Eaton Corp PLC

Good day and thank you for standing by. Welcome to the Eden 4th Quarter 2024 Earnings and Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. I would now like to hand the conference over to your speaker today, Yan Jin, Senior Vice President of Investor Relations.

Hey, good morning. Thank you all for joining us for Eaton's Fourth Quarter 2024 Earnings Call. With me today are Craig Arnold, our Chairman and CEO, Paulo Ruiz, President and Chief Operations Officer, and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today includes the opening remarks by Craig. Then he will turn it over to Olivier, who will highlight our company's performance in the fourth quarter. We will then turn it over to Paulo, who will provide the guidance for Q1 and the full year 2025. As we have done on our past course, we will take in question at the end of our course commentary. The price release and the presentation we will go through today have been posted on our website. This presentation including the adjusted earning per share, adjusted free cash flow, and other non-GAAP measures. They are 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 commentary today will include the statements related to the expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projection due to a wide range of risks and uncertainties that are described in our early release and the presentation. With that, I will turn it over to Craig.

Okay. And we're pleased to close out the year with another strong quarterly result. I'm especially proud of how our team executed in the quarter. As you know, we needed to overcome the impact of the strikes in the aerospace industry and the lingering impact of the hurricane, which impacted our electrical America's business. For the quarter, we generated a Q4 record for adjusted EPS of $2.83, up 11% from prior year. We also delivered record segment margins of 24.7%, up 190 basis points from last year, and above the high end of our guidance. And we continue to see strong market activity. On a rolling 12-month basis, electrical orders were up 12%, led by electrical Americas with orders up 16%, and orders were up 10% in aerospace. This led to another quarter of growing and record backlog with once again outstanding results in electrical Americas up 29% and in aerospace up 16% with book-to-bill ratios above one in both businesses. As you can see from the chart, we're set for another strong year in 2025. Paula will walk you through our guidance, but we do expect another year of healthy end markets, strong organic growth, margin expansion, improving free cash flow, and double-digit increases in adjusted EPS. Turning to page four, we're once again providing an overview of megatrends and how they're driving growth in our end markets. You're very familiar with this chart by now, but we did want to provide an overview of how these markets performed in 2024 versus our expectations. This is especially relevant in the context of our outlook for 2025 that Paul will provide later today and at our investor meeting in March. In electrical, our end markets performed better than expectations due to strength in data centers and in the Americas market. Strong growth in these two areas more than offset some unplanned weakness in residential and MOEM markets. In aerospace, markets grew nicely and in line with plan, and this was despite the Boeing strike. And our vehicle markets were a bit of a mixed bag with better than planned performance in commercial vehicles, offsetting weakness in the light vehicle market, which includes e-mobility. Overall, we continue to see megatrends noted here as important drivers of secular growth in our markets and why you should expect Eaton to pose attractive growth for years to come. And this secular growth is perhaps most evidenced by the megatrend chart that you see on slide five in the presentation. As a reminder, A mega project is a project with an announced value of $1 billion or more, and our reference point begins in January of 2021. As you know, we've reported this data for a few quarters now, and our conclusion hasn't changed. Each quarter we're seeing an increasing number of projects, higher dollar values, and a growing backlog. 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 1.7 trillion. And the backlog now stands at 1.9 trillion, up 33% from last year. Through Q4, approximately 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. To date, cancellations have actually been modest. around 11% and well below historical levels. A couple of pieces of Eaton-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 data center 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, colos, on-prem data centers, and the major categories of cloud, 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 and orders well ahead of sales. I'll not read each of the numbers as they speak for themselves, but we'll ask that you note a few points. Our backlog is rapidly increasing, up 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. And perhaps the most notable number on the page is the reference to the seven years. At 2024 build rates, it would take seven years to consume the current backlog. And the data center construction build rate doubled between 23 and 24. So any notion that this market will slow down is simply not consistent with any of the data that we're seeing. The industry will no doubt continue to see innovation and technology development 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 stand by 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.