Eaton Corp PLC

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton First Quarter 2024 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. Should you require assistance during the conference, please press star, then zero, and an operator will assist you offline. And as a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Yan Zhen, please go ahead.

Hey, good morning. Thank you all for joining us for Eaton's fourth quarter 2024 earning call. With me today are Craig Arnold, our chairman and CEO, and Olivier Leonetti, executive vice president and the chief financial officer. Our agenda today includes the opening remarks by Craig. Then he will turn it over to Olivier, who will highlight the company's performance in the fourth quarter. As we have done our past course, will be taking questions at the end of Craig's closing commentary. The price release and the presentation we will go through today have been posted on our website. This presentation includes adjusted earnings per share, adjusted free cash flow, and other non-GAAP measures. They are all reconciled in the appendix. 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 We'll include the statements related to the expected future results of the company and our, therefore, forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described into our earnings release and presentation. With that, I will turn it over to Craig.

Okay, thanks, Shen. We'll start with some highlights on page three, and I'll lead off by noting that we've delivered another strong quarter this year. Our adjusted EPS was $2.40 in the quarter, well above our guidance range, a record for the quarter, and up 28% from prior year. I'd also note that our orders came in ahead of expectations with strong order growth in electrical, both the Americas and global. On a rolling 12-month basis, total electrical orders were up 7%, and aerospace orders increased by 2%. This led to another quarter of growing and record backlogs, up 27 percent for electrical and 11 percent for aerospace, with strong book-to-bill ratios. The growth in orders and backlogs support our point of view on the strength of the megatrends that were in the early stages and that our market should be strong for years to come. And given our Q1 results, we're raising our guidance for organic growth, segment margins, and adjusted EPS for the year. On balance, we're very pleased with our start to the year. In the last few quarters, we shared our framework on how we think about key growth drivers for the company. This chart reflects the six secular growth trends that are positively impacting our businesses today and, quite frankly, for years to come. We continue to think Eaton is uniquely positioned in most of our businesses and are expected to see an acceleration in market-driven growth opportunities for years to come. In the last three earnings calls, we provided a summary of progress on infrastructure spending, re-industrialization, utility, and data center markets. We also shared the data we're tracking on megaprojects, including when they are expected to have a material impact on our revenue, and an overview on the growth expectations and drivers for our aerospace business. Today, we'll once again provide you an update on what we're seeing on megaprojects We'll also take a moment to show you the momentum that we're seeing in the non-residential construction project market for those projects under $1 billion. Additionally, we'll provide you with a summary of the growth outlook for industrial facilities and how we're positioned in this market. And lastly, because it's such a dynamic topic, we'll provide an updated view on how our now higher growth expectations for the data center market is unfolding. Turning to slide five in the presentation, we summarized the number of megaprojects that have been announced since January of 2021. And as a reminder, a megaproject is a project with an announced value of $1 billion or more, and the number is now 415 projects. Once again, this is North America data, but we are seeing a similar trend in Europe, although the dollars are not as large. Just a few points of note. We've now surpassed $1 trillion in announced megaprojects, double what we saw this time last year, and 3x the normal run rate. Approximately 16% of these projects have started, but it does vary by type of project. For example, a large percentage of semiconductor and EV battery projects have started, but downstream chemical, power generation, renewables, and data center projects have some of the lowest project start rates to date. And cancellation rates continue to be modest, around 10% and below historical rates. Using the current forecast, we expect over $100 to $150 billion of these projects to start this year. It's also worth noting that megaprojects represent 15% of total amount of residential construction starts in 2023, a number that we expect to grow over the next five years. For projects that have started, we've won $1 billion of orders, and our win rate is approximately 40%. We remain active in negotiations on another $1.4 billion of electrical content. Most of the projects represented here have not yet reached the negotiation stage. Turning to slide six, we want to highlight the largest part of non-residential construction market, projects under $1 billion. This market is projected to be over $500 billion in 2024 and represents around 50% of the US market. 56% increase since 2021 and a 16% CAGR. The market was actually up also 10% through Q1 of this year. So when mega projects grab a lot of the headlines, we're seeing significant strength in projects under $1 billion as well. And for projects less than $100 million, construction starts were up 15%, so once again, strength across the entire market. This momentum is naturally being driven by the same set of megatrends and stimulus spending that we're seeing on megaprojects. The primary markets here include utility, power generation, renewable, water-wastewater manufacturing, and data centers. And our win rate in this segment is approximately 35%. Turning to slide seven, we highlight the industrial facilities end market. As we've reported, this end market accounted for approximately 12% of eaten soil revenue in 2023. Reindustrialization and nearshoring are having a particularly large impact on this market. Examples include semiconductor fabrication, EV and EV battery plants, as well as LNG terminals. At the same time, industrial markets are undergoing growing pressure to decarbonize, to lower costs and develop more sustainable operations. These challenges are naturally driving a significant increase in CapEx investment. It's also coming at a time when technology and digitalization are providing more value to data as a service, software, and therefore the ability to provide operational intelligence. This allows customers to move from being reactive to proactive when managing energy and uptime, saving them time and money. For us, we increase both our content per project and our average selling price. These are the drivers that support our belief that industrial facilities and market will grow by some 7% between now 2023 and 2026. Slide eight provides an overview of the products and software that we sell as part of our industrial solutions portfolio. As noted, we think we have the broadest portfolio of products in the market. Our solutions are sold in both process and discrete manufacturing industries and are especially well suited to take advantage of the trends we've discussed on the prior page. Our solutions help industrial companies optimize performance by lowering the cost of ownership and reducing complexity. They increase operational predictability with data-driven insights and enhance safety, protecting people and assets. In addition to hardware and software, we provide a full suite of project management services, including design, specifying, commissioning, training, remote monitoring, and obviously aftermarket service. And our bright layer industrial software platforms enable customers to preempt operational challenges because of the data and insights that come from our electrical equipment. Moving to slide nine, you'll see an updated view on the data center market. Last fall in our Q3 2023 earnings call, we highlighted the data center market and shared our view that we expected the market to grow at a 16% compounded growth rate between 2022 and 2025. We want to provide an update as we've seen continued momentum in this market, driven by the rise of AI, big data, and certainly edge computing. As expected, the biggest increase is coming from the very strong demand for AI data centers, which is reflected both in our orders and in our negotiation pipeline. Here, orders on a trailing 12-month basis have more than doubled, and our negotiations in the U.S. have increased by more than 4x. We now think the overall market grows at a 25% compounded growth rate between 2022 and 2025. And as you know, we have a strong position in the data center market, and the data center slash IT channel accounted for 14% of our revenue last year. Now, I'll turn the presentation over to Olivier to cover the financials.