Q3 2025 Eaton Corp PLC Earnings Call
Fast forward a year to 2025 and invidious GB 300 chip. Now uses 180 kilowatts per rack
and it's only increasing from there in videos. Rubbing chip is expected to use 600 kilowatts per rack and it's Fineman chip. 1,000 kilowatts per rack.
Now, in addition to this higher power chips, require more and more electrical equipment, which is a great thing for our business. Once you get above roughly 50, kilowatts per rack, traditional air cooling is replaced by liquid cooling.
The physics of these power levels require liquid cooling for the chip; otherwise, performance is degraded, the chips don't last as long, or they might just not work at all.
So all the demand that you are seeing for G chips will drive, commensurate, demand for liquid, cooling solutions to cool those chips. The growth goes hand in hand.
Market estimates vary, but we believe that the global liquid cooling Market will grow around 35% annually.
Through 2028 just tremendous growth that is supported by long-term underlying factors.
And to go back to my point from the tires. Light, what is the global leader in liquid cooling? Which is why we are so excited about this business?
With the acquisition of voice. Ethan's data center, portfolio will now be even bigger than before shown in more detail on page 7.
We can now provide solutions for all major power and cooling systems from the chip to the grid.
This includes all of our traditional power distribution power, quality and infrastructure products in the data center gray space. And here you can see our other 2 recent acquisitions of fiber, bonds model our products and resilient power, medium voltage, source State Transformers.
And in the data center wide space, we can provide everything from power distribution units, remote power panels, and Buzz, way to racks, enclosures cable trays, and in 2026, liquid cooling,
And of course I need to mention our software and services capabilities which is historically have been focused on the grey space and the white space power distribution and power Quality Equipment only. And now we added the same service capabilities for a liquid cooling which we view as a really attractive Avenue for growth. Truly, an impressive portfolio solutions for data centers,
Moving to page 8, I already talked about how this acquisition bolsters, our data center portfolio and I also want to mention how it aligns with how our customers are thinking about the future Data Center, architectures.
Starting from the cheap house, there are really 5 main technology blocks that work outward towards the utility grid.
There's the thermal management system to handle heat loads primarily from the chip, but also from other heat generating assets like storage devices and power supplies.
There is white space, power distribution, and infrastructure equipment to get the power to the racks.
There's a great equipment to distribute transform and conditions, medium voltage, AC power down to low voltage, AC, and then low voltage, DC power.
There is Ethan assets to connect the data center to the grid.
And finally, there's software and services to monitor and manage all these power and IT assets.
So with this acquisition of void heater. Now plays a leading position in each 1 of those technology blocks.
Wallet. This is important as they seek to consolidate their supply base. Among a smaller set of stronger, more globally capable players.
And the other important reasons that customers are increasingly looking to integrate these various systems to drive increased technical performance and more rapid deployments
This is specially true in data center wide space, which is exactly where void plays.
So overall a really exciting acquisition for us.
And once that we know will allow us to continue supporting our customers today and into the future. Now let's give it to execute for growth.
Another exciting important pillar of our strategy.
So on slide 9, these are key leading educators in electrical Americas. This segment is clearly the head of our portfolio, and we have an execution plan to grow it even stronger and with increased margins.
our leading indicators on this page are proof points of the generational growth opportunity ahead of us.
They also showed that our team is executing well to capture this growth,
The visibility is unprecedented. So let me walk you through what we are seeing.
Over the last 2 years. The mega project announcements have increased a staggering 185%.
In the same time frame, our negotiations pipeline have increased 35% falling into rolling 12 month orders up, 23% on a 2 years. Stack in a book to view of 1.1.
For data centers specifically. The 2 years stack of rolling 12 month, orders are up more than 100% And the data center booked to bill is 1.5
electrical America's backlog is up 51% over the last 2 years of which data center backlog extends over 2 years
on a 2 year stack. Electrical America has grown 23% organically and within that data centers have grown 100%.
So the demand indicators, clearly support. Why we are so bullish for this business?
Our position of strength in the Americas keeps resonating across the market. We are proud to have the broadest portfolio of electrical products in the market to cultivate, strong, and trustworthy relationships, and to be the partner of choice to co-design, a Technologies of the future together with our key customers.
We thought about the focus to increase electrical Global margins. While we continue to make strong progress.
and let's talk about the growth rates in electrical Global now,
Our electrical Global organic growth is accelerating up to about 7% in our 2025 guidance for 4% last year.
Our 2030 Target of 6 to 9% growth. For the portfolio assumes about a middle single digit growth over the period and we are off to a great start.
We are seeing order acceleration, building, strong backlog and position to win for years to come.
We talk about being the right markets, targeting fast growing Market supported by secular Mega trends.
For example, the data center growth is impacting our business globally.
As governments and enterprises prioritize data localization and resiliency, we are partnering with our hyperscaler customers in various parts of the world.
And by the way, all these data centers need power and we got key beneficiary of our Global utility space as well.
And we have a broad portfolio with breath and capabilities. Leveraged across end markets.
All this enable us to win and position us to gain market share on a global front. The strategy is clear. And as you hear from alleviation, We are booking sizable orders already, which is momentum to position us for strong growth for years to come now I will pass to Olivier to walk through the financials.
Thank you, Paulo. I'll start by providing a brief summary of Q3 results.
Organic growth for the quarter was 7% driven by strength in iOS space, electrical America and electrical Global partially offset by weakness, in short cycle markets, including vehicle and e-mobility.
Almost 10%.
We generated quarterly revenue of 7 billion and expanded margins by 70 basis points to 25%.
Adjusted EPS of 3 and 7 cents increased by 8% which is at the high end of our guidance range.
Now, let's move to the segment details.
On July 12th, we highlight the electrical America segment.
The business continues to execute at a high level and delivered, another record quarter on operating profit and Q3 record margins.
Organic sales growth of 9% was driven primarily by strengthening data centers up about 40%.
Operating margin of 30.3% was up 20 basis points versus prior year, benefiting from higher sales and increased operational efficiencies.
Orders accelerated to up 7% on a trading, 12 months basis, from up to percent.
This represents a strong acceleration with total quarterly orders up sequentially, by more than 11%.
We are confident that we rely on all-time record level of orders booked in 2025.
Book to Bill remain at 1.1 and our backlog grew by 2 billion dollars or 20% to 12 billion dollars, providing strong visibility for our organic growth Outlook.
Large summarize the results of our electrical Global segment.
Total growth of 10%, included, organic growth of 8%, a very strong performance for the quarter.
We are strength in data center residential commercial and institutional and machine OEM
Regionally, we saw high single-digit growth across all three regions.
Operating margin of 19.1% was up 40 basis points over prior year, driven primarily by sales growth, partially offset by higher and patient costs.
Orders were up 2% on the holy on the rolling 12 month basis with mid single digit growth, in APAC, and emea.
Orders increased by more than 30% driven, by that passenger orders including sizable orders in the Middle East, and a large order with a hyperscaler in Scandinavia.
This represents strong acceleration with quarterly orders of sequentially 15%.
Backlog increased 7% from prior year while book to be remain above 1 on a rolling, 12 months basis.
Before moving to our industrial businesses, I'd like to briefly recap the combined electrical segments performance for CRI. We posted organic growth of 9% and segment, margin of 26.6%, which was up 40 basis points over a prior year.
On a rolling, 12 months basis, orders accelerated to up 5%. And our book to be ratio for our electrical sector increased to 1.1.
This represents continued acceleration with quarterly orders of sequentially by 13%.
We are very excited to capture growth from the robust demand with strong margins in our overall electrical business.
Page 14 highlights our Aerospace segment.
Organic sales growth of 13% remain at the high end and resulted, in Q3 record sales with broad-based strength, across all market and particular. Strength in defense. I aftermarket
Operating margin expanded by 150 basis points to 25.9% driven, primarily by sales growth.
On a 12-month basis, orders increased by 11%, driven by defense OEM and the aftermarket, which were up 16%.
And 14% respectively.
This demonstrates strong momentum with quarterly orders increasing over 9% sequentially.
Resulting in backlog, increase of 15% year-over-year and 4% sequentially.
Of a whole Aerospace posted a solid 3 and remains well positioned going forward.
Moving to our vehicle segment on page, 15 in the quarter, the business declined by 9% on an organic basis. Primarily driven by weaknesses in the North American car truck and light vehicle markets.
Margin are done, 160 basis points. Here of a year Premier League driven by lower self and higher and patient.
On page 16, we show results for our e-mobility business.
However you decrease 90% from 20%, lower organic, partially offset by 1% favorable effects.
Operating loss was $9 million in the quarter.
Now, I pass it back to Paulo to go over the remainder of the presentation.
Thanks, Olivia. Here on page 17 is our updated guidance for the year for organic growth and operating margins. We are firming our growth guidance range of 8.5% to 9.5%.
We will likely end up at the low end of this range in total primarily due to market dynamics in our vehicle and immobility businesses.
We are also reaffirming our margin guidance of 24.1% to 24.5% with minor revisions between Aerospace and immobility.
Moving to page 18. Here's the outlook for Q4, in our updated, guidance, for the year.
For the upcoming quarter, we see EPS of $3.23 to $3.43, representing 18% year-over-year growth.
We see organic growth at 10% to 12%, which is a re-acceleration of growth for the company.
And for the year, we are reaffirming our adjusted EPS guidance at 11.97 to 12.17 cents, which includes our near-term investments to position us for sustained long-term growth
and this represents 12% growth in earnings per share at the midpoint, which I promised you in March.
Shifting our perspective, I had to 2026 on page 19. We provide our view of end market growth assumptions for the year.
All in this equates to about 7% market growth rate and with some outgrowth is consistent with our 2030 organic growth. Kegger of 6 to 9%
I won't go line by line here, but this chart shows that we anticipate growth across our end markets with attractive growth, for over 70% of our portfolio.
In particular the data center distributed it in electrical vehicle, markets are expected to be the strongest at double digits.
We also expect solid growth in the utility and market, along with both commercial aerospace and defense.
in summary, we continue to see many tasks or sustained growth and we are confident in our end Market position into deliver another differentiated year in 2026 of growth and strong shareholder returns
Are you close with a quick summary on page 20?
We have a strong quarter, Q3 record revenue and an all-time record on segment profit and margins.
We are seeing unprecedented, demand, reflected in continued, order acceleration and growing backlogs.
Our strategy to lead, invest, and execute for growth is positioning us to capture generational demand and deliver lasting value for our shareholders.
We look forward to welcoming and integrating void into our business and satisfying our customers with a complete solution offering.
Bottom line, we have confidence in our guidance to close out the remainder of the year and we are well positioned as we go into 2026 and Beyond.
And we remain confident that our brightest days are yet to come.
And with that, we are happy to take your questions.
Follow for the Q&A today. Please leave me your opportunity, just 1 question and follow up. Thanks in advance for your cooperation with that, our alternate over to the operator to give you guys the instructions.
Our first question comes from the line of Andrew Oppen from Bank of America. Your question, please.
I ask good morning.
Good morning, morning, Andrew. Hi, Andrew. Yeah. So, uh, you know, I, I, I know orders, uh,
you know, maybe you guys don't want to talk about them, but the investors certainly do, uh, maybe we can talk about electrical America's LTM orders Outlook, uh, electrical America's orders continue to accelerate on an LTM basis. I think it was 2% in second quarter.
7% in the third quarter. So, uh, what's your expectation for orders in the fourth quarter and the beginning of 2026? If you're willing to talk about it, thank you.
Sure, thank thanks for the question. Andrew, um, based on the orders momentum, we had in Q3 in a very strong, October in orders and we also have a growth in our negotiations pipeline. We have a lot of visibility into Q4 orders, so we remain very bullish about orders growth. Also in Q4,
And I say that because we continue to have a specific project that we track in the pipeline that supports this outlook that I'm referring to for strong order acceleration of LTM orders into Q4. So we are bullish about orders.
Uh excellent. Uh, and maybe we can talk about electrical America's uh, quarterly Waters. Uh, you only disclose orders on LTM basis, but I I think externally we do estimate your orders on a quarterly basis and electrical America's, I think it was sort of came up, like mid 20s to close to 30% year-over-year. Is that in the pole Park? And is it close to 30%? Is it close to 25? Thank you.
Another great question. Thanks again. Um, you know, based on these LTM disclosures we make we know that uh people uh externally estimates, um, quarterly orders as well. I would say this direction, your estimate is in the ballpark. I would say it's towards the higher end of your estimation, uh, so we continue to see strong inflection in orders in Q3. And as I just said, we continue to see momentum in Q4.
But most importantly and I I would like to remind you and the whole team why we are winning businesses at this space. I think it's important. We talk about it.
We have to success because we have the broadest portfolio of electrical products in a in electrical Americas.
We have all the solutions and services we count on strong channels. And we also have deep customer and intimacy, so we co-design future uh Technologies with our customers.
And this allow us to be a leader. In several end markets. I'm not talking only about data centers, but we also leading utilities we had very strong orders in. Utilities, cni Etc. So, every investment we make into electrical America's actually scale across many different end markets um and as you know we expanding our footprint in North America as well to better serve our customers and to continue to capture more than our fair share of the market.
And at the same time, I would say this: that we are also in a position of strength.
that we have today and we need all this be orders because of the way we intentionally position our portfolio,
So we have proven to be disciplined, proven to be nimble Progressive and you'll continue to make the Right Moves to boost our growth. So uh we believe the the best days and years are ahead of this business yet.
And Andrew, there is a lot of focus also on the data center, and I hope to scale the growth on orders in this particular vertical. The growth in the Americas was very strong, close to 70%, with the same number for global, resulting in a total for the electrical sector of close to 70%. All the growth in the quarter was for data centers and hyperscale.
Okay, well, thanks so much. Yeah. And I just conclude and uh, just conclude by saying that we we are beating every competitor on the market in orders and part of this is attributable to the portfolio and our sales channels and the relationships, but parts of it is also to the effect. We invest in our footprint and our customers, feel comfortable, and confident, in giving us more orders versus other competitors. So, I think that's also a point that I would like to stress
Thanks so much. Well, I'll let others ask how Void was going to help you with that. Thank you.
Thanks. Thank you. Our next question comes from the line of Andy Kaplowitz from Citigroup. Your question, please.
Good morning, everyone.
From Megan, and I expect data center growth to be 17% over the next several years. But as you suggested today, even in the market, have changed. Even since your investor day with the market beginning to evolve toward 800-volt DC power architecture, and you added FiberBond, and now you're adding Void. So can you talk about what total Eaton sales per megawatt within your eventual new portfolio could be, and do you ultimately see the data center market growing considerably faster than that 17%, with Eaton outperforming?
Yeah, yes, great question. Um, let me lead with this, uh, we mentioned to you before that. We have the broadest portfolio of power Management Solutions for data centers. We had it already even before the announcement we made yesterday, but starting with the wide space products, the wide space is centered around the chips and moving to the Great Space, we have all this color product distribution, our quality products, and all the way to the front of the meter where we have a utility grid product. So we have a very expensive portfolio and the recent acquisitions we made made our position so much stronger. Um, and as you know, that data centers exist to support the chips, ultimately and that these chips become more and more powerful, especially in support of AI workloads. As you mentioned data center, operators are moving towards direct current
Um, why is that? Because the recurrent offers advantages in terms of reduced power losses,
Fewer conversions with alternate current and the ability to offer direct integration with other sources of power just like uh, Renewables and battery storage.
And Ethan is extremely well, positioned for this change. Not only because today our products touch every, uh, you know, conversion of AC and DC in the data center. But also because we have decade long experience, uh, with dealing with DC power, in other segments like Machinery, industrial facilities and also e-mobility, we're dealing with DC power for a while. Um, so this is another example that makes it a unique in this space and the the resilient power acquisition. We made, um, a couple of quarters ago actually accelerates our Readiness for DC integration, right? From the utility, feed down to the chips. So,
The question you made is how this can be possible. We are working with a number of customers. We are also working with institutions and governments, and we have a seat at the table to decide on the codes for the new systems. As you probably know, we are partnering with Nvidia, so we designed the data centers from the chip out.
On your specific question, on the dollars per megawatt. Um, our range was between 1.2 to 2.4 million dollars per megawatt, um, being the lower end, uh, clouds and being the higher end, AI loads for the portfolio. We have today. And with the acquisition of Boyd, we're going to add another 500,000. So it would be close to 3 million dollars per megawatt at the high end of the guide.
Here for, for construction.
Oh, that's helpful. And then meet us for Olivia. Your, your organic Revenue growth in electrical America. Is slowing Q3 versus Q2. I think the costs are pretty similar. I think, you know, you also have more capacity coming on. So can you give us more color on what happened in your end market? So it's, you know, maybe residential slower and I know you have a relatively big implied ramp in Q4, easier comps help. But you know, where is that coming from? Is it data center Revenue growth and how does that translate into 26?
So, if, if you look at Q3 the on organic growth for Esa, uh, we had 2 factors impacting, our uh, sales, um, to the downside 1 residential, being slower in September and 2, uh, some small orders, some orders being delayed from Q3 to Q4. Uh, we are confident that we would catch up in Q4, if you look at the
Implied revenue guidance for ESA would be in the range of 17% to 18%. We're confident in our ability to deliver this kind of revenue growth as we add capacity.
I like to compliment this uh Jew just just to complement whether this is absolutely right. I'd like you to take this into perspective this um myth of electrical America. So the midpoint of the guide, if you calculate the dollars are 80 million dollars 80.
Company is not comparable, it's not really important. If you compare versus the backlog, sequential increase, we had for the company. The backlog increase from Q2 to Q3 for the overall company is about a billion dollars. Being 600 million only in electrical America, so that's what give us the confidence. We have the right, uh, you know, number going forward. And then a reminder last year, we had also, um, a tough Q4 because we had impacts of strikes, and, and hurricanes. So the comparable as well helps in this case, year over year,
Appreciate the color, guys.
Thank you, Andy.
Thank you. And our next question comes from the line of Chris Schneider from Morgan Stanley your question, please.
Uh, thank you. I wanted to follow up on some of that Q3 versus Q4 commentary, but specifically more on EPS. So, Q3, um, EPS is up, I guess 8% year on year your guiding Q4 at the midpoint up to 18, um, you know, above the full year of 12. So, you know, is that just all driven by the Americas, um, you know, seeing stronger organic growth, which you just talked about, or are there other factors in here that's driving that, you know, start pick up in, in our, in growth? Thank you.
Mainly of the factors. Um, if you look at first the the tax rate last year, our tax rate were in the quarter for Q4 was 17.4%. We are modeling 15%. Uh the 15% is supported by discrete tax items. This is under our control so that would be half of the difference between the 18th 12th for the full year and the other half is a compare uh benefit. Uh, parallel mentioned that last year, we had the impact of strike and hurricanes, which impacted Epps and would benefit from the compare as well. So between the 18 and the 12, 50/50 of the gap between tax and the compare Chris.
And Chris, thank you. I have 1 element to this.
Just just just to complete the picture here. If you are just
Uh, by the two factors that Olivier just mentioned, the EPS growth will be around 13%, which is a little bit higher than the average of the year. So that gives us confidence that we can hit that.
Thank you, I appreciate that. And maybe if I could follow up with 1, you know, maybe more thematically around the void acquisition. I imagine that there was always been some benefits. If you were able to supply customers Power Equipment into both the gray and white space within data center, but it does seem like the ability to supply. Both is getting more important, you know. Maybe that's on the move to 800 volts, I'm not sure but I guess, you know, Paulo from your standpoint is the ability to sell into both the White and the gray space becoming more important. Um, and was that a big? And if so why and ultimately, is that kind of a big motivation for this acquisition, thank you.
Yeah, no, great question. If you allow me, I'd like to give you a big picture, uh, rationale the acquisition, we can deep dive on this particular topic, um, we are excited about the data center Market. We all know it's growing at a very fast pace, uh, but if you look at liquid cooling, in particular, is growing at even faster Pace than the average of the data center market. So you saw in your chart on in the low Point, uh, projection of the market is 35% kegger. So Market will be between 6 and 9 billion already in 28.
Uh, in 2030, we expect the market to be between 15 and 18 billion dollars. So it would be a massive Market.
Um, and I told you, I think it's important I I get back to that point. I told you last quarter that the white space became much more interesting for Ethan, given the Power Rangers that also going to the racks, uh, moving from a few kilowatts to a megawatt, which is at site now, and this makes a remarkable change in the way, we designed the Power Solutions to be more attractive, uh, for Ethan having no Mission critical Solutions here. And then if you look at the cooling part of it, there are technical synergies in the way you design, the white space from the cheap out. And that's why we are interested in in, in converting power and and cooling technology and knowledge to come up with better designs for our customers. Then why Boyd, I would say it would start with this firstly. They they really have similar DNA.
Ology and innovation.
Second, um, they are the market leader so that provide us with a scaled entry into the market, not the sub-optimal assets. We saw on the market before. This is a market leader, they have a global footprint which is uh impressive in all 3 continents.
Uh, and a best-in-class engineering team because they have around 500 engineers, and they are the best cooling experts on the market. So we like, what we see,
And we also like the way they sell it because they work.
Through technical sales, meaning they work intimately, connected with all the cheap companies. So, think about the merchant chips, like Nvidia AMG, but they also work on the captive proprietary custom silicon developers which are the hyperscalers. So they are in those development, uh, you know, projects for the long run. So they know, 2, or 3 generations, I had of what is commercial today. What's going to be delivered? Because they are part part of those projects. So, talking about synergies here. First of all, eaten, in our power power, uh, portfolio. We can leverage this connectivity. They have with the chip, uh, manufacturers and the hyperscalers, uh, on their own chips to leverage, our power system designs as well. So they have the customer and team and C on the other end we believe we can help them grow their, uh, collocation multi.
Planet Market, we have better access and better relationships than they do.
And then we also can help them reducing their cost position. Giving our purchasing power at Eton.
So this business growing really, really fast. Um, and um, this year, uh they're going to reach 1 billion dollars in Revenue. Next year, they're going to reach 1.7 billion dollars in Revenue, which is a staggering 70% growth. We double clicked on that during diligence. And their Q4 exit rate is already 400, which gives 1 6, if you multiply by 4 making. This 1.7 plan, not only achievable, but there is upside next year. So, I mean everything we saw, uh, from that angle made us believe that was the right asset to go after. Um, and we also know that, uh, we, we keep, uh, our discipline with the returns between 200 300 points, uh, being a critical on on year 2, so all the good stuff. So, the, the asset is fantastic, I'm really excited about, uh, winning this business, especially because we've been working getting them to know what
As a supplier first for over a year, getting to know the teams and the technology, we hired independent consultants to browse all the cooling players and all the inputs. We got pointed to Boyd as the best option for us. So when the asset came to market,
We were, we knew exactly what we wanted to check. We knew what plans we wanted to visit. We had an idea on the talent we wanted to retain. So, we were quick, we were fast and we won by certainty of our proposal, uh, fully vetted by our board. Not necessarily because we were beating higher than other folks. So, a great step for us, a great step for the business. And we believe that uh, combining these 2 Technologies in the future will bring a lot of wins for the company. Even though I say, we didn't need to put much of the synergies into the model to make the math work because the business growing so fast that it wins on its own merits.
Thank you po, really appreciate that.
Thank you. And our next question comes from the line of Joe Richie from Goldman Sachs. Your question, please.
Uh Hey guys. Good morning.
Morning, Joel. Hi, Joel.
Hey, just, um, Paula. Maybe just, uh, continuing the conversation on Boyd. I'm just curious, um, when you think about this asset and how long they've been providing liquid cooling or CDU solutions to data centers, maybe help us provide a little bit of the history on that. And then, secondly, I'm trying to level set. Um, the portfolio of their business that you've laid out on slide 5, I'm curious specifically how much is liquid cooling, how much is cold plate? Does any color you can give us on that would be helpful.
And then, when cooling became a reality in the data center space, they migrated to cooling in data centers.
you should think about um void as over 80% of the revenues are in the data center space and the other 20% are divided between
Aerospace and Industrial applications. So,
The the data center part is growing at much faster Pace as you as you know. But the Aerospace part is also interesting. We were working on our own projects to achieve exactly that. And now with our technology, we don't need to continue with those projects any longer in Aerospace. So it's also important, but not any close to the growth rates that we see in data centers.
And as you think about void, they are not a um, don't think of void as, uh, cold Plate Company. They are the cooling experts.
On the market when you have 500 engineers and you are embedded into 2 or 3 generations of chips ahead of the world's commercial today. You know, what's going to happen in the next 5 years and you are designed in and it's almost like the same behavior we have in the Aerospace selling. You get to develop something with your customers, you win, and you are in the platform. The difference here is that the Aerospace platforms change. Every 30 years and the chips change every 18 months.
So, they are ahead. They are ahead of the curve for the new designs to come to reality, which gives them a lot of advantage. They're going to explain what I mean by that when solutions are stable. People will try to copy and do it cheaper. When the design is changing every 18 months, there's no way a company can catch up with them unless you have a seat at the table and you're working with the engineering teams of your customers. That's exactly how they play. So, we felt really comfortable with that.
And then they have a long range of products, uh, in the cooling space and they also have systems and they have systems capabilities. So, the way to think about the future of this business is whatever. Makes more sense to the customers, they will develop and they will implement.
They will not be fighting for product, a or product B. They will always be offering the best solution to make the chips. Uh, work perfectly fine. So that's how they are wired. Uh, we love the way, they conduct themselves and we talked a lot about engineering side of it, but they also have
You know, great footprint with plants uh, in Asia Eastern Europe, um, North America and you know, talk The Edge uh, you know, link qualities as well. So it's a well-run business and we know we can scale. We know, we can scale that business and we will
well, then just
So, you know, you've grown the backlog by about 2 billion dollars, uh, year-over-year. It sounds like you have an expectation. It'll continue to grow, uh, through the end of the year. Just just, how are you? How are you thinking about 2026? Just given the strong growth that you're seeing and, and potentially continuing to see backlog growth in EA in 26?
Yeah. So particularly on electrical, America's...
through Q3 we saw this backlog growth of 20% which includes 9% organically and on, uh, you know,
LTM basis or book-to-bill was 1.1. As I said before, we were supported by higher growth in our end markets, and also, because as I said before, we are investing in the customers who are trusting us. So, great results for Q3. As we look into Q4, I said before, we are bullish about orders growth. Once again, in Q4, we see momentum in negotiations for orders. So, it's very possible that our backlog at the end of 2025 will reflect this growth.
Will be up year-over-year at similar growth rates. Sq3 was versus last year, so, um, their indications that could be possible and the book to book would also improve uh, Beyond 1.1 as a consequence, uh, for 26. Uh, the second part of your question. I would say it's a bit too early to call, uh, we will have more to share when we provide our guidance in February 1 thing is for sure. I want to share with you. We will start 2026 with record backlogs and enormous just enormous visibility into the fiscal year. That that's a guarantee.
Thank you.
Hydro Koi from Wolfe. Research your question, please?
Oh, thanks guys. Good morning. Um, just want to change gears a little bit here and maybe talk about Aerospace, uh, particular to unpack the, uh, the drivers, um, of the error performance and in particular, the margins and, uh, obviously a very strong leverage there. So, just just wanted to understand what's driving that
Okay. Great. Thanks. Well, you probably remember, uh, Nigel, that we shared in March a plan for the Aerospace business to go to 2030 and to reach 27% margins. John Sapp explained that to the whole team. I would start by saying that we are on the right track to deliver on our 2030 commitments.
I see great performance by the Aerospace team this year that supports my statement. I'll give you more detail on that.
Uh, firstly, I want to say, which is really important for this business. They landed historical wings on new platforms; they were available, uh, defense platforms. So those historical points will give us.
a lot of Revenue decades to come. So, the long term view of this business is fantastic and incredibly strong.
For the short term. I'm again, proud of the team as they keep ramping volumes. Uh, consistently and improving customer satisfaction while they do that, which is also great. So, if you compare this business last year, we grew 10%. Uh, and this year, we yet again, raising organic growth. Um, guidance up 100 basis points to the midpoint of 12% this year, which is a great year-over-year performance and on the margin front.
We start to see upside from some of the key strategic levers which are driving already, 70 base points of margin expansion. So I would say, we are on track to reach the 27%. Uh, margins, we promised for 2030. You asked for details where we are working to improve margins. The first thing is no surprising the industry supply chain. Uh, we invested in AI tools to improve planning and the connectivity between our suppliers and our customers including our plans. This is going well. Second we are, we are investing in the manufacturing Excellence, improving the way Aerospace runs the show and and it's also going the right track. Uh, and third, I would say this, we also, although there's not the massive investment, we we had in electrical Americas, Aerospace is also expanding a couple of plants and they're doing that very well, but that growth is basically getting more product out of the same facilities they have, which is great, performance and forth. I would say
This, um, we talk about portfolio management both for the short term and for the long term. I see also green shoots here. Um, you heard me saying before we treat every GM as a portfolio manager, so John Sapp and his team took care of some contracts that we saw as a tail of the portfolio, and they renegotiated those contracts, which will give us better margins in the future. And the other thing I want to highlight, which the team also landed, I don't want you to forget, is that the Ultra PCS announced deal is a great example of an asset we acquired that would add to the top line in terms of growth acceleration, and we start adding to the margin, being accretive to margins right away. So it's a great asset, and we expect now to close this year, uh, in Q4 rather than the beginning or the first half of next year, which is also great news.
So I would summarize by saying I'm proud really proud of this team and I'm confident that they will deliver on their commitments towards 2030.
One additional statistic, Nigel. If I'm, if I met the 12% revenue guide for the year, we will also assume backlog growth. So, we're not flushing the backlog; we are going fast and then prior year and adding to the backlog. As a reminder, the backlog in Q3.
Was uh, 15% 1 5 higher than it was a year ago.
Yeah, that's great. Thanks, guys. Um, and then second, with margins, there's a lot going on in the Americas margins. Uh
Price tariffs, investment, spending, etc. Uh, there will be a lot of volume leverage as well. So, just wondering how we should think about incredible margins in 2026 and how that all plays out. Thanks.
Good.
Produce very good margins. Um, and why was this possible first because uh we had a backlog we could uh deliver on second because the team now covers for uh, all the Tariff costs and is not, you know, uh a drag on the margins. So it's not only recovering on the dollar by Dollar basis uh, by the end of the year now but also uh is not dilutive to margins which is great news. Um, where are we now in electrical America, that that's exactly, uh, the discussion we should be having think about a business that has been, um, growing consistently with the same portfolio of plants and out of the Sun and now they're expanding 12 facilities at the same time. So 6 are, you know, built and they start to ramp other 6 are in building phase so it's a lot of activity in that business preparing us to
Start a new s-curve, a new chapter of growth for the business. That's the way to think about electrical Americans.
Um, our customers trust that, and it's proven by the amount of orders that are giving us, which is.
It's just fascinating to see that quarter after quarter, so that business is exactly getting ready uhhh for all these demand that we announced the, the expansions of the right time. We realized that all this order momentum, we have, we need to accelerate Investments, get the people ready, so we can produce on this backlog that we count on today. And with all that, we have over a 100 basis points of inefficiencies, minimum that we have by dealing with those inefficiencies and all this turmoil or ramping 6 facilities at the same time. So we're going to give you full guidance uh in February for 2026. But in 266 you should expect that we will continue to ramp. So some of those inefficiencies are still going to be there, but they're going to disappear over time and then we can print even better margins for electrical Americans.
Great. Thanks p.
Our next question comes from the line of Jeffrey Spragg from Vertical Research Partners. Your question, please.
Hey thanks. Good morning everyone. Um, morning, morning morning. Hey, good morning. Um, hey a lot of ground covered. I just want to come back to Boyd 1 more time at least for me just a little more color sort of on you know some of the the deal assumptions. All of that was very helpful, giving us the 1 billion, the 1.7. That was part of my question but this 25% margin
that you're pointing to is that uh they're organic margin and is that kind of comparable to eating uh accounting or do you have some synergies baked into that number
No, this, this is Darren Margie. This is Darren margin. Yeah, today
and then and then so if you think about,
Synergies, you know, you you alluded to revenue synergies working together. I would assume you're maybe not ready to totally, um, you know, kind of give us a number on that. Although the 500,000 of content certainly is a is a starting point. But how about on the cost side? Is there a cost story here too? Or, um, you know, coming out of private Equity. Maybe, uh, these guys have a lot of capacity, they need to add or something kind of, keep up with this demand, should we just think about, um, you know, kind of investment for growth as opposed to, you know, kind of cost related synergies as part of the uh earnings algorithm?
Yeah, when we have both, um, I will say this.
Um, I'll go back to the deal, uh, criteria. So it's clear that we main discipline. Um, this dealer living between 200300 basis points over the cost of capital is going to be a creative on year 2. And uh, I said before, we didn't need to use the synergies, to make the, the business case work, given all the growth that they have in in, in, in the pipe. But if you look at the energy, the the the multiple, after the synergies,
Um, Olivia, I can give you more details on how we're going to run. Uh, you know, uh, the financing Etc, we also checked our leverage point and we believe that after uh, the deal we're going to still be at the same credit rating as today. So that would not be affected. You want to add anything a little bit to it, nothing more to to add. No.
Okay, I'll leave it there. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Steve Tusa from JP Morgan your question, please.
Hey guys, thanks for fitting me in.
Thank you.
Um, so just to kind of clarify on the fourth quarter here. Um, so I guess what you're saying with the EA revenue is that the resi stuff remains weak and uh, some of these other nits and Nats that were 1 time issues, you know, ship. And so, um, I I, I think the midpoint of the prior range was higher than 18% Revenue growth, um, is that basically the resi impacted 4q
Yeah, so you you got this correctly uh Steve uh I'll go back. So we if you look at the the sequential Revenue growth for electrical America's around 200 million, we are confident we check plants by plants, 1 needs to happen. And um this is around 5 to 6%. Uh, you know, sequential growth and this is possible because new capacity came online.
Line in Q3 and we are wrapping up as we speak. Uh, in terms of the miss you mentioned, which was half of the Miss uh, to the middle of the guidance on growth. You should think about this as being less than 1 day of sales.
Right, so think about whole quarter and they missed less than 1 day of sales. And this is going to be a carryover for us in Q4. So that product is on the pipe. It was on the shop floor and now becomes a Tailwind for Q4. So this is 1 uh element for you to consider. That's why we believe the strong double digit growth is Possible, having this carryover from Q3 that we were working on, we couldn't deliver. And that the second thing was that last year is the easiest hump, uh, of 2024, which the growth was only 9%. So we believe it's possible to achieve that
Yeah, that that that makes sense. I I like only 9% growth. That's uh,
Not not exactly the the easiest comp in the grand scheme of uh of the economy. But I understand for you guys, it's kind of a different uh different scale. And then just lastly following up on Nigel's question. Um, on the margins, I think your margins are guided this year down 50 dips and you know you have this 100 basis points of of inefficiencies, but you're also absorbing you know, tariffs and maybe like uh a deal, you know here and there this year. Um like why why why wouldn't it better than you know down modest?
Next year, like does the 100th get worse next year or does that a little bit better? Um, you know, you you should be able to kind of, in my view engineer to something that's, that's at least up a little bit. Um, you know, for next year for EA. Yeah. So on the first part of your question, of course, we're dealing with those 4 different deals and we are investing and we don't regret doing that because that makes our position so much stronger.
We cannot continue acquiring companies that that pays, you shouldn't expect that next year, right? We need to digest those deals. They were the right deals in the right time, the right place. So we cannot continue to, uh, you know, make Acquisitions of that pace for per year, is not what we're going to do. So that addresses, the first part of your question, um, and of course, the business is making things better as we speak every month, every day. And you should expect that. Those inefficiencies will go away as more of the plans that we start to ramp up. They become mature, I only caution you uh, it's too early to give you guidance for 26, dog in February and then we're going to give you more detail on the plan. I need to meet with the team to see the, the the buttons are planned myself. They're working on that as we speak. But directionally think about this last deals. Next year, we focused to digest what we acquired this year. Um, and then, in terms of efficiencies, should start getting better over time for
Would like to call Americas. As we mature, the footprint
Yeah, that makes a lot of sense. Okay, thanks a lot.
Thank you. And our next question comes from the line of Dean. Trey from RBC your please.
Thank you. Good afternoon everyone.
Good afternoon. Good afternoon.
Just want to follow up on Jeff's. Question regarding capacity Investments and particularly for Boyd. Um, we talked about the 70% growth expected for 26. How much capacity do they need to add, you know, 1 of their key competitors announced they're doubling capacity. You said boy to 16 Plants, just what's in front of them in terms of capacity? And really what are you solving for? You know, is there a backlog that you have in mind uh that you know, you don't want to exceed in terms of you know how much uh capacity you'll you'll be adding
So this was a key part of our diligence, um, and we double clicked on that.
They are ramping 2 facilities, large facilities um 1 in Asia and 1 in North America. Uh they have
Ordered they have equipment in place, that hiring people that high pace and then all the long-term, the long lead items, the long lead capital goods, Machinery, Etc.
Are ordered already. So the capital plan is well underway, and so whatever is required for 26 and 27 is already in the pipe. Um, and then we feel really good about um, their capacity to ramp. Because we were, we saw those plans. Uh, we saw the exit rate now, in Q4 already in the ballpark of uh, the revenue numbers for next.
Year. So yes they are investing. They are growing, uh, the Investments already in their plan and over time, uh, it could well happen as it's happening with, uh, you know, fiber bond that we can accelerate an augment, their wings. And then we can come to a decision later on to invest even further, but today is not required. It's all in.
That's uh really good to hear and then just a follow-up. Uh, we appreciate the update on the mega projects. You all have been really good about providing some data points uh giving your perspective. Uh yeah. Can you talk about the number of projects you see today and your win rate?
Yeah, great. Great question. We didn't have a slide. We plan to have a slide here before we close the deal, so we needed to remove it. Maybe next quarter, I’ll bring it back.
So um, another another very strong quarter uh, record announcements once again, so in Q3 the mega project, announcements reached 2,000, sorry 239 billion dollars, which is up 18% year-over-year. And if you think about this sequential growth from Q2 is almost 50%. So, very, very, very strong quarter. Um, you look at what the composition of those Mega projects, um, you would expect a big Port of it, be data centers and it's true. It's almost half of the total, but
But the other half is not data center, which also greatly diversifies the market. Uh, and if you look at what's happening, uh, I gave you data about starts and announcements last quarter. If you look through September and you look back from January to September, average announcements per month are reaching $65 billion. And the starts for all nine months are only $100 billion.
so there's a lot of things to still come, uh, to the markets a long Runway and the backlog today around 2.6 trillion dollars, so it's up 29% from last year. So
Astronomical numbers. And if you translate to us uh we won around uh 2 billion dollars in orders. We have uh a negotiation pipeline. Now we are active on negotiating other 4 billion inish in products and and solutions. And we win around 40% of what we be done. So that's a very strong, uh, win rate, um, with all those numbers and you compare the potential to what we booked so far.
I hope you're going to get to the same conclusion, I got, which is those large projects typically, take between 3 and 5 years for announcement to our revenues. So think about this as a, a great great Tailwind for extended duration of the market growth that we have for even a longer period of time.
And then 26 versus 25, about 45%, and all those numbers are higher than what they announced the prior quarter. So, many triangulation points.
That's a good point. Thank you. Thanks Olivia.
helpful, we can take a last
Thank you. We are over time, so let's go for the last question, please. Certainly, our final question for today comes from the line of Scott Davis from Mio's Research. Your question, please.
Hey guys, uh, and uh, congrats on, uh, the numbers Etc. Uh, or the Outlook I say is, is very encouraging. Um, hey just a couple clean up items because I think you've touched on 9% of what matters here but the capex, I think you were guiding to kind of call it 1.2 billion this year. And next combined are you, are you at the point where you may need to upsize that 26 capex? Number given the the order book,
We believe, so we will be higher in capex. In 26 versus 25. We have said that constant uh, in a consistent manner. Uh, we think we're going to have leverage. You go back to the question from Paulo on the capex, we had deployed in 25 26 would be a pick and then would go back to these 3, call capex as a proportion of Revenue. You had the at on
As of 27, right? As of 27, correct.
So you should think we are actually accelerating our accelerating, our our our hiring and our ramp. Now, on the existing uh uh, you know, expansions we announced already
Okay.
Uh, that's helpful. And then, guys, just again, another cleanup item: where do we stand right now with channel inventories? Are they back to kind of more normal levels?
Yes. Um, so we we have, we, we, we have a closer look, uh, with our Distributors. Um, I think gratzi reached bottom, um, in my opinion. And then we see other markets that are coming back Really, really nicely. Uh, distribution it, for example, recovered, uh, not only in North America, but also in imia, um, you know, double digits, uh, orders growth, our utilities business came back very strongly now, as well in terms of orders, um, strong double digit growth. Um, so this is coming back, um, whereas is still down, uh, the it back. Um, and then utilities very, very strong orders, which we didn't have, uh, an opportunity to cover by utility business did really well in orders as well in Q3.
Okay, I'll pass. I'll pass on. Thank you guys.
Thank you.
Hey thanks guys. Uh, as always in the our team will be available to address your follow-up questions. Uh, thank you for joining us. I have a nice day, guys. Thanks everyone.
Thank you, ladies and gentlemen. If you're a participant in today's conference, this does conclude the program. You may now disconnect. Good day.