Q3 2024 Eaton Corp PLC Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the E.N. 3rd quarter, 2024 earnings conference call. At this time, I'll participate in the list and only mode. Later we will conduct the question and answer session.

To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

As a reminder, today's call is being recorded. I would not like to turn the conference over to your host, Yan Jin, please go ahead.

Yan Jin: Good morning. Thank you all for joining us with Eagen Soot Quarter.

224 earnings call. With me today, I'll quick Arnold, our chairman CEO and Olivier Elnetti, executive vice president, Chief Financial Officer.

Our agenda today includes the open remarks by Craig, then he will turn his order to all the way who will highlight the companies for forming the so-called quarter. As we have done in our past course, we will be taking questions at any of the Craig's closing commentary.

The price release and the presentation we'll go through today has been posted on our website. This presentation including a Jussi Ogni-Presher, adjusted free cash roll and other non-gap measures.

The Reconcept in the Pan Dex. A webcast of this call is accessible on our website and it 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 our dear forefordal consumers.

Our actual results may deform, and truly, for our forecast of projection due to a wide range of risks and uncertainties. That is described into our earning release and presentation.

with that our turning order to Craig. Thanks, Yan.

Craig: We'll start on page three where we summarize the key highlights of another strong quarter. We generated a just EPS of $2.84 a year, and all time record, and up 15% from prior year.

We also delivered record segment margins of 24.3% of 70 basis points from last year.

and we're raising our guidance for seven more days and adjusted EPS for the year.

We did experience a couple of extraordinary events in the quarter that impacted our revenue.

Craig: First, the WIVE publicized strike taking place in the years of space industry and then hurricane the wing which impacted several of our electrical America factories at the end of the quarter.

are both of these events we're having impact on our revenue, output for Q4.

They're not impacting our demand and it's only timing.

In fact, our markets continue to be strong. On a rolling 12-month basis, electrical orders are up to 12% with electrical America's orders up 16% and aerospace orders increased by 6%.

This led to another quarter of growing and record backlogs, up 26% for electrical America's, a 14% for aerospace with strong, duct-to-build ratios.

On balance, the please with our results, well positioned for a record year of performance and expect to carry strong momentum into 2025.

Craig: Turning the page four, we once again are sharing our overview of Megatrends and how they're driving growth in our end markets.

I think the key message here is one of breath, both in the number of megatrends and the number of our end markets are positively impacted.

Something we think is unique to eaten and will allow us to grow out and accelerate it rate for years to come.

Speaker Change: Waskurder, provided an end market update on our commercial and institutional segment, highlighting the strong real outlook for institutional and infrastructure markets.

Today, we intend to provide a forecast for the residential markets, and how energy transition is creating new growth opportunities in residential homes.

and as we've done in recent earnings calls we'll also provide an update on the growing number of mega-products announced during the quarter.

Speaker Change: So let's begin with that on slide five in the presentation.

This chart shows a summary of mega projects that have been announced in January of 2021 in North America.

As a reminder, a megapodic is a project with an announce value of $1 billion a more.

through Q3, we're now at 504 projects with a cumulative value of $1.6 trillion.

and the back log now stands at 1.8 trillion, up 30% from last year.

Speaker Change: You know, I'd also point out the announcements are continuing to accelerate with Q3-up 48% British Q2.

Craig: Approximately 16% of these products have started and we expect a record number of starts in 2025.

Many of you have asked the questions about cancellations, which we continue to monitor as well. To date, cancellations have been modest, around 10% and weld the local historical levels.

Craig: The project that half started, we've won over 1.7 billion dollars of orders and our win rate is almost 40%.

Craig: of note, we're in active negotiations on another $3 billion of orders, up 175% from last quarter.

Craig: and Megaprojects.

continue to go on a lot of attention is overly sad.

The Dodd-Memon Index, which tracks commercial and institutional projects that are less than $500, are also at record levels of 22% in the quarter.

Craig: Take them together, we think they provide a strong validation of the mega trends and support our view on the long-term outlook of our end markets.

As we, you know, prepare for the growth or head, we're making investments in our manufacturing capacity naturally.

Craig: and on slide six, we show an update of our incremental capacity investments which now stand at 1.5 billion up 500 million from our previous estimate.

The increase reflects our increase in confidence in our outlook, as well as increasing demand that we're now seeing in data center markets.

These multi-year investments with a large dissed edition coming in the second half of 25 and 26.

and the capacity of investments to cover several product families and importantly.

can be used across most of electrical and markets.

I don't know if I have that most of the additional capacity is what we consider.

Craig: Wright Assembly.

and modular which allows us to be both flexible and efficient as we deploy capital.

Craig: and Oliver Er, our smatching products are on track with a number of sites starting the ramp up production.

For example, we've recently opened a 110,000 square meter facility in Huawei's Mexico that produces motor controllers and switch boards. We also have the new manufacturing facility in the Dominican Republic that will increase our supply of bussmen's users.

Speaker Change: Next, on slide 7, in a highlighting our residential markets, which include, naturally, the electral infrastructure for both new construction and renovation.

Residential markets represent 6% of eating solar sails and 8% of electrical sails.

and the key message here is that these secular trends that we've been talking about that are impacting our industrial and commercial markets are all from impacting homes.

as a result, the Electoral Content and Homes continues to grow.

The growth and solar, electric vehicles, energy storage and the electrification of heating and cooking are fundamentally changing and requirements in the home.

and New Safety Code and Standards are also continuing to drive the need for a high or electrical content.

and as you know, the current IRA tax incentives for electrical power upgrades are designed to support this growing need for more electrical power.

Speaker Change: No doubt, the residential markets have been fueling the impact of higher interest rates over the last couple of years.

Speaker Change: with Markets now feeling like they've reached a bottom, the housing shortage remains, and we should see positive growth from this point forward.

estimated at a 6% K-Guard on the next four years, for what's been a drag on grip over the last 24 months, should turn positive now.

and with the end of residential market, Eden is especially well positioned.

As soon as we come more electrified.

Speaker Change: Generate and sometimes several electrical power.

Become bigger consumer with the electricity, they also need to become smarter.

Speaker Change: We address these changes in our everything is a great including homes slide which we show once Friday.

Speaker Change: The more than a century, power has flowed in one direction, from central power plants into homes. Today, there's a new reality thanks to the addition of solar power, electric vehicles, any storage, all in the top of the need to run a more electrified home.

and Simulturn's homes can now act as entities up producing their own power, managing their electrical loads and selling power back to their local utility.

Speaker Change: All of which requires most of us to get it electrical equipment.

Speaker Change: Eaton's home has a great approach, creates smart energy systems that allow home orders to reduce costs.

Participate in demand response programs, improve resiliency, including islanding from the grid, and to optimize the home by selecting which electrical loads they want to run during a power outreach.

So in addition to Holmes' requirement, more electrical power, Holmes now require, of now required to be more intelligent, to be connected, and to be integrated into a home as a grid solution.

Speaker Change: Today's fully grid ready homes have up to 5X the electrical content of a traditional home.

I turn that will only increase over time and it tremendous opportunity for Eaton.

One example of how we're implementing our poem as a good strategy can be seen in the recently announced collaboration with Tesla.

As you know, Tesla is one of the biggest names in the story.

and they needed a solution that would allow homeowners and installers to simplify the integration of energy storage, solar and load management in the home.

Speaker Change: This is especially important in the existing home market of more than 40 million homes with only 100 amp servers.

Speaker Change: Eaton's first-demarchant and what we call Abel-Edged Smartbreakers provide hunters, homeowners with intelligent, mode management capabilities.

This technology allows home owners to turn their standard loads into a smart load center.

without replacing the electrical panels.

Together with our partners, our systems will manage your solar, your energy storage, and your electrical loads.

and its simple to install, it provides better functionality and at a much lower cost than of the solutions. In fact, we estimate our solution will be 3 to 5 times lower cost.

Our AbleHM operators will be available in early 2025 and we look forward to growing our partnership with Tesla.

Now, I'll turn it over to Olivier to take us through the financial results for the quarter.

Olivier: Thanks, Craig, I'll start by providing a summary of all our Q3 results.

in which we once again set many new records. We posted that quarter record sales of $6.3 billion, up 8% both in total and organically.

Olivier: or whoever revenue was negatively impacted by about $15 million from Uricaine, LN and labor strikes in the aerospace industry.

Olivier: Without these impacts, all getting growth will have been above our 8.5% guidance midpoint.

Speaker Change: operating profit, grew 11% and segment margin expanded 70 basis points to 24.3%.

I just said EPS of $2.84 increased by 15% over the prior year. This is a quarterly record and above the eye-end of our guidance range.

Speaker Change: This performance resulted in all-time record cash flow performance, including operating cash flow of $1.3 billion.

Up 15% on a year of a year basis and freakish flow of 1.1 billion dollars up 23% versus prior year.

Speaker Change: On slide 11, we summarize another very strong quarter for Wall Street Colle Américles.

Before we go through the results, we want to acknowledge the significant impact that hurricane helane add on our employees and their communities.

Elichi Kola-Murikaz and Ploy, more than 3,000 people in North and South Carolina, in 9 facilities and the safety of our team members is our top priority.

We have continued to provide support to our employees, their families and affected communities, including providing essential and financial assistance.

We are pleased to report that our facilities are back up and running to support all the strong consumer demand we are seeing in our markets.

Speaker Change: Despite these challenges, we set new records for sales, operating profit and margins.

Speaker Change: Organic Serge growth increased to 14% of lifting strength in data center, commercial and institutional and utility and market.

on Tuea Stacked, all going to growth was up at 30%

and the three-color Americas has generated double-digit growth, all going to grow for 11 consecutive quarters.

Operating margin of 341% was up 240 basis points versus prior year, benefiting from higher cells and increased operational efficiencies that were partially upset by higher costs to support growth initiatives.

Speaker Change: On a rolling 12-month basis, orders reaccelerated to 16% from 11% last quarter demonstrating continued tailwinds from the various mega trends.

We had Butler's strengths in the data center market where activity is increasingly robust.

For example, Dodd Data shows US announced Data Center Project Stars up 81% yet today 9 months. Surpassing 2023 levels in 23 of 2024.

Rehzda Ta Center Construction backlog is now estimated to extend out about nine years based on 2023 Bill rates.

Also, our major project negotiation pipeline is up approximately 60% yet today through nine months.

Elistric Ola America's backlogd increased 26% year over year with a book to build, with a book to build ratio of 1.2 on a holding 12 months basis.

This results underscore the tailwinds from secular trends, stronger discussion and hobbyist backlog that have allowed us to raise our guidance for the year which we will discuss later in the presentation.

Next chart summarizes the results of our L-tricol global segment. Total revenue growth was 5% included, organic growth of 4% and F-6% effect

We had shrinks in that ascenter and agility markets, partially upset by weakness in residential markets. Originally, we saw continued shrinks in APAC with double digit organ growth and meet single digit organ growth in EMIA.

Operating margin of 18.7% was generally in line with our expectations for the quarter and down 210 basis points. This is prior year, primarily driven by a real estate transaction in 2023.

Robles were up 6% on rolling 12-month bases with strength in that center, utility and M-O-M markets.

Backlog increased 19% over prior year and booked to build continues to remain strong.

Kutri was one-point-one on the holding 12-month basis.

Before moving to our industrial businesses, I like to briefly recap the combined electrical segments.

for Q3, we posted organic growth of 11%, and segment margin of 26.2%, which was up 70 basis points.

is a prior year.

Speaker Change: on a hoarding 12-month basis, orders were up 12% and book to build ratios for our electrical sector remains strong at 1.1.

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

Speaker Change: 313 highlights our aerospace segment. We posted Q3 record sales and all-time record operating profit.

Total growth was 9%, including organically growth of 8% for the quarter, driven by shranes in commercial OEM, commercial after market and defense after market.

operating margin was strong at 24.4% at 30 basis points, year over year and also up 292 basis points sequentially, which was driven by higher sales and mix.

On a rolling 12-month basis, orders increased 6% driven by strength in commercial EM, commercial after market and defense after market.

Yeoveryear backlog increased 14% and was up for percent sequentially. On a hauling 12-month basis, our book to build for our aerospace segment remains strong at 1.1.

and we are pleased with $2.3 billion life of program wins so far this year.

Moving to our vehicle segment on page 14. In the quarter total revenue was down 7% including a 6% organic decline, primarily driven by weakness in the light vehicle market and 1 point of unforeverable effects.

Speaker Change: Operating margin team up at 19.4% to 100 basis points over a prior year, driven by improved operating efficiencies.

We have made progress here to increase margins which this quarter exceeded our mid-term target of 19%.

Speaker Change: and we are pleased to have won $75 million in mature years sales into three across our commercial and passenger vehicle portfolio.

On page 15, we show results for our e-mobility business.

sells where up to percent, including organ growth of 1% from slower OEM, you product launches and weakness consumer demand.

or break Tinglos was $7 million and as we continue to incur launch costs related to new programs.

Speaker Change: Moving to page 16, we show our electrical and aerospace backlog updated through C3.

We'll continue to build backlog with electric call stepping up to 11.8 billion dollars and IOS space reaching 3.7 billion dollars for total backlog of 15.5 billion dollars.

Vesus prior year, or backlogs are grown by 25% in electric cold and 14% in aerospatial.

and the other two. Electrical backlog benefited from acceleration in order to take from tailwinds of the cyclotrans, including high-pascale orders within the data center and market.

As not at earlier, book to be ratios from electric cold and aerospaties are 1.1 and 1.1 respectively.

The continued growth in our backlog and the scores on the scores are our confidence in 2024 and beyond. Now I will turn it back to Craig for financial guidance updates and our initial thoughts on 2025.

Thanks, Olivier. Turning to pay 17, we summarized our fiscal year organic growth and operating margin guidance.

Craig: with less than a quarter ago, we've made a number of adjustments for right our best forecast on how we expect to close the year. Overall, we continue to expect our 2024 organic growth be between 89%.

However, with the continuing aerospace industry labor strikes and the slow-down and vehicle markets, we now expect our web and the growth to be on the low end of our range.

We're raising our organic roof guidance in electrical America by 100 basis points to 13 to 14 percent from 11 and a half to 13 and a half.

Speaker Change: Present.

We're lowering the range of light light all space, this is by 150 basis points due to the labor strike.

We're also going our vehicle business to down three to five to down to from flat to down four and an immobility to five to seven percent growth from 17 to 23 percent growth given the widely reported industry weakness and outlook.

Speaker Change: for separate modus, we're increasing the company's modus guidance range by 20 B's points to 23.7 at the midpoint of our guidance.

This is driven primarily by the outlook in our electrical America's business.

We're increasing our margin outlook by 70 basis points at the midpoint to 29.6%.

and Viennacle, we're increasing our margin out with 550 basis points at the midpoint to 18%.

We're also lowering our marketing outlook for electrical global aerospace and immobility by 1950 and 150 basis points respectively.

and Tony, the company as well positioned to continue to deliver strong financial performance and to close out the year well.

On page 18, we amists our additional guidance metrics for 2024 and Q4. The 24 are just at EPS is expected to be between $1075 and $1080 in 81 cents a share.

the $10.78 midpoint represents 18% growth in the Johnson EPS.

and Aidsent Rays Over Our Prior Guide, and is also a 63-cent increase versus our original guidance for the year.

For Q4, we expect organic growth to be between 6 and 7 percent, segment margins to be between 23.6 and 24 percent, and adjust the EPS in a range of $2.78 to $2.84 share.

Speaker Change: We do expect hurricane a lean in the labor strike in aerospace industry to have an impact on our Q4 revenue and it's embedded in our guidance already.

As I noted while we have reaffone the four-year organic growth range of 8-9% based upon the impact from hurricane, elite and labor-spice and aerospace, we expect to be at the low end of the range.

The impact from the hurricane, cleaners behind us and all of our sites are not open running. The aerospace industry strike is still ongoing and while they could have an impact on our revenues based upon what's in our outlook, we don't expect an impact in our EPS.

If we can shift your attention to 2025, on page 19, we provide our initial view on an endmarked growth expectations for next year.

As you can see here, we anticipate attractive growth in nearly what about markets.

Speaker Change: We're expecting double-digit growth and data centers in distributed IT, commercial oil space and electric vehicles.

Salad Growth and Utility and Modus Growth across most of our other end markets.

Speaker Change: Commercial Vehicle is the only market that's projected to decline.

So, as well, 2025 should be another year of significant growth with more than 90% of our end-market seen positive growth.

Speaker Change: and as you know, our own real boutbook is supported by a strong order book.

Speaker Change: The record backlogs and sectoral trends that continue to be favorable.

will provide our revenue forecast and February, but we do expect a growth faster to an landmark.

Company's well position to deliver different treated growth in 2025 and we think beyond.

Well, we'll provide more details in February. We didn't want to provide some initial assumptions for our 2025 guidance.

Based upon the last chart, we've spent our in-market's in total of the growth between 6 and 8%.

and for our incremental margins to be between 30% and 35%.

Speaker Change: Due to high interest, expense and lower pension income, we anticipate roughly a 20 cent headwind on below the course by below the line items and a tax rate of approximately 18%.

are a monthly year restructuring program costs are expected to be approximately $50 million with $75 million of savings.

and we expect capital spending to be roughly between 900 million and 1 billion dollars.

Lastly, we continue to report to share and we're estimating the number to be approximately two billion dollars.

while we're still in the early season of our planning, we also expect another strong year of learnings growth.

It's really close on page 21.

Once again, the trends have been grouped in our in-market, continue to play out as expected and even better in our electrical and medical business driven by data center markets and the reindustrialization trend that was seen across multiple industries.

We also delivered a strong quarter for an answer result and continue to see outstanding execution on our key initiatives across the company.

As a result, we raised our guidance for second margins by 20 basis points and our EPS by 8 cents at the midpoint.

and in the quarter, we're especially pleased to see the spank in our negotiations, our orders, and the growth in our backlog, all of which are at record levels, validating our medium and long-term growth outlook.

So we need to quote over the high level confidence, we say, eat low deliver higher growth, higher margins and consistent earnings growth and improving free cash flow for years to come.

and what's that? I want to thank you for your questions that you may have. Thank you.

Hey, thanks Craig for the Korean A today. Please leave me your opportunity just to one question and one fall off. Thanks in the once for your cooperation with that. I'll turn it over to the operators, give you guys the instructions.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

To withdraw your question, please press star 1-1 again.

please stand by when we compile the Q&A roster.

Speaker Change: Our first question comes from the line from Andrew Ovin from Bank of America.

Andrew Ovin: Yes, good morning.

Speaker Change: Morning Andrews

Andrew Ovin: Yeah, so wouldn't be an eating call without a data center question. So maybe if you could give us more detail on how did your data center business perform on organic growth, orders and negotiations pipeline in the third quarter. Thank you.

Speaker Change: Now I know we appreciate the question and has been widely reported that the data center market just continues to.

before much better than even we imagined. In the quarter itself, our data sent a sales up 35% are net by the way up from 27% in the prior quarter, so the rating growth is accelerating.

are orders up some 55%.

on a rolling 12 month basis, and negotiations are up 90 percent. And so, as you can tell from this data, we just continue to build strong momentum in the data center market. And as we've said, we think that markets can be very strong for years to come.

and Jessica Fowl, of question, you have sort of highlighted the hurricane and I understand that you do have.

and the carolinas, that's why we're highlighting, but maybe if you could put a finer point on the impact in the third quarter and how much of an impact do you expect in the fourth quarter? You did say that it's past you, but just if there are any lingering impact in the fourth quarter that you're willing to quantify, thank you.

Speaker Change: No, appreciate that question as well Andrew and as I think most of the investors know we have a fairly sizable footprint in the Carolina. In fact we have you know some 3,000 employees and multiple facilities that were actually in the path of the storm.

Andrew Ovin: Please to report that our facilities are all...

back up and running all of our employees have been.

accounted for and saved.

and so while it certainly was a bit of a challenge at the end of the quarter and at the beginning of this quarter, it's all behind us now.

and the business and the sites are actually performing quite well.

So, yeah, without a doubt, you know what I tell you that you know.

The America's put up really strong results in Q3.

They could have been stronger, but for the hurricane.

and certainly it's shaving a little bit of growth.

Andrew Ovin: off of the revenues for the electrical Americans business in the fourth court as well, but it just went into backlog. Okay, this is not lost.

Business is simply timing. As you saw from our orders growth in the quarter, in the backlog growth in the quarter, we will certainly realize that revenue it's just timing it. And if I can just for a minute here, recognize our team, our team just didn't extraordinary job.

of supporting our employees and supporting the community, providing shelter, food, generators.

in our team just rose to the occasion and we'd all be very proud of the way they represented our company in this moment of need and crisis for both our employees and the community.

Speaker Change: Thank you.

One moment for our next question.

Speaker Change: We'll now take a call from Nigel Co at Wolfgang Church.

Speaker Change: Thanks to morning everyone.

and Craig, thanks for the 25 early indications. Just a question I think for maybe Olivier, on the electrical America's margins. Obviously, you tend to be a little bit considerate here, but I think 4Q does tick down a little bit from 3Q, so seasonally, normally we see a little bit higher, so just a question never. The border question would be, you know,

We've seen a huge amount of open leverage in New America's. The government doesn't spend any heavy think about Open, LeBage and Marshal are going forwards. Within that 30-20% construct, you think the Americas can be above that level going forward.

Speaker Change: Thank you for your question, Nigel. We are very pleased with the performance of our electric call, America, business, both on the top line and the margin. To answer to your question directly, we do not believe we are rich or a maximum potential. We still believe we are room for improvement.

I would mention three levers, one operating leverage on higher volume growth, two.

Improving of our manufacturing efficiencies in both our existing and new facilities and finally as you know we have a restructuring program on going.

Speaker Change: and those programs should deliver improvement in marching for the American. Also, you haven't asked the question, but we believe we have marching opportunities, we discussed that before, in our electrical global business, but as well in our aerospace business, Nigel.

Ok great. Any any questions on 4Q will be helpful but my part questions around the 25 framework you said 6% and market growth.

25, I think you've got an ambition to upgrade your M-Box by about 2 points. So do we think about the start and frame of the next year, 6 to 8, or maybe a little bit higher than that?

I appreciate that question and your absolute correct, you know, we do have both an ambition and an expectation that our business will grow faster than their end markets.

Speaker Change: and as you can imagine it's still very early.

and we're still working through our planning for 2025.

Speaker Change: and you can expect that we'll provide a framework for you. More details as we get to the Q4 earnings call next year and obviously Paolo will lay out a more wholesome.

made in long-term strategic framework for you at our investor meeting in Q1 next year. So, to your questions specifically.

You know, we should expect...

to Alco and Markets, the exact magnitude of which we're not prepared to say at this point.

as we're still working to our internal plans.

Speaker Change: Ok, nice work.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: will now take a call from Jeffrey Spray from Vertical Research Partners.

Hey, thank you for morning everyone.

Speaker Change: [inaudible]

you know what you're saying on the sheer repo you're quite comfortable just to continue to you know put up the organic growth and buy back stock but who made sure my question is right

Speaker Change: You know, what could coolings getting more and more attention on the data center side, you know, Schneider making a size of both that, that, that there, you've got some kind of alliance or kind of partnership.

So I know you're sort of on the periphery of this anyhow, but maybe just speak to you, do you view that as an important part of your offering or where else you might have holes that might need to be filled from an M&A standpoint?

and I appreciate the question Jeff and obviously to your point, you know, data centers as a market is getting just a lot of attention and you know, cooling out of space is also one of the hot topics. You know, I'd say to us if you think about it just more broadly around growth.

Speaker Change: and we have growth opportunities everywhere.

We talked about these numbers in our own data center business growing 35% in the quarter 90% increase in negotiations.

Speaker Change: We have just tremendous opportunities to grow.

in Data Center in another markets.

Speaker Change: you know what the out.

Speaker Change: Looking at an adjacency like cooling.

I'm not saying that we would never consider doing something more deliberate there, but it is not required. In any way, for us to continue to post just significant growth and continue to win in the data center market. And so, you know what I would tell you today is that we're focusing on...

Organic Growth, we're focusing on essentially executing well against the opportunities in front of us. Our deal pipeline in general to the broader question around capital deployment is certainly

Speaker Change: Good today and certainly the pipeline is growing with opportunities and those opportunities are coming from lots of different areas, but certainly data centers for us is a key market that we're focused on.

and then speaking of capital deployment just on the cap X side is additional cap X.

still oriented towards those kind of big, pinch points of transformers in switch gear or is this sort of broadening out into other parts of the portfolio that are just looking tight given kind of the growth that you see in front of you.

As I mentioned in my up on commentary, the incremental investment. We talked about a billion dollars of...

Speaker Change: incremental capex investment in the last year when he's called we've now taken that number up to 1.5 billion and a lot of that increment is in fact going you know into

these kinds of markets, data centers.

Transformers, some of these markets where we've just seen even fast, the growth and what we originally anticipated. And quite frankly, we're having customers come to us.

asking us to make multi-year commitments and signing up for multi-year agreements to provide their requirements and their needs.

Speaker Change: and so for us it's just indicative of the underlying strength that we're seeing in our business and our willingness to invest. I mean, this is case where the risk today is much more on the side of under investing, not over investing.

Speaker Change: Understood, thank you for the color.

Speaker Change: Thanks, Jeff.

Thank you.

One moment for our next question.

will now take a call from Chris Snyder at Morgan Stanley.

Thank you, and appreciate all the color on the outlooks. Maybe if I could ask on the mega projects, I think it's pretty surprising to see that only 16% of the 1.6 trillion have started.

I guess does that similarly suggest that around maybe 85 or 84% of the order related to the data projects are still on the horizon?

and you know I know you guys are at the cancelation of the project's below historical levels but are they progressing more slowly in the lag between the announcement and order has extended, or maybe what we saw a couple years ago thank you.

Yeah, I think Chris you got it for the most part right in terms of the 16% of the projects have started and that does mean 84% or so the projects are still out into the future.

Speaker Change: and so that's pretty straight forward math.

and to the point around cancellation, yeah, I mean, the running at roughly 10% and there's always been cancellations in these big mega-projects historically.

and we try to provide some color on how that 10% relates to historical cancellations and its lower.

and so bigger projects, more projects and lower cancellation rates, which is why we're so bullish on the growth.

and in terms of the progression question specifically, as you see in the data, the progression for us continues to look really, really positive.

The numbers continue to grow quite dramatically, you know, up 75% in terms of the quarter over quarter. I will tell you that, you know...

Speaker Change: is obviously always a question around the industry's capacity and the ability to digest.

Speaker Change: All of these projects.

and the time frame that they'd like.

These are going to be enough labor, you know, you've heard the debate in data centers, these are going to be enough power, and so what you might end up with quite frankly, you just say an extended longer cycle.

and the process overall, but these projects are generally pretty diverse as well.

Speaker Change: They're cutting through in the early days, it was a lot of...

Projects that were EV and battery.

and the last pivot in the last quarter is a lot of commercial and institutional projects, a lot of data and a lot of power projects and so just a broad.

based on different projects that are being essentially announced and we're certainly hopeful that that turns into, you know, starts next year, which we think are going to be up nicely and a long-term growth outlook.

Speaker Change: appreciate that and then maybe you know transitioning over to data center could you? Maybe just talk a little bit about eating relationships with the big hyper scalars. And as those companies get better clarity on their forward-capac plans and eat and bring more capacity to market, that changed the way that you can enter into commercial agreements with those customers. Thank you.

Speaker Change: So, to your point first, we'll have a relationship with hyper-scalors.

We have a very strong relationship with all of the hyposkele data center customers in it.

and we talked about before clearly one of our fastest growing markets and even...

within the data center market. We're growing faster with hyper-scalors in general more so than but growing with cola as well, we're growing it on prem, but we're growing more quickly with the hyper-scalors.

Speaker Change: and to the point around commercial agreements, everybody is challenged right now around capacity.

and as a result of that, the nature of the discussions, the visibility around projects, the forward commitments have changed as the hyperscalers and others are working to ensure that they have capacity in place.

to deal with their outlook and their growth. I mean, today there is a little bit of a competing for capacity, dynamic that's taking place in the marketplace, which is obviously led to better and more transparent, more committed commercial agreements with our customers.

Thank you.

Thank you. One moment for our next question.

will now take a call from Steve Tusa from JP Morgan.

Hi, good morning, how are you? Nice to meet you.

So just on the utility side, I mean, a lot going on there with...

you know, all these customers raising budgets, but you know, Hubble's results were a little bit weak. You guys actually are guiding just below double digit next year. I think in this initial market outlook.

and maybe you just talk about what you're seeing in utility and what the slowing is there and then lastly, how you kind of participate, just remind us how you participate in generation applications.

Yeah, you know, the first thing I say is that in two, three, our utility business continued to perform well. Utilities revenues increased mid-teens, and electrical miracles and low-teens, and electrical low-volt. So I mean, obviously...

Speaker Change: When you think about different companies, they have different product portfolios, you have different customers, you have different mix.

but our business is actually continuing to perform.

Speaker Change: Quite well.

Speaker Change: and we remain confident we talked about.

you know, our expectations that the utility market would grow out of...

and a growth weight of around 11% a year. Our customers continue to invest in CapEx to support this growth.

Speaker Change: and so from where we sit, you know, while there's always going to be temporary hiccups.

Speaker Change: and a period of expansion and pauses, they did digest capacity. There's nothing that we've seen, that would suggest that the utility market, at least where we play.

will continue to be a very strong market for years to come. If you think about the unfortunate ramifications of the storms that were staying around the world, certainly two big ones in the U.S. so they continue to spend money on resiliency to do grid hardening.

Speaker Change: as the consumption and the demand for power continues to go up.

obviously that's backing up into utilities having to increase capacity. And by the way, data centers are a really big important market for utility customers.

Speaker Change: and then you have things like undergrounding that takes place in places like the West Coast where a lot of the utility infrastructure is being put underground which is also creating growth opportunities for us.

You know, well, once again I know it's sometimes difficult to get an exact read on these markets based on perhaps what pure is it doing, but our utility business is strong and going well.

Ok, and then just lastly on the backlog and order side.

These orders are becoming obviously a bit more lumpy like get a huge first quarter, nice bounce back here from my math in the third quarter, your backlog.

went up really nicely, it's up 25% you over year. Is this kind of a sequentially like a stable level of orders? Do you see them?

you know continue to pick up a bit sequentially from here and then why with the backlog where it is today up you know 25%

and you're bringing on capacity, so you should be able to release much more of that backlog next year. Why wouldn't things actually accelerate on a revenue based, at least volume-wise next year for the electrical business?

You know, I say that first of all to your question-around orders in general, and as we try to characterize for the investors of that,

You know, we are living in a period of time now, we're orders.

have become a lot more lumpy than they've been historically. And a lot of that is tied to, you know, make a project. And it's one of the reasons why we...

Speaker Change: We started to talk about mega projects and, you know, these calls that give the investors transparency in terms of what has been a fundamental shift in the size of a lot of the projects that we're seeing in our electrical business.

and with these big projects, with these mega projects, that discreased lumpiness in orders. And it's one of the reasons why we went to a rolling 12-month.

Speaker Change: to try to smooth out.

and then once again you try to dissect it anyway into a quarter but it's never exactly what you're doing. In the smoothing but the message is that these orders will continue to be lumpy. As long as we're living in a world of these big mega projects, these orders will continue to be lumpy. And the other thing I say what we try to do is that we try to give you multiple views, right?

Speaker Change: It's not just...

You know, orders, we try to say, hey, let me tell you about the front end of mega projects. Let me tell you about what's going on with our negotiations. We give you obviously revenue and we give you orders and so that, you know, we try to give you a composite view of all the things that we look at.

that underlie the confidence in our view on what the world is going to look like going forward. Now, the question about should growth accelerate from this point forward? And you know, I say on the volume side,

and you know as long as the capacity comes in line, it's very possible that we could see volume acceleration now. I would.

Kathy got that by saying that we've had a lot of praise.

in the business, historically over the last couple of years.

and as we've even transitioned this year, the relative contributions from volume versus price have changed quite significantly with most of the volume now, most of the growth now coming from volume. So you're not going to have the same price tailwind.

Speaker Change: that you've had the growth in growth as we look forward.

Speaker Change: makes perfect sense. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. One moment for our next question.

will now take a call from Julian Mitchell at Barclays.

Hi, good morning, this is Chuck Gioci on Fridulean Mitchell. How much do you think capacity can strengthen present? Powerly times trending in main electrical talk at a very, like, SWITCH gear UPS. What is the pace for which it work capacity can come on screen?

and I give you we broke up the last part of what you said by getting quite here broke up but in terms of explaining what tastes to most of the stuff.

Speaker Change: You're phone, we're having trouble with the connection. But let me, I'll deal with the first part. Maybe we can come back to the second-party question around how...

Speaker Change: and how and where we capacity constrained. You know, we talked about this $1.5 billion of the incremental.

investment that we're making in capacity. A lot of that, most of that is going into our electrical business, to deal with those specific areas.

Speaker Change: and markets where we are capacity constraint. You know, be it in data center markets and things like transformers or a next switch gear that really cuts across.

Many of the different end markets that we serve. I talked about in some of my outbound commentary, the investments we've made in some of the circuit breakers, as well as in things like boston fuses. And so where we've had...

and we have capacity constraints that we look forward and we see the potential for capacity strength. We are proactively making those investments and trying to get out in front of it.

You know, having said that, Lee Times today are still not where we'd like them to be, ideally.

Speaker Change: largely a function of fact that our businesses continue to be stronger than what we forecast it.

and no question even coming into this year. If you take a look at the revenue growth in our electrical America's business versus our original guide, to mean those numbers are up quite significantly both in revenue, orders, negotiations really across the board.

and so you know I would just say that we are today working as closely with customers as we've ever had to make sure that we are getting out in front of the capacity to be quarantined with needed so that you know we don't end up being a bottleneck in a constraint for the industry.

Speaker Change: Thank you. Second half of the question that maybe that address it or not.

Yeah, that addressed it, thank you. And you know on the 25th outlook, how are you thinking about electrical America's first global cancer? There's a thousand bases pointing growth gap guided in 24. Is it a very wide gap getting extra that's found in?

I'd say it's too early for us to provide specific guidance on our various segments for 2025. You know, but having said that.

Speaker Change: and you know, these big mega trends that we've been talking to you about, you know, over the last couple of years.

The America's Business has had a disproportionate benefit, a disproportionate number of them. If you think about what's going on in data centers today, the data center growth taking place everywhere, but 70% of these data center projects are basically...

Speaker Change: coming in the U.S.

and we talk about reindustrialization.

Speaker Change: and the amount of money that's been put into increasing the US as many as I can possibly. A lot of that is being disproportionately benefiting the US and so to the extent that these megatrends

and continued to be what they are. You'll probably continue to see a disproportionate growth coming from.

Speaker Change: the America's Business.

Having said that, a lot of what we do in Europe today tends to be more of the short cycle.

and we are in fact seeing a bottoming in those markets. But, long way of saying, we're still working through the details and we'll give you a lot more color when it comes to early next year.

and understood thank you for the questions.

Speaker Change: Thank you. One moment for next question.

will now take a call from Scott Davis, Amelia's Research.

Hey, good morning, guys. Morning, Scott.

Scott Davis: Craig, you threw out a number earlier about a 40% win rate and...

I just wanted to get a sense of context, you know, it seems like given the capacity constraints that where you guys want to win, I would imagine you'd generally a pretty high odds of winning, and so does a 40 percent.

kind of reflect, you know, first of all, if there are any historical context, is that higher? Is that normal? Is it, you know, but any color around that? Am I reading it right? That you know, there's just some projects maybe that are just less profitable and so you're going to be less aggressive, been on them.

So it's hard for us to know that it's a good number of bad numbers but perhaps that behind the scenes is that numbers a little bit better than historical.

Speaker Change: and I appreciate the question Scott and you know I expect that I would tell you today the instructions at this.

and we've given to our team as we want to win every order.

We don't want to see ground.

Speaker Change: on any order or any segment of the business. But to use specific question around the win rate, the 40% win rate would be higher.

Speaker Change: and then our underlying market share in electrical America. And so I think you can read that to be that you were winning at a higher rate than we have historically.

Speaker Change: and that's certainly a good thing in both wealth of the future. And then you see to say, why? I mean, largely I would tell you it's because...

The bigger the project, the more complex the project, the more likely it is that we're going to win in our solutions.

are going to be chosen over other alternatives. And I just been historically true for the business that the more mission critical, the more

Speaker Change: and you know, complex the project, it increases the rate of our winning. But if you think about the win rate across various...

and we talk about this 40% of the context of mega projects. These mega projects are broad. They are cross almost every one of our verticals with the exception, let's say, of residential. And I would say, there.

I quite frankly not looked at the data but my guess is that our win rate is not terribly different across the very segments of the market.

Ok, that's helpful and then I know there's been a lot of questions about capacity ads but you can use give us a little bit of a sense of the breakdown of new rooftops versus kind of adding lines.

Speaker Change: and the sense of what that capacity looks like.

Speaker Change: and footprints. Yes.

and I can always say it's really a combination of both.

Speaker Change: in many cases, it is, in fact, expanding, you know, in the context of an existing footprint, where we have space available on a, you know, some land where we can build out our capacity, in some cases, it's adding lines to...

Speaker Change: Facilities.

and in some cases it is brand new, green field facilities and so.

I can only tell you that it's a mixture of all three of those.

and very much consistent with where we see our requirements and where we have particular limitations. I'm so much sure if I'm addressing your specific question but I can just tell you that it really does cut through all three of those areas.

Speaker Change: Thank you.

One moment for our next question.

will now take a call from Joe Richie at Goldman Sachs.

Joe Richie: Take care of good morning.

Speaker Change: Morning.

So, um...

Rather than try to get you to say that you're going to be able to support Olivier Gross next year, even though that's what it seems like the framework is pointing to. I'm just curious Craig.

from a pricing standpoint, I know you said that's moderated. Would you still expect to get pricing across the portfolio in 2025?

Yeah, the short answer Joe is yes. I mean, and if you think about, you know, our industry historically, our industry historically has gotten, you know.

Price, and I would say that we're probably back in a more historical pattern of getting the price each year.

but not during the period of time when we came to have a view. If you go back to what happened over the last few years, you know, you had the COVID-19, driven supply chain disruptions.

Speaker Change: that drove in a period of extraordinary inflation until we had to get out in front.

Speaker Change: of that in recover inflation, then you had to scarcity issue and so as those issues continue to be in the rearview mirror, we're going to go back to more of a normal level of price realization for the business but absolutely we will still get price.

into 2000 in 25. And by weight, price is embedded in those market numbers. We gave you the market assumptions for what we think the market is going to do in 2025. And we do incorporate price in that number as well.

Speaker Change: Scott, that's helpful. And then I'm just trying to understand the linkage between the project negotiation pipeline being up 60%.

Speaker Change: and then your comments around 2025 starts expecting to hit a new eye. As you kind of think about the pipeline, does that include some of the projects that have even started, or are we talking about kind of like, additive?

Speaker Change: that the start will be higher next year and what you're bidding on today is already what's kind of broken ground.

and I say that you know.

Speaker Change: That quite, it's not really answered that question because these projects very dramatically.

in terms of the type of projects that they are and that...

the time between an announcement of start and completion and what we said in prior calls is that they went from a completion standpoint, you know, these projects are three to five years out.

and so what certainly announcements become starts at some point and it does very widely depending upon the project itself. But I think the simple answer is yes, a lot of these announcements.

Today that we're better embedded in our numbers will in fact become, you know, starts in 2025.

and in fact, if we take a look at it over a longer period of time, let's say.

23 to 27 the last data point we had.

We were forecasting, you know, concerts to be up some, you know, 23% over a period of beginning in 2023 going to 2027. We've not updated that number, but clearly we're seeing an increase in construction starts.

and what would naturally expect given the size of these announced projects?

Got it, very helpful, thank you.

Thank you. One moment for our next question.

Speaker Change: will now take a call from Tim Tien at Raymond James.

and I thank you. I've been the interest of time out maybe I'll squish two together. Craig, maybe one on just on aerospace maybe talk through.

Whether it's orders or actual sales trends, just kind of is he navigate this strike compact.

Speaker Change: and to the extent that continues the implications in terms of the mix for you between the commercial side, between OEM and aftermarket. And then I guess part B is just on the electrical side, as you talk about this.

Speaker Change: Project Pipeline and the growth you're seeing there are some of the big sectors that you've highlighted like

Obviously data centers, but I think power and industrial also being pretty fairly equipment intensive. So just how you think about that traditional rule of thumb in terms of the electrical content?

Proproject. And if you're singing any changes in that, just give in the complexion of the pipeline. Thank you.

and the first meeting to the aerospace questions specifically and specifically as it relates to the strike impact.

At this point, you know, we have, we make some assumptions naturally around, you know, what we think is going to happen during the course of Q4. And that's why I mentioned in the commentary, we don't know when these strikes are going to be resolved.

We're hopeful that it happened sooner rather than later, but we don't know. And so, as I said, we've made an assumption that's baked into our Q4 outlook.

you know, if we're right, it's fine, if we're wrong, it could have a slightly...

and Bigger Impact on our revenue outlook.

not going to have any impact on our earnings. We'll deliver the earnings under either circumstances.

Speaker Change: for new.

You know, if you're like...

Speaker Change: The industry will resolve these strikes, probably at some point over the course of Q4, but who knows at this function?

Speaker Change: Um...

in terms of the mix, you know, you're right.

Speaker Change: At some point, I mean, it has a positive impact on mex.

to the extent that, you know, the fleet.

of New Aircraft.

are not being built and are having to run the existing fleet harder.

that doesn't happen right away. It tends to be a lag effect of that, but ultimately speaking, as long as consumers continue to get on planes in fly, and they are, it means the fleet is operating, and in these older aircraft will be additional service.

Additional Aftermarket Components, and as you know, aftermarket is very favorable for Eton and for other companies as well.

and so we'll go up the wait and see how that plays out, you know, certainly disappointing that we needed to reduce, you know, our numbers to to account for it. But once again, firmly believe that it's simply timing that, you know, these, these aircraft will be built.

Speaker Change: the Zaircraft R. Needett and it just pushes some of the demand into 2025 and beyond based upon the current issues that are taking place in the industry.

Speaker Change: You know, to the question on projects and the project pipeline in electrical, if I get the, the, the just of your question there.

Speaker Change: You know, yes, it doesn't matter a lot, the kind of project.

Speaker Change: and we talk about the electrical intensity of a project and the electrical intensity of certain types of projects is very different.

made if you take data centers for example, when we take a look at the non-raise construction market.

Data Center for example.

accounts for about 2% of non-raise construction markets, only 2%.

Speaker Change: Yet it's, you know...

It's in the range of, let's call it, 15 to 20%.

Speaker Change: and our electrical business. And that gives you a sense for the electrical intensity of certain kinds of projects versus others.

and so for us, you know, the good news is that if you think about the kinds of projects that are being built today, you know, you think about on the one extreme, you have a commercial office.

Speaker Change: and where the electrical intensity is quite low.

and Data Centers on the other extreme, where the electrical intensity is very high. Utilities growing nicely, where the electrical intensity is very high. So the type of project matters greatly and when we sit today in our outlook, those that mix will continue to be favorable for our company.

Speaker Change: Thank you.

Thank you. One moment for our next question.

will now take a call from Nicole DiBlanse at Deutsche Bank.

Nicole DiBlanse: Yeah, thanks guys, good morning and actually good afternoon now and thanks for fitting in

I guess I'll just ask one in the interest of time.

Nicole DiBlanse: Could you talk a little bit about what you're seeing Craig and China? We've heard a few companies kind of say the thing, got a bit worse there this quarter and then I guess you kind of mentioned hope that short cycle in Europe could be bottoming so if you could maybe expand on, you know, are you seeing any evidence of recovery there today?

Speaker Change: Yeah, a pretty good question, Nicole. First on China, our China business has performed very well.

and we look at our trying business specifically in Q3. We actually saw very good growth. I think our growth in China was close to double digits in Q3.

and our outlook, you know, even going forward is for pretty robust growth on our trying business. I do think that's mostly a function of things that we have done specifically, in the context of our business and as you know, we have a number of joint ventures that we signed in China that gave us just...

A lot of additional capability and capacity and our team in China, we think one of the best in the industry did just winning. So our China business is doing well and our outlook for our China business continues to be strong.

to the point around Europe specifically, and that's where to your point, we are more exposed to short cycle, which means residential.

MOM as is Europe in general. And we do think we bottomed out, you know, and we would think that as we look forward, those markets continue to grow from this point and that's kind of embedded as well in our own outlook for Q4.

We think that, you know, as interest rates, you know, perhaps start to moderate a bit.

and it helps the raising market.

and help some of the industrial market as well.

Speaker Change: but I say...

We can call today on the short cycle stuff. Feels like we bumped along the bottom throughout the summer months and we started to see a little bit of lift off in at least some of the market to the Shrivertite for example, NQ3 and the Outlook for MOM and residential is more positive as we look forward.

Thanks Craig, I'll pass it on. Thanks, Nicole.

Thank you. One moment for next question.

will now take a call from Andy Capla with At City.

Andy Capla: Good afternoon everyone.

Speaker Change: Hey, Eddie.

Andy Capla: Craig, can you go at more color and to ease the ability to offset ongoing vehicles, market related weakness? I, you look at your vehicles, margin tree at your area, obviously that 19.4% into the coin and growth was impressive as that. It was a reflection of strong positioning the market, given a gerible pressure is causing how long could that last at the vehicle and market stay as week.

and I appreciate the question. We have worked hard in our vehicle business to, you know, first of all.

Andy Capla: One our business better and in drive.

Better Operational Execution.

in our business and as you know we.

We went through a period of time in our own vehicle business through supply chain disruptions.

and some other operational challenges inside of the business where we weren't executing as well as we know we can. And our team is just done a great job of essentially improving the way we run our factories and our facilities and sorting out inefficiencies in the plant. We've also been very active in that business on really managing the portfolio. You know one of the things we've talked to the investors about is that we expect every of our businesses to be a portfolio manager.

and every business has a head, every business has a tail, every business has a piece of it where you'd say, you know, we don't have...

Speaker Change: A competitive advantage here. We don't make great margins. It's not a growth piece of a business and we gotta have a plan to address it and fix it. So we have been very active.

Speaker Change: and Managing the portfolio.

Speaker Change: in terms of the things that we control on our vehicle business as well. And so the margins that we post at this quarter, I think, are a reflection of the fact that our team is executing extremely well and we expect them to continue to execute well as we move forward.

Speaker Change: and just a quick follow-up to that, you know, in relation to your restructuring efforts, I think you gave us 75 million for 2025. But since sizable amount of that is in electrical global and then it's going to start to help you close the gap with electrical America's or how do you think about that?

Speaker Change: Yeah, I mean without a doubt, I mean if you think about where we're restructuring it's generally going to be in those businesses where the margins are not.

at the level.

Speaker Change: that we have in the rest of the company and certainly global is a piece of that formula as well. But in a big challenge, more than that, and we'll do the rest of the big thing in Europe is markets.

and we markets as you've seen from not just eat but from most of our peers and other companies in the region is that Europe today is just not getting the probe.

that we're seeing in the US and in other regions of the world and China. So I think more than anything, you know, we need to return to growth in Europe. Our incremental margins are quite high.

Speaker Change: on the back of a little bit of growth. And so that's for us is the thing that we're focused on most is that we have to grow our business in Europe. And that's going to ultimately close the gap with some of the margins that we see in the American business.

Appreciate all the color. Alright, thanks, baby.

Thank you. One moment for our next question.

will now take a call from Joseph O.D. at Wells Fargo.

Joseph O.D.: Hi, thanks. I'll keep it to one. Craig just want a little bit more color on the timing of all the capacity investments coming online. I'm sure it's staggered, but by the middle of the next year, do you expect to have most of that online? And the reason for the question is when we look at...

Speaker Change: The electrical backlog moving up again, sequentially at 11.8 billion, trying to think through the degree to which he is in some instances the bottleneck.

Speaker Change: How quickly you can work that down with some pretty significant capacity additions coming online, even to the degree that can America's grow faster next year as that capacity comes online.

Yeah, I think to the chance of the second-party question, we're absolutely counting on that capacity edition coming in.

next year to help our volume growth and most of the capacity will really come in over the next, let's say, two to three years.

Some of it's coming in now as we talked about in some of my app on a commentary. But maybe just to address the broader question around the backlog. You know, backlog is actually a good thing.

Passed-Do Backlog is a bad thing.

Speaker Change: and I would tell you that our past due backlog.

has come down, so we're doing a better job today of ensuring that we're delivering against our customer's expectation, but we have growing backlog largely because...

Speaker Change: are Market to Growing and we're getting...

Speaker Change: Much better visibility into...

our customers' requirements and in many cases we're getting longer lead time visibility on orders and so.

Speaker Change: So I would say in general, I would not think about a growing backlog as a problem in us being a bottleneck for the industry.

Speaker Change: and a past-to-back log that would suggest we're a bottleneck for the industry, but that I would say today that our lead times in general are very competitive with most of our peers.

Speaker Change: Got it, thank you.

Speaker Change: Thank you. One moment for next question.

will now take our last question from Brett Lindsey at Mizuhu.

Good afternoon, thanks. I appreciate the thoughts on 25. I just want to follow up on the incremental margins.

Speaker Change: So the 30 to 35% on organic should we.

Think of this as the base level and then the restructuring savings would be on top of that.

Speaker Change: or are there some offsets on some of this effects investment ramp?

Relative to the restructuring savings, just want to square those pieces, thanks.

Yeah, you know, we give you a range of 30 to 35 but I really think about that as an all-in incremental

and not putting the restructuring on top of that. And what we've said historically, we said, you ought to be thinking about 30% of incrementals. And so we've tried to account for restructuring benefits in the end of the...

Speaker Change: The different midpoint.

Speaker Change: and where we think the incremental is going to be.

but I say that you have a couple of fours, it's obviously working for you and again, you in terms of as we come through this ramp.

Speaker Change: and on the one hand, obviously we're getting volume leverage and that's very helpful. But on the other hand, we're also starting up new factories and there's always inefficiencies with factory startups, we're adding commercial resources to deal with the volume ramps that we're working through right now. So I'd say on balance.

you know, that take the mid-plan or so or that 30% or 35% range, that's better than what we'd use for planning purposes. You know, for most of our plans, it certainly below what we delivered this year for sure. And this year I would have just pointed out that there was a lot of price.

and what we delivered in the form of incremental this year, as well as, you know, we didn't have the same level of start-ups and ramp-ups in both our factory and commercial activities.

Appreciate the details best of luck.

Speaker Change: Alright, thank you.

Hey, good morning. Thanks guys. I think really appreciate everybody's questions. As always, I our team is available to have any follow-up questions with you guys. Enjoy the rest of your day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Eaton Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question and answer session.

To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Yan Jin. Please go ahead.

Good morning. Thank you all for joining us for each and third 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 the opening remarks by Craig, then he will turn it over to Olivier who will highlight the company's performance in the third quarter. As we have done in our past course, we will be taking questions at the end of Craig's closing commentary.

The price release and the presentation we will go through today has been posted on our website. This presentation includes adjusted earnings per share, adjusted free cash flow, and other non-GAAP measures.

Speaker Change: The Reconciling 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.

Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties.

that are described into our early release and presentation.

Yan Jin: With that, I will turn it over to Craig. Thanks, Yan.

Craig: We'll start on page 3 where we summarize the key highlights of another strong quarter. We generated adjusted EPS of $2.84 a share, an all-time record and up 15% from prior year. We also delivered record segment margins of 24.3%, up 70 basis points from last year.

and we're raising our guidance for segment margins and adjusted EPS for the year.

We did experience a couple of extraordinary events in the quarter that impacted our revenue.

Speaker Change: First, the widely publicized strike taking place in the aerospace industry, and then Hurricane Helene, which impacted several of our Electrical Americas factories at the end of the quarter.

Speaker Change: While both of these events will have an impact on our revenue outlook for Q4, they're not impacting our demand and it's only timing.

In fact, our markets continue to be strong. On a rolling 12-month basis, electrical orders were up 12%, with Electrical America's orders up 16%, and aerospace orders increased by 6%.

This led to another quarter of growing and record backlogs, up 26% for Electrical Americas, up 14% for Aerospace, with strong book-to-bill ratios.

On balance, we're pleased with our results and are well-positioned for a record year of performance and expect to carry strong momentum into 2025.

Turning to page four, we once again are sharing our overview of megatrends and how they're driving growth in our end markets.

Speaker Change: I think the key message here is one of breadth, both in the number of megatrends and the number of our end markets that are positively impacted.

something we think is unique to Eaton and will allow us to grow at an accelerated rate for years to come.

Last quarter we provided an in-market update on our commercial and institutional segment, highlighting the strong growth outlook for institutional and infrastructure markets.

Today, we intend to provide a forecast for residential markets and how energy transition is creating new growth opportunities in residential homes.

Speaker Change: And, as we've done in recent earnings calls, we'll also provide an update on the growing number of megaprojects announced during the quarter.

Speaker Change: So let's begin with that on slide five in the presentation.

This chart shows a summary of megaprojects that have been announced since January of 2021 in North America.

Speaker Change: As a reminder, a megaproject is a project with an announced value of $1 billion or more.

Through Q3, we're now at 504 projects with a cumulative value of $1.6 trillion.

And the backlog now stands at $1.8 trillion, up 30% from last year.

You know, I'd also point out the announcements are continuing to accelerate with Q3 up 48% versus Q2.

Approximately 16 percent of these products have started and we expect a record number of starts in 2025.

Many of you have asked the questions about cancellations, which we continue to monitor as well. To date, cancellations have been modest, around 10%, and well below historical levels.

For projects that have started, we've won over $1.7 billion of orders and our win rate is almost 40%.

Speaker Change: Of note, we're in active negotiations on another $3 billion of orders, up 175% from last quarter.

While mega-projects continue to garner a lot of attention, deservedly so, the Dodds Momentum Index, which tracks commercial and institutional projects that are less than $500 million, are also at record levels of 22% in the quarter.

Taken together, we think they provide a strong validation of the megatrends and support our view on the long-term outlook of our end markets.

As we prepare for the growth ahead, we're making investments in our manufacturing capacity naturally.

And on slide 6, we show an update of our incremental capacity investments, which now stand at $1.5 billion, up $500 million from our previous estimate.

The increase reflects our increasing confidence in our outlook, as well as increasing demand that we're now seeing in data center markets.

Speaker Change: these multi-year investments with the largest addition coming in the second half of 25 and 26.

Speaker Change: can be used across most of electrical end markets.

I'd also add that most of the additional capacity is what we'd consider

Light Assembly

and modular, which allows us to be both flexible and efficient as we deploy capital.

Overall our expansion projects are on track with a number of sites starting to ramp up production.

For example, we've recently opened a 110,000-square-meter facility in Juarez, Mexico that produces motor controllers and switchboards, and we also opened a new manufacturing facility in the Dominican Republic that will increase our supply of bus minfuses.

Next, on slide 7, you know, we're highlighting our residential markets, you know, which include naturally the electrical infrastructure for both new construction and renovation.

Residential markets represent 6% of even total sales and 8% of electrical sales.

And the key message here is that, you know, these secular trends that we've been talking about that are impacting our industrial and commercial markets are also impacting homes.

Speaker Change: As a result, the electrical content in homes continues to grow.

The growth in solar, electric vehicles, energy storage, and the electrification of heating and cooking are fundamentally changing energy requirements in the home.

and new safety codes and standards are also continuing to drive the need for higher electrical content.

Speaker Change: Thank you for watching!

And as you know, the current IRA tax incentives for electrical panel upgrades are designed to support this growing need for more electrical power.

Speaker Change: No doubt, residential markets have been feeling the impact of higher interest rates over the last couple of years.

With markets now feeling like they've reached a bottom, the housing shortage remains, and we should see positive growth from this point forward.

Speaker Change: Estimated at a 6% KGO over the next four years from what's been a drag on growth over the last 24 months should turn positive now.

Speaker Change: Thank you.

Speaker Change: Thank you.

Within the residential market, Eaton is especially well positioned.

As homes become more electrified,

Speaker Change: generate and sometimes sell electrical power.

Speaker Change: become bigger consumers of electricity, they also need to become smarter.

We addressed these changes in our Everything is a Grid, including HOME's slide, which we show on slide 8.

Speaker Change: For more than a century, power has flowed in one direction, from central power plants into homes. Today, there's a new reality thanks to the addition of solar power, electric vehicles, energy storage, all on the top of the need to run a more electrified home.

Speaker Change: In simple terms, homes can now act as energy hubs, producing their own power, managing their electrical loads, and selling power back to their local utility.

Speaker Change: all of which requires more sophisticated electrical equipment.

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Speaker Change: Eaton's Home as a Grid approach creates smart energy systems that allow home owners to reduce costs, participate in demand response programs, improve resiliency, including islanding from the grid, and to optimize the home by selecting which electrical loads they want to run during a power outage.

So, in addition to homes requiring more electrical power, homes are now required to be more intelligent, to be connected, and to be integrated into a home as a grid solution.

Today's fully grid-ready homes have up to 5x the electrical content of a traditional home.

a trend that will only increase over time, and a tremendous opportunity for Eaton.

Speaker Change: Thank you for watching!

One example of how we're implementing our home as a good strategy can be seen in the recently announced collaboration with Tesla.

As you know, Tesla is one of the biggest names in energy storage.

Speaker Change: and they needed a solution that would allow homeowners and installers to simplify the integration of energy storage, solar, and load management in the home.

This is especially important in the existing home market of more than 40 million homes with only 100 amp service.

Eaton's first-to-market and what we call able-edged smart breakers provide homeowners with intelligent load management capabilities.

Speaker Change: without replacing the electrical panel.

Together with our partners, our systems will manage your solar, your energy storage, and your electrical loads.

Speaker Change: and it's simple to install. It provides better functionality and at a much lower cost than other solutions. In fact, we estimate our solution will be three to five times lower cost.

Our Able Edge smart breakers will be available in early 2025 and we look forward to growing our partnership with Tesla.

Now, I'll turn it over to Olivier to take us through the financial results for the quarter.

Olivier: Thanks, Greg. I'll start by providing a summary of our Q3 results.

in which we once again set many new records. We posted third-quarter record sales of $6.3 billion, up 8% both in total and organically. However, revenue was negatively impacted by about $50 million from Hurricane Helene and labor strikes in the aerospace industry.

Without these impacts, organic growth would have been above our 8.5% guidance midpoint.

Olivier: Operating profit grew 11% and segment margin expanded 70 basis points to 24.3%.

Adjusted EPS of $2.84, increased by 15% over the prior year. This is a quarterly record and above the high end of our guidance range.

This performance resulted in all-time record cash flow performance, including operating cash flow of $1.3 billion.

Olivier: up 15% on a year-over-year basis and free cash flow of 1.1 billion dollars up 23% versus prior year.

On slide 11, we summarize another very strong quarter for Electric Coal Americas.

Before we go through the results, we want to acknowledge the significant impact that Hurricane Helene had on our employees and their communities.

Electrical Americas employs more than 3,000 people in North and South Carolina in nine facilities and the safety of our team members is our top priority.

We have continued to provide support to our employees, their families, and affected communities, including providing essential and financial assistance.

We are pleased to report that our facilities are back up and running to support all the strong consumer demand we are seeing in our markets.

Despite these challenges, we set new records for sales, operating profit and margins.