Q4 2024 Eaton Corp PLC Earnings Call
Q4 was another record with 65 projects announced at a value of more than 150 billion.
Through Q4, we're now at 569 projects with a cumulative value of one seven trillion.
And our backlog now stands at one nine trillion up 33% from last year.
Through Q4.
<unk>, 15% of these projects have started and we expect a record number of starts in 2025.
Many of you have asked the question about cancellation rates, which we continue to monitor as well.
Date cancellations have actually been modest around 11% and well below historical levels.
A couple of pieces of Eaton's specific data for projects that have started we've won over $1 $8 billion of orders with a win rate of almost 40% and we're in active negotiations on another $3 1 billion.
Of electrical content.
So as you can see from the math most of these projects haven't reached the negotiation stage and we expect our orders to continue to grow.
Given the heightened discussions on data centers. This week I wanted to take a moment to highlight our datacenter business and why we have so much confidence in our outlook for continued growth.
The information on slide six summarizes our sales negotiations orders and backlog for our data center business.
It includes Hyperscale co lows on Prem data centers in the major categories of crowd training and inference.
And cloud is still by a wide margin the largest category.
As you can see from the data the rate of growth is continuing to accelerate with negotiations at orders well ahead of sales.
Not read in each of the numbers as they speak for themselves, but we will ask that you note a few points.
Our backlog is rapidly increasing 50% over prior year, which was up 70% over 2022.
And as you've all seen customers continue to increase the forecast for capital investments Hyperscale customers alone expect to spend almost $300 billion in capex in 2025.
Up 30% from 2024.
Perhaps the most notable number on the page is the reference of the seven years.
At 2020 for build rates it would take seven years to consume the current backlog.
In the data center construction build rate doubled between 'twenty, three and 'twenty four.
So any notion that this market will slow down is simply not consistent with the data that we're seeing.
The industry will no doubt continue to see innovation and technology developments that reduce costs.
And if judged by history. This will be good for the industry and an accelerator of growth.
For 2025 and for years to come we expect data centers to be our strongest market and standby our previous forecast, which assumed strong double digit growth.
Now I'll turn it over to Olivier to take us through the financial results for the quarter.
Olivier: Thanks, Craig I will start by providing a summary of our Q4 results, which again includes many new records.
Olivier: We posted fourth quarter record sales of $6 $2 billion up 6% organically of 5%, including one point of FX headwind.
Olivier: Julie can helane and labor strikes in the aerospace industry negatively impacted Q4 sales by approximately $18 million or 130 basis points.
Olivier: Operating profit grew 13% and segment margin expanded 190 basis points to an all time record 24, 7%.
Olivier: Adjusted EPS of $2 83.
Olivier: Increased by 11% over the prior year.
Olivier: This is a Q4 quarterly record and near the high end of our guidance range.
Olivier: This performance resulted in an all time record cash flow performance, including operating cash flow of $1 6 billion up 23% on a year over year basis, and free cash flow of $1 $3 billion up 27% versus prior year.
Olivier: I will now review the segment's quarterly results followed by a recap of the year.
Olivier: On slide eight we detail our America our results the business continues to execute very well and delivered another record quarter we.
We set new records for operating profit and margins and posted our Q4 quarterly record sales.
Olivier: Organic sales growth of 9% was driven primarily by strength in data center, along with solid growth in commercial and institutional markets.
Olivier: Without the impact of the regained disruptions to the business organic growth would have been in the double digits.
Olivier: Operating margin of 31, 6% was up 210 basis points versus prior year benefiting from ISS.
Olivier: On a holding 12 month basis orders remain at a high level of 16% demonstrating continued tailwind from the various mega trends, we had particular strength in the data center market where activity remains very robust for example.
Olivier: Dodge data shows US announce data center project start up 19, 9% in 2024 and 173% year on four year in Q4.
Olivier: Is that a center constructing construction backlog is now estimated to extend out about seven years based on 2020 for build rates.
Olivier: And then <unk> CT <unk> <unk> backlog increased 29% year over year with a book to Bill ratio of one two on a holding 12 months basis.
Olivier: These results close out a record year for the business, which posted full year revenue of $11 $4 billion organic growth of 13% and margins of 32% up 270 basis points over prior year.
Olivier: With the tailwind from secular trends incremental capacity coming online strong execution in August backlog at record Americas remains well positioned as we enter 2025.
Olivier: The next chart summarizes the results of our Elfa recall global segment.
Olivier: Total revenue growth of 4% included organic growth of five 5%, an FX tailwind of one 5%.
Olivier: We had strength in data center and <unk> markets regionally. We saw continued strength in APAC with double digit organic growth and high single digit organic growth in EMEA.
Olivier: Operating margin of 17, 7% was down 110 basis points versus prior year, primarily driven by mix.
Olivier: Orders were up 4% on a rolling 12 month basis.
Olivier: Similar to sales growth the strength was driven by the data center and <unk> markets.
Olivier: Backlog increased 16% over prior year and book to Bill continues to remains shrunk.
Olivier: Q4 was one one on a holding 12 month basis.
Olivier: For the full year, electrical global posted 4% organic growth with $18 for margins.
Olivier: Before moving to our industrial businesses I'd like to briefly recap the combined LLS record segments.
Olivier: For Q4, we posted organic growth of 8% and segment margin of 26, 7%, which was up 170 basis points over prior year for.
Olivier: For the <unk>, we posted organic growth of 10% and segment margins of 26% up 220 basis points of 2023.
Olivier: On a rolling 12 month basis.
Olivier: Orders were up 12% and our book to Bill ratio fall, while electrical sector remains very strong at one one.
Olivier: We remain confident in our positioning for continued growth with strong margins in our overall electrical business.
Olivier: Page 10 highlights our aerospace segment.
Olivier: We posted all time record sales and Q4 record operating profit.
Olivier: Organic and total growth was 9% for the quarter driven with growth in all end markets.
Olivier: Commercial aftermarket.
Olivier: Without the impact of the I O space industry strikes organic growth would have been in deep double digits.
Olivier: Operating margin was strong at 22, 9% up 50 basis points year over year, mostly from higher sales.
Olivier: On a rolling 12 month basis orders increased 10% up from 6% in the prior quarter with particular strength in military OEM commercial OEM and commercial aftermarket yes.
Olivier: Year over year backlog increased 16% and was up 2% sequentially.
Olivier: On a <unk> or a 12 month basis, our book to Bill for our annual space segment remained strong at one one.
Olivier: On a full year basis, I O space posted 10% organic growth with 23% margins.
Olivier: Moving on to our vehicle segment on page 11 in.
Olivier: In the quarter total revenue was down 10%, including a 7% organic decline primarily driven by weaknesses in the North America, EMEA and APAC light vehicle markets and three points of unfavorable FX.
Olivier: Despite the topline weaknesses the team executed well from a margin perspective.
Olivier: Operating margin came in at $18, 8% 90 basis points over prior year from improved operating efficiencies.
Olivier: On a full year basis, <unk> recorded organic revenue down 5% with 18% margins.
Olivier: On page 12, we show results of our E mobility business too.
Olivier: Total revenue was down 11%, including a 10% organic decline, primarily driven by our customers' program launch and production ramp up delays and 1% unfavorable FX.
Olivier: Operating profit was $3 million, resulting in operating margin of one 8% for the quarter.
Olivier: On a full year basis E mobility posted 4% organic growth was negative 1% margins.
Olivier: Moving to page 13, we show our LT Col and aerospace backlog updated through Q4 backlog continues to be very strong with record at $11 8 billion and aerospace at $3 $7 billion for total backlog.
Olivier: $15 $5 billion.
Olivier: Versus prior year, our backlogs are grown by 27% in electrical and 16% in aerospace.
Olivier: We are also increasing sequentially.
Speaker Change: As noted earlier, our book to Bill ratios for electric called Anna Nio space are one one and one one respectively.
Speaker Change: The continued growth in our backlog underscores our high level of confidence in future demand.
Speaker Change: In addition to our strong backlog growth in 2020 for the next page shows the continued strength in our negotiations pipeline, which supports our expectation for strong markets and structurally higher organic organic growth rates.
Speaker Change: In electrical Americas. The pipeline has increased nearly four times since 2019 in fact, the pipeline grew 40% year over year, showing acceleration versus our multi year CAGR of 29%.
Speaker Change: The year over year increase was largely driven by data center.
Speaker Change: Commercial and institutional and institutional and ETD key end markets within the commercial and institutional end markets.
Speaker Change: Growth was driven by indication.
If it meant and transportation.
Speaker Change: This is even stronger than the 13% organic growth in our electric cord Americas business, which suggest continued strength going forward now I will pass it over to Craig to summarize our 2024 performance. Thanks Olivier.
Craig: On page 15, we summarize our 2024 financial results compared to our original guidance EMEA.
Craig: You may recall that our practice is to set stretch goals for our businesses.
Craig: At or above our external guidance.
Craig: We execute well in markets performed as expected.
Craig: Put us in a position to exceed our guidance.
Craig: This occurred again in 2024.
Craig: Throughout the year, we demonstrated the ability to exceed our commitments and raised guidance on all key metrics, we delivered 8% organic growth an 18% increase in adjusted EPS, All time record margins of 24% and a 23% increase in free cash flow.
Craig: <unk> above our initial guidance of particular note segment margins were up 140 basis points versus the original guidance midpoint and 200 basis points from prior year.
Craig: And adjusted EPS of $10 80.
Craig: 6% above the $10 15 midpoint of our original guide.
Craig: As you know every business deals with a number of market uncertainties in life as a way of delivering unexpected surprises. So we run the company in a way that allows us to absorb these unknown headwinds and still deliver our commitments and hopefully more.
Craig: So with a brief summary of 2024 on page 16, I would say.
Craig: That were once again.
Craig: Out of our team's execution in the year.
Craig: We delivered another record year financial results, while reinvesting in the business like never before.
Craig: While we're proud of our progress we're not satisfied because we can do so much better.
Craig: We're in the right markets and the identified Megatrends are creating some of the biggest opportunities that we'll see in our lifetime the growth opportunities are everywhere and.
Craig: Our negotiations pipeline record orders and strong backlogs are evidence of our ability to convert on the opportunities and we now have the capacity in place or coming soon to support even faster growth.
Craig: And we haven't eaten business system, we call with UBS.
Craig: Everyone focused on getting better running better functions better factories in better businesses, it's how we improve our efficiency and expand margins.
Craig: So now is our time and I couldnt be more pleased with the team leading the next stage of Eaton's transformation.
Craig: And on that note I will pass it over to Paolo will walk us through our key assumptions and financial guidance for the year.
Craig: Thanks, Craig shifting our attention to 2025 on page 17, we provider of your end market growth expectations for the next year.
Craig: As you can see we continue to anticipate attractive growth markets in nearly all of the end markets, we're expecting double digit growth in data center and distributed.
Craig: Commercial aerospace and electrical vehicles.
Craig: For data centers, we remain constructive in our future outlook, given the strength and breadth of our secular trends.
Craig: We continue to see strong demand in data center market with the adoption of cloud computing and the acceleration of AI technologies, including inference and training.
Craig: So as more AI technology emerge acceleration usage could drive higher consumption of our AI hardware, including our electrical equipment.
Craig: We also expect solid growth in utility and modest growth across many of our other end markets.
Craig: So we anticipate weaknesses in commercial vehicle and <unk> markets, but the change in RASM outlook from last quarter is offset with strength with strength in other end markets and we do not see a change in our overall market growth between six and 8% overall.
Craig: Overall 2025 should be another year of significant growth with more than 85% of our end markets and growth.
Craig: Our growth outlook is supported also by a strong order book, a strong record backlog and favorable secular trends. So we remain well positioned to deliver differentiated growth in 2025.
Craig: Now moving to page 18, with summarize our 2025 revenue and margin guidance.
Craig: Organic growth for 2025 is expected to be between seven and 9% with particular strength in electrical Americas at 11, 5% at the midpoint.
Craig: I'll also add that healthy end markets combined once again with our large backlog continued to provide premium visibility to support our 2025 outlook.
Craig: <unk> segment margins our guidance range is between 24, 4% and 24, 8% is an improvement of 60 basis points at the midpoint from our 2020 for all time record margins of 24%.
Craig: Now on the next page.
Craig: Have the balance of our guidance for 2025 and Q1.
Craig: So for 2025, our EPS is expected to be between $11 80, and $12 20.
Craig: $12 at the midpoint and up 11% from 2024.
Craig: And our free cash flow our guidance between $3 7 billion.
Craig: Two $4 1 billion.
Craig: Up 11% at the midpoint.
Craig: We also expect to repurchase between 2 billion and $2 4 billion.
Craig: Of our shares outstanding.
Craig: And given our strong cash position at the end of the year and our strong cash generation. This year, we will leave plenty of room for strategic M&A.
Craig: We have also provided guidance on this page for Q1 as you can see.
Craig: Turning to slide to slide 20, we wanted to take a minute to highlight our upcoming annual Investor Conference on March 11 2025.
Craig: We will be back in New York City, and will strain the presentation live on <unk> Dot com.
Craig: Along with myself you will also have presentations from other senior leaders that are shown here on this page.
Craig: So we are really excited to talk about the future of the company, including outlining our 2030 targets with that I'll hand, it back to Jan and the operator for Q&A.
Speaker Change: Thanks Paulo for the Q&A today, please limit your opportunity to one question and a follow up thanks, United ones for your cooperation with that I'll turn it over to the operator gave you guys.
Craig: Okay.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Craig: Yeah.
Chris Snyder: And our first question comes from Chris Snyder with Morgan Stanley You May proceed.
Speaker Change: Thank you, maybe starting law coupon for Olivier.
Speaker Change: So the guide calls for I guess at the midpoint about six 5% organic in Q1, and then <unk>, 5%. The rest of the year can you talk about the drivers of that pickup in growth and then what should we.
Speaker Change: We expect for the cadence of adjusted EPS throughout the remainder of 'twenty five thank you.
Speaker Change: Thank you for your question, let me cover first.
Speaker Change: EPS cadence through the year, and Paolo and I will tag team on the on behalf of a new section.
Speaker Change: If you look at the EPS, we are planning today to have the first half to directionally represent 48% of the full EPS guide for the year and the second half as a result of 52%. If you look at the recent past we used to have the mix between first.
Speaker Change: And second half of 46% and 54%, so so well balanced first half.
Speaker Change: Second half wanted also to talk about the Q1 EPS guide.
Speaker Change: Again, similarly to the first half second half the Q1 sequential decline is actually better than what we have experienced in our recent past usually you saw a decline.
Speaker Change: Sequentially Q1 over Q4 of about 10, 11% <unk>.
Speaker Change: This guide imply a decline of 4%.
Speaker Change: The decline is always expected because of merit increase and also we are very bullish about our business and when to invest.
Speaker Change: In dimension iteration in manufacturing so that explain also the Q1 sequential decline in EPS and maybe how the new Paolo Yes, just thanks for the question, Chris So to think about the revenue split.
Speaker Change: For modeling purposes, I think it's fair to assume the first half being at 7% in the second half of nine and I can give you more color on the segments.
Speaker Change: Electrical Americas will accelerate a bit in the second half because of the extra additional capacity, we are adding I want to say that we track those projects one by one so far so good there coming as we planned so thats the electrical Americas the biggest segment.
We also see that in the second half most probably the logical global business will pick up again with some recovery in the European markets Aerospace is flattish over the year well distributed and then the vehicle markets.
Speaker Change: We tend to be higher in the second half given the very easy comps of the end of the year. So that's the way to think about it.
Speaker Change: Appreciate that really really helpful. And then if I could follow up with one maybe for Craig really appreciate all the updates on the demand outlook.
Speaker Change: A lot of good trends out there, but I wanted to ask about the supply side, we've heard a lot about product availability in the industry being incredibly tight in the last few years now I guess I'll switch gears, obviously, a lot of times Levered. Our lead times are starting to come down and when you look at the industry wide capacity.
And do you think that's enough to meet demand or do you think that this industry could still be short.
Speaker Change: Beyond just the near term thank you.
Speaker Change: No. Appreciate the question, it's actually a question that we have not gotten in a while and quite frankly, it's not been a conversation that we've had internally in a while and Thats a good thing I mean.
Speaker Change: Coming out of Covid.
Speaker Change: Kind of period when supply chain, just got massively disrupted we were spending weekly calls in daily calls with our suppliers on dealing with supply constraints and so I'd say for the most part we're back to where we were pre COVID-19. When you think about our internal supply chains.
Speaker Change: A lot of those constraints have been for the most part resolved we've gotten out in front of it we have Eaton has as we put in lots of new capacity in place as well as our suppliers and so I think from that piece of it I think we are.
Speaker Change: Fairly good visibility and transparency in terms of the outlook for these markets and our suppliers have responded now as we think about our longer term or mid term outlook. We're certainly constraining our view of the world.
Speaker Change: Largely because we do think labor continues to be somewhat constrained.
Speaker Change: If you think about our industry's skilled trades.
Speaker Change: You've seen a an industry mix shift and those industries have been growing labor at a faster rate than the overall economy, but we still think that is potentially the bottleneck for the industry and it's why we've quite frankly constrained our own view of the rate of growth that we think this market is going.
Speaker Change: It could be better if some of these labor constraints don't materialize.
Speaker Change: Thank you Greg I appreciate that.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Andrew <unk> with Bank of America, You May proceed.
Andrew: Hi, yes, good morning.
Speaker Change: Andrew Yes.
Andrew: Just maybe a question for Craig.
You talked about electrical Americas megaproject in past so.
Andrew: Can you quantify or can you just talk about how much did the mega projects.
Andrew: Actually have an impact on your business from 24.
Andrew: Yes, I appreciate the question, Andrew and one of the reasons why we started reporting mid Mega projects. A couple of years ago is that we saw this fundamental shift in our industry as the.
Andrew: The world was going through this massive capex rebuild cycle and the size of the projects have been much larger than what we've seen historically and so we thought it was great to take.
Andrew: Take this data and share it externally as a way of giving you an indication of what we're seeing in our business and the numbers are the numbers are growing dramatically as we reflected in the Powerpoint presentation, but to your point specifically around 2024.
Andrew: Our business doubled and Mega projects in 2024 to over $600 million are negotiation pipeline up some 60%.
Andrew: If you recall for the overall business is up 41%. So we continue to see.
Andrew: An increasing number of projects.
Andrew: And the good news is we've said many times is that most of the benefit associated with these mega projects is still out in front of us and as you saw in the data the number of projects and the size of the products continue to grow.
Andrew: And it just.
Andrew: We're really going through a fairly significant capex expansion cycle in the U S for sure but around the world and it's really showing up in these mega projects.
Andrew: Thank you.
Speaker Change: Color just under just for you and I look forward 2025, just to reinforce what Greg just said, we looked at the Dodge data.
Speaker Change: In 2024, there were 56 projects that started.
Speaker Change: And around $135 billion in total and therefore costs for this year for 2025 is actually that we are going to reach over $300 billion and 114 projects. So even if we don't we tend to haircut. The spots. We don't believe in all starts is almost double the rate.
Speaker Change: We saw in 2024, so I think the message from Craig I think the key point is the longevity of the growth cycle.
Speaker Change: Cycle ahead of Us I think thats the good way to think about it.
Speaker Change: Thanks, So much and just a question on <unk>.
Speaker Change: Sort of supply chain.
Speaker Change: The state of supply chain and I. Appreciate that you guys are watching them, but we recently I heard a comment that effectively U S market is sucking up capacity supply chain capacity on the electrical side from all over the world and the constraint is that.
Speaker Change: While the industry leaders are certainly adding capacity you have.
Speaker Change: Still need to incentivize the supply chain.
Speaker Change: Maybe it was better pricing better margin for them to add capacity could you just maybe unpack to us what it is youre, saying how are you incentivizing your supply chain capacity in particular at the <unk>.
Speaker Change: Is that a bottleneck to more critical components. Thanks, so much.
Speaker Change: Maybe just maybe building on my commentary earlier I think today the nature of our conversations with suppliers is really providing them the visibility and the certainty that they need to make the investments to support support the growth that we're forecasting and so we're not particularly providing any.
Speaker Change: Specific financial incentives, but we are working much more closely with our suppliers in terms of visibility and working through multi year agreements, which are backed up by multi year agreement that we also have with our customers and.
Speaker Change: But I'd say by and large.
Speaker Change: Notion at the U S are sucking up capacity from the rest of the world, There's probably some truth to that because clearly we're seeing much much stronger economy and much more significant growth in the U S compared to the rest of the world. It's actually a good balance for Eaton and that's a good thing for us, but so that doesn't surprise me.
Speaker Change: But this capacity simply flowing to where the real demand is.
Speaker Change: Thanks very much.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from Steve Tusa with Jpmorgan you May proceed.
Steve Tusa: Hi, good morning.
Speaker Change: Hi.
Speaker Change: It's almost noon, but.
Speaker Change: The way.
Speaker Change: The pipeline you guys talk about in the end these mega projects.
Speaker Change: What does that mean for orders as you look forward over the course of this year I mean is this.
Speaker Change: Obviously this pipeline keeps growing and it's massive.
Speaker Change: The backlog is flattish here.
Speaker Change: Book to billing a bit above one but like.
Speaker Change: What is the visibility on on these mega projects and things like that actually like converting into another.
Speaker Change: Re acceleration in orders.
Paulo: Thanks, Steve This is Paulo.
Paulo: I would say that it's very difficult to forecast orders for Mega projects. It will be a bit speculative, but I can give you a sense on what we're seeing as Craig mentioned with negotiation pipeline growing 60%, that's what gives us confidence.
Paulo: Those are large projects.
Paulo: Takes time between announcement and revenues between three and five years, what we've said in the past and since we've started falling those projects in 'twenty. One 'twenty two is to be expected and now we start to see the effect and as Craig said, our sales doubled in 'twenty four for Mega projects versus 'twenty three.
Paulo: Now to make to pinpoint the order entry for that would be very difficult and I don't want to speculate on it. So the best way for us to help you understand this longevity of the cycle is to continue to tell you the mega projects, we see.
Paulo: And how is the negotiation pipelines are evolving.
Paulo: Okay and then just lastly on this data center thing.
Paulo: The starts you say you talked about nearly doubling in 'twenty four I guess.
Paulo: Your orders up 75%. So I mean are you are you shipping to the starts or are you shipping to.
Paulo: Add to it to some point in the middle of the project as it gets as it gets built.
Paulo: Or are you shipping like blanket orders from the hyper scaler, where they order a big number and then they distributors. They go like how much visibility do you have.
Paulo: As to when you're actually shipping to these guys yes.
Paulo: Yes. So thanks for the question again, I think the way the best way to answer. Your question is we have multi year visibility on the forecast Greg was talking about the forecast we give to our suppliers. We also as a supplier to the big data center operators.
Paulo: We're giving a forecast in some cases, we have hard commitments from them. So thats. The visibility we have in terms of sending the product we are going to send the product as the project requires we don't ship.
Paulo: So if the site is now ready and we followed the construction of the data center and by saying that some of our products could come earlier like the Transformers. The switch gear and then the Ups's and what goes inside the server room comes later so in different phases of the project I would say.
Paulo: Alright, thanks for that and start so not in stock we have when we talk about a start it's one shovel goes in the ground and so we're not shipping anything at that point, but that's one of the project becomes real and one of the projects that you can truly count on it as a project thats likely going to be completed.
Speaker Change: Yeah, Okay, great. Thanks, a lot guys.
Paulo: Thank you.
Speaker Change: Our next question comes from Jeffrey Sprague with vertical research you May proceed.
Speaker Change: Yes. Thanks, Good morning, everyone, maybe just one more on data centers for me, maybe there's others coming in the pipeline but.
Speaker Change: Also just historically right when we were talking about Mega projects. It did not include data centers because of that $1 billion threshold.
Speaker Change: But now for example, we've got Amazon doing the $16 billion campus in Mississippi and other things just.
Speaker Change: Just wondering if you could give us a sense of.
Speaker Change: How much data center is now in the Mega project number that you're sharing with US today, if you have visibility on that.
Speaker Change: Yes, the exact number.
Speaker Change: First of all your your thesis is absolutely correct, Jeff that as these data center projects have become bigger some of them are now falling into the category of Mega projects until clearly we're seeing data centers show up in that category as well I don't have the exact percentage handy.
Speaker Change: Jeff <unk> actually said it on the slides is roughly 17% 17, 17, one 717%, but the other thing nobody has told the group and we shared this slide and one of the earlier earnings calls that we track Mega projects $1 billion above, but we also track the balance of projects, which is from 25 to <unk>.
Speaker Change: $1 billion and we're seeing the same trend in that segment of the market we're seeing.
Speaker Change: Tremendous growth as well and projects in these other categories and so clearly we're seeing more significant growth in Mega project, but we are in fact seeing very strong growth in the balance of the segment as well.
Speaker Change: Great and then.
Speaker Change: Just looking forward.
Speaker Change: To March.
Speaker Change: Obviously, you want to save most of it for us, but Paulo, just thinking about electrical global specifically I know you.
Speaker Change: Have an aspiration to improve the margins there over time.
Speaker Change: Obviously, theres just scales and economic advantages to Americas that maybe you can't ever be replicated in the global franchise.
Speaker Change: But what could you share with us about your view of what what can be done to kind of improve the margins in electrical global and maybe at least narrow the gap.
Speaker Change: Versus the big brother in the Americas.
Speaker Change: Thanks for the question. So first of all in March we're going to be talking about.
Speaker Change: Our long range commitments until 2030 for every segment, so you're going to have clarity not only electrical global book average segment, We report.
Speaker Change: To your question on working on the margins starting in 2025.
Speaker Change: Already see an improvement and this is based.
Speaker Change: Two biggest group of actions one is the benefits of the restructuring that starts to hit the P&L.
Speaker Change: And help us and the other part is as we start shipping those large orders that we have.
On the data center side, specifically, we also going to have more productivity gains from the volume coming up.
Speaker Change: There are many other things we can and will do one thing is to continue to complete our portfolio and step by step built the same strength, we have in North America, but also continue to drive our operations as Greg said, we're never satisfied whenever you know.
Speaker Change: Never get complacent, we always drive improvements there is still a lot to be done there, but not only in global even electrical Americas Theres a lot for us to go do.
Speaker Change: And the only thing I would add to that I think Paul is absolutely right is that as you heard and Olivier commentary.
Speaker Change: Mix has been a bit of a headwind headwind as well for our business. There when you see obviously some of the data around the OEM segment, the manufacturing segment, which tends to be a much higher percentage of our business in Europe, and those markets being down to the extent that they have is really Kurt.
Speaker Change: In that particular region from a profitability and so as that market.
Speaker Change: <unk> normalized and recover we should also see a natural improvement in profitability there as well.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Deane Dray with RBC you May proceed.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: <unk>.
Speaker Change: I realize this is a real time story here and it's a moving target, but just can you talk about tariffs potential impact vulnerabilities preparation you're gone through already.
Speaker Change: Yes, I can talk about that being so first of all we are on top of it we already we know.
Speaker Change: Potentially from depending on what is announced we know exactly what the trigger we have.
Speaker Change: More importantly than that I think we have a philosophy over time, we moved.
Speaker Change: Our production much closer to the consumption side so that.
Speaker Change: Decreases the impact of the tariffs, but we have a playbook.
Speaker Change: We've done that before we are ready.
Speaker Change: We know exactly where the where to apply and or commercial actions and we will do we're fully compensated the commercial actions if necessary hopefully not necessary, but if they come to force we're going to comply and we are going to compensate with commercial actions.
Speaker Change: Great. That's helpful I'll be staying tuned there and then Jeff was right. There was more data center questions. So just first of all that page six was really helpful. I. Appreciate all those specifics and Craig I also appreciated the confidence that you've expressed today about the long term growth prospects and data center would have loved to have her.
Speaker Change: That on Monday.
Speaker Change: As well, but so we got it today, just kind of share for us what the team's watching for for any changes at the margin in terms of build out expectations. I mean, we're watching hyperscale capex growth and you can check the box or has it been fine in the past couple of weeks, but how about that.
Speaker Change: Do your customers have been asking you for five year supply agreements.
Speaker Change: Just remind us those are not take or pay just how are those set up and whether there's been anything how youre watching those play out or any other indicators do you think are important.
Speaker Change: Yeah. Thanks for the question being I would say that the order.
Speaker Change: Comes from our customers to accelerate.
Speaker Change: And whatever we can do also in terms of technology through modular solutions that could accelerate our built you heard what Craig said the dangerous we've found ways to ask.
Speaker Change: Accelerate the build out which is great.
Speaker Change: But there are still sitting on seven years of backlog as of today. So there is more to be done there.
Speaker Change: In terms of the agreement is.
Speaker Change: It's not exactly take or pay but there are penalties for order cancellations are pretty sizable and I would say as we look back the last years, we haven't seen a single cancellation here. So.
Speaker Change: Most of the discussions we have including after the news. This week is about continuing to invest no no distraction on the news this week and continue to build and you'll see how our our negotiation pipeline development.
Speaker Change: Is developing in our backlog as well so I think the way forward continues to be to accelerate the build outs.
Speaker Change: I would add to that the problem was absolutely right. The things that we were we were concerned about prior to Monday, we are still concerned about today and the constraints around whether that's power availability, whether that site availability, whether that's labor availability or where there will be constraints in supply chain.
Speaker Change: As I mentioned, we do believe this market could grow much faster than what we're anticipating and quite frankly, the numbers that we're getting from our customers are much higher than the numbers that we're baking into our forecast.
Speaker Change: But we do believe there will be constraints, along the way and those were the things that we were worried about prior to Monday those are things that we're still worried about I think what happened on Monday with <unk> I think it's way too early to know how that will influence the evolution of this market, but as I said in my commentary if history repeats.
Speaker Change: Itself it should mean.
Speaker Change: Faster growth faster adoption.
Speaker Change: It could be a good thing.
Speaker Change: That's really helpful. I appreciate it to you in March.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Nigel Coe with Wolfe Research you May proceed.
Nigel Coe: Thanks, Good morning, everyone and.
Speaker Change: Thanks for the detail said, we appreciate all these end market perspective.
Nigel Coe: Just maybe switching gears to aerospace.
Nigel Coe: So you called out the impact of the Boeing strike in the fourth quarter.
Nigel Coe: You are forecasting a deceleration to seven 9% still very very healthy, but given the moving pieces that we have here just wondering if you maybe just give us some perspective on what you're baking in for OE versus all markets and perhaps commercial versus military.
Nigel Coe: Okay. Thanks for the question so we.
Nigel Coe: As you as you pointed out the market is really growing I think it's important that we give you the breakdown to be specific here with.
Nigel Coe: We see a low double digit in OEM and we see a single.
Nigel Coe: High single digit in aftermarket and then we see low double digit for both military and commercial and as in terms of the build outs, we watch what our customers are doing well.
Nigel Coe: We are ready for four dairen, including borrowings ramp.
Nigel Coe: And also Airbus is ramp, but as Craig said, we also we.
Speaker Change: Once we got prepared for it internally, we also take some caution in what we forecast externally we don't take.
Speaker Change: There'll be no doubt that as for face value. So we're a little more cautious in our forecast.
Speaker Change: And that was the that was the reason that in.
Speaker Change: In 2024 with all the difficulties.
Speaker Change: The industry in the year and stripes, we still met our commitments for growth for the full year.
Speaker Change: I'm sorry.
I conclude that the market too.
Speaker Change: Can you repeat your question I Couldnt hear you did you I'm, sorry, I heard the OE comments, but what about the ophthalmology company.
Speaker Change: That one.
Speaker Change: Aftermarket will be high single digits.
Speaker Change: Okay. That's helpful. And then just my follow on is is it.
Speaker Change: Around utility it seems like it's normalizing down too.
Speaker Change: Like a high single digit range for 2025, it's been running double digits for a long time, just wondering maybe just a bit more perspective on what you're seeing in utility end markets.
Speaker Change: And maybe just kind of thinking about that capacity expansion.
Speaker Change: That expansion as that comes online.
The potential for utilities to be accelerates as you can put some of that backlog.
Speaker Change: Okay, well thanks for the question again I would say.
Speaker Change: The answer in two steps the first one I'm going to remind you and everyone.
Speaker Change: What drives the industry and utilities, and then I'm going to talk about the effects at Ethan.
Speaker Change: And the first part I would say what drives growth in utility distribution, where we play.
Speaker Change: There is a big portion of replacement of aging.
Speaker Change: Infrastructure that you've probably heard about the second thing that drives the growth is also the hardening of the resiliency part so think about.
All of the natural events fires floods hurricanes et cetera duties are getting ready to be more resilient to phase those issues. The third piece is about the increased energy consumption.
Speaker Change: And also that part of that increase also as a datacenter started but there's more to it. So that's how the industry plays if you move that to Ethan.
Speaker Change: The effects above that in our company, you'll know that we are heavily weighted to the U S distribution.
Speaker Change: Network. So we expect this capex to be in the high single digits.
Speaker Change: And is consistent with.
Speaker Change: Third party forecast like S&P, or <unk> et cetera, and we're seeing this high single digit I want to give them even more clarity because I think it's important as you compare <unk> to other Alaska players. We see we're seeing this high single digit market, we see strong double.
Speaker Change: Growth in many of the high end of the offers which is most of what we do so think about switch gear regulators re closers capacitor. So that part of the market will continue to grow strongly double digits and there is an offset on the more on the lower value add.
Speaker Change: Of the chain, which is related to <unk>.
Speaker Change: <unk> faced Transformers, those poles Transformers, all line installation of equipment more of the hardware piece that some of our competitors are pretty focused on so it's a high single digit growth for us.
Speaker Change: But there is a double digit side that we like the most and the other part of the market is growing not so fastly. If you go outside North America. If you look at global I would say China continues to invest very heavily in utility right. Both in generation and renewables and also in transmission distribution.
Speaker Change: <unk> in China.
Speaker Change: And interesting consumption is increasing 7% is very big for accounts that side. So we also expect.
Speaker Change: Strong growth coming from that side of the reward as well.
Speaker Change: In terms of capacity about capacity.
Speaker Change: As part of our investments were also.
Speaker Change: Adding capacity to utility and we do that in a modular fashion, we'll do that in a way that can also serve other markets like a transformer could go into data center for joint utilities. Some of the switchgear can use can be used in other end markets. So we feel good about our prospects and the investments we are making.
Speaker Change: Great. Thanks, Tom.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from Nicole <unk> with Deutsche Bank You May proceed.
Nicole: Yes, thanks, good morning, guys.
Speaker Change: Good morning.
Speaker Change: Maybe just starting with a Mac has margin expansion there really impressive yet again this quarter.
Speaker Change: I guess, just 2025 guidance on the embedded like 10% to 40 bps of year on year expansion could you talk a little bit about.
Speaker Change: What's going on there is there may be some conservatism embedded or margins just getting to a point, where it's going to be tougher to expand them from these best in class levels.
Speaker Change: Thanks, Nicolas So I would say there is always space for us to improve margins.
Speaker Change: And it's also valid for electrical Americas, just think about all the manufacturing efficiencies we can generate.
Speaker Change: On existing facilities, but also the other facilities we are adding.
Speaker Change: Two the business there is still more for us to go do that so I don't think this is the top margin for this segment our reiterate that.
Speaker Change: This is one for 2025.
Speaker Change: Most of the.
Speaker Change: The growth will come from volume. So if you compare to prior year, starting last year, we already had more volume than pricing in our composition for growth. This year. The vast majority will be volume in our breakdown, which is something for you to consider as pricing normalizes.
Speaker Change: It's to be expected and this year as we are adding capacity in the 2000 projects, we are dealing with inefficiencies of the startups and startup costs. So.
Speaker Change: That's what makes.
Speaker Change: The comparable basis.
Speaker Change: <unk> strong year over year, but as Greg said before we always drive ourselves to a higher number and this is not different from electrical Americas internally.
Speaker Change: Thanks, Paolo that makes sense.
Speaker Change: And then you mentioned <unk>.
Speaker Change: Appetite for M&A in the prepared remarks could you talk a little bit about the current pipeline and areas of greatest interest.
Speaker Change: Sure.
Speaker Change: I would say our major areas of interest continued to be data centers utilities.
Speaker Change: Aerospace <unk> aerospace and in terms of the size of the acquisitions, while we're interested in doing in the short and mid term is to look at.
Speaker Change: Bolt on acquisitions that can accelerate our organic strategy, so electrical and aerospace would be the answer and the size will be more like a bolt on and to make a point bolt on definition for Eaton moved over time as well since we have bigger company and a bigger.
Speaker Change: Valuation, but it continues to be the focus of the team.
Speaker Change: Thank you Paolo I'll pass it on.
Speaker Change: Go ahead.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Joe Ritchie with Goldman Sachs. You May proceed.
Joe Ritchie: Hey, guys good morning.
Joe Ritchie: So I'll focus both of my questions on electrical Americas margin and so and if you go back a year ago Rewind. The clock you were expecting margins to be about 300 basis points lower than where we ended up in 2024. So I'm just curious I know that I know the growth was slightly better but.
Joe Ritchie: What other what other levers really kind of drove that margin expansion this past year.
Joe Ritchie: Yes.
Joe Ritchie: First of all I would say I'm very proud of that team really executing super well I think that's the first thing I wanted to say.
Joe Ritchie: And.
Joe Ritchie: We're executing well on the topline, but also executing well in their operations. So they run the business better than what we expected right.
Joe Ritchie: In the operations.
Joe Ritchie: This is one thing and we continue to drive also our supply chain to better results. So overall isn't operational performance improvement for the business that drove the.
Joe Ritchie: Extra margin.
Joe Ritchie: And Thats, how we acquired for this year as well we are dealing with those capacity.
Joe Ritchie: Capacity ramp ups, which again are going well.
Joe Ritchie: <unk> been developing very well, but the team is focused there and they would that they would be disappointed if they cannot beat their own numbers. So the spirit is still the same.
Speaker Change: Got it Thats helpful. Paolo and then I guess, just one follow up so the backlog is up 29% year over year.
Speaker Change: I mean, it's hard to imagine that the margins in the backlog today are lower than the margins in the back 12 months ago, but I don't want to put words in your mouth. So is there any color you can kind of give us on how the margins look like today in the backlog versus a year ago.
No. They are in line. They are in line with what we are presenting today.
Speaker Change: Largely in line okay, Okay, great alright, Thank you guys.
Speaker Change: Thank you.
Scott Davis: Our next question comes from Scott Davis with Melius Research you May proceed.
Scott Davis: Hey, guys I guess just officially afternoon. So good afternoon.
Scott Davis: Hey, guys I, just can you give us a sense of couple of clean up items here, but the 900 900 million of Capex, how much of that is growth versus maintenance.
Scott Davis: 700, 600 growth the rest maintenance is that a way to think about it.
Bye.
Scott Davis: All of that up in the past.
Speaker Change: Largely the 900 is going to be growth capex. The large proportion of that is going to be growth. The team is doing a good job of tree rationalizing our capex investments. We have managed to tell that has been the principle that Craig has implemented for number of years. So most of the capex would be growth.
Scott Davis: I would say 80%.
Speaker Change: Okay any percent that sounds about right.
Speaker Change: Guys just completely different from the conversation today, but does it still make the same sense to have E mobility as a standalone segment today as it did when.
Speaker Change: Your personal cash can't remember, whether it was like six six years ago, or maybe seven years ago, but.
Speaker Change: Got.
Speaker Change: It seems is there still does it still make the most sense to have that as a standalone and operationally standalone.
Speaker Change: So there are two questions. The first one is how do we run that as a separate question from a reporting standpoint, the dynamic of those two businesses is very different and we want to show to our investors. How those two businesses are evolving again depth to say different margin profile different growth.
Speaker Change: File so externally we will keep doing what we do today.
Speaker Change: But internally to your point, we are maximizing the way we run it for for synergies for.
Speaker Change: SG&A savings.
Speaker Change: We also will use.
Speaker Change: The electrical.
Speaker Change: And and the vehicle businesses, one hedging one another we experienced lower demand on evs.
Speaker Change: And then our internal combustion engine business could benefit on the programs in the long run.
Speaker Change: We believe we continue to give you the transparency we start giving you years ago I think it will be beneficial for all.
Speaker Change: And then just keep in mind fair enough. Thanks, guys.
Speaker Change: The technology synergy in many ways is more akin to our electrical business than it is to our vehicle business and so there is the customer piece, obviously much greater affinity with legacy vehicle, but from a technology and a product standpoint, much greater connectivity to the electrical business.
Speaker Change: Okay that makes sense, we will see you guys in March thank you.
Speaker Change: The remarks and gives you. Thank you our.
Speaker Change: Our next question comes from Julian Mitchell with Barclays. You May proceed.
Speaker Change: Yes.
Julian Mitchell: Hi, good afternoon I know.
It's been an hour so I'll keep these questions sure first one just on slide six again I just wanted to double check the 45% data center sales growth number on the left hand side just wanted to check what the sort of base revenue figure for 2023 that applied to because I know you've.
Julian Mitchell: Given us sort of $3 3 billion number before.
Julian Mitchell: But.
Julian Mitchell: 45% growth on that would imply only electrical sales growth was from data center, which I think it was broad based and that sort of any sort of help around that please.
Julian Mitchell: I appreciate the question Julian I know, sometimes it's tough to to make all the math foot.
Julian Mitchell: No.
Julian Mitchell: The first thing probably a point of clarification in terms of when we provide you data on <unk>.
Julian Mitchell: Segment, the data center set of numbers that we report.
Julian Mitchell: As a percentage of the total company. It is not only data centers. It includes the it channel. So you can't take that number.
Julian Mitchell: Extrapolate what happens in the balance of the businesses because that data center number it's not only the data center segment.
Julian Mitchell: But the way to think about it I think what youre trying to get to is that what was the growth.
Julian Mitchell: In the balance of the businesses when you strip out data centers and what I would tell you is that very much like we covered in my My chart in my presentation, where I talked about how these markets performed.
Julian Mitchell: Relative to our expectation we saw good growth.
Julian Mitchell: In commercial and institutional we had like high single digit numbers in utility.
Julian Mitchell: High single low double digit numbers.
Julian Mitchell: So we saw good growth in industrial.
Julian Mitchell: Mid single, but then it was offset by some declines in the legacy vehicle business. It was offset by declines in residential it was offset by declines in OEM.
Julian Mitchell: It really is once again very much consistent with what I laid out on slide four in the deck our businesses performed largely in line with those market numbers.
Julian Mitchell: We do appreciate the question because we know sometimes it's difficult to make the math foot.
Speaker Change: That's very helpful and based on the sort of capacity expansions, you talked about and the orders strengths.
Speaker Change: In data center, when we're thinking about sort of the 2025 and electrical revenue gross guides.
Speaker Change: Is that assuming sort of similar ish very strong.
Speaker Change: Growth rate in data center this year as well.
Speaker Change: True yes.
Speaker Change: The answer is yes.
Speaker Change: Perfect.
Speaker Change: We may not be counting on the same rate of growth as we experienced this year, but still very very strong growth got it and then one last fiddly, one aerospace flat margins for three years guided to expand this year any any color on the drivers. Please.
Julian Mitchell: Sure Julian I think the biggest driver here is operational performance we.
Speaker Change: We are not satisfied with.
Speaker Change: The way, we run our facilities the whole industry.
Speaker Change: Also went through difficulties in the last year. So there are still inefficiencies for us to go deal with but if you look on what we did in vehicle over timing, even more difficult environment. We managed to move margins up. So that's the mandate of the new management team to do the exactly same way.
Speaker Change: Leading vehicle in aerospace with the biggest advantage of dining aerospace we count on much more predictable orders, we have a very large backlog.
Speaker Change: And we can drive our own destiny here. So I think most of the margin improvement moving forward will be our homework that we need to do and that's the reason why we appointed leaders, we appointed and John SaaS in Aerospace, but also for Pizza, Inc, who led our vehicle business before two liter.
Speaker Change: Industrial sector, that's their mandate.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Chad Dillard with Bernstein you May proceed.
Speaker Change: Hey, good afternoon, guys. Thanks for taking the question.
Chad Dillard: So as AI data center shift from training to Inferencing on look I know, we can debate the pace at which just happens.
Chad Dillard: But how does of the electrical content intensity differ between the two different use cases or maybe it doesn't.
Chad Dillard: And all I guess I'm trying to understand like what's your products do you sell more of a lessor.
Chad Dillard: It depends on these used cases and maybe even before you answer the question.
Chad Dillard: How much of your data center sales are.
Chad Dillard: Cloud versus al.
Speaker Change: Okay. So let me clarify the question you asked us before weather.
Speaker Change: Changes like deep secret change what we saw was that the first part of your question versus.
Speaker Change: Yes.
Speaker Change: The shifts unlike training to implant.
Speaker Change: Just trying to get into Crimson electrical content intensity products.
Speaker Change: Okay. So great. So for US I would say I would comment on this as those breakthroughs.
Speaker Change: <unk> are to be expected thats. The first thing I would say, we will see more of that coming up.
Speaker Change: And we believe when there is more adoption as you probably are suggesting.
Speaker Change: We're going to have more inference data centers, then training data centers, but we are seeing that data center. We saw the exact same portfolio right exact same portfolio and what could be interesting I'm not making the industry forecast here because it's too early but if you have higher adoption in the data centers are built.
Speaker Change: Faster the inference data centers.
Most of the bottlenecks that actually created the biggest headache for data center operators will vastly go away.
Speaker Change: Instead of trying to accommodate gigawatt training centers, if you can accommodate.
Speaker Change: Much smaller energy consuming infant centers, the builds could accelerate and that could be a very good thing for us as well.
Speaker Change: It'll be the same transformers would be the same switch gear will be the same ups's inside the server hall and the software et cetera is the same portfolio more disruption there having said that where we are actually working really closely with our hyperscale and multi tenant data centers is how do we help.
Speaker Change: Them building faster.
Speaker Change: Growing theyre built and be able to.
Speaker Change: Develop this large backlog of seven years in a nice way that's the focus but we got calls with our key customers.
Speaker Change: After Monday.
The sentiment to the same nothing changed we keep pushing forward.
Speaker Change: The sentiment to the same nothing changed we keep pushing forward.
Speaker Change: Got it that's Super helpful. And then just one quick one.
Speaker Change: I don't mean titled can talk a little bit.
Speaker Change: Yes.
Speaker Change: Where are they first of all like a core products like switchgear Transformers and once capacity adds come on line in the second half of this year, we expect that lead time ago.
Speaker Change: Yes, so we.
Speaker Change: As we commented before we have.
Speaker Change: Two dozen projects some are expansion of our plants.
Speaker Change: Our new plants that we're building.
Speaker Change: And although there is no cliff event of a large one single facility that will move the needle.
Speaker Change: We see more of that capacity coming online in the second half I think that that's the best answer I can give you.
Speaker Change: And yes, we today, we look at lead times.
Speaker Change: We continue to.
Speaker Change: Work on them I think we are competitive, but they remain higher than historical levels.
Speaker Change: And we want to drive them down.
Speaker Change: Okay.
Speaker Change: Welcome.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Andy Kaplowitz with Citi. You May proceed.
Speaker Change: Hey, good afternoon guys good.
Speaker Change: Good afternoon, I think last quarter, you had talked about machine builders in Europe in residential starting to bottom out, but obviously you move residential to negative for 25% from your initial assumptions like ROE said that those markets get worse again in Q4 or are they just not recovering yet and then alternative Lee it looks like China continues to hold up for you I think you mentioned utilities.
Speaker Change: Maybe anything else that youre seeing over there.
Speaker Change: Yes, I would say that in terms of what happened at the end of the year, which has us incrementally less enthusiastic and rosy.
Speaker Change: If the fed cut interest rates.
Speaker Change: Everyone expected that to translate to an improvement in the residential market and borrowing costs for consumers and that quite frankly, hasnt happened as we all know and so I would say on the margin <unk> got a bit weaker.
Speaker Change: The Q4, and I would say on the MRM segment more or less a bottoming out we think that maybe there were some green shoots in them OEM, but specifically in <unk>.
Speaker Change: We've become less.
Speaker Change: Bullish on the RAC recovery, given the fact that interest rates have remained stubbornly high.
Speaker Change: That's helpful and then backlog up 29% of electrical Americas is in the end of this year I think it was up 18% last year at this time.
Speaker Change: <unk> forecasting slightly slower organic growth and 25 versus 24, I know you had some hurricane disruption in Q4 slowing revenue a bit but was there anything else that's slowed revenue in the quarter and then as the modestly lower forecast just a reflection of conservatism or maybe larger projects with longer duration.
Yes, I would say for.
Speaker Change: For the Q4, we had as Craig mentioned, we had some weaknesses in grassi.
Speaker Change: The low cycle business.
Speaker Change: And as we look forward, we continue to count on most of our markets growing nicely. We have a very strong backlog I would reiterate that and with the capacity of our plants running better the ones. We have and expansions. We are confident in the outlook, we're putting out for the 11 five.
Speaker Change: The mid point.
Speaker Change: They are a point out of those reasons, we mentioned it earlier is that.
Speaker Change: Historically, we would.
Speaker Change: We're living in an inflationary environment, we were getting more price and we've simply anniversaried a number of those price increases from prior years and quite frankly, our volumes are actually as we look forward.
Speaker Change: <unk> mentioned it was up on the commentary contributing more to our growth.
Speaker Change: And most of our growth going forward. So a big difference is also the relative amount of price that.
Speaker Change: We are experiencing in the business because.
Speaker Change: Because we simply don't have as much inflation as we've had historically.
Speaker Change: I appreciate the color guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from David Raso Evercore ISI you May proceed.
David Raso: Hi, I'll be quick I know, it's late sorry, the amount of capacity being added can you quantify to any degree across electrical I don't think I've ever heard what percent capacity do we think is coming on across electrical second half of 'twenty five and then with the full year impact should be in 'twenty six and then the dovetail off the comment.
Speaker Change: Sort of normalized now on pricing. This is more of a volume story when I think of what Youre describing the next couple of years on the electrical businesses your willingness to add capacity and you're already hinting at and we'll see how it plays out some cyclical recovery in your other businesses is there any reason to be thinking that you don't see this.
David Raso: Organic sales growth rate for say 25.
Speaker Change: Structurally something the company can do for for multiple years.
David Raso: Yes, we have.
David Raso: Question last quarter as well, Dave So I appreciate the question around capacity conditions and Youre right. We have not expressed it in terms of a percentage of capacity increase on the base of our total capacity.
David Raso: I think those numbers become a bit meaningless when you look at it in the context of our total manufacturing capacity and some 200 facilities more facilities around the world, but what we said is that where we have capacity constraints. We have made investments that are multiyear investments that.
David Raso: More than provide for the capacity to cover our growth forecast in those industries, and so where we're tight in markets like data center and products like Transformers, we've made sizable commitments to investments that allow us to cover where we are today in a multi year view.
David Raso: The capacity that we're going to need and so the company.
David Raso: Committed last time, we're in good shape.
David Raso: We will not be the bottleneck in the industry, we're making these capacity investments, we talked about $1 $5 billion of incremental growth capacity that we're putting into the into the businesses and that will cover our forecast and provide upside if markets tend to be a bit stronger than what we're forecasting and.
David Raso: And just to complement that.
David Raso: Craig explained really well and look forward that you're trying to imply we're going to talk about that in March at our Investor day, we're going to give you the breakdown of the segments and how we see the world and to 2030.
David Raso: Okay I appreciate it. Thank you so much thanks.
Speaker Change: Thanks, Dave.
David Raso: Thank you.
Speaker Change: And our last question comes from Bill <unk> with <unk> you May proceed.
Speaker Change: Hi, Thank you. Thank you for squeezing me in.
Speaker Change: There's obviously been some parts of the business, which has been soft it's not very soft for some time, so what youre seeing on the ground have there been any green sheets this quarter of market share gains, perhaps that you can talk to.
Speaker Change: In European Electrical European machine Oems.
Craig: I think Craig.
Craig: And these question on some of that but perhaps most of the U S side, but can you specifically talk to what you're seeing in Europe or non U S. Please.
Speaker Change: As a follow up I. Appreciate this isn't a strategy call. It was discussed that M&A was going to be focused on electrical and <unk>. So I guess I'm wondering on the strategic importance of the automotive exposure is something that you're going to be looking to talk to at the investor day in March.
Speaker Change: Hey, so maybe just on the on the Green shoot question, specifically as it relates to Europe. You are right that market has been it's been soft for some time.
Speaker Change: Most of the industrial data coming out of Europe in Germany, specifically continues to be quite weak, although having said that as you saw in our own number and you've seen our outlook in terms of our forecast, we do expect that market to be incrementally better in 2025 than it was in <unk>.
Speaker Change: 2024, and we are seeing a little bit of recovery in the machinery OEM market.
Speaker Change: We are seeing a little bit of a recovery.
Speaker Change: And some of the residential pieces of the European business, but still not not growth there, but so I think at this point.
Speaker Change: I'll have to wait and see and we we remained cautious specifically on Europe, given the macroeconomic environment there.
Speaker Change: We are forecasting growth, it's largely because they too are benefiting from datacenters. They too are benefiting from what's happening in the utility market and they are seeing some of the same macro mega trends driving growth in their business that we're seeing in the U S market and some of those are accelerating.
Speaker Change: <unk>.
Speaker Change: Great. Thank you.
Speaker Change: Yes, we're going to we're going to talk about the vehicle mobility in our Investor day that was the second part of your question.
Speaker Change: Going to talk about it in March.
Speaker Change: Okay, great. Thanks, very much guys.
Speaker Change: Thank you.
Speaker Change: Hey, Thanks, guys. We do appreciate about his question as always the IR team will be available to address your follow up questions. Thanks for joining us have a good day.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].