously starting to see those orders and those negotiations come through now.

Nigel Edward Coe: And then.

Nigel Edward Coe: When you think about say, a data center or especially at data centers, just given the permitting and power challenges.

Nigel Edward Coe: That project fully permitted.

Speaker Change: Before we get into negotiation situation. Thanks.

Nigel Edward Coe: Yes.

Speaker Change: There is yes, and yes, a negotiation would be a place where we are actually in the act.

Speaker Change: Active negotiating in response to <unk>.

Speaker Change: Our RFP a request for proposal requests for quote and certainly.

Speaker Change: If you think about data centers and others. Once again these projects tend to be.

Speaker Change: Already permitted.

Nigel Edward Coe: Down the road as I did mentioned in some of the outbound data, there's always been a level of cancellations, especially when you look at some of these mega projects and we talked about in my outbound commentary that the cancellation rate that we're seeing is around 10% that rates actually below what we've seen historically, but there's always going to be a certain.

Jeffrey David Hammond: So that's really what's driving the change in the outlook for the market, not so much that we've decided that the labor constraints have been resolved particularly or any particular power constraints overall have been resolved; it's really simply a function of the fact that what we're seeing in our negotiations, and what we're seeing in our orders have just accelerated that much between the old number and the new number. Okay, that's helpful. And then just on the capacity expansion, I think in three key areas you laid out kind of the areas you're targeting for investment. Can you just talk about what starts the phase in earlier?

Nigel Edward Coe: The level of cancellations in any of these projects, but they absolutely these tend to be.

Nigel Edward Coe: Are generally approved projects before we get to a negotiation.

Speaker Change: Okay, and I know you've thought about the second question is on capacity so let's throw another one.

Speaker Change: Get away from the the new Greenfield capacity, but thinking about your existing footprint.

Speaker Change: Are there opportunities to add.

Speaker Change: Another line or another shifts.

Speaker Change: And overtime to increase capacity in existing footprints.

Craig Arnold: Do you get any capacity online this year? Or is this, you know, more into 25? And then, you know, if anything is kind of baked into the guide, you know, for these capacity ads this year? Yeah, we do start to see, as I mentioned, in terms of, you know, kind of, what holds, you know, the margin expansion back a little bit is the fact that we are, in fact, bringing on, starting up new lines and new facilities.

Speaker Change: Or was that just to be on labor constraints and Thats just not on the table.

Speaker Change: Yes, I mean, I think I said vary depending upon which product line youre talking about in some case. It is in fact us adding a line.

Speaker Change: In existing footprint, because we do have capacity to do it.

Speaker Change: In some cases, it's adding additional shifts utilizing existing assets, but in some cases it means.

Speaker Change: A new Greenfield facility and we've had to in fact stand up some additional manufacturing plants to deal with the growth that we're seeing so it's really a combination of all of those and varies depending upon which particular product line of business youre referring to.

Speaker Change: Okay, great. Thanks, Mike.

Speaker Change: Alright, thank you.

Craig Arnold: Certainly a lot of the spending in Q1, but certainly in the second half of the year, we start to see some of that capacity come free, to the point where we actually have the ability to deliver more. So it's really, you know, the second half of this year and then into 2025 in earnest. Okay, thanks. All right, thank you.

Speaker Change: Okay. Thanks, guys. We have reached the end of the call as always the IR team will be available to address any follow up questions. Thanks for joining us and have a great day guys alright. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation for using AT&T teleconference. You may now disconnect.

Craig Arnold: Thank you. Our next question is from Phil Buller from Berenberry. Please go ahead.

Speaker Change: Yeah.

Philip John Buller: Oh, hi. Thanks for the question. We've talked about capacity constraints several times. It sounds like you're pretty much at capacity in places. And I know you flagged this $1 billion investment.

Philip John Buller: I guess I'm wondering if... One billion is actually sufficient to catch all that growth that's yours to lose, I guess, because I'm sure you'd get a really nice return on making those kinds of investments. So do you see an opportunity to invest more beyond a billion dollars in CapEx expansion, or are you choosing not to do so because of these bottlenecks, like other people's labor, perhaps, meaning you don't necessarily need to invest today and instead can do a bit more on the pricing side? That's question number one.

Speaker Change: We're sorry your conferences ending now please hang up.

Craig Arnold: I appreciate the question, and as you can imagine, we're spending a lot of time right now internally, re-assessing and re-evaluating whether or not we are top of the base, so I just want to make sure I clarify that. But we don't intend to be the bottleneck. We want to make sure that we have all of the capacity in place to deal with the growth that we see and forecast that we're getting from our customers.

Craig Arnold: So we are not constraining ourselves with respect to the investment. You know, one of the good things about our business model overall, and I'll remind the group, is that we do tend to be relatively asset light. A lot of what we do in the electrical business is assembly and test.

Craig Arnold: So we can bring on relatively, you know, significant amounts of capacity for, relatively speaking, not a lot of capex dollars. And so we do intend to revisit the number, given the fact that our forecasts are going up, especially in certain verticals like data centers, to make sure that we do have enough capacity. Thank you.

Speaker Change: [music].

Philip John Buller: And on that topic, I guess, or an extension of it, the competitive landscape. When markets are as great as this, normally someone tries to find a way to play, perhaps by adding capacity. Are you seeing any shift in market shares, either from traditional players or from new entrants? Please? Yeah, no, I mean, not particularly, I mean, everybody's obviously adding capacity. The market is good for everyone right now, and one of the things that we try to give you a sense of how we're doing is by providing some of these win-rate numbers that we showed you for megaprojects, some of the win-rate numbers that we showed you for non-res construction projects as an indicator of the fact that we think we're doing very well in the context of this expanding market. So I've not done it.

Craig Arnold: I don't anticipate dramatic share shifts in the market, especially in a period of time when the industry is sold out in so many places. And the other thing I wanted to tell you in terms of the question we often get around new entrants. You know, Chinese competitors and others coming into our market. And I would say that we really are not seeing any material impact from, let's say, the Chinese or other electrical equipment providers in North America.

Craig Arnold: We have a strong position here, we have an outstanding channel, and we're absolutely well-known in the market. The bigger, the more complex the project, the more likely they are to pick a company like Eaton, so I think we're just very well-positioned for the future. That makes sense. Thanks very much.

Nigel Edward Coe: Thank you. Our next question is from Nigel Coe from Wolf Research. Please go ahead.

Nigel Edward Coe: Thanks. Good afternoon. It's 12 o'clock.

Nigel Edward Coe: Thanks for the question. These negotiation numbers are just extraordinary. I just want to make sure I understand the definition.

Craig Arnold: So, would a negotiation be where you have an active negotiation or RFP in place, and this represents the dollar number of potential contracts under negotiation? And then, you know, when you think about, say, a data center or, especially, a data center, just given the permitting and power challenges, would that project be fully permitted before you get into a negotiation situation? Thanks. Yeah, the answer is yes and yes. A negotiation would be a place where we are actually in an active negotiation in response to an RFP, a request for a proposal, a request for a quote.

Craig Arnold: And certainly... If you think about data centers and others, once again, these projects tend to be already permitted. As I mentioned in some of the outbound data, there's always been a level of cancellations, especially when you look at some of these megaprojects, and we talked about in my outbound commentary that the cancellation rate that we're seeing is around 10%. That rate's actually below what we've seen historically, but there's always going to be a certain level of cancellations in any of these projects, but they absolutely tend to be... generally approved Okay.

Nigel Edward Coe: And I know you've had about 10 questions on capacity, so let's throw another one in. You know, get away from the new greenfield capacity, but think about your existing footprint. Are there opportunities to add another line or another shift, you know, extend over time to increase capacity in your existing footprint? Or is there just going to be a labor constraint, and that's just not on the table?

Craig Arnold: Yeah, I mean, I think it varies depending upon which product line you're talking about. In some cases, it is, in fact, us adding a line to an existing footprint because we do have the capacity to do it. In some cases, it's adding additional shifts, utilizing existing assets, but in some cases, it means, you know, a new greenfield facility, and we've had to, in fact, set up some additional manufacturing plants to deal with the growth that we're seeing. So it's really a combination of all of those, and it varies, you know, depending upon which particular product line of business you're referring to. Okay, great.

Nigel Edward Coe: Thanks, Craig. Okay, hey, thanks, guys. We have reached the end of the call. As always, our team will be available to address any follow-up questions. Thanks for joining us, and have a great day, guys.

Operator: All right. Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. Teleconference. You may now, We're sorry, your conference is ending now. Please hang up. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Ladies and gentlemen, thank you for standing by and welcome to the Eaton First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode.

Operator: Later, we will conduct a question and answer session, and instructions will be given at that time. Should you require assistance during the conference, please press star then zero, and an operator will assist you offline. And as a reminder, today's conference is being held, and now I'd like to turn the conference over to your host, Yan Jin. Please go ahead. Hey, good morning. Thank you all for joining us for Eaton's 4th Quarter 2024 Earnings Call.

Speaker Change: [music].

Operator: With me today are Craig Arnold, our Chairman and CEO, and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today includes opening remarks by Craig, then he will turn it over to Olivier, who will highlight the company's performance in the 4th Quarter. As we have done on our past calls, we'll be taking questions at the end of Craig's closing. The price release and the presentation we will go through today have been posted on our website. This presentation includes adjusted earnings per share, adjusted free cash flow, and other non-GAAP measures. They are all reconciled in the appendix.

Yan Jin: A webcast of this call is accessible on our website and will be available for replay. I would like to remind you that our comments today will include statements related to the expected future results of the company and are, therefore, forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and presentation. With that, I will turn it over to Craig. Okay. Thanks, Yan.

Craig Arnold: Hey, we'll start with some highlights on page three, and I'll lead off by noting that we've delivered another strong quarter this year. Our adjusted EPS was $2.40 in the quarter, well above our guidance range. Our record for the quarter, and up 28% from the prior year. I'd also note that our orders came in ahead of expectations, with strong order growth and elective... both in the Americas and global. On a rolling 12-month basis, total electrical orders were up 7%... Aerospace orders increased by 2%. This led to another quarter of growth and record backlogs of 27% for electrical and 11% for aerospace with strong book-to-bill ratios.

Craig Arnold: The growth in orders and backlogs supports our point of view on the strength of the megatrend, that we're in the early stages, and that our market should be strong for years to come. And given our Q1 results, we're raising our guidance for organic growth, segment margins, and adjusted EPS for the year. On balance, we're very pleased with our start to the year.

Craig Arnold: In the last few quarters, we shared our framework on how we think about key growth drivers for the company. This chart reflects the six secular growth trends that are positively impacting our businesses today and, quite frankly, for years to come. We continue to think Eaton is uniquely positioned in most of our businesses and is expected to see an acceleration in market-driven growth opportunities for years to come. In the last three earnings calls, we provided a summary of progress on infrastructure spending, re-industrialization, utility, and data center markets.

Craig Arnold: We also shared the data we're tracking on megaprojects, including when they are expected to have a material impact on our revenue, and an overview of the growth expectations and drivers for our aerospace business. Today, we'll once again provide you an update on what we're seeing on megaprojects. And we'll also take a moment to show you the momentum that we're seeing in the non-residential construction project market for those projects under $1 billion

Speaker Change: [music].

Craig Arnold: Additionally, we'll provide you with a summary of the growth outlook for industrial facilities and how we're positioned in this market. And lastly, because it's such a dynamic topic, we'll provide an updated view on how our now higher growth expectations for the data center market are unfolding. Turning to slide five in the presentation, we summarize the number of megaprojects that have been announced since January of 2021. And as a reminder, a megaproject is a project with an announced value of a billion dollars or more, and the number is now 415.

Craig Arnold: Once again, this is North America data, but we are seeing a similar trend in Europe, though the dollars are not as large. Just a few points to note: we've now surpassed $1 trillion in announced megaprojects, double what we saw this time last year at 3x the normal run rate. Approximately 16% of these projects have started, but this does vary by type. For example, a large percentage of semiconductor and EV battery products have.

Craig Arnold: The downstream chemical, power generation, renewables, and data center projects have some of the lowest project start rates to date, and cancellation rates continue to be modest, around 10% and below historical rates, using the current. We expect over $100 to $150 billion of these projects to start this year. It's also worth noting that megaprojects represent 15% of the total amount of residential construction starts in 2023, a number that we expect to grow over the next five years for projects that have started. We've won $1 billion in orders, and our win rate is approximately 40%. We remain active in negotiations on another $1.4 billion of electrical content. Most of the projects represented here have not yet reached an agreement.

Craig Arnold: Turning to slide six, we want to highlight the largest part of non-residential construction, projects under one billion dollars. This market is projected to be over $500 billion in 2020, and represents about 50% of the U.S. market. A 56% increase since 2021, and a 16% CAGR. The market was actually up 10% through Q1 of this year.

Craig Arnold: So while megaprojects grab a lot of the headlines, we're seeing significant strength in projects under $1 billion as well. And for projects less than $100 million, construction starts are up 15%, so once again, strength across the entire market. This momentum is naturally being driven by the same set of mega-trends and stimulus spending that we're seeing on megaprojects. Primary markets here include utility, power generation, renewable, water waste, water manufacturing, and data.

Craig Arnold: And our win rate in this segment is approximately 35. Turning to slide seven, we highlight industrial facilities. As we've reported, this end market accounted for approximately 12% of Eaton's total revenue in 2023. Reindustrialization and nearshoring are having a particularly large impact on this. Examples include semiconductor fabrication, EV, and EV battery plants, as well as LNG terminals. At the same time, industrial markets are under growing pressure to decarbonize, lower costs, and develop more sustainable operations.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Eaton first quarter 2024 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time should you require assistance during the conference. Please press star.

Speaker Change: Zero and an operator will assist you offline and as a reminder, today's conference is being recorded I would now.

Speaker Change: I'd like to turn the conference over to your host Yun Kim. Please go ahead.

Yun Kim: Hey, good morning. Thank you all for joining us for Eaton's fourth quarter 2020 for earning call with me today are Craig Arnold, our chairman and CEO and the only way now Nike exactly Vice President and Chief Financial Officer. Our agenda. Today includes the opening remarks by Craig and I will turn it over to Olivier will high.

Craig Arnold: These challenges are naturally driving a significant increase in CapEx investment. It's also coming at a time when technology and digitalization are providing more value through data as a service, software, and therefore the ability to provide operational intelligence.

Olivier: Delight the company's performance in the fourth quarter as we have done our past calls we'll be taking questions at the end of Craig's closing commentary.

Craig Arnold: This allows customers to move from being reactive to proactive when managing energy and uptime, saving them time and money. For us, we increase both our content per project and our average selling price. These are the drivers that support our belief that industrial facilities and markets will grow by some 7% between now and the end of the year, 2023 and 2026.

Speaker Change: Price release, and the presentation. We'll go through today have been posted to our website. This presentation includes adjusted earning per share adjusted free cash flow and other non-GAAP measures, they're all reconciled in the appendix a webcast of this call is accessible on our website I will be available for replay I would like to read.

Craig Arnold: Slide 8 provides an overview of the products and software that we sell as part of our industrial solutions portfolio. As noted, we think we have the broadest portfolio of products in the market. Our solutions are sold in both process and discrete manufacturing industries and are especially well suited to take advantage of the trends we've discussed on the previous page. They help industrial companies optimize performance by lowering the cost of ownership and reducing complexity.

Speaker Change: Mind, you that our comments today will include statements related to the expected future results of the company and are therefore forward looking statements. Our actual results may differ materially follower forecasted projections due to a wide range of risks and uncertainties that are described into our earnings release and a presentation with that.

Speaker Change: Ill turn it over to Craig Okay. Thanks, Ken I will start with some highlights on page three I will lead off by noting that we've delivered another strong quarter. This year.

Craig Arnold: They increase operational predictability with data-driven insights and enhance safety, protecting people and assets. In addition to hardware and software, we provide a full suite of project management services, including design, specifying, commissioning, training, remote monitoring, and obviously aftermarket services. And our BrightLayer and Darko software platforms enable customers to preempt operational challenges because of the data and insights that come from our electrical systems.

Craig Arnold: Our adjusted EPS was $2 40 in the quarter, well above our guidance range a record for the quarter and up 28% from prior year.

Craig Arnold: I'd also note that our orders came in ahead of expectations with strong order growth in electrical both the Americas and global.

Speaker Change: On a rolling 12 month basis total electrical orders were up 7% and aerospace orders increased by 2%.

Speaker Change: This led to another quarter of growing and record backlogs up 27% for electrical and 11% for aerospace with strong book to Bill ratios.

Craig Arnold: Moving to slide 9, you'll see an updated view on the data center model. Last fall, on our Q3. 2023 earnings call, we highlighted the data center market and shared our view that we expected the market to grow at a 16% compounded growth rate between 2022 and 2025. We want to provide an update as we've seen continued momentum in this market driven by the rise of AI, big data, and certainly edge computing.

Speaker Change: The growth in orders and backlog support our point of view on the strength of the Mega trends that we are in the early stages and then our market should be strong for years to come.

Speaker Change: And given our Q1 results, we're raising our guidance for organic growth.

Speaker Change: Segment margins and adjusted EPS for the year.

Speaker Change: So on balance we're very pleased with our start to the year.

Speaker Change: In the last few quarters, we shared our framework on how we think about key growth drivers for the company.

Speaker Change: This chart reflects the six secular growth trends that are positively impacting our business today and quite frankly for years to come.

Speaker Change: We continue to think Eaton is uniquely positioned in most of our businesses and our expected to see an acceleration in market driven growth opportunities for years to come.

Craig Arnold: As expected, the biggest increase is coming from the very strong demand for AI data centers, which is reflected both in our orders and in our negotiation pipeline. Orders are one of.., traveling 12-month basis have more than doubled, and our negotiations in the U.S. have increased by more than 4x. We now think the overall market will grow at a 25% compounded growth rate between 2022 and 2025. And as you know, we have a strong position in the data center market, and the data center slash IT channel accounted for 14% of our revenue last year. Now, I'll turn the presentation over to Olivier to cover the financial aspects. Thanks, Craig.

Speaker Change: And the last three earnings calls, we provided a summary of progress on infrastructure spending Reindustrialization utility and data Center markets. We also shared the data center. The data excuse me, we're tracking on Mega projects, including when they are expected to have a material impact on our revenue.

Speaker Change: And an overview on the growth expectations and drivers for our aerospace business.

Speaker Change: Today, we will once again provide you an update on what we're seeing on Mega projects.

Speaker Change: Also take a moment.

Speaker Change: Just show you the momentum that we're seeing in the nonresidential construction project market for those projects under $1 billion. Additionally.

Olivier C. Leonetti: I'll start by providing a summary of our Q1 results. We posted a Q1 sales record of $5.9 billion, up 8% in total and organically. This represents eight quarters of growth, over 20% on a two-year... We posted Q1's segment profit and margin record, operating profit grew 27%, and segment margin expanded 340 basis points to 23.1%. Adjusted EPS of $2.40 increased by 28% over the prior year.

Speaker Change: Additionally, we'll provide you with a summary of the growth outlook for industrial facilities and how we're positioned in this market and lastly, because it's such a dynamic topic will provide an updated view on how our now higher growth expectations for the data center market is unfolding.

Speaker Change: Turning to slide five in the presentation, we summarize a number of mega projects that have been announced since January of 2021.

Speaker Change: And as a reminder, a mega project is a project with an announced value of $1 billion or more and the number is now 415 projects.

Speaker Change: Once again this is north America data, but we are seeing a similar trend.

Speaker Change: <unk> trend in Europe, although the dollars are not as large.

Speaker Change: Just a few points to note we've now surpassed one trillion dollars in announced Mega projects.

Olivier C. Leonetti: This is a Q1 record and well above the high end of our guidance range. This performance resulted in operating cash flow of $475 million, up 42% on a year-over-year basis, and free cash flow of $292 million, up 40% versus prior years. As a percentage of full-year guidance, both operating cash flow and free cash flow are improved versus the prior year. On slide 11, we summarize Electrical America's very strong results. We continue to raise the bar, setting new all-time records for sales, operating profit, and margin. Organic sales growth remains strong at 17%, which reflects broad-based strength in our end markets, with particular strength in industrial, data center, and institutional end markets. On a two-year stack, organic growth was up 39%.

Speaker Change: Double we saw the last this time last year and three X the normal run rate.

Speaker Change: Approximately 16% of these projects have started but it does vary by type of project for example.

Speaker Change: A large percentage of semiconductor and EV battery projects have started.

Speaker Change: But downstream chemical power generation renewables and data center projects at some of the lowest project start rates to date.

Speaker Change: And cancellation rates continue to be modest around 10% and below historical rates.

Speaker Change: Using the current forecasts, we expect over $100 billion to $150 billion of these projects to start this year.

Speaker Change: It's also worth noting that mega projects represent 15% of total nonresidential construction starts in 2023.

Speaker Change: A number that we expect to grow over the next five years.

Speaker Change: For projects that have started.

Speaker Change: We've won $1 billion of orders in our win rate is approximately 40%.

Olivier C. Leonetti: Electrical Americas has generated double-digit organic growth for nine consecutive quarters. The all-time record operating margin of 29.2% was up 630 basis points versus the prior year, benefiting primarily from higher volumes, effective management of price costs, and improved manufacturing efficiency, partially offset by higher costs to support growth initiatives. On a rolling 12-month basis, orders were up 8%, demonstrating a positive inflection as a result of the impacts of the various mega-trends. We add particular strength in the data center and storage market.

Speaker Change: We remained active in negotiations on another $1 $4 billion of electrical content.

Speaker Change: Most of the projects represented here have not yet reached the negotiation stage.

Speaker Change: Turning to slide six the one highlight the largest part of nonresidential construction market projects under $1 billion.

Speaker Change: This market is projected to be over $500 billion in 2024 and represents around 50% of the U S market.

Speaker Change: 56% increase since 2021, and a 16% CAGR.

Speaker Change: The market was actually up also 10% through Q1 of this year.

Speaker Change: So a megaproject grabbed a lot of the headlines we're seeing significant strength in projects under $1 billion as well.

Olivier C. Leonetti: Also, our major project negotiation pipeline in Q1 was up 169% versus the prior year and up 197% since Q1 2022. Electric Coal America's backlog increased 31% year-over-year and was up 21% sequentially, resulting in a book-to-bill ratio of 1.2 on a rolling 12-month basis.

Speaker Change: And for projects less than a $100 million construction starts were up 15%. So once again strength across the entire market.

Speaker Change: This momentum is naturally being driven by the same set of Megatrends and stimulus spending that we're seeing on mega projects.

Speaker Change: The primary markets here include utility power generation renewable water wastewater manufacturing and data centers and our win rate in this segment is approximately 35%.

Speaker Change: Turning to slide seven we highlight the industrial facilities and market <unk>.

Olivier C. Leonetti: These results underscore the tailwinds from secular trends, strong execution, and robust backlog that have allowed us to increase growth and margin guidance for the year, which we will discuss later in the presentation. The next chart summarizes the results for our electrical global segment. Coincidentally, global results are mostly flat to last year. Organic growth was up 1%, offset entirely by FX headwinds.

Speaker Change: As we've reported this end market accounted for approximately 12% of <unk> revenue in 2023.

Speaker Change: Reindustrialization of near shoring or having a particularly large impact on this market.

Speaker Change: Examples include semiconductor fabrication, EV and EV battery plants as well as LNG terminals at.

Speaker Change: At the same time industrial markets are undergoing growing pressure to decarbonize to lower costs and develop more sustainable operations.

Speaker Change: These challenges are naturally driving a significant increase in capex investment.

Speaker Change: It's also coming at a time when technology and digitalization are providing more value to data as a service.

Olivier C. Leonetti: We have strengths in data center, industry, as well as commercial and institutional and the market. Regionally, we saw strength in our APAC and GEIS businesses, partially offset by weakness in our EMEA business. Operating margin was 18.3%, which was flat to the prior year.

Speaker Change: Software.

Speaker Change: And therefore, the ability to provide operational intelligence.

Speaker Change: This allows customers to move from being reactive to proactive when managing energy and uptime saving them time and money for US we increased both our content per project and our average selling price.

Olivier C. Leonetti: Orders were up 4% on a rolling 12-month basis with strength in data center and utility market. Book-to-Bill continues to remain strong. Q1 was 1.1 on a holding 12-month basis.

Speaker Change: These are the drivers that support our belief that industrial facilities and market will grow by some 7% between now and 2023 and 2026.

Speaker Change: Slide eight provides an overview of the products and software that we sell as part of our industrial solutions portfolio.

Olivier C. Leonetti: Before moving to our industrial businesses, I'd like to briefly recap the combined electrical segment. For Q1, we posted organic growth of 11% and a segment margin of 25.3%, which was 430 basis points over the prior year. On a holding 12-month basis, orders inflected strongly positively, up 7%, and our book-to-bill ratio for our electrical sector remains very strong at 1.2. We remain quite confident in our positioning for continued growth with strong margins in our overall electrical business. Page 13 highlights our aerospace segment. We posted Q1 sales, operating profit, and operating margin records. Organic growth was 9% for the quarter.

Speaker Change: As noted we think we have the broadest portfolio of products in the market.

Speaker Change: Our solutions are sold in both process and discrete manufacturing industries and are especially well suited to take advantage of the trends we discussed on the prior page.

Speaker Change: Our solutions help industrial companies optimize performance by lowering the cost of ownership and reducing complexity.

Speaker Change: Increased operational predictability with data driven insights and enhanced safety protecting people and assets.

Speaker Change: In addition to hardware and software we provide a full suite of project management services, including design specify commissioning training remote monitoring and obviously aftermarket service.

Speaker Change: And our bright layer and direct our software platform enables customers to preempt operational challenges because of the data and insights that come from our electrical equipment.

Speaker Change: Moving to slide nine Youll see an updated view on the data center market.

Olivier C. Leonetti: Growth was driven by broad strength across all markets, with particular strength in commercial OEM and aftermarket end markets, which were up 17% and 15%, respectively. Operating margin of 23.1% was up 60 basis points year-over-year, benefiting from higher volumes and effective management of price. On a holding 12-month basis, orders increased 2%. Commercial OEM and aftermarket orders were particularly strong, and we expect that the military OEM order patterns will normalize in the second half. Year-over-year backlog increased 11% and was up 4% sequentially on a hoarding 12-month basis.

Speaker Change: Last fall and our Q3.

Speaker Change: 2023 earnings call, we highlighted the data center market and share our view that we expected the market to grow at a 16% compounded growth rate between 2022 and 2025.

Speaker Change: We wanted to provide an update as we have seen continued momentum in this market driven by the rise of AI big data and certainly edge computing.

Speaker Change: As expected the biggest increases coming from the very strong demand for AI data centers, which is reflected both in our orders and then our negotiation pipeline.

Speaker Change: Pierre <unk>.

Speaker Change: <unk>.

Speaker Change: Trailing 12 month basis have more than doubled.

Speaker Change: And our negotiations in the U S have increased by more than four ex <unk>.

Speaker Change: We now think the overall market grows at a 25% compounded growth rate between 2022 and 2025.

Olivier C. Leonetti: Our book to build for our aerospace segment remains strong at 1.1. Moving on to our vehicle segment on page 14, in the quarter, total revenue was down 2%, including a 3% organic decline, partially offset by a point of favorable effect.

Speaker Change: And as you know we have a strong position in the datacenter market in the Datacenters Flash IP channel accounted for 14% of our revenue last year.

Speaker Change: Now I'll turn the presentation of delivery to cover the financials.

Speaker Change: Thanks, Craig I'll start by providing a summary of our Q1 results. We posted a Q1 sales record of $5 9 billion up 8% in total and organically.

Olivier C. Leonetti: Weakness in the North American region was partially offset by strength in Asia-Pacific. Operating margin came in at 16%, 150 basis points above prior year, driven by effective management of price costs and improvement in manufacturing efficiencies, offset by lower sales volume. On page 15, we show results for our e-mobility business. Cells were up 7% on an organic and total basis.

Speaker Change: This represents eight quarters of growth of 20% on a two year stack, we posted Q1 segment profit and margins with courts.

Speaker Change: Operating profit grew 27% and segment margin expanded 240 basis points to 23, 1%.

Speaker Change: Adjusted EPS of $2 40 <unk>.

Olivier C. Leonetti: Our organic growth significantly outperformed the market, driven by new program ramp-ups. However, our OEM customers continue to face execution challenges. And while we anticipate improvements throughout the year, we have remained pragmatic in our volume forecast. As a result, we will discuss shortly that our full-year growth guidance of 25% to 35% remains unchanged.

Speaker Change: Increased by 28% yet.

Speaker Change: Prior year.

Speaker Change: This is a Q1 record and well above the high end of our guidance range.

Speaker Change: This performance resulted in operating cash flow of <unk> $75 million.

Speaker Change: 42% on a year over year basis, and free cash flow of $292 million, but 40% versus prior year.

Speaker Change: As a percentage of full year guidance, both operating cash flow and free cash flow improved versus prior year.

Olivier C. Leonetti: We continue to incur launch costs related to our growth programs, expected to ramp up over the next coming quarter. In 2023, we want new programs with more than $1.3 billion of mature year revenue, and we continue to expand our pipeline of new opportunities in 2024 with our unique technologies driven by our electrical pedigree. This will continue to drive our growth well above the market. Moving to page 16, we show our electrical and aerospace backlog updated through Q1.

Speaker Change: On Slide 11, we summarize <unk> America has a very strong results. We continue to raise the bar setting new all time records for sales operating profit and margins.

Speaker Change: Organic sales growth remained strong at 17%, which reflect broad based strength in our end markets with particular strength in industrial data center and institutional end markets.

Speaker Change: On a two year stack organic growth was up 39%.

Olivier C. Leonetti: As you can see, we continue to build backlog, with electrical stepping up to $11.3 billion and aerospace reaching $3.4 billion for a total backlog of $14.7 billion. Compared with the prior year, our backlogs have grown by 27% in electrical and 11% in aerospace. Electrical backlog benefited from acceleration in order intake from tailwinds from secular trends, including hyperscale orders within the data center and market. As noted earlier, book-to-bill ratios for electrical and aerospace are 1.2 and 1.1, respectively.

Speaker Change: Electrical Americas has generated double digit organic growth for nine consecutive quarters.

Speaker Change: All time record operating margin of 29, 2% was up 630 basis points versus the prior year benefiting primarily from higher volumes and effective management of price cost and improve manufacturing efficiency, partially offset by higher costs.

Speaker Change: To support growth initiatives.

Speaker Change: On a holding 12 month basis orders were up 8% demonstrating a positive inflection as a result of the impact of the values Mega trends.

Olivier C. Leonetti: The continued growth in our backlog underscores our confidence in 2024 and beyond. Now I turn it back to Craig for the End Market Outlook and Financial Guidance Updates. Overall, our markets continue to perform as expected.

Speaker Change: We had particular strength in data center end market.

Speaker Change: Also our major project negotiations pipeline in Q1 was up 169% versus prior year and up 197% since Q1 2022.

Craig Arnold: And most of these indicators have not changed from what we shared in our Q4 orientation. We are, however, seeing stronger-than-expected growth in data and in commercial and institutional markets in the U.S., which is why we're raising our revenue guidance for the U.S. In contrast to what many are seeing in the macroeconomy, we continue to expect growth in 80% of our end markets, and much of this growth is supported by the large backlog numbers that Olivier shared.

Speaker Change: And electrical Americas backlog increased 31% year over year and was up 21% sequentially.

Speaker Change: <unk> book to Bill ratio of one two on the holding 12 months basis.

Speaker Change: These results underscore the tailwind from secular trends strong execution in August backlog, that's at the low dose to increase growth and margin guidance for the year, which we will discuss later in the presentation.

Craig Arnold: Moving to page 18, we show our financial year, organic growth, and operating margin guidance. Overall, our 2024 organic growth is now expected to be between 7 and 9 percent, which is an increase of 50 basis points at the midpoint for raising our Organic Growth Guidance in the Electrical Americas to 10 to 12 percent from 9 to 11, and we're reiterating the growth guidance for the remaining. For segment margins, we're increasing the company's margin guidance range by 40 basis points at the midpoint to 23%.

Speaker Change: The next chart summarizes the results for our electrical global segment.

Speaker Change: Coincidently global results, mostly flat to last year.

Speaker Change: Organic growth was up 1% offset entirely by FX headwinds.

Speaker Change: We had strength in data center industry, as well as commercial and institutional end markets.

Speaker Change: Regionally, we saw strength in our APAC and GE businesses, partially offset by weakness in our EMEA business.

Speaker Change: Operating margin was 18, 3%, which was flat to the prior year.

Craig Arnold: This is a result of the improved outlook in electrical Americas, where we're seeing strong demand and strong performance. Here, we're increasing our margining outlook to 28%, a hundred basis point increase at the mid, and we're adjusting our guidance for the remaining. On the next page, we have the balance of our guidance metric for 2024 and Q2. In 2024, our adjusted EPS is expected to be between $10.20 and $10.60 a share. The 1040 midpoint represents a 14% growth in adjusted EPS over prior years and a 25 cent increase over the initial 2024 guidance. The other elements of our guidance are unchanged.

Speaker Change: Orders were up 4% on a hoarding 12 month basis with strength in data Center and <unk> end markets book to Bill continues to remain strong Q1 was $1 one on a holding 12 months basis.

Speaker Change: Before moving to our industrial businesses I'd like to briefly recap the combined electrical segments.

Speaker Change: For Q1, we posted organic growth of 11% and segment margin of 25, 3%, which was 430 basis points over prior year.

Speaker Change: No holding 12 months basis orders inflected strongly positive up 7% and our book to Bill ratio for electrical sector remains very strong at one two.

Speaker Change: We remain quite confident in our positioning for continued growth with strong margins in our overall electrical business.

Craig Arnold: For Q2, we expect organic growth to be between six and a half and eight and a half percent, segment margins to be between 22.4% and 22.8%, and adjusted EPS to be in a range of $2.52 to $2.62 a share. So, let me just close with a summary on page 20. Once again, the trends driving growth in our end markets continue to play out as expected, and even better in our electrical America's business, driven by data.

Speaker Change: Page 13 highlights our aerospace segment, we posted Q1 sales operating profit and operating margin record organic growth was 9% for the quarter.

Speaker Change: Growth was driven by broad strength across all markets with particular strength in commercial OEM and aftermarket end markets, which were up 17% and 15% respectively.

Speaker Change: Operating margin of 23, 1% was up 60 basis points year over year benefiting from higher volumes and effective management of price cost on.

Craig Arnold: We also delivered strong quarterly financial results on the back of strong execution across the company. As a result, we raised our guidance for organic growth by 50 basis points, segment margins by 40 basis points, and adjusted EPS by 25 cents at the midpoint.

Speaker Change: All in 12 months basis orders increased 2%.

Speaker Change: Commercial OEM and aftermarket orders were particularly strong and we expect that the military OEM order patterns will normalize in the second half.

Speaker Change: Year over year backlog increased 11% and was up 4% sequentially.

Speaker Change: On a rolling 12 month basis, our book to Bill for Idaho Space segment remained strong at one one.

Craig Arnold: And in the quarter, we were especially pleased to see strength in our negotiations, our orders, and the growth in our backlog, all of which are at all-time records, validating our medium and long-term growth. So we leave the quarter with a high level of confidence. Eaton will deliver higher growth, higher margins, and consistent earnings growth for years to come. Our expectations are high, and that's exactly where they should be.

Speaker Change: Moving on to our vehicle segment on page 14 in the quarter total revenue was down 2%, including a 3% organic decline, partially offset by a point of favorable FX weakened.

Speaker Change: Weakness in the North America region was partially offset by strength in Asia Pacific.

Craig Arnold: With that, I'll open things up for any questions you may have. Thanks, Craig, for the Q&A today. Please limit your opportunity to one question and a follow-up. Thanks in advance for your cooperation.

Speaker Change: Operating margin came in at 16% 150 basis points above prior year, driven by effective management of price cost and improvement in manufacturing efficiencies offset by lower sales volume.

Craig Arnold: With that, I will turn it over to the operator to give you guys the instructions. Thank you, and ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear a tone indicating that you've been placed in a queue, and you may remove yourself from the queue at any time by repeating the 1-0 command.

Speaker Change: On page 15, we show results for E mobility business sales were up 7% on an organic and total basis our.

Speaker Change: Our organic growth significantly outperformed the market driven by new program ramp ups.

Speaker Change: Our OEM customers continue to face execution challenges and while we anticipate improvements throughout the year. We have remained pragmatic in our volume forecast as a result, we will discuss shortly that our 40 year growth guidance of 25% to 35% remains <unk>.

Operator: And if you're on a speakerphone, please pick up your handset before pressing the numbers. Once again, if you have a question, it's 1 then 0. The first question will come from the line of Joe Ritchie from Goldman Sachs. Please go ahead. Okay, guys. This is Joe Morning.

Speaker Change: Changed.

Speaker Change: With programs and investments drove the operating loss of $4 million, we continued to incur launch cost related to our growth programs expected to ramp up over the next coming quarters.

Joseph Alfred Ritchie: Morning Craig, look, it's incredible to see the pipeline now over a trillion dollars on the mega projects. I'm just curious, like, as you talk to your customers, if you think about, you know, maybe labor as a constraint, like, how do you see this all playing out over the next couple years and, like, what are you hearing from your customers in terms of, like, whether there are any additional products that you need to come to market with just given all the activity that's happening here?

Speaker Change: In 2023, we won new programs with more than $1 $3 billion of much your yeah revenue and we continue to expand our pipeline of new opportunities in 2024, with our unique technologies driven by our electrical pedigree.

Speaker Change: This will continue to drive our growth well above the market.

Speaker Change: Moving to page 16, we show our electric cord and aerospace backlog updated through Q1 as you can see we continued to build backlog with electrical stepping up to $11 $3 billion and iOS space, reaching $3 4 billion for a total backlog of 40.

Joseph Alfred Ritchie: I know we appreciate the question, Joe, and it's obviously one that we're spending a lot of time internally looking at. It's one of the things that's quite frankly tempering our outlook for the year is the fact that we do believe that labor continues to be a bottleneck in certain industries and really in the economy overall. And so, at this point, I think it's really too early to say to what extent it's going to resolve itself. One of the things that we're looking at as well is, take a look at total labor participation rates in general.

Speaker Change: $14 7 billion.

Speaker Change: Versus prior year, our backlogs have grown by 27% and electrical and 11% in aerospace.

Speaker Change: And if you called backlog benefited from acceleration in order intake from tailwind from the secular trends, including Hyperscale orders within the data center end market as.

Craig Arnold: Those numbers, I would say, have been growing over time at a rate of, you know, two to three percent. I will tell you that, you know, the construction industries, the industries that we're participating in, are actually growing at a faster rate. And so our industries are, in fact, you know, growing at a faster rate in terms of labor participation than the underlying economy, which is really an encouraging sign for plumbers, contractors, electricians, and welders.

Speaker Change: As noted earlier book to Bill ratios for electrical and aerospace one two and one one respectively.

Speaker Change: The continued growth in our backlog underscores our confidence in 2024 and beyond.

Speaker Change: Now I'll turn it back to Craig for the end market outlook and financial guidance updates okay. Thanks Olivier.

Craig Arnold: Turning to page 17, we show a summary of our end market growth assumptions overall, our markets continue to perform as expected.

Craig Arnold: These are really good jobs and jobs that are going to be around for the long term. And I think some of that's playing out in this shift that we're seeing. But it's one of the things that we continue to watch.

Craig Arnold: And most of these indicators have not changed from what we shared in our Q4 earnings call.

Craig Arnold: We are however, seeing stronger than expected growth in data center and in commercial and institutional markets in the U S, which is why we're raising our revenue guidance for the year.

Craig Arnold: In contrast, what many are seeing in the macro economy, we continue to expect growth in 80% of our end markets and most of this growth is supported by the large backlog numbers that Olivier shared.

Craig Arnold: And it's one of the things, like I said once again, that really tempers our outlook. We could obviously grow faster if these constraints were fully resolved and didn't become a gating item for the industry overall. Got it. That's super helpful.

Craig Arnold: Moving to page 18, we show our financial year organic growth and operating margin guidance overall, our 2020 for organic growth is now expected to be between 7% and 9%, which is an increase of 50 basis points at the midpoint.

Joseph Alfred Ritchie: And then I guess maybe, I know you'll get a bunch of growth questions from others, but maybe I'll turn to margins for a second. So you announced a restructuring program last quarter. You know, there's a pretty wide gap right now between the, you know, really stellar margins you're putting up in the Electrical Americas business versus the electrical global business. Can you maybe just elaborate a little bit more on the restructuring

Craig Arnold: We're raising our organic growth guidance in the electrical Americas, 210% to 12% from 9% to 11%.

Craig Arnold: And we are reiterating the growth guidance for the remaining segments.

Craig Arnold: For segment margins were increasing the company's margin guidance range by 40 basis points at the midpoint to 23%.

Craig Arnold: This is a result of the improved outlook in electrical Americas, where we're seeing strong demand and strong performance here.

Craig Arnold: Here, we're increasing our margin outlook to 28% a 100 basis point increase at the midpoint.

Craig Arnold: And we're really entering our guidance for the remaining segments.

Joseph Alfred Ritchie: Is there some sense that you're going to try to maybe narrow the gap on the margin trajectory for those two businesses today? Yeah, I mean, I think the short answer is, absolutely, we would intend and anticipate to narrow the gap between those two businesses, and narrow the gap the right way, which is what the global business needs to do significantly better. We had no expectations at all that we'd see retrenchment in our America's business.

Craig Arnold: On the next page, we have the balance of our guidance metrics for 2024 in Q2.

Craig Arnold: For 2024, our adjusted EPS is expected to be between $10 20, and $10 60, a share of $10 40 midpoint represents a 14% growth in adjusted EPS over prior year and a 25% increase over the initial 2020 for guidance.

Craig Arnold: Elements of our guidance are unchanged.

Craig Arnold: For Q2, we expect organic growth to be between $6 five and eight 5%.

Craig Arnold: <unk> margins to be between 22, 4% and 22, 8% and adjusted EPS to be in a range of $2 52.

Craig Arnold: But I will say, as you think about the restructuring program that we launched, $375 million of spending, $325 million of benefits, two-thirds of that, more or less, will be in the electrical segment with a heavy concentration in global. So we are clearly working hard to improve margins in the electrical global business. One of the reasons why this gap kind of widened and opened up is that, as we're all aware, the U.S. market, the North American market, is doing very well right now.

Craig Arnold: To $2 62, a share.

Craig Arnold: So let me just close with a summary on page 20, once again the trends driving growth in our end markets continue to play out as expected and even better and our electrical Americas business driven by the datacenter market.

Craig Arnold: We also delivered a strong quarter financial results on the back of strong execution across the company.

Craig Arnold: As a result, we raised our guidance for organic growth by 50 basis points segment margins by 40 basis points and adjusted EPS by 25%.

Craig Arnold: At the midpoint.

Craig Arnold: And in the quarter, we were especially pleased to see strength in our negotiations.

Craig Arnold: There's a lot of activity, there's a lot of growth. You know, we have a very strong strategic position in the North American market overall. And so there are just a lot of things today that are really positive in the Americas market that are allowing us to continue to expand margins there. And, as you know, a lot of the European markets have been much weaker than we anticipated. You see some of the macroeconomic data coming out of, you know, Europe, Germany specifically, and a lot of the market segments in Europe, where we have a strong position, are some of the weaker parts of the market.

Craig Arnold: Our orders and the growth in our backlog all of which it all time records validating our medium and long term growth outlook.

Craig Arnold: So we leave the quarter with a high level of confidence.

Craig Arnold: EBIT will deliver higher growth higher margins and consistent earnings growth for years to come.

Speaker Change #100: Our expectations are high and that's exactly where they should be with that ill open things up for any questions. You may have.

Speaker Change: Thanks, Craig for the Q&A today, please limit your opportunity to one question and a follow up <unk> for your cooperation with that I'll turn it over to the operator to give you guys the instruction.

Operator: Thank you and ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your Touchtone phone you will head count, indicating that you've been placed in the queue and you may remove yourself from queue at any time by repeating that one Matt.

Craig Arnold: If you think about the MOM segment, you see it in some of the automation data from some of the other electrical peer companies, in the residential market. And so I think today, those margins will get better. If we look, you know, forward, we're obviously anticipating margins getting better, and there are, you know, easier comps in the second half of the year as well. Great. Thanks, Craig.

Operator: You're on a speakerphone, please pick up your handset before pressing the numbers once again, if you have a question.

Operator: One zero.

Operator: The first question will come from the line of Joe Ritchie from Goldman Sachs. Please go ahead.

Jeffrey Todd Sprague: Thank you. Thank you. The next question is from Jeff Sprague from Vertical Research. Please go ahead. Hey, thanks. Good morning, everyone. Good morning Jeff.

Joseph Alfred Ritchie: Hey, guys good morning.

Joseph Alfred Ritchie: Hey, Joe morning morning.

Joseph Alfred Ritchie: Okay.

Operator: Hey.

Joseph Alfred Ritchie: Look it's incredible to see the pipeline now over a trillion dollars on the Mega projects I'm just curious like as you talk to your customers. If you think about.

Jeffrey Todd Sprague: Morning. Hey, just curious about data centers, Craig, your comment about some of the megaprojects haven't started yet there. Obviously, data centers have been strong and a revenue driver for you there. So, can you just elaborate on that? Are you kind of talking about you really haven't seen maybe kind of the AI-oriented investments coming through? Just kind of an interesting, curious comment.

Operator: Ill, maybe labor is a constraint like how do you see this all playing out over the next couple of years and like what are you. What are you hearing from your customers in terms of like whether there are either additional products that you need to come to market with just given given all the activity that's happening here.

Speaker Change #104: I know we appreciate the question Joe and it's obviously one that we're spending a lot of time internally looking at.

Craig Arnold: You know, in the last quarter when you did provide that kind of order conversion data for SEMI and other related investments, you didn't put data centers on that slide, so maybe you could address that element of the question also. I'd say that, to your point, Jeff, data center markets have been good and strong for a long time. And I think our data center numbers, I think we talk about growth, you know, in excess of 20%. But the order growth in the data center market, as we talked about, is much higher than that, much, much higher.

Speaker Change #104: And it's one of the things Thats quite frankly tempering.

Speaker Change #104: Our outlook for the year is the fact that we do believe that labor continues to be a bottleneck.

Speaker Change #104: In certain industries and really in the economy overall.

Operator: And so at this point I think it's really too early to say to what extent, it's going to resolve itself one of the things that we're looking at as well as.

Operator: In particular total labor participate participation rates in general.

Speaker Change #105: Those numbers I would say Ben.

Speaker Change #105: Growing over time at a rate of.

Operator: 2% to 3% I will tell you that the construction industries. The industries that we're participating in really reversing what had been a long term trend are actually growing at a faster rate and so our industries are in fact.

Craig Arnold: And so, if you think about a lot of these big megaprojects... And where we're seeing this outsized growth in projects announced, in our negotiations, data centers are obviously one of the big contributors. And the underlying rate of growth that we're seeing in negotiations and in orders is outstripping the very strong growth that we're seeing in our business. And so we're just trying to find some color in terms of megaprojects and which of those are already showing up today in orders, which of those are already showing up somewhat in revenue, although most of it's not in revenue yet, and where we expect to continue to see even outsized growth as we move forward in the ensuing years.

Operator: Growing at a faster rate in terms of labor participation than the underlying economy, which is really an encouraging sign I mean, I think in many ways skilled trade today.

Operator: Whether it's.

Operator: Plumbers contractors electricians welders. These are really good jobs and jobs that are going to be around for a long term and I think some of that is playing out and the shift that we're seeing but it's one of the things that we continue to watch.

Operator: And it's one of the things like I said once again that really tempers our outlook, we could obviously grow faster.

Craig Arnold: And data centers are clearly gonna be a big contributor. We talk about, you know, negotiations up four times. So the market just continues to grow, and we expect that market to be a much bigger piece of the total company as we look forward. And then, uh, oh yeah, go ahead. What was the second question?

Operator: If these constraints are fully resolved and don't become a gating item for the industry overall.

Speaker Change #108: Got it that's Super helpful. And then I guess, maybe maybe not.

Speaker Change #109: <unk> got a bunch of growth questions from others, So maybe I'll turn to margins for a second.

Operator: You announced the restructuring program last quarter.

Operator: Yes, it's a pretty wide gap right now between the.

Jeffrey Todd Sprague: I didn't quite understand... Yeah, when you provided that kind of handy chart last quarter showing kind of the negotiation to order to sales conversion timeline, actually, you did not put data centers on that chart. Does that differ significantly from those figures you just described? I think, and the team can correct me around the room if I'm wrong, I think data centers were embedded in that data, the aggregate data. I think data centers were embedded in what we were doing.

Speaker Change: Really stellar margins youre, putting up in the electrical Americas business versus the electrical global business can you, maybe just elaborate a little bit more on the restructuring plans is there some sense that youre going to try to maybe narrow the gap.

Speaker Change: On the margin trajectory for those two businesses today.

Speaker Change: Yes, I mean, I think the short answer is absolutely we would intend and anticipate to narrow the gap between those two business and narrow the gap the right way, which is the global business needs to do significantly better we have no expectations on all that.

Jeffrey Todd Sprague: Yeah, I'm looking at slide six. We had different kinds of projects. We were showing you some examples of different kinds of projects, but embedded in the overall data, I think that definitely included data. Okay. Okay. We can follow up after this call. Okay. Yeah. Yeah. Thank you. And then just a second question. I'm sorry.

Speaker Change: We'd see retrenchment in our Americas business, and so but I will say as you think about the restructuring program that we launched $375 million of spending $325 million of benefits two thirds of that more or less will be in the electrical segment with a heavy concentration in global so we are.

Jeffrey Todd Sprague: Just on Electrical America's margins, what would cause the margins to go down sequentially, right? Usually, Q1 is actually the lowest margin quarter of the year. It's the lowest revenue quarter and dollar value. Is there something in the mix or otherwise that would cause it to step down from these levels?

Speaker Change: Clearly working hard to improve margins in the electrical global business one of the reasons why this gap widened and opened up is that.

Speaker Change: We're all aware in the U S market. The North America market is doing very well right now there's a lot of activity there is a lot of growth.

Speaker Change: We have a very strong strategic position in the North America margin.

Speaker Change: Market overall, and so there's just a lot of things today that are really positive.

Craig Arnold: You know, I say as we look forward. As you know, we've made a number of announcements around capacity expansion, we're making some investments in the commercial front end, we're making investments in technology. So there's a number of programs that we made announcements about last year and that we're investing in this year that will certainly be a bit of a gating factor in terms of margin expansion. I think the implied number is close to what it was in Q1, but I do take your point that we typically see margin expansion.

Speaker Change: In the Americas markets that are allowing us to to continue to expand margins there and as you know a lot of the European markets have been much weaker than we anticipated you see some of the macroeconomic data coming out of Europe, Germany, specifically and a lot of the market segments in Europe, where we have a strong position.

Speaker Change: Are some of the weaker parts of the market. If you think about the OEM segment you see it in some of the automation data from some of the other electrical peer companies the residential market and so I think today.

Speaker Change: Those margins will get better if we look forward, we're obviously anticipating margins getting better easier.

Craig Arnold: We'll certainly see volume expansion in terms of absolute revenue in the coming quarters, but really, it's more a function of spending and investments that we're making in the business. Great, thank you. Thank you. And the next question is from Deane Dray from RBC Capital Markets. Please go ahead. Your line is now open. Thank you. Good morning, everyone. Good morning, Deane.

Speaker Change: Easier comps in the second half of the year as well, but without a doubt there's plenty of opportunity to expand our margins in our global segment.

Speaker Change #112: Great. Thanks, Craig.

Speaker Change: Thank you.

Speaker Change #107: Thank you. The next question is from Jeff fan.

Jeffrey David Hammond: Vertical research. Please go ahead.

Jeffrey David Hammond: Hey, Thanks, good morning, everyone.

Jeffrey David Hammond: Good morning, Jeff.

Jeffrey David Hammond: Good morning, Hey.

Jeffrey David Hammond: Just curious on data centers, Craig your comment about the.

Deane Michael Dray: I just want to circle back on data center demand here. And the idea here is that you talk about labor constraints, but the industry and the folks that we're talking to on the data center planning side are nervous about the bottlenecks and some of the basic electrical backbone that you all provide. So this quarter, we saw an announcement in Europe with one of your European competitors signing a five-year supply agreement with one of these data center operators.

Speaker Change: Some of the Mega projects haven't started yet they're obviously data center has been strong and a revenue driver for you. There. So can you just elaborate on that are you kind of.

Speaker Change: Talking about you really haven't seen maybe kind of the AI oriented investments coming through.

Speaker Change: Just kind of an interesting curious comment.

Speaker Change: And last quarter, when you did provide that kind.

Speaker Change: Kind of order conversion data for semi and other related investments. It didnt put data centers on that slide. So maybe you could address that element of the question also.

Deane Michael Dray: So... And then we've also heard about Transformers being backlogged for two years. So, are there opportunities for you, I know you're increasing capacity in Transformers, but are you looking at any of these longer-term supply agreements? Yeah, the short answer is, Deane, it's absolutely yes.

Speaker Change #113: Yes, I would say that to your point, Jeff datacenter markets have been good and strong for a long time and I.

Speaker Change: Think our datacenter numbers I think we've talked about growth in excess of 20%.

Speaker Change: But the order growth in the datacenter market as we talked about is much higher than that much much higher than that and so if you think about a lot of these big Mega projects and where we're seeing.

Craig Arnold: We are living in an environment right now where the market has a number of constraints, including electrical equipment. It's one of the reasons why we announced that $1 billion of incremental investments that we're making in the company to deal with the specific bottlenecks that we have in our own manufacturing operations so that we can address the demand that we see in front of us. And quite frankly, given the demand that we're seeing even today in the business, those numbers will likely go up. So data centers continue to grow. You know, I was responding to a specific question earlier about labor. But to your point, there are other constraints around electrical equipment.

Speaker Change: This outsized growth.

Speaker Change: In projects announced in our negotiations.

Speaker Change: Data centers is obviously one of the big contributors and the underlying rate of growth.

Speaker Change: That we're seeing in negotiations and in orders is outstripping the very strong growth that we're seeing in our business and so we were just trying to find some color in terms of mega projects in which of those are already showing up today in orders, which of those are already showing up somewhat in revenue. Although most of it is.

Speaker Change: Not in revenue, yet and where we expect to continue to see even outsized growth as we move forward.

Speaker Change: The ensuing years in data centers is clearly going to be a big contributor we talk about negotiations up four times. So it is the market just continues to.

Craig Arnold: And we are, in fact, signing multiyear agreements with our customers to ensure that we have capacity in place to support the demand that they need from us. And so we are fully confident that we will not be the bottleneck in the industry. We will resolve the bottlenecks that we have in terms of our own electrical equipment. It is difficult to say where those other constraints will serve. All right, that's really helpful. And then, just away from data centers, just the idea of these megaprojects.

Speaker Change: To grow.

Speaker Change: And we expect that market to be a much bigger piece of the total company as we look forward.

Speaker Change: And then.

Speaker Change #118: Oh, yes.

Speaker Change #119: What was the second question I think yes.

Speaker Change #110: When you provided that kind a hand, a chart last quarter, it's showing kind of negotiation to order to sales conversion.

Speaker Change: Timeline accident did not put data centers on that chart.

Speaker Change: Does it does it differ significantly from those.

Speaker Change #120: Thank you.

Speaker Change #121: I think I'm correct, Tim can correct me around the room, if I'm wrong I think data centers were embedded in that data we gave you.

Speaker Change: The aggregate data data centers, we're embedded in what we gave you.

Deane Michael Dray: Do you anticipate any mixed change in what you are doing for direct ship versus going through distribution? And I say, you know, distribution is really an important part of our go-to-market strategy. We are really strong.

Speaker Change: Yes, I am looking to acquire six different there's different kinds of projects and we are showing you. Some examples of different kinds of projects, but embedded in the overall data I think that definitely included data centers.

Speaker Change: Okay.

Speaker Change #124: Yes, we can defer can follow up after this call okay.

Speaker Change #106: Yes. Thank you and then just the second question I'm, sorry, just on the <unk>.

Craig Arnold: Distributed Partnerships that will always be an important part of our formula in terms of the way we go to market. Now, there are, in fact, some market dynamics that suggest that there are certain kinds of projects and certain markets that do tend to be more of a direct serve market than a market that is served through distribution. In some cases, data centers are a great example of that, where there are certain data center customers who want to be served directly.

Speaker Change #106: Electrical Americas margins.

Speaker Change #106: What would cause the margins to go down sequentially right, usually Q1 is actually the lowest margin quarter of the year.

Speaker Change #106: It's the lowest revenue quarter.

Speaker Change: Quarter end.

Speaker Change: <unk> value.

Speaker Change: Is there something in mix or otherwise that would cause it to step down from these levels.

Speaker Change #111: I would say is as we look forward as you know we've made a number of announcements around.

Speaker Change: Capacity expansion, we're making some investments in commercial front and we're making investments in technology. So there is a number of programs that we've made announcements last year and that we are investing in this year that will certainly be a bit of a gating factor in terms of margin.

Craig Arnold: And so I do think there'll be a bit of a mix shift, not so much because it's a function of strategically changing our approach as much as it is because there are certain market segments that are growing, big megaprojects being a piece of that, that tend to be more direct-serve marketing. That's helpful.

Speaker Change: Expansion I think the implied number is.

Speaker Change: Close to what it was in Q1, but do take your point that we typically see margin expansion, we'll certainly see volume expansion.

Julian C.H. Mitchell: Thank you. Thank you. Our next question is from Julian Mitchell from Barclays. Please go ahead. Uh... Maybe just wanted to start with Electrical Global, you started out the year with a sort of fairly soft top line, so just maybe help us understand sort of the confidence of getting to that, you know, low, mid, single, digital, organic growth for the year, you know, how quickly do we expect that acceleration, say, in the second quarter in EG, and if there Yeah, I appreciate the question, Nigel.

Speaker Change: In terms of the absolute revenue in the out in the out quarters, but really it's more a function of spending and investments that we're making in the business.

Speaker Change #101: Great. Thank you.

Speaker Change #115: Thank you and our next question is fine.

Speaker Change #117: <unk> <unk> from.

Speaker Change #117: From RBC capital markets. Please go ahead.

Speaker Change #117: Maam.

Speaker Change #125: Your line is now open.

Speaker Change #102: Thank you and good morning, everyone. Good morning name in the morning, Hey, just wanted to circle back on the data center demand here and the idea here is you talked about labor constraints.

Speaker Change #102: But the industry.

Speaker Change #102: The folks that we're talking to on the data center planning side is they're nervous about the.

Speaker Change #102: Bottlenecks in some of the basic electrical backbone that you all provide and so we saw this quarter and announcement in Europe with one of your European competitors, signing a five year supply agreement to one of these data.

Craig Arnold: I mean, I'd say that we have, I would say, relatively modest growth assumptions for our electrical global segment, and we really, in Q1, performed largely in line with our expectations. A little weaker, quite frankly, in Europe than we expected, but largely in line. And as I mentioned in my outbound commentary, the comps get a bit easier as well in the second half of the year for global. But today, I'd say we're growing in Asia.

Speaker Change #101: Data center operators so.

Speaker Change #101: And then they've also we've heard about transformers being backlog for two years. So are there opportunities for you I know you are increasing capacity and transformers, but are you looking at any of these longer term supply agreements.

Craig Arnold: We had nice growth in our China and Asia-Pacific business overall. Our Geist business is growing, and doing just fine. The weak spot, as we talked about, is what's happening today in the European electrical business, where, very much like you saw in some of the peer data, those markets have been weaker than we anticipated.

Speaker Change #103: Yes. The short answer is deal it's absolutely yes, we are living in an environment right now where they are.

Speaker Change #103: The market has a number of constraints, including electrical equipment. It's one of the reasons why we announced at $1 billion of incremental investments that we're making in the company to deal with the specific bottlenecks that we have in our own manufacturing operations. So that we can address the demand that we see in front of us and quite frankly, given the demand.

Craig Arnold: But I would say today that we have a fairly conservative set of assumptions that we're using internally in terms of what we're anticipating from our growth, your business overall, our global business overall, and really, it's largely a function of the comps getting easier as we, you know, continue throughout the balance of the year. We're not anticipating a significant change in the trajectory of the business, but some modest improvement in the second half. That's helpful.

Speaker Change #103: That we were seeing even today in the business those numbers are likely go up so data centers continues to grow.

Speaker Change #103: I was responding to a specific question earlier around labor, but to your point.

Speaker Change #103: There are other constraints around electrical equipment and we are in fact, signing multiyear agreements with our customers to ensure that we have capacity in place to support the demand that they need from us and so we are fully confident that we will not be the bottleneck in the industry we will.

Speaker Change #103: We will resolve the bottlenecks that we have in terms of our own electrical equipment.

Julian C.H. Mitchell: Thank you. And just my second question was really to circle back on the margin outlook. So, yes, your second quarter, you've got the implied sort of total company margin down 50 bps sequentially with, you know, some sales growth sequentially. So, is the delta all in that sort of higher investment in Electrical America pulling down that margin sequentially? Is that what's going on there in Q2? Yeah, no; I'd say that that's really what the difference is.

Speaker Change #103: Difficult to say, where those other constraints will surface.

Speaker Change #114: Alright, Thats really helpful. And then just away from data centers just the idea of these mega projects do you anticipate any mix change and what you are doing for direct ship versus going through distribution.

Speaker Change #103: And I'd say distribution is really an important part of our go to market strategy and we have really strong.

Speaker Change #103: Distributor partnerships that will always be an important part of our formula in terms of the way. We go to market. There are in fact, some market dynamics that suggest that there are certain kinds of projects.

Speaker Change #103: In certain markets that do tend to be more of a direct served market than a market that is served through distribution.

Craig Arnold: There's nothing else that's embedded in our assumptions that would suggest that margins should fall off other than the incremental spending and investments that we're making in the business. You know, as you saw in our Q1 results, very strong execution by the team, 60 plus percent incremental, and so the team is really executing well. We anticipate that, you know, execution will continue for the balance of the year, and it really is simply a reflection of the investments that we're making in the business for future growth. Great, thank you.

Speaker Change #103: In some cases data centers are a great example of that where there are certain data center customers, who want to be served direct and so I do think there'll be a bit of a mix.

Speaker Change #103: Mix shift not so much because it's a function of strategically we're changing our approach as much as it is because there are certain market segments that are growing.

Speaker Change #103: Big Mega projects being a piece of that that tend to be more direct served markets.

Speaker Change #126: That's helpful. Thank you.

Speaker Change #126: You.

Speaker Change #126: Our next question is from Julian Mitchell from Barclays. Please go ahead.

Julian C.H. Mitchell: Thank you. Our next question is from Steve Tusa from J.P. Morgan. Please go ahead. Good morning, guys. Good morning.

Julian C.H. Mitchell: Maybe just wanted to start with electrical global.

Julian C.H. Mitchell: You started out the year with a sort of fairly soft.

Charles Stephen Tusa: Just on that last question, can you maybe just be a little bit more specific about, you know, what you mean there on the amount of headwind from these investments? I mean, you guys, is there like an abrupt startup cost in one of these facilities or something? Maybe just a little more color and maybe quantify that headwind.

Julian C.H. Mitchell: Top line.

Julian C.H. Mitchell: Yeah.

Julian C.H. Mitchell: Just maybe help us understand sort of the confidence of getting to that.

Julian C.H. Mitchell: Low mid single digit organic growth for the year.

Julian C.H. Mitchell: How quickly do we expect that acceleration.

Julian C.H. Mitchell: Say in the second quarter in EG, and if there's any particular region or end market. That's doing the sort of heavy lifting on that sales growth improvement.

Craig Arnold: Yeah, and I wouldn't call it an abrupt start, of course, but as you know, we made some announcements last year around capacity expansion, and those new capacity expansions start to come online, so obviously, you turn on, you know, all the depreciation. You have startup costs associated with, you know, commissioning new lines and new plants. We're making additional investments in some of these commercial opportunities to deal with, you know, the better growth outlook that we've talked about.

Speaker Change #122: Yes, I appreciate the question Nigel I mean, I'd say that we have I would say relatively modest growth assumptions for our electrical global segment.

Speaker Change #122: And we really in Q1 performed largely in line with our expectations, a little little weaker quite frankly in Europe than what we expected, but largely in line and as I mentioned in my up on the commentary the <unk>.

Speaker Change #122: Comps get a bit easier as well in the second half of the year for global but today I'd say, we're growing in Asia.

Speaker Change #122: Nice growth in our China, and Asia Pacific business overall, our guys businesses growing doing just fine the weak spot as we talked about is what's happening today in the European electrical business, where very much like you saw when some of the peer data those markets have been weaker than what we anticipated but I.

Craig Arnold: And so in terms of, you know, the specifics, obviously, we're not going to give you an exact dollar amount, but I would tell you that it's really tied specifically to supporting the outlook for growth. And quite frankly, we could do better. I mean, the reality is, you know, we did better in Q1.

Speaker Change #122: I would say today fairly conservative set of assumptions that we're using internally in terms of what we're anticipating from our.

Julian C.H. Mitchell: Europe business.

Julian C.H. Mitchell: Overall, our global business overall, and really it's largely a function of the comps getting easier as we.

Julian C.H. Mitchell: Continue throughout the balance of the year, we're not we're not anticipating a significant.

Craig Arnold: Our team is executing extremely well, so we could do better than what's currently reflected, but it is today reflective of our best thinking. Got it. And then just on the order front, one of your peers talked about some of these orders being delivered a little bit further out. You're adding capacity, so maybe you can deliver in a bit more of an expedited way over the next couple of years. Should we think about this quarter's orders converting further out than normal, or are we now at kind of a more of a consistent lead time? Maybe it's still probably a relatively long lead time, but are we still at kind of a consistent lead time that's been established over the last couple of years?

Julian C.H. Mitchell: <unk> in the trajectory of the business, but some modest improvement in the second half.

Speaker Change #136: That's helpful. Thank you and just my.

Julian C.H. Mitchell: A second question was really to circle back on the <unk>.

Speaker Change #137: Margin outlook, so, yes, your second quarter implied.

Speaker Change #137: The implied sort of total company margin down 50 bps sequentially with.

Julian C.H. Mitchell: Some sales growth sequentially.

Julian C.H. Mitchell: So is the delta all in that sort of higher investments in electrical Americas pulling down that margin.

Julian C.H. Mitchell: Sequentially is that is that what's going on there in Q2.

Charles Stephen Tusa: You know, I would say that, you know, lead times have not pushed out further. We talked about over the last couple of years the fact that, you know, this surge that we're seeing in orders has, in fact, extended lead times. And for many of our markets overall, and I would say today, depending upon the product line, we've made some progress in terms of lead times. But we've also seen, as you saw in the data, a resurgence, quite frankly, of orders, with very strong orders in Q1 and backlogs that continue to grow, so I would say, in general, lead times have not changed materially. They've not gotten materially worse; they've not gotten materially better either.

Speaker Change #139: Yes, no I'd say that that's really what the difference is there is nothing else.

Julian C.H. Mitchell: Embedded in our assumptions that would suggest that margins should fall off other than the incremental spending and investments that we're making in the business. As you saw in our Q1 results very strong execution by the team 60 plus percent Incrementals and so the team is really executing well.

Julian C.H. Mitchell: <unk> that that execution will continue for the balance of the year and it really is simply a reflection of the investments that we're making in the business for future growth.

Speaker Change #140: Great. Thank you.

Julian C.H. Mitchell: Thank you. Our next question is from Steve Tusa from Jpmorgan. Please go ahead.

Charles Stephen Tusa: Good morning, guys.

Charles Stephen Tusa: Good morning early morning.

Charles Stephen Tusa: Just on that last question can you, maybe just be a little bit more specific about what you mean there on the.

Craig Arnold: Yeah, so in other words, the orders that you booked this quarter should kind of convert at, you know, the same lead time as we've seen in the last, you know, year and a half type of thing. Yeah, I mean, I said it varies, you know, depending upon which market segment I mean, there are, in some cases, we are getting for, some of the, you know, hyperscale data center guys are trying to get out in front and maybe placing some orders earlier than they normally would. But for the most part, there's been no significant change in the order.

Charles Stephen Tusa: The amount.

Julian C.H. Mitchell: Of.

Julian C.H. Mitchell: Of headwind from these investments I mean, you guys.

Julian C.H. Mitchell: Or is there like an abrupt startup cost in one of these facilities or something maybe just a little more color on maybe quantify.

Julian C.H. Mitchell: That that headwind.

Julian C.H. Mitchell: Yes.

Speaker Change #127: Call it an abrupt start up costs, but as you know we made some announcements last year around capacity expansions.

Speaker Change #127: And those those new capacity expansions start to come online. So obviously you turned on all the depreciation you have startup costs associated with.

Speaker Change #127: Commissioning new lines and new plants, we're making additional investments in some of these commercial opportunities to deal with the better growth outlook that we've talked about and so in terms of the specifics and obviously, we're not going to give you an exact dollar amount, but I would tell you that it's really.

Charles Stephen Tusa: Yeah, yeah. Great. Thanks a lot.

Scott Reed Davis: All right. Thank you. Thank you. The next question is from Scott Davis from Elias Research. Please go ahead. Hey, good morning, guys. Good morning, Scott.

Speaker Change #127: Specifically to supporting supporting the outlook for growth and quite frankly, we could do better I mean, the reality is.

Scott Reed Davis: I'm kind of intrigued by this concept of long-term supply agreements because I don't believe that's really been something that we've seen in the past in this industry. Can you, for whatever you're willing to share here, help us understand, are these like take-or-pay type contracts? What is the kind of vision in forming these types of partnerships? I saw the Schneider Compass announcement a few months ago, but I'm not exactly

Julian C.H. Mitchell: We did better in Q1, our team is executing extremely well so we could do better than what's currently reflected but it is today reflective of our best thinking.

Speaker Change #128: Got it and then just on the on the order front.

Speaker Change #128: Your peers talked about some of these orders being delivered a little bit further out you are adding the capacity. So maybe you can.

Speaker Change #128: Deliver.

Craig Arnold: I mean, as you can imagine, Scott, we're living in an environment today where, you know, these industries are growing much faster than they have historically, and the Outlook for Growth continues to strengthen and, in many cases, improve, and you have capacity constraints. And so we are in a very different world today with respect to ensuring that we work with our customers and our suppliers on a multi-year basis to ensure that we have the capacity to support the demand that's out in front of us.

Speaker Change #128: A bit more of an expedited way over the next couple of years should we think about this orders quarter converting further out than normal.

Speaker Change #128: Or are we now at kind of a more of a consistent lead time, albeit still probably a relatively long lead time, but are we still have kind of a consistent lead time, that's been established over the last couple of years.

Speaker Change #123: Yeah, No I would say that lead times have not pushed out further.

Speaker Change #123: We talked over the last couple of years. The fact that the surge that we're seeing in orders has in fact extended lead times for many of our markets overall and I would say today.

Craig Arnold: And that's really what's driving this change in the way we contract and partner with many of our customers. So I think it's a perfectly logical thing to do. It's a necessary thing to do in this environment.

Speaker Change #123: Depending upon the product line, we have made some progress in terms of lead times, but we've also seen as you saw on the data also a resurgence quite frankly of orders with very strong orders in Q1.

Speaker Change #123: I would say in backlogs that continued to grow so I would say in general lead times have not changed materially.

Craig Arnold: And to your point, I mean that most of these contracts are contracts that are structured in a way that ensures that while they won't necessarily be exactly take or pay, but they ensure that we have protections for the investments that we're making so that we're not putting capacity in that's not. So we feel very good about the nature of the contracts, the way they're structured to ensure that the companies... Wow, that's interesting, and congrats on that.

Speaker Change #123: <unk> been materially worst they've got not gotten materially better.

Speaker Change #132: Yes, hi.

Speaker Change #132: So in other words, the orders that you booked this quarter should kind of convert.

Speaker Change #132: At the same lead time as we've seen in the last year.

Speaker Change #146: Year, and a half type of type of thing.

Speaker Change #144: Yes, I'd say it varies depending upon which market segment I mean, there are in some cases, we are getting for some of the.

Speaker Change #144: Hyperscale data center guys are.

Speaker Change #123: Trying to get out in front, and maybe placing some orders earlier than they normally would but for the most part there has been no significant change in the order pattern.

Speaker Change #145: Yes, yes.

Craig Arnold: This is a, I'm not looking for an exact number, I'm just trying to get a sense of what you think about, you know, we all know transformers have long lead times, but when you think about the percentage of your SKUs that are sold out right now, is there some sort of number that you could guess, you know, 30-40% of your SKUs. I mean, I know it's broader than just transformers and switchgear, but... And any estimate there, I'm just kind of curious to see if... The majority or is still kind of sub 50% of us.

Speaker Change #134: Great. Thanks, a lot.

Speaker Change #133: Great. Thank you.

Speaker Change #133: Thank you. The next question is from Scott Davis from Melius Research. Please go ahead.

Scott Reed Davis: Hey, good morning, guys. Good morning, Scott.

Scott Reed Davis: Kind of intrigued by this concept of long term supply agreements because I don't believe that's really been something that we've seen in the past in this industry, but.

Speaker Change #135: Can you.

Scott Reed Davis: For whatever you're willing to share here to.

Scott Reed Davis: Help us understand at least like take or pay type contracts.

Scott Reed Davis: What is kind of the vision and forming these type of partnerships I saw the Schneider compass announcement, a few months ago, but.

Scott Reed Davis: We haven't.

Speaker Change #131: Not exactly sure what you guys are doing thanks.

Scott Reed Davis: Yeah, you know, I'd say that we know. We really haven't run the math, to be honest with you, Scott, in terms of what percent. I will tell you that maybe an easy way to think about it is that, you know, the long cycle parts of our portfolio. Generally today, we have capacity constraints on the long cycle stuff, and on the short cycle stuff, not so much. And I think our split is roughly 75-25 between long cycle and short cycle, so maybe that's a good proxy for where we're actually at capacity or close to sold out and where we're not. Congratulations on the start of the year, guys. Good luck! Thank you very much. And the next question is from Nicole DeBlase from Deutsche Bank. Please go ahead. Hey Nicole,

Speaker Change #131: And as you can imagine Scott we're living in an environment today, where these industries are growing much faster than they have historically and the outlook for growth.

Speaker Change #131: <unk> strength and in many cases get better and where you have capacity constraints and so we are in a very different world today with respect to.

Speaker Change #131: Ensuring that we work with our customers and our suppliers on a multiyear basis to ensure that we have capacity to support the demand that's out in front of us and Thats really whats driving.

Speaker Change #131: This change in the way we contract with partner with with many of our customers. So I think it's a perfectly logical thing to do it's a needed thing to do in this environment and to your point I mean.

Speaker Change #131: Most of these contracts are contracts that are structured in a way that ensures that.

Speaker Change #131: <unk>.

Nicole Sheree DeBlase: Just maybe starting with Electrical America's obviously really impressive 17% organic growth this quarter. You guys raised the guidance, but it still embeds pretty big D-cells throughout the year. So is that just, you know, can we kind of chalk that up to conservatism, Craig, or is there something that you guys are seeing with respect to growth in the rest of the year that kind of causes that step down? Hey, and I appreciate the question, Nicole, and obviously it was a really strong start to the year for our Electrical Americas business, and they posted, you know, really, really positive numbers. And I'd say, you know, it's early in the year, and, you know, we have one quarter behind us.

Speaker Change #131: Wow.

Speaker Change #123: They won't necessarily be exactly take or pay but they ensure that we have protections for the investments that we're making so that we're not putting capacity and that's not needed.

Speaker Change #123: So we feel very good about the nature of the contracts the way they are structured to ensure that.

Speaker Change #123: The company is protected.

Speaker Change #151: Wow, that's interesting and congrats on that so.

Speaker Change #129: This is.

Speaker Change #149: I'm not looking for an exact number I'm just trying to get a sense do.

Speaker Change #129: Do you think about.

Speaker Change #129: We all know Transformers are our lead times, along but when you think about the percentage of your Skus that are sold out right now is there some sort of.

Speaker Change #129: Number that you could guess, 30% 40% of your Skus I mean, I know, it's broader than just transformers switchgear, but.

Craig Arnold: And we just thought it's prudent at this point, given the fact that it's early in the year, to let's see how the rest of the year unfolds. Certainly, you know, if things continue with what we've seen, there could be upside to that number. I would say as well that as the year goes on, the comps get, in some cases, a little bit more challenging, and there's a little bit less contribution from price in some of the subsequent quarters.

Speaker Change #129: And any estimate there I'm just kind of curious to see if thats. The majority are still kind of sub 50% of skus.

Speaker Change #130: Yes, I would say that.

Speaker Change #130: We really haven't done the math to be honest with us Scott in terms of what percent I will tell you that maybe an easy way to think about it is that.

Speaker Change #130: The long cycle parts of our portfolio.

Speaker Change #130: Generally today.

Speaker Change #130: We have capacity constraints on the long cycle stuff and when the short cycle stuff not so much in <unk>.

Craig Arnold: But once again, you know, the business outperformed our expectations across the board, most of which was obviously on the volume side in Q1. And so there is certainly the potential that the business does better than what we're currently forecasting. Thanks Craig. And then, on the similar question about free cash, you didn't raise the guidance for the full year despite higher earnings. Is there something going on with networking capital or some other line item that causes the offset, or is it just a bit early in the year, and you kind of want to see how that line item trends?

Speaker Change #130: Our split is roughly 70 525 between long cycle and short cycle. So maybe that's a good proxy for where were actually at capacity or close to sold out.

Speaker Change #130: And where we're not.

Speaker Change #130: Okay.

Speaker Change #141: Congrats on the start of the year guys. Good luck. Thank you very much appreciate it. Thank you.

Nicole Sheree DeBlase: And the next question is from Nicole to glaze from Deutsche Bank. Please go ahead.

Nicole Sheree DeBlase: Yes.

Nicole: Hi, Nicole.

Nicole: Just maybe starting with electrical Americas, obviously really.

Nicole: Presses, 17% organic growth. This quarter you guys raised the guidance, that's selling that pretty big diesel throughout the year. So is that just can we kind of chalk that up to conservatism Craig or is there something that you guys are seeing with respect to growth in the rest of the year that kind of causes that step down.

Nicole Sheree DeBlase: No, I'd say largely it's early in the year, and really, we just thought it's prudent at this juncture not to take the number up. We'll obviously revisit it as we get through Q2, but it's just early in the year. Thank you. Thank you. And the next question is from the line of Andrew Obin from Pink of America. Please go ahead. Oh, yeah, sure. Good morning. How are you?

Craig Arnold: Hey, I appreciate the question Nicole and obviously it was a really strong start to the year for our electrical Americas business and they posted really really positive numbers and I'd say I'd say, it's early in the year and we have one quarter behind us.

Andrew Burris Obin: Good morning. Yeah, I guess the question is, you know, everybody's asking about data centers, but maybe in a slightly different direction. China, what are we seeing? How is your electrical business in China performing within electrical global? And you know, you have a very specific strategy there for JVs. Maybe, just talk about how the deals are performing relative to your expectations. No, I appreciate the question, Andrew, and I would say our China business continues to perform very well. In fact, you know, we grew, you know, high single digits.

Nicole: And we just thought it's prudent at this point given the fact that it's early in a year or two let's see how the rest of the year unfolds.

Speaker Change #130: Certainly if things continue with what we've seen there could be upside to that number I would say as well that as you think about as the year goes on the comps get in some cases, a little bit more challenging.

Speaker Change #130: There's a little bit less contribution from price and some of the subsequent quarters, but once again the business outperformed our expectations across the board.

Speaker Change #130: Most of which is obviously on the volume side in Q1, and and so there is certainly the potential that the business does better than what we're currently forecasting.

Craig Arnold: Q1 in our China business. And to your point, we do have a very specific strategy for how we play the Chinese market specifically through joint ventures. In many cases, as you know, these are minority joint ventures. And our joint ventures, by the way, if you just take a look at our joint venture performance, we obviously don't consolidate this revenue, but they grew some 35% in 2023.

Speaker Change #155: Got it Thats very fair. Thanks, Craig and then similar question on free cash you didn't raise the guidance for the full year. Despite higher earnings is there something going on with networking capital or some other line item that causes the offset or is it just a bit early in the year and you kind of wanted to see how that line item trends no I would say largely it's early.

Craig Arnold: So we're getting a lot of great growth in the joint ventures in China. And as you know, strategically, what we tried to do there was really find a way to partner with local Chinese companies who then give us the ability to broaden our portfolio to compete in Tier 2 and Tier 3 markets, both in China and around the world. And so we're absolutely thrilled with how well these JVs are playing out and our team is executing.

Speaker Change #130: In the year.

Speaker Change #130: And just really really starts prudent at this juncture and not to take the number up we'll obviously revisit it as we get through Q2, but it's just early in the year.

Speaker Change #157: Understood. Thank you I'll pass it on.

Speaker Change #130: Thank you and the next question is from the line of Andrew Oldman from Bank of America. Please go ahead.

Andrew Burris Obin: Yes sure.

Andrew Burris Obin: Good morning, how are you.

Andrew Burris Obin: Good morning.

Andrew Burris Obin: Yes.

Andrew Burris Obin: I guess the question is.

Andrew Burris Obin: Everybody is asking about data centers, but maybe slightly different direction China.

Andrew Burris Obin: And it just gives us, you know, a lot of additional capabilities as we think about, you know, future growth of the company. And just a more technical question. I don't know if I missed it, but can you just talk about electrical channel inventories on the product side? Where are we?

Andrew Burris Obin: What are we seeing.

Andrew Burris Obin: How is your electrical business in China performing within.

Andrew Burris Obin: Electrical global.

Andrew Burris Obin: You have a very specific strategy there on JV is just maybe.

Andrew Burris Obin: Just talk about how the deals are performing relative to your expectations. So the two part question.

Craig Arnold: Thank you. Yeah, I would say that once again, I think inventories are largely, you know, well balanced and well aligned right now. I mean, as you can see by the growth in our backlog. Our backlogs continue to grow, and lead times are not getting better, and our book-to-bills is 1.2 on electrical, which I think is a great indicator of where we sit today with respect to inventory and the channel. So today I would say that it's obviously going to be the odd product line or two where the dealer inventories could be a little long, but overall, inventories are, I think, very well balanced today.

Andrew Burris Obin: Alright.

Speaker Change #154: Appreciate the question, Andrew and I would say, our China business continues to perform very well in fact, we.

Speaker Change #154: We grew high single digits in Q1.

Speaker Change #154: In our China business and to your point, we do have a very specific strategy for how we played the China market, specifically through joint ventures and <unk>.

Speaker Change #154: Many cases as you know these are minority joint ventures, and our joint ventures by the way. If you just take a look at our joint venture performance. We obviously don't consolidate this revenue, but they grew some 35% in 2023. So we're getting a lot of great growth in the joint ventures in China and as you know strategically what we tried to do there is really.

Andrew Burris Obin: <unk>.

Andrew Burris Obin: Finding a way to partner with local Chinese companies, who then give us the ability to broaden our portfolio of compete in tier two tier three markets, both in China and around the world and so we're absolutely thrilled with how well. These jv's are playing out and our team is executing and it just gives us.

Andrew Burris Obin: A lot of additional capabilities as we think about future growth of the company.

Craig Arnold: And given the backlogs that we continue to build, and certainly all the conversations that I've had with our distributors and customers, they want more stuff sooner, and they're looking for shorter lead times than we can currently deliver. Thanks so much.

Andrew Burris Obin: And then just a more technical question.

Andrew Burris Obin: I don't know if I apologize if I missed it but can you just talk about electrical channel inventories on the product side.

Speaker Change #147: Thank you.

Speaker Change #159: Yes, I would say that once again I think inventories are largely.

Jeffrey David Hammond: Thank you. Thank you. Sorry, your next question is from the line of Jeff Hammond from KeyBank. Please go ahead.

Speaker Change #143: Well balanced and well aligned right now I mean as you can as you can tell by the growth in our backlogs.

Jeffrey David Hammond: Hey guys, good morning. Craig, just on this data center growth curve, you know, in the slides, you kind of bump it from 16 to 25, and I think, you know, the technology day you had a different time frame, but I think the pushback on the 11, 10.8% growth was, "Why isn't it higher?" So just wondering, you know, how maybe we should think about that 10.8 differently and how to kind of incorporate, you know, capacity constraints or labor constraints versus kind of the numbers you put in the deck today.

Speaker Change #143: Our backlogs continue to grow and lead times are not getting better in our book to bills.

Speaker Change #143: One two and electrical which I think is a great indicator of.

Speaker Change #143: Where we sit today with respect to inventory in the channel. So today I would say this obviously youre going to be the odd product line or two where the.

Speaker Change #143: The dealer inventories can be a little long, but overall inventories I think today are very well balanced in.

Speaker Change #143: And given the backlog that we continue to build in.

Speaker Change #143: Certainly all the conversations with them and with our distributors and customers is that they are looking for more stuff sooner and theyre looking for shorter lead times than we can currently deliver too.

Speaker Change #150: Thanks, so much.

Speaker Change #156: Thank you.

Speaker Change #160: Our next question is from.

Speaker Change #160: Your line of Jeff Hammond from Keybanc.

Jeffrey David Hammond: You know, I would say that, you know, what we've seen since we posted those other numbers, which were, quite frankly, a little bit stale, was that, you know, we certainly have seen, you know, just the fundamental data center mark, independent of what's happening with, has been accelerating. The world, as we've talked about before, just continues to generate, process, and store increasing amounts of data.

Jeffrey David Hammond: Please go ahead.

Jeffrey David Hammond: Hey, guys good morning.

Jeffrey David Hammond: Hey, Jeff Good morning.

Jeffrey David Hammond: Alright, just on this data center growth curve in the slides you kind of bump it from 16% to 25% I think.

Jeffrey David Hammond: The technology that you had a different timeframe, but I think the pushback of the 11 10, 8% growth was like why is it higher so.

Jeffrey David Hammond: Just wondering how maybe we should think about that differently.

Craig Arnold: And then on top of that, you have this explosive trend in AI, and these AI training data centers just require and consume orders of magnitude more power than a traditional data center. We're obviously starting to see those orders and those negotiations come through now. And so that's really what's driving the change in the outlook for the market, not so much that we've decided that the labor constraints have been particularly resolved or any particular power constraints overall have been resolved, it's really simply a function of the fact that what we're seeing in our negotiations, what we're seeing in our orders have just accelerated that much between the old number and the new number.

Jeffrey David Hammond: And how to kind of incorporate.

Jeffrey David Hammond: <unk> constraints or labor constraints versus kind of the numbers you put in the deck today.

Speaker Change #158: I would say that.

Speaker Change #158: What we've seen since we posted those other numbers, which were quite frankly, a little bit stale.

Jeffrey David Hammond: Was that we certainly have seen.

Jeffrey David Hammond: Just.

Jeffrey David Hammond: Fundamental data center market.

Jeffrey David Hammond: Independent of what's happening with.

Jeffrey David Hammond: AI has been accelerating.

Jeffrey David Hammond: World as we've talked about for just continue that generate process store.

Jeffrey David Hammond: Increasing amounts of data and then on top of that you have this.

Jeffrey David Hammond: Explosive trend in AI and these AI.

Jeffrey David Hammond: Training data centers.

Jeffrey David Hammond: Yes.

Jeffrey David Hammond: Acquire and consume just orders of magnitude more power in a traditional data center and we're obviously starting to see.

Jeffrey David Hammond: Those orders in those negotiations come through now.

Craig Arnold: Okay, that's helpful. And then just on the capacity expansion, I think in three key areas you laid out kind of the areas you're targeting for investment. Can you just talk about what starts the phase in earlier?

Jeffrey David Hammond: And so that's really what's driving the change in the outlook for the market.

Jeffrey David Hammond: Not so much that we've decided that the labor constraints have been resolved, particularly or any particular power constraints overall have been resolved, it's really simply a function of the fact that what we're seeing in our negotiations what we're seeing in our orders have just accelerated that much between the old number and the new number.

Craig Arnold: Do you get any capacity online this year? Is this, you know, more into 25? And then, you know, if anything is kind of baked into the guide, you know, for these capacity ads this year? Yeah, we do start to see, as I mentioned, in terms of, you know, kind of, what holds, you know, the margin expansion back a little bit is the fact that we are, in fact, bringing on, starting up new lines and new facilities, you know, beginning.

Speaker Change #163: Okay. That's helpful.

Speaker Change #163: And then just on the capacity expansion I think in <unk>, you laid out kind of the areas Youre Youre pocketing for investment can.

Speaker Change #163: Can you just talk about what starts to phase in earlier do you get any capacity online. This year or is this more in the 25 and then if anything is kind of baked into the guide for these capacity adds this year.

Craig Arnold: Certainly a lot of the spending in Q1, but certainly in the second half of the year, we start to see some of that capacity come free, to the point where we actually have the ability to deliver more. So it's really, you know, the second half of this year and then into 2025 in earnest.

Speaker Change #167: Yes, we do start to see as I mentioned in terms of kind of whats called the margin expansion back a little bit is the fact that we are in fact, bringing on and starting up new lines and new facilities.

Jeffrey David Hammond: Beginning.

Jeffrey David Hammond: Certainly a lot of the spending in Q1, but certainly in the second half of the year, we start to see some of that capacity come free to the point, where we actually have the ability to deliver more so it's really.

Craig Arnold: Okay, thanks. All right, thank you. Thank you. Our next question is from Phil Buller from Berenberg. Please go ahead.

Jeffrey David Hammond: Second half of this year, and then into 2025 and Ernest.

Philip John Buller: Oh, hi. Thanks for the question. We've talked about capacity constraints several times. It sounds like you're pretty much at capacity in places. And I know you flagged this $1 billion investment.

Ernest: Okay. Thanks.

Speaker Change #169: Alright, thank you.

Speaker Change #148: Thank you. Our next question is from Tom <unk>.

Speaker Change #148: I'm Dani Zhang Please go ahead.

Tom: Oh, hi, thanks for the question.

Tom:

Tom: We've talked about capacity constraints several times it sounds like you're pretty much at capacity in places and I know you flagged this $1 billion of investment I guess I'm wondering if 1 billion is actually sufficient to capture that growth. That's yours to lose I guess as I'm sure you get a really nice return on making those kinds of.

Philip John Buller: I guess I'm wondering if... One billion is actually sufficient to capture all that growth that's yours to lose, I guess, because I'm sure you'd get a really nice return on making those kinds of investments. So, do you see an opportunity to invest more beyond a billion dollars in CapEx expansion, or are you choosing not to do so because of these bottlenecks, like other people's labor, perhaps, meaning you don't necessarily need to invest today and instead can do a bit more on the pricing side? That's question number one.

Speaker Change #148: The investment so.

Speaker Change #148: Do you see an opportunity to invest more beyond $1 billion for Capex expansion or are you choosing not to do so because of these bottlenecks like other people's labor, perhaps meaning you don't necessarily need to invest today and instead can do a bit more on the pricing side. That's question one.

Craig Arnold: I appreciate the question, and as you can imagine, we're spending a lot of time right now internally re-assessing and re-evaluating whether or not we're doing enough. The one billion, by the way, that's an incremental number on top of the base, so I want to make sure I clarify that, but we don't intend to be the bottleneck. But we want to make sure that we have all of the capacity in place to deal with the growth that we see and forecast that we're getting from our customers.

Speaker Change #170: Okay. I appreciate the question and as you can imagine we're spending a lot of time right now internally.

Speaker Change #148: Reassessing and reevaluating, whether or not we're doing enough the $1 billion by the way that's an incremental number of it someone on top of the base. So it's going to make sure I clarified yes sure but.

Speaker Change #148: But we don't we don't intend to be the bottleneck here, we want to make sure that we have.

Speaker Change #148: All of the capacity in place to deal with the growth that we see the forecast that we're getting from our customers. So.

Craig Arnold: So we are not constraining ourselves with respect to the investment. You know, one of the good things about our business model overall, and I will remind the group, is that we do tend to be relatively asset light. A lot of what we do in the electrical business is assembly and test.

Speaker Change #148: So we are not constraining ourselves with respect to the investments one of the good things about our business model overall and I'll remind the group is that we do tend to be relatively asset light a lot of what we do in the electrical business is assembly and test. So we can bring on relatively significant amounts of capacity.

Craig Arnold: So we can bring on, you know, relatively, you know, significant amounts of capacity for, relatively speaking, not a lot of CapEx dollars. And so we do intend to revisit the number, given the fact that our forecasts are going up, especially in certain verticals like data centers, to make sure that we do have enough capacity. Thank you. And on that topic, I guess, or an extension of it, the competitive landscape.

Speaker Change #148: Relatively speaking not a lot of capex dollars and so we do intend to revisit the number given the fact that our forecasts are going up especially in certain verticals like data center to make sure that we do have enough capacity.

Speaker Change #171: Thank you and on that topic I guess, so an extension of the competitive landscape.

Philip John Buller: When markets are as great as this, normally someone normally tries to find a way to play, perhaps by adding capacity. Are you seeing any shift in market shares, either from traditional players or from new entrants, please? Yeah, no. I mean, not in particular.

Speaker Change #148: When markets are as great as they are normally someone tries to find a way to.

Speaker Change #148: Play, perhaps by adding capacity.

Speaker Change #152: Are you seeing any shift in market shares either from traditional players or from you mentioned space. Thanks.

Speaker Change #153: Yes, no it's not.

Craig Arnold: I mean, everybody's obviously adding capacity. The market is good for everyone right now. One of the things that we try to give you a sense of how we're doing is by providing some of these win rate numbers that we showed you for mega projects, some of the win rate numbers that we showed you for non-res construction projects as an indicator of the fact that we think we're doing very well in the context of this expanding market. So I haven't.

Speaker Change #153: Not particularly I mean, everybody is obviously, adding capacity the market is good for everyone right now one of the.

Speaker Change #153: The things that we tried to give you a sense for how we're doing is that by providing some of these win rate numbers that we showed you for mega projects. Some of the win rate numbers that we showed you for non res construction projects as an indicator of the fact that we think we're doing very well in the context of this expanding market.

Speaker Change #153: So I have not I don't anticipate dramatic share shifts.

Craig Arnold: I don't anticipate dramatic share shifts in the market, especially in a period of time when the industry is sold out in so many places. And the other thing I wanted to tell you in terms of the question we often get around new entrants. You know, Chinese competitors and others coming into our market, and I would say that we really are not seeing any material impact from, let's say, the Chinese or other electrical equipment providers in the North American market.

Speaker Change #153: In the market, especially in a period of time when when.

Speaker Change #153: When the industry is sold out in so many places.

Speaker Change #153: And I think I would.

Speaker Change #153: In terms of we oftentimes get the question around new entrants.

Speaker Change #153: Chinese competitors and others coming into our market and I would say that we really are not seeing.

Speaker Change #153: Any.

Speaker Change #153: Immaterial impact from let's say the Chinese or other.

Speaker Change #153: Electrical equipment providers in the North America market, we have a strong position here, we have an outstanding channel.

Craig Arnold: We have a strong position here. We have an outstanding channel. We're absolutely well-known in the market. The bigger, the more complex the project, the more likely they are to pick a company like Eaton. So I think we're just very well-positioned for the future. That makes sense.

Speaker Change #153: Absolutely well known in the market the bigger the more complex the project the more likely they are to pick a company like Eaton. So I think we're very well positioned for the future here.

Speaker Change #165: Makes sense, thanks very much.

Craig Arnold: Thanks very much. Thank you. Our next question is from Nigel Coe from Wolf Research. Please go ahead. Thanks. Good afternoon. It's just 12 o'clock.

Speaker Change #165: Thank you and our next question is from Nigel Coe from Wolfe Research. Please go ahead.

Nigel Edward Coe: Thanks good.

Nigel Edward Coe: Good afternoon. Thanks.

Nigel Edward Coe: Thanks for the question. These negotiation numbers are just extraordinary. I just want to make sure I understand the definition.

Nigel Edward Coe: Thanks for the question.

Nigel Edward Coe: The peace negotiation numbers, just extraordinary just want make sure I understand.

Nigel Edward Coe: The definitions so.

Nigel Edward Coe: So, would a negotiation be where you have an active negotiation or RFP in place, and this represents the dollar amount of potential contracts under negotiation? And then, you know, when you think about, say, a data center or, especially, a data center, just given the permitting and power challenges, would that project be fully permitted before you get into a negotiation situation? Thanks. Yeah, the answer is yes and yes. A negotiation would be a place where we are actually in an active negotiation in response to an RFP, a request for a proposal, or a request for a quote.

Nigel Edward Coe: Negotiation be where you have an active.

Nigel Edward Coe: Negotiation, though RFP in place.

Nigel Edward Coe: And this represents the dollar number of central contracts under negotiation.

Nigel Edward Coe: And then.

Nigel Edward Coe: When you think about say a data center or especially the data center, just given the permitting and power challenges with that.

Nigel Edward Coe: That project be fully permitted.

Speaker Change #168: Before we get into negotiation situation. Thanks.

Speaker Change #168: Yes.

Speaker Change #172: There is yes, and yes negotiation would be a place where we are actually in the act.

Nigel Edward Coe: Active negotiating in response to <unk>.

Nigel Edward Coe: Our RFP a request for proposal requests for quote.

Craig Arnold: And certainly... If you think about data centers and others, once again, these projects tend to be already permitted. As I did mention in some of the outbound data, there's always been a level of cancellations, especially when you look at some of these megaprojects, and we talked about in my outbound commentary that the cancellation rate that we're seeing is around 10%. That rate's actually below what we've seen historically, but there's always going to be a certain level of cancellations in any of these projects, but they absolutely tend to be generally approved projects before we get to a negotiation.

Nigel Edward Coe: And certainly.

Nigel Edward Coe: If you think about data centers and others. Once again these projects tend to be.

Nigel Edward Coe: Already permitted.

Nigel Edward Coe: Down the road as I did mentioned in some of the outbound data, there's always been a level of cancellations, especially when you look at some of these mega projects and we talked about in my outbound commentary that the cancellation rate that we're seeing is around 10% that rates actually below what we've seen historically, but there's always going to be a certain level.

Nigel Edward Coe: Of cancellations in any of these projects, but they absolutely these tend to be.

Nigel Edward Coe: Are generally approved projects before we get to a negotiation.

Nigel Edward Coe: Okay. And I know you've got about 10 questions on capacity, so let's throw another one in. You know, get away from the new greenfield capacity, but think about your existing footprint. Are there opportunities to add another line or another shift, you know, extend over time to increase capacity in your existing footprint? Or is there just severe labor constraints, and that's just not on the table?

Speaker Change #162: Okay, and I know you've thought about the second question is on capacity so let's throw another one.

Speaker Change #162: Again away from the the new Greenfield capacity, but thinking about your existing footprint.

Nigel Edward Coe: Are there opportunities to add.

Nigel Edward Coe: Another line or another shifts.

Nigel Edward Coe: Overtime to increase capacity in existing footprints.

Nigel Edward Coe: Or is that just to the labor constraints and Thats just not on the table.

Craig Arnold: Yeah, I mean, I think it varies depending upon which product line you're talking about. In some cases, it is, in fact, us adding a line to an existing footprint because we do have the capacity to do it. In some cases, it's adding additional shifts, utilizing existing assets, but in some cases, it means a new greenfield facility, and we've had to, in fact, set up some additional manufacturing plants to deal with the growth that we're seeing. So it's really a combination of all of those, and it varies, you know, depending upon which particular product line of business you're referring to.

Speaker Change #164: Yes, I think it varies depending upon which product line youre talking about in some case. It is in fact us adding a line.

Speaker Change #164: Existing footprint, because we do have capacity to do it.

Speaker Change #164: Some cases, it's adding additional shifts utilizing existing assets, but in some cases it means.

Speaker Change #164: New Greenfield facility and we've had to in fact stand up some additional manufacturing plants to deal with the growth that we're seeing so it's really a combination of all of those and varies depending upon which particular product line of business youre referring to.

Speaker Change #166: Okay, great. Thanks, Greg.

Okay, great. Thanks, Craig. Great, thank you. Okay. Hey, guys. We have reached the end of the call. As always, our team will be available to address any follow-up questions. Thanks for joining us and have a great day, guys. All right. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, teleconference.

Speaker Change #173: Thank you.

Speaker Change #175: Okay. Thanks, guys. We have reached the end of the call as always the IR team will be available to address any follow up questions. Thanks for joining us and have a great day guys alright. Thank you.

Speaker Change #161: Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation for using AT&T.

Speaker Change #174: Teleconference. You may now disconnect.