Eaton Corp PLC

Good day and welcome to the EATON fourth quarter 2025 earnings results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1-1. To remove yourself from the queue, please press star 1-1 again. As a reminder, this call may be recorded. I would like to turn the call over to Yen Jen, Senior Vice President of Investor Relations. Please go ahead.

Hey, good morning. Thank you all for joining us for Eaton's fourth quarter 2025 earning call. With me today are Paolo Ruiz, chief executive officer, and Olivier Leonetti, executive vice president and chief financial officer. Our agenda today includes opening remarks by Paolo. 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, we'll be taking questions at the end of Paolo's closing commentary. The price release and the presentation we'll go through today have been posted on our website. This presentation including adjusted earning per share and other non-GAAP measures. The reconciled independence. A webcast of this call is accessible on our website and it will be available for replay. I would like to remind you that our comments today will include 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 the wide range of risks and uncertainties that are described in our earnings release and presentation. With that, I will turn it over to Paulo.

Thanks, Ian, and thanks, everyone, for joining us. I'm happy to report we've delivered solid results. From a demand perspective, we continue to see tremendous strength. On a rolling 12-month basis, our orders accelerated in electrical Americas. up 16% from up 7% in Q3. Our electrical America's backlog grew 31% year-over-year, hitting an all-time record. In addition, demand in our aerospace business remains very strong. We posted order growth of 11% on our only 12-month basis and backlog expansion of 16% year-over-year. And as a result, our book to view for the combined segments was above 1.2 on a quarterly basis or 1.1 on our only 12 month basis. We continue to deliver robust growth in data center market. Our orders accelerated approximately 200% and our sales were up about 40% versus Q4, 2024. Our accelerating orders in 2025 demonstrate continued strong demand in our winning value proposition. Among the Q4 highlights, our adjusted earnings per share were up 18% versus prior year and our segment margins of 24.9% hit the Q4 quarterly record of 20 basis points year over year. We reaffirmed our commitment to strategic capital location with $13 billion in announced investments in 2025, highlighted by the acquisitions of FiberBones, Resilient Power Systems, UltraPCS, and the announced addition of Boyd Thermal. In addition to that, we announced our intent to spin off the mobility business into a separate publicly traded company, further strengthening our portfolio and our growth trajectory. Lastly, we delivered on our 2025 adjusted earnings commitment, and we are strongly positioned to outperform against 2026 guidance. Olivier and I will deep dive into Q4 and the 2026 outlook, but first let's move to slide four. We continue to drive Eaton forward with our bold strategy to lead, invest, and execute for growth. All three are designed to accelerate our growth and create sustained value for shareholders. Today, we will focus on invest and execute for growth. Include your recent announcements to spin off our mobility business. And sharing progress on the actions we've taken to best position us to execute operationally in electrical Americas. Both exciting and meaningful to our strategy. So let's move to slide five and our intent to sustain mobility. This is an exciting next step which will unlock greater long-term sustainable value for our teams, our customers, and shareholders for both of these world-class companies. The separation of mobility, including both our vehicle and immobility segments, builds on our track record and continues our work to reshape the company's portfolio. So, I want to share more today about what this move means for Eaton and Mobility. Eaton will be even better positioned to capitalize on strong growth trends across electrical and aerospace markets. This will allow us to focus more sharply on these leading businesses that are powering strong revenue growth and margin expansion. For Mobility, this move will allow the team to build on its strong leadership position in automotive, and commercial vehicle markets. As a standalone public company, Mobility will be the leading independent provider of engineered solutions to global vehicle, auto, and off-highway OEMs, with a strong portfolio and compelling organic growth prospects. Turning to slide six, as a standalone business with approximately $3 billion in revenue, Mobility is leading scale provider engineering solutions that creates distributes and optimizes power for all types of vehicles and proportion systems. It focuses on safety critical components and systems on automotive and commercial vehicles. The mobility team has built a reputation that is highly valued in the market and recognized as a true innovation partner to its customers. We expect mobility to benefit from increased strategic focus to drive a more optimized capital location strategy, which will allow for more flexibility to pursue additional growth opportunities in the markets where it's best positioned. Now turning to slide seven. The mobility spins the right move at the right time. The decision to separate ETH and mobility underscores our bold 2030 strategy to lead, invest, and execute for growth. This transaction will sharpen our strategic focus and optimize the portfolio. It will provide Eaton with improved agility and flexibility to meet the moment of generational growth. It will be able to advance our growth strategy by prioritizing capital on higher growth, higher margin markets with more earnings consistency. It will enable both companies to unlock greater value through fast decision making and more tailored capital allocation. This separation builds on our strong track record of value creation and portfolio transformation and follows the disasters of Lightning in 2020 and Hydraulics in 2021. We expect it to be immediately accretive to organic growth rate and operating margin. As we work to integrate UltraPCS and close Boyd Thermal, I'm confident that separating mobility will position both companies to sharpen their focus to drive long-term value. Moving to Electrical Americas on slide eight, here's a quick update on megaprojects, which we'll do annually moving forward. There's a clear correlation between the acceleration of these projects and our future order growth. The megaproject secular tailwind is one of the many reasons we are expanding capacity to invest and execute for growth. Trends remain very positive. Mega project backlog is up 30% year-over-year to $3 trillion, and now we are tracking 866 projects. Data centers continue to drive most of the growth, representing 54% of the year-to-date announcements. The rest is largely U.S. reshoring. Additionally, the U.S. Dodge data center construction backlog is now up to 11 years at the 2025 build rates. and the U.S. backlog stands at 206 gigawatts. The start rate for this project increased slightly to approximately 16%, and our mega-project revenue grew more than 30% in 2025 over 2024. This large, long-cycle project typically converts to revenue over three to five years and provides a durable, long-term growth tailwind. a market that will be stronger for longer. Now for page nine, you see that not only does the mega project data support continuous strength, but so does a robust negotiation pipeline and backlog. Negotiations in Electric Americas are up to nearly $10 billion in 2025. In fact, the pipeline has increased over four times since 2019, with a most-year CAGR of 26%. On the right, backlog also continues to set records, with electrical at $15.3 billion and aerospace at $4.3 billion, for a total backlog of $19.6 billion. Versus prior year, our backlogs grew 29% in electrical and 16% in aerospace. They also increased compared to Q3 by 9%, percent in electrical, and 3% in aerospace. We are clearly experiencing extraordinary growth, and as a result, we have high level of confidence in our future demand and structurally higher organic growth rates through 2030. Turning to slide 10, let me share how we accelerate or execute for growth strategy in electrical Americas. Electrical Americas is seeing unprecedented demand. with all-time high backlog and record order intake. It's a good challenge to have. And we are well positioned to meet it with our broad portfolio and strong engineering expertise. In response to this incredible demand environment, we've already announced investments around $1.5 billion to strategically expand capacity. At the same time, we are adapting quickly to our evolving customer landscape, We are partnering very closely with our customers to tailor solutions to their needs and deliver fast responses, including increasing our engineering velocity, scaling of the network of partners in our supply chain to ensure timely, reliable material availability across our operations. To meet this moment, we are ramping up quickly at never-before-seen pace. We are laser-focused on the critical sites that are driving the majority of our growth, We've assembled Tiger teams with deep specialized expertise and deploy into our operations to accelerate focus. At Eaton, we have a strong operational track record of operational excellence across our businesses. We did this recently in our electrical global business to help us win larger power distribution projects and to grow margins. We also did it in aerospace to post considerable gains both in our growth rates and margins. So, as we turn to optimizing our largest business, the electrical Americas, we are highly confident in our ability to do it again. While there's clearly complexity while we ramp, I'm confident that ETHAN has the right actions in place to execute for growth in the Americas and meet our 2026 margin guidance of 30% at the midpoint in 2026, and 32% margin target by 2030. Now, I will turn it over to Olivier to walk through our financials.