Eaton Corp PLC

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Third Quarter Earnings Call. At this point, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions. If you'd like to ask a question on the call today, please press 1, then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you should require any assistance during the call, please press star-0, and an operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the call now over to Mr. Yun Jin, Senior Vice President, Investor Relations. Please go ahead.

Hey, good morning. Thank you all for joining us for Eaton's third quarter 2022 earning call. With me today are Craig Arnold, our Chairman and CEO, and Tom Okre, Executive Vice President, Chief Financial Officer. Our agenda today, including the opening remarks by Craig, then he will turn it over to Tom, who will highlight the company's performance in the third quarter. As we have done our past course, we'll be taking questions at the end of Craig's closing commentary. The price release and the presentation we'll go through today have been posted on our website. This presentation includes adjusting earning per share, adjusting free cash flow, and other non-GAAP measures. They're reconciled in the appendix. A webcast of this call is accessible on our website and will be available for replay. I would like to remind you that our comments today will include the statement related to the expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and presentation. With that, I will turn it over to Craig. Thanks, Sean.

And we'll begin with the highlights of the quarter on page three. And I'll start by noting that we delivered another very strong quarter and have again posted a number of all-time records, including adjusted earnings per share of $2.02, which is up 15% from prior year. This, despite negative impact of FX and the divestiture hydraulics business, which took place in August of 2021. Our organic revenue growth also continues to accelerate in the quarter, up 11% in Q2, to up 15 percent in Q3. And I think, encouragingly, we had strength across all of our businesses, with exceptional growth in electrical Americas, in vehicle, and in mobility. We also posted all-time record segment margins of 21.2 percent, up 130 basis points over prior year, and above the high end of our guidance, with incrementals of 38 percent in the quarter. I'd also note that our team continues to manage price effectively, more than fully offsetting the impact of inflation. As noted here, orders continue to accelerate in the quarter as well. On a rolling 12-month basis, electrical orders increased 27% versus 25% last quarter, and our aerospace orders increased 22% compared to 19% last quarter. This order strength, I'd say, also led to another quarter of record backlogs in electrical, which were up some 75%, and our aerospace backlogs increased by 17%. Lastly, you know, we did start to generate positive momentum in our cash flow results. We had a strong year-on-year performance with operating cash flow up 29% and a 30% increase in free cash flow. And our free cash flow as a percentage of sales was 15.6% in the quarter. So as expected, we're starting to see improved cash flow from both higher earnings and improved working capital performance. Moving to page four, and before I turn things over to Tom to go through the quarterly results, I want to highlight a few of the key themes that are really underpinning our confidence in our long-term growth outlook. As noted here, we continue to benefit from the three secular growth trends that we reviewed earlier, electrification, energy transition, and digitalization. And while still in the early stages, we booked some $700 million of new wins in the quarter that are directly tied to these trends. Within electrification, you've all read the announcements of the very large number of manufacturing projects in the U.S. that include new semiconductor facilities, big investments in new electric vehicle manufacturing plants, new EV battery investments, and investments in EV charging infrastructure. In fact, there's been some 1.3 trillion of new projects announced this year alone. And the impact the stimulus bill has yet to show up in these numbers. These incentives will point towards large investments that are tied to improving electrical infrastructure and will deliver significant benefits over the next few years. The next large growth driver is energy transition, the move away from fossil fuels to renewables that's taken place for a number of years now, and this trend will only accelerate. And with every renewable resource addition, it requires electrical infrastructure. But it's not just, I'd say, connecting power to the grid. It's also investments in technology to keep the grid stable, to manage different sources of electrical power, investments in batteries to store excess energy. And these are all products and services that we naturally provide. Beyond renewables, we're also seeing an increase in investments relating to improving grid resiliency, which has become a priority due to extreme weather events and really the demand for and need for energy independence. And lastly, our emerging digital society will drive higher selling prices as we add intelligence to our legacy products. We'll sell new value from data and insights and create new software solutions, all of which require data centers, an important growth segment for Eaton. These, I say, are just a few of the reasons why we remain confident in our electrical businesses and their ability to deliver higher levels of organic growth for some years to come. And as slide five reflects, we have a number of attractive growth drivers in our industrial businesses as well. I'll begin with the most notable one, vehicle electrification. Here, the outlook for EV penetration continues to accelerate with new announcements coming almost every week. And I say here not just in passenger cars, we're also seeing increasing need for electrification projects in commercial vehicles, some for the entire system, but often for a subsystem of the vehicle. And I'd also note here the opportunities we're seeing tied to the acquisition of royal power are much larger than we anticipated, and our e-mobility pipeline continues to be very robust. Just as a point of reference, you know, our opportunity per vehicle on an EV is some 18 times higher than the opportunity that we have on a traditional internal combustion engine. And you'll recall, We expect our e-mobility segment to become $2 to $4 billion in revenue over the next number of years. The next growth driver is tied to what we're doing in our legacy vehicle business, which is finding new applications for existing technology. We're seeing a number of new opportunities for our commercial engine brake technology, for our mechanical gears that are used in electric vehicles, and for our advanced valve train actuation technology. And in all three cases, we've already booked significant new wins here. Third, we're benefiting from the aerospace industry growth cycle, which over the next several years will continue to accelerate. Commercial passenger growth is continuing to improve, and it's translating into significant growth in commercial aftermarket orders, which, by the way, were up some 40% year to date. And commercial OEM bill rates are forecast to grow some 15% over the next four years. Lastly, I'd note that with our positions of Syria and mission systems, we expect to see even better growth given our position on high-growth platforms and as we begin to realize sales synergies. So overall, just stepping back from this particular set of initiatives, we've delivered some $250 million of wins in industrial, and when added to what we noted in electrical, we delivered almost a billion dollars of growth tied to these secular growth trends in our markets. So, with that, what I'd like to do at this point is turn it over to Tom and ask him to walk through the quarterly results.