Eaton Corp PLC

Thank you for standing by and welcome to Eden's second quarter 2026 earnings results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. We ask that you please limit yourself to one question each. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Yan Jin, Senior Vice President of Investor Relations. Please go ahead.

Hey, good morning. Thank you all for joining us for Eaton's second quarter 2026 earning call. With me today are Paulo Ruiz, Chief Executive Officer, and Dave Foster, Executive Vice President and Chief Financial Officer. Our agenda today includes operating remarks by Paulo. Then he will turn it over to Dave, who will highlight the company's performance in the second quarter. As we have done in our past course, we'll be taking questions at the end of Paulo's closing commentary. The price release and the presentation we'll go through today, including reconciliation to non-GAAP measures, have been posted on our website. And a replay of this webcast will be accessible on our website after the call. Before we begin, I would like to Remind our comments today will include forward-looking statements with the respective revenue, earnings, and other matters. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our recent SEC findings. With that, I will turn it over to Paulo.

Hey, thanks, Yan, and thanks, everyone, for joining us. Starting on page three, I'm happy to share this strong second quarter results driven by improved execution. Adjusted EPS of $3.15, exceeded guidance by 10 cents at the midpoint, reflecting strong operating performance by our teams. We posted record revenue of 8.5 billion with 21% total revenue growth, 14% organic growth, and 23.1% margins. All better than the high end of our guidance. Americas continues to execute well through its capacity ramp delivering 18% organic growth and 190 base points of margin expansion over prior quarter. All stronger than expected and very encouraging. We also continue to see unprecedented demand. Our total company book-to-bill remains strong at 1.2, with America's book-to-bill expanding to 1.3 and aerospace to 1.2. While demand is broad-based across end markets, you can see here that data center orders and revenue remain robust. Overall, accelerating orders and growing backlogs are clear proof points that our customer-focused, end-to-end solutions are winning in the markets. This strong first half of the year gives us confidence to raise our guidance again. Organic growth by 200 base points to a midpoint of 12% and our adjusted EPS midpoint by 22 cents to $13.50 for the year. Dave and I will dive further into Q2 and the 2026 outlook, but first let's move to slide four. Okay, a year ago we began our journey to show what a new Focus Eaton could deliver through our bold strategy to lead, invest and execute for growth. The progress is real and is gathering pace and I have strong confidence where we are going. We are leading with a stronger team and a sharper enterprise mindset. We're investing with discipline in the portfolio and capabilities that will define our future. And we are executing for growth through operational discipline across every part of this company. Today, we will provide an update on our strong progress and share how our focus on culture is helping us grow faster, serve our customers better, and win for investors for years to come. Moving to slide five, enabling this unprecedented demand is our ability to execute, which rests on the work we are doing to evolve and strengthen our culture. Leading for growth through an evolved way of working is how we deliver results at scale. Together, the combination of our growth strategy, market dynamics, and culture is how we will win. Thinking big, we are transforming a leadership position we had in gray space for data centers into an unparalleled portfolio from grid to chip and leading the conversion to direct current applications. Through thinking big, We've positioned Eaton's portfolio ahead of secular demand, focusing on serving high margin and high growth end markets. By acting boldly, we've prioritized what matters and led decisively, making the bold calls to acquire companies like Fiberbond, Resilient Power, Ultra PCS, and Boyd that are delivering higher growth and accretive margins to their respective segments. and we made the necessary hard calls like separating our mobility business to align our capital to the highest return, highest growth opportunities. We also continue to invest organically with conviction, making Eaton a stronger partner to our customers. We win together. As One Eaton, we are pushing decision-making and leadership closer to where the action is, to the customer, the engineering and sales teams, the plant and service teams. and we are scaling our advantage by fostering a culture of humility, courage and learning, putting problems and opportunities on the table fast and solving for them as one unified team. This is not just about our executive leadership. It is about empowering 100,000 people to win together. We are transforming Eaton to win by being leaner, more agile, more customer centric, more competitive and more innovative. We see this culture internally every day, and you see this culture reflected in our numbers. Moving to slide six, we are already seeing how this mindset and discipline translates into real results. We've said before that 2026 is Ethan's year of execution, and we are making solid progress in Electric Americas. Scaling capacity to turn demand into revenue remains the clear priority in the business. As you know, we are investing more than $1 billion in capacity expansion and bringing online two dozen projects across electrical Americas. As these facilities ramp, we see clear momentum in revenues per day. We are delivering roughly 25% growth in revenue per day since the start of 2025, up 16% in a year, and another impressive 8% in Q2 over Q1. Q1 to Q2 represented the largest quarterly ramp in production output in our financial model, and we over-deliver on it. It is behind us. We remain laser-focused for the second half of the year. Demonstrating such strong execution milestones gives us even more confidence as we step up in the second half. Importantly, we are realizing margin improvements for our Execute for Growth strategy in Americas. Margins improved 190 base points quarter over quarter and will improve further in the second half of the year. Meanwhile, even after 18% organic growth, backlog continues to expand due to strong demand and winning projects at record pace. Altogether, higher shipments, improving margins, and backlog driving extended visibility demonstrate our Execute for Growth strategies working and give us confidence in the second half and beyond. I want to thank our electrical Americas and all the supporting teams for the tremendous work they're doing. And now I'll hand over to Dave who will cover our financials.

Thanks, Paulo. I'll start by providing a brief summary of our strong Q2 results on page seven. Total revenue grew by 21% with a strong contribution of seven points from acquisitions. Each acquisition is at or above our expectations for growth and margins. Organic growth for the quarter was 14% driven by the strength in Electrical Americas and Electrical Global. Excluding mobility, our organic growth would have been 16%. Adjusted EPS of $3.15 exceeded our original expectations and was a Q2 record. Adjusted EPS for the first half of $5.96 was also a first half record. We generated a strong $0.25 segment profit beat versus our guidance that was partially offset by $0.15 from a higher tax rate. We also posted Q2 record cash flow with operating cash flow up 23% over prior year. Now let's move to the segment details. On slide 8, we highlight our Electrical America segment. Organic sales growth accelerated 18%. driven primarily by strength and data centers up about 65% along with strong growth in machine OEM and commercial and institutional. We are pleased with our better than expected margins of 27.5%, 190 basis points higher than Q1. Again, a reflection of our execute for growth strategy starting to work. From a year over year perspective, the majority of the margin decline was driven by temporary negative price costs. With the pricing actions taken in Q2 and early Q3, we are confident this will return to a roughly neutral impact in the second half. Meanwhile, demand is accelerating. Our negotiations pipeline was up 60% year-to-date over prior year, translating to record orders up 41% on a rolling 12-month basis and a book-to-bill increasing to 1.3. This is solid progress and gives us even more confidence to execute on our commitments for 2026. Now I will summarize the strong results for our electrical global segment. Total growth of 44% included organic growth of 18% from strength and data center utility and machine OEM along with 25% attributed to the Boyd acquisition. We are very pleased with Boyd's performance and the strong growth ahead of us in the liquid cooling market. Operating margin of 19.8% was down 30 basis points over prior year but about a point higher than we had expected for the quarter. We have also pulled in our planned general price increase from Q4 to Q3 which gives us even more confidence in our full year guidance. As you can see on the chart, demand and global increased driven by our accelerating order growth up 33% on a rolling 12 month basis with broad end market momentum and exceptional strength in data center demand. This reinforces a powerful growth trajectory ahead in this segment. Before moving to our industrial businesses, I'd like to briefly recap the combined electrical segments performance. For Q2, we posted organic growth of 18% and total growth of 27%, a great second quarter. Segment margins were 24.5%, 110 basis points higher than Q1. On a rolling 12-month basis, orders accelerated up 38%, and our book-to-bill ratio for our electrical sector was 1.2%. Our backlog for our total electrical business increased 43% over prior year. Page 10 highlights our aerospace segments performance for the quarter. Organic sales growth of 7% remained at a high level and resulted in record quarterly sales and Q2 record segment profit with particular strength in commercial OEM along with strength in commercial aftermarket. The Altra PCS acquisition is performing to our expectations It added six points of growth and is accretive to aerospace margins. Total aerospace operating margin expanded by 60 basis points to 22.8%. Demand remains strong in aerospace with robust orders driving backlog expansion and book to bill increasing to 1.2. While we make progress in our electrical businesses, aerospace continues to see strong demand now and into the foreseeable future, resulting in higher sales growth with attractive margins. Moving to our mobility segment on page 11. In the quarter, the business declined by 2% organically, which was fully offset by positive foreign exchange impact. Excluding the impact of the intentional exit of the low margin business that I mentioned in our prior earnings call, organic growth would have been slightly positive. Meanwhile, margins increased 90 basis points year over year. Now I will turn it back to Paulo to discuss our updated guidance and close out the presentation.

Thanks, Dave. Page 12 includes our end market growth assumptions. We've raised our expectation for the MOEM market to solid growth on the chart. I shared last quarter that demand in the data center and distributed IT market continues to grow even faster than we estimated in our initial guidance. And today, it's even stronger than we expected three months ago. Total US data center backlog has grown to 307 gigawatts or 15 years of backlog at 2025 build rates, up from 12 years in our last update. Only roughly 20% of this backlog converts near term. The majority will translate to 2028 and beyond deliveries. A very nice tailwind for ETH for years to come. We also continue to expect durable strength in many of the remaining electrical markets and in aerospace. All in, we estimate our total addressable market will grow about 10% this year. These many paths for sustainable growth give us confidence to deliver continued, differentiated growth in 2026 and beyond. Now, moving to page 13, we summarize our updated 2026 organic growth and margin guidance. Following another strong quarter, we now expect total organic growth to be between 11% and 13% up 200 base points at the midpoint from the prior 9% to 11% range. This increase is driven by strength in electrical Americas up 200 base points to a midpoint of 15% growth and electrical global up 450 base points to a midpoint of 12% growth. Our margin progress is encouraging and provides the confidence to reaffirm our segment margin guidance ranges. On the next page, we have the balance of our guidance for 2026 and Q3. For 2026, we are raising our adjusted EPS guide. Now we expect full year EPS to be between $13.40 and $13.60, $13.50 at the midpoint. We are reaffirming our cash flow expectations for the year. We have also provided guidance for Q3 on this page. As a reminder, we also provide supplemental guidance, which includes raising Boyd's full-year revenues to $1.8 billion. Of each, $1.5 billion will be in Ethan's books for the year. Continuous strength across end markets, combined with a record backlog, provides strong visibility into Outlook for the year. With the industry's best positioned portfolio, Strong end market demand and significant secular tailwinds, we are confidently entering the back half of 2026 and very well positioned to extend our momentum into 2027. To wrap up on page 15, these results reinforce what we've been saying for some time. First, our lead invest and execute for growth strategy is working and is gathering pace. We are transforming our portfolio and evolving our culture. We are positioning the company to capture strong demand to accelerate growth and beat our own short and long-term commitments so we can deliver meaningful value creation for our shareholders. Second, execution continues to be a difference maker. Our teams are doing a great job increasing capacity, serving customers, and turning demand into shipments and earnings. We are making real progress. and there's still plenty of runway ahead of us. All while we continue to innovate, scale acquisitions and reshape the portfolio to achieve higher growth with higher margins for better earnings consistency. Third, we continue to see very strong customer demand. Orders, backlog and our project pipeline all give us confidence that the opportunities in front of us remain significant and we are winning because customers value our technology, Our solutions and our ability to deliver. And finally, when you put it all together, strong demand, improving execution, higher shipments, and growing earnings, we feel confident in both the near-term outlook and the long-term commitments we've laid out. That's reflected in the guidance increase we are announcing today and our confidence in delivering on our 2026 and 2030 commitments. We are remaining focused, staying close to customers, Innovating with Speed, Leading and Investing in Growth, and Executing with High Discipline. I believe the best is still ahead of us. Now, we'll open the floor to your questions.

Hey, thanks, Paulo. Moving to the Q&A, we ask you please limit your opportunity to just one question per person. We appreciate your cooperation so we can accommodate as many participants as possible today. With that, I'll turn it over to the operator for instructions.

certainly and ladies and gentlemen if you do have a question at this time please press star 1 1 on your telephone and we ask that once again that you please limit yourself to one question each our first question comes to the line of Dean Dre from RBC your question please thank you good morning everyone good morning morning hey we're seeing continued strong growth in data center I mean really that's what we were expecting

That's really good execution on the team. But I'd like to put the spotlight, if I could, on your other non-data center electrical businesses, the end markets there. Can you take us through the growth that you're seeing and what that means for the second half? Thanks.

Sure, Dean. I'll answer your question, but let me make a couple of comments first. Thanks for the question, by the way, but I want to make a comment on you for a moment to recognize Your strong career. So after 30 years and plus in the industry, 12 years at RBC, you're stepping into a very well-deserved retirement. And we couldn't let this call pass without recognizing that. So our huge congrats from this team on behalf of the complete Eaton team. Truly a remarkable career. And I hope you turn this next chapter into something fun with your family, well-deserved rest. and please note that we are very grateful for all the candor, your tough questions, your right questions over the years and also your support. So thank you very much. It was a pleasure working with you. You cannot see but the team here is all nodding. So thank you, Dean, and congratulations once again. Now to your question, you know, we expect a lot of questions on data center. So thanks for asking us a question which allows us to talk about the other parts of the portfolio. I'm going to just make a comment on data centers because it's important. What we have ahead of us in terms of demand is still very incredible. It's an enormous growth opportunity. Just think about this 300 gigawatt of announcements versus the 50 gigawatts that was built over decades that's going to be online by the end of this year. Six times what this industry built is going to be built in the next years to come. So it's an incredible opportunity. I don't want this to go unnoticed. But the beauty of our strategy and frankly about our portfolio is that we are anchored in deep secular trends that are even broader than data centers, right? So we have other meaningful growth opportunities beyond data centers. Your question was around electrical, going to answer around electrical, but we also have a strong aerospace business. As you look beyond data centers in electrical, you see that we realize strong growth across most of our electrical and markets in the quarter, including double-digit organic revenue in commercial and institutional, which is still a very important market for us, machine OEM recovering really strongly, also double digits, and also distributed IT recovering really nicely, also double digits. So that was revenues. In terms of orders, it's even more encouraging Orders are accelerating broadly again with growth in all of our end markets. I'm going to give you some highlights here. Our total electrical orders increased mid to high teens for commercial, institutional, utility, industrial, and even residential, which is a market that is not as strong as you guys know. And the machine OEM market rebounded even faster with orders in the mid-30s. So very strong all 12 trade months. So I just want to say to this team and everyone and our investors that we are anchoring on this sector that trends beyond data center. We have many paths to growth and we remain committed to data center. So our end markets are really strong. Thanks and congratulations again, Dean. Thank you, Paulo. All the best to you, man. Before we go to the second question, go ahead.

No, I'm going to keep to the one question, no follow-up. I just appreciate all the support you and your team have provided me, and I wish you all continued success. Thank you.

Same to you. Take care. All the best. Before we move to the second question, operator, I just want to recognize that our IR team received a number of inbound calls regarding the IEPA So, in respect to all of you, in order to make this call a bit more fluid, I'd rather address that up front and clear the air. So, I want to say that our impact in Q2 from the IEPA refunds is less than $30 million. So, it's less than one cent of EPS, right? And so, it's a clearly operational bid when Dave talked about 25-cent BID. It's truly operation. I just want to make that very clear. And then the impact of, you know, the tariffs for the second half is immaterial, the refunds, and is already embedded in the guidance. I just want to clear the air on that because I think we had multiple calls into Ian and his team.

Thank you. And our next question comes from the line of Andrew Obin from Bank of America. Your question, please.

Yes, good morning. Hey, Andrew. Yeah, thank you for the IPA data point. I will go to data centers. So, you know, lots of questions on Boyd. You raise your full year guidance for Boyd revenues. The business appears to perform well. Can you remind us how you look at Boyd's competitive advantages compared to competitors and maybe also talk about Boyd's cadence between 3Q and 4Q? Thank you. Thank you. So thanks for the question. So I think it's important that I highlight we are very, very excited to have Void as part of our portfolio. We are really happy with the acquisition. They're performing really, really well. Why are we so happy? Not only I see this business as a winning business with this leadership position in cooling, but also as you're going to see in a minute through my comments, they're also a high performer financially. And the third thing that I love about this business is that it gives a lot of early strategic read into the chip development that will determine the future of the data center. So it's a very strong business, but also very strategic and performs well financially. So nothing not to like here. As I said last quarter, and I want to get back to it, many questions on cooling over time. I truly believe the investor community evolved in their thinking the last months. and most understand its growth potential and how strategic it is. So I don't want to spend much time there. Now, looking at the cooling business we have today, we are glad to say a board is part of us now. We are very confident they're going to deliver on this raised forecast for the full year, $1.8 billion. It is certainly a huge jump from last year, $1.1 billion. but we believe this team can deliver and I will be shocked if they cannot over deliver on this number, to be honest. Now, if you look at Q2, they delivered 432 million in revenue, which was 20% above their commitment and our Q2 guidance. So very, very strong performance. So in the short term, we know we are in a very good position. I guess your question, Andrew, was more, How can we be sure they will continue to win? What is their competitive advantage? That's what I understood from your question at least. So if I'm to address that, I would start by saying that I believe they're going to continue to win because they are the partner, the design partner for broad-based chip providers. They're always in their roadmaps and gives them a first look and a first chance to bid, which I think is fascinating. If you look at their size and scale for liquid cooling, they are the market leaders for liquid cooling. If you think about the cold plates and the CDUs. And this team has proven over time they can scale reliably and with high quality. So I think this is really important for most data center players. If you compare to other companies, they are rather small. So there are question marks of whether they can scale with the same quality and efficiency and some are actually showing some quality issues from the get-go. So I think they're going to win also on quality and the capacity to ramp. I must say, you guys probably remember when we announced the deal, they cut their teeth, they developed their pedigree in aerospace. So it is very, very stringent conditions technically where failure is not an option. So they bring that DNA to the data center environment. So I think it's a winning formula. And I also believe they have a deep breadth of products and systems. It's a very well-balanced portfolio. And they have, as I said multiple times, the deepest engineering team and experience. So whatever comes next, they're going to be able to lead the market. So that's what I think makes all the difference Now let's start talking about the way we are integrating them to the rest of the portfolio, which is also very important. They provide us this to chip part that so we can say now we have the full portfolio from grid to chip. And a couple of words on integration, because some of you might be interested in how the integration is going. I would say it's going really, really well. Our approach to it is that we are accelerating their development. At the same time, we are protecting, we are learning from it, and we are augmenting what made this company great, which is their superior engineering, once again, their manufacturing quality at increased scale. So we are really taking good care of it. So I think it's a high performance team that leads a high successful business, and we're just making them better as we continue to invest. So beyond cooling, the other thing that not many people realize, but it's really important, The strategic importance to have the seat on the table with the cheap manufacturers, once again, will bring benefits to our power, but also a softer business. So, in summary, I think our customers validate our strategy. I am extremely happy to have Boyd in our portfolio, and we are all very confident they're going to deliver on the growth plan.

Thank you. Thank you. And our next question. Thanks, Andrew. comes from the line of Chris Schneider from Morgan Stanley. Your question, please. Thank you.

I wanted to ask on electrical global organic growth, which was the biggest upside surprise in our model, at least. So you guys, I guess, high teens organic versus high singles expectations. So just kind of wondering what drove that level of upside and organic inflection? Is it the legacy business getting better? Like is data center coming to market? Are you starting to see maybe revenue synergies or tailwinds from the contribution of Boyd? So just, you know, what are you seeing there and what gives you confidence in, it seems like the guide is saying it's going to hold double digits into the back half. So just any color there would be great. Thank you.

Thanks, Chris. I'll give you two reads. I first talk about individual businesses. Then I'm also going to give you a read into the end market so you have a complete view on how the segment is behaving and performing. So I would lead by saying that in Q2, and I'm very pleased to say that all businesses, our EMEA, our APAC, and our guys' businesses all performed meaningfully ahead of organic growth expectations, all did really, really well. So if I go individually, Revenues were up 20% in both EMEA and APAC and they were up high teens in guys. So you see the 18% combined segment organically. So very strong performance by all and we are very pleased. If you cut this by end market, we are getting a lot of traction in data center. So organic revenues were up 65%. and much, much faster than the underlying market that is growing at 23%. So definitely gaining momentum, gaining shares. And if you look also the traditional markets we had for this segment like machine OEM are also up more than 20%. So it's a strong data center story, but not only a data center story. So OEMs were up 20%, utilities were up low teens, and so was commercial institution also low team. So the comment I want to make, and I hope you get this very clearly, growth was broad in terms of different geographies or different businesses. Every business did well, but it's also broad in terms of end markets. And the conclusion, this was a look back view, of course. If you look towards the future, orders were up 33% on a 12-month basis. The total backlog, as you could see in the chart, is up 103%. There is a contribution of Boyd in that, of course, but even if you take the Boyd contribution out, the organic backlog is up 54%. So very, very strong performance by the team. So that's what gave us this confidence, Chris, to raise our guidance from 7.5% to 12%. We believe this team can deliver. And I think I'm also going to talk about execution for a moment here because this is an integral part of our strategy. We sat in multiple events and calls that is well known that the APAC team is a center of excellence for us in terms of operation, high performance team competing in a very tough market. I think there's no surprise there. I would like to shed some light and recognize the EMEA team in this call because their turnaround in the last 18 months is really, really remarkable. So their organic growth of 20% and they keep expanding margins, gaining share and momentum. It's really a great performance. So here you see our three pillars of a strategy implemented at speed and at scale as we move forward. Just connecting the dots here a little bit to the question before from Andrew Oben on Boyd. Let's not forget that Boyd joined that group now. So it's the new elite player who joined the electrical global segment. They keep winning. I talked about their performance, so I'm not going to repeat that. So just think about the moment where they start joining their organic growth rates. It's going to be a great moment for this business as well. So, we'll continue to deliver good news, I guess, as EMEA, APAC, and guys keep delivering. And we're looking forward to Boyd to join the organic growth in 2027. It's going to be a good moment for us. Thank you. Yeah, thank you.

Thank you. And our next question comes from the line of Scott Davis from Melios Research. Your question, please.

Hey, good morning, guys. Oh, Dave, Jan. Congrats on the... Thank you for the question. I appreciate the strategic angle to it. I really appreciate that. The team has accomplished a lot, Scott, so my answer is going to be a bit long because I need to pay justice to what the team has just did, okay? So,

I had the benefit to be announced months before I took over so we could think about the strategy a little bit in advance and hit the day one really as one team moving forward which was great and give credit to Craig and the board for allowing me to do so. So as you know we developed this strategy having three pillars and you should ask yourself why did we include growth into each one of those pillars. We look back as a team, I would say this, even before I started as CEO, a quarter before, and we looked at all the things we loved about the company, all the things we wanted to keep that made Ethan great. At the same time, we looked forward at the growth opportunity ahead of us, and we concluded that what brought us here would not necessarily be enough for us to double the size of the company moving forward. So for perspective, if you look at our history here, it took us 100 plus years, 112 years to hit 20 billions in top line when we acquired Cooper. Then the following decade, you guys know as well, we didn't grow much. We just grew $1 billion, the top line. But what we did do as a team, we started reshaping the portfolio with divested hydraulics, etc. And we definitely increased margins in that period. So we became this premium company with premium valuation and we are proud of it now if you start looking at the last three years including our guidance today from 24 beyond is where the line actually bends for us is an inflection point in terms of growth so if you look at these three years beginning of 24 to end of 26 including our renewed guidance we will add 10 billion dollars to the top line So in three years, we're going to do 10 times what we did in the last decade, so the prior decade. So that's what we are getting the company prepared for. So I believe this is only the beginning, to be honest. The opportunity now we have as a company is actually to add much more to our top line and bottom line, not in 100 years, not in 10, but in the next four until 2030. So that's the spirit. I'm going to give you a bit of a hint on the performance of each one of the pillars. First of all, why lead for growth? What are you trying to achieve here? It's about culture. It's about strong values we want to keep. And it's also about improving speed and customer centricity. So over time, why this was required? Over time, we moved to more of a hybrid go-to-market model. In the past, we were just primarily a distribution model. Now we have strong distribution and strong direct accounts. and the team needed help in getting there. So we put actually a program together to provide coaching to our leaders and we involved over a thousand people in the organization. So four different levels of organization are supported by this program. And we also recognize, I did recognize it in my own team, my executive team, we need to set the tone from the top and lead by example. So we looked at strengthening my executive team for faster results. So we are building a more focused and integrated team with high collaboration, not only internally, but also with our customers. Under invest, another one minute on invest, here the idea is to focus on the structured transformation of our portfolio. I still believe that store is not fully appreciated by the market, but every quarter we're going to be working to prove that we are transforming the company here. So within the first year, we deployed capital to acquire businesses. And the idea was to accelerate both growth and margins. Just a reminder, we acquired Fiberbond on the models for data centers, Resilient Power, which is the medium voltage solid state transformers for 800 volt DC. We also acquired Boyd. So now we can actually say we have the complete portfolio going from the utility all the way down to the chip. So that happened really fast, and I'm proud of the team. Let's not forget we also acquired Ultra PCS, which is a great leader in technology in defense systems, so we're also proud of it. So we continue to refine our portfolio, including the task call once again on the reverse Morris Trust to move away from the automotive sector. all those are required measures and let's not forget that part of invest for growth is also an organic investment we're ramping several facilities as you guys know and most of the thing now is behind us uh happened in q4 and q1 so we start to see the plants delivering better better volume better output um going forward what to expect here is more productivity out of the plants and the learning curve is getting every time easier as we move forward. So top line should grow faster with less bottlenecks. And just to conclude on execution, we know we have pockets of excellence in the company. I talked about APAC being a center of excellence before. We still have room to improve in operations in all high margin businesses. Electrical Americas, Europe, and Aerospace. And that gives us hope. We are focusing on that. And that can bring us a lot of self-help for the future. So all in all, having this new leadership team and portfolio in hand, I want to say we are now fully focused on executing for growth. And I want to say that gives us this full confidence for the year, but also 27 and our 2030 commitment. So I want to stop here. I know it was long, but the team has done a lot. I'm thankful and I'm proud of this team for what we achieved together in the first year. And I would say I'm very, very confident in that the best years for Ethan are still ahead of us. Thanks for allowing me to talk about it.

Best of luck in year two, Paulo. I'll pass it on. Thank you.

Thank you. Thank you. And our next question comes from the line of Nigel Ko from Wolf Research. Your question, please.

Great. I think this is going to be a shorter answer. Before I ask my question, can I just clarify, I know you don't want to talk about tariffs, Paulo, but I heard $30 million, the transcript's got $30 million. I think you meant to say three, is that correct? Three million.

Less than three million.

2.8 if you want, to be precise. Okay, 2.8, that's perfect. Okay, thank you. Okay, I just want to double click on the Electrical America's margin ramp in the back half of the year. And you talk about better price. So I just want to really understand how much is coming from, you know, kind of better price versus cost. And then what benefit you seem from, you know, factory productivity, you know, lead times, etc. Thanks.

Thanks for the question. I will kick it off to give the big picture and then I'll not steal Dave's thunder. He's ready to go on the bridge. So I'm not going to steal his thunder. I just want to remind everyone that something that is really important. First of all, we know this is top of mind. Rest assured, we spend a lot of time on this as a team. We're really focused. We know what we need to do. So I will start with that. and the demand once again is fantastic. We cannot talk about margin progress without understanding how much capacity we are adding and how we are growing this business. I would say this, I don't need to go back to every detail, but you see the orders keep growing or backlog only the electrical Americas. We had $5 billion since beginning of last year and only sequential is another $700 million. So although The organic growth accelerates to 18%. We keep growing backlogs. So that needs to be taken into consideration as we look for the second half and the future of that business. The other thing I want to say, if you pull all these elements together, the acquisitions we made, how we are reshaping our execution model, our leadership model, I truly believe we are in the precipice of what I call a new growth cycle for the whole company. and especially here for Electrical Americas and we're getting ready for it. I think what was really important for us was to realize that the bulk of the disruption we expected to happen and we told you so happened in Q4 and Q1. Q4 last year and Q1 this year for the ramp. I would say by now and I want this before Dave goes to the ramp, the expansions are going well and progressing better than planned. Now in Q2 we start to get speed on this and I want to say once again we cleared the biggest hurdle we had in terms of sequential order revenue per day growth which was the sequential Q1 to Q2 so that was the strongest hurdle we had to clear and we did that successfully so I want to say no one is taking a victory lap here the whole team stays absolutely laser focused to meet the commitments we meet as a team every week and my executive team is working to support the Latin America's group to achieve that. So Dave is going to give you the sequential walk. I don't want to steal your thunder, Dave.

All right. So we'll start out with the first quarter to second quarter sequential. So we're up almost 190 basis points. About 100 points of that was price cost and the other 90 points was pure output as we got to scale that Paulo just talked about. We look at H1 versus H2. Some of you like to look at it that way. will be up 450 to 500 basis points. 300 basis points will come from price cost relationship. All of our pricing actions have either been implemented in Q2 or early August. And then we'll get about 150 to 200 basis points from output and productivity. So then if you look at Q2 to Q3, which is a 250 basis point improvement, 150 basis points is price cost. and 100 basis points is output and productivity. Again, the difference may be from Q1 to Q2 compared to Q2 to Q3 is not only do we get the scale, but to Paulo's point earlier, we're starting to see productivity in those factories as our workers get more experience. And then if you look at the sequential from Q3 to Q4, again, it's a 200 to 250 basis point improvement. 150 basis points is price cost and 50 to 100 is output and productivity. We're on the right trajectory. We finished Q2 really strong. I have early reads on July as of this morning. Again, it's an improvement from what we saw in second quarter. I'm feeling very confident about our exit rate for 2026. We're still committed to our 32% margin by 2030. Thanks, Dave.

That's brilliant. Thanks. Thank you, and our next question comes from the line of Jeffrey Sprague from Vertical Research Partners. Your question, please.

Thank you. Good morning. I was going to ask about 800 volts, but given that answer, I was going to ask about 800 volts, but I think I want to come back to the ramp. I appreciate all that color. It looks like your guide, right, for Electrical America is actually assumed relatively flat sequential revenues, right, Q2 to Q3 to Q4. So that lift in margins tied to price cost and output, right, sounds like that requires higher revenue, right? You're going to have more revenue coming through on price and you're going to have more factory output supporting you know the margin improvement so is there any kind of mutual exclusivity between you know revenue and margin here as we think about that bridge perhaps you're still just being a little bit cautious on on the ramp in terms of what we gave us with today you know some of it to be quite honest is when you look at the difference between q2 and q3 you know we're going to be doing it on regular time versus overtime as an example we're going to have less premium costs involved because we're already ramped you know the biggest ramp was from Q1 to Q2 and again I talked about it we have more experienced operators you know the manufacturing engineers are making cost out improvements and then you know if you look from Q3 to Q4 our invest we have you know productivity investments we've made as well in our capital spending that will drive costs out as we move forward so it's your normal improvements as you go through and get more comfortable with the product you're making at these plants and We're seeing it in our numbers already in July.

And also price cost is going to normalize.

Yeah. More with price coming up than cost going down, I guess, right?

I mean, you're taking cost action, but you're going to have more actual price going through the system in the back end.

Absolutely. And it's more than just general price increases. We're also doing discrete price increases as we need to. We kind of commented on that in the prior earnings call. Yep, absolutely.

Okay, I'll leave it there in the interest of time. I appreciate it. Thank you. Thank you. Thank you. And our next question comes from the line of Nicole DeBlase from Deutsche Bank. Your question, please.

Yeah, thanks. Good morning, guys.

Hey, Nicole.

Hi there. I wanted to ask about Electrical Global. Organic growth there was much stronger, I think, than you guys had expected. Curious What really drove the upside? And then thinking about how you're framing the rest of the year, you've got full year up 11 to 13. I know that's up from prior, but it does embed a pretty kind of a material decel in the back half. Was there any sort of pull forward of demand or could that maybe be a bit of conservatism? Thank you.

Can you repeat the last part of your commentary? It was a bit for me.

Sure, yeah. So just the implied second half within EG Organic comes down a little bit relative to 2Q. Just curious if that could be some conservatism or if there's any sort of pull forward of demand.

Yeah, we are very prudent here, but we just raised 450 base points. So we are still prudent in our guidance, but it's still a large, large upside, not only for electrical global, Nicole, but if you look at our trajectory, start with the big picture for the company, we started the year saying We grew 8%, and the last earnings call we said we'd grow 10%, now we said 12%. And then the same is true for Americas, right? We started, I think it was 10%, and then 13%, and now it's 15%. So we want to continue that trajectory, keep improving, and keep proving that we can do more. There's no downside here. We keep pushing as hard as we can.

Thank you. And our next question comes from the line of Andy Kaplowitz from Citi. Your question, please.

Good morning, everyone.

Hi.

Paulo, now that Boyd is part of the portfolio and you've had several quarters of very high data center orders, maybe you can update us on what you're thinking for content per megawatt in data centers. Is 3.4 million the right number to think about now? And you gave us last quarter your view on EAMS positioning for 800 VDC. Has your confidence been improving that when the dust settles on the transition that you feel good about Ian's ultimate content, at least in that 3.4 range?

Thanks. So I would answer question directly. The 3.4 million is the right number to think about it. So for your modeling is the right one. You asked about the 100-volt trajectory. Let me make a couple of comments. I think there is a lot. As we travel, we talk to investors and analysts around this. Last quarter, I talked about why this matters to data center operators. I just want to remind everyone what our customers want to do ultimately is to improve tokens per megawatt, so improve the efficiency of the data centers. And this transition to 800 volt DC helps quite a big deal. 5% is huge for a gigawatt. You know, sites. So there's a huge impact in my opinion. I hear a number of different opinions in the market. I believe this is going to happen and customers are going to get what they want, right? When there's so much money involved, this is going to happen. So the core of your question was the dollars per megawatt and you talked about this transition. Everyone thinks about the solid state transformer, medium voltage solid state transformer is a very important element of that transition and we are clearly ahead in terms of technology after the acquisition of Brazilian Power last year and we are speeding up their development so we know we are ahead. That's the feedback we get from hyperscalers and multi-tenants and also cheap manufacturers. But there are more elements to this transition. It's broader and we are working every element of this transition. So the first thing I want to say, of course, the medium voltage solid state transform is a key element of it. But you also need to have, in order to be a great player in this new world, you need to have core DC breaker technology. You need to know how to break that circuit, right? Otherwise, you're not a reliable partner to the data center operators. so you need to have the transformers you need to have breaker technology the third build block for me is around power electronics and power quality so think about UPS capabilities that we also are leader in the marketplace and the fourth big element of this transition in my opinion is cooling you need to have cooling because it becomes even more important here I'm talking about both Co-plates and CDUs. So in order to win in this new era, in my opinion, you need to have those four technical blocks very strongly, be a leader, be able to supply that to your customers. And even when you get all of them, you still need to clear another hurdle, which is to have the service available. So having a strong service network that can show up in a site in an hour and not in days is also required. So it's not for everyone. It is not for every company. And again, it's my personal opinion and my team coincides in this opinion here is that if a company will be missing one or many blocks of these four they'll have a really hard time convincing their competitors to sell to them so they can package the solution. So that's why I want you to understand, yes, there's dollars per megawatt, but being able to offer the complete spectrum here will be also differentiated performance KPI for the future.

Appreciate all the color, Paulo. Thank you.

Thanks, Andy. Thank you, and our next question comes from the line of Chad Dillard from Bernstein. Your question, please.

Hey, good morning, everyone. I was hoping we could spend some time on prefab and modularization. Could you talk through what share of your RFPs are for prefab and modular, and then how does that change your competitive positioning? And then third, what does it mean for the adoption of this approach as we think towards 800-fold architecture?

Great, great question. So there is a clear trend, if you think about one of the bottlenecks in the industry, which is to have availability of electricians, plumbers, etc. There is scarcity of people to work on a stick build. So there is a push towards more modular solutions. This is exactly why we last year decided to make the acquisition of Fiberbond. We saw them as a strong market leader in building those models. And they're packaging things we know pretty well, which is our equipment, our UPSs, our switchgear, etc. So there is a very good connection there. I just talked, I love the, actually, you asked this question after we talked about the 800-volt conversion. When you simplify... The architecture, you even increase the opportunities of using modular solutions here. I just want to highlight a couple of things because I got many questions recently about this and complexity, etc. It is a different skill set than working in a manufacturing site. So that needs to be dealt by professional people, professional engineers, professional project managers. That's exactly why we acquired the competence of FiberBond and we are scaling them up. They are very strong already in gray space, as you guys know. And as we migrate into the white space with 800 volt DC, we can also tap on their capability and also cut other partnerships to win in that space. So we're going to do this. We're going to do this responsibly. We're going to do this effectively. And we're going to do what our customers want of us, basically.

Thank you, and our next question comes from the line of Jeff Hammond from KeyBank. Your question, please.

Hey, good morning, guys.

Hey, Jeff.

Hey, Jeff.

Thanks for the color on the bridge. That was very helpful. Just to ask, as you kind of expand, your capacity comes online, you get more productive. I'm just wondering what you're seeing on lead times for some of your longer lead time items, and then as you get more productive, and your lead times are maybe better in line relative to your competitors. What's your line of sight where you start to get more of your fair share as these lead times get better and these plants come on? Thanks.

Yeah, very great question. So lead time is important for our customers, especially in a fast-moving market like this. We are working on that. We constantly work on that. If you see our growth, especially in data centers where lead times are even more important. We grew 65% and I asked the team to look back and I think we completed in total eight consecutive quarters of growth beyond 35% in data centers which is fascinating. And just as a reminder to all of you when we shared the 2030 commitments for growth we only baked 17% of the data center growth in our model. So we are clearly ahead of that moving towards 2030. So my point, I'm going to get back to your lead time question in a second. We cannot be winning at that pace with that progress if we're not competitive. So I want to lead with that first. Having said this, we believe we can and should improve. And we know the product lines where our lead times are extended. We are ramping capacity, not only the factories, but ramping engineering support, and we're going to knock them down time by time and time again. Thank you.

Thanks.

Can I go? Yeah, go. Okay, just, you know, thanks everyone. It was a very intense and productive call. I just want to conclude with my closing remarks. First of all, once again, Dean, congrats, man. Well deserved retirement. Many thanks to all of you for interest in Eaton, for all your analysis and your questions. I want to say once again, thanks to the Eaton team. I know I've been Hard, fair but hard with all of you guys responding exceptionally well. I'm pleased with the progress, knowing that we are committed to continue to improve. So this is really important. So I would say our strategy is working. I hope you can appreciate that. It's gathering pace. Our markets are strong and durable. We accelerate organic growth, keep moving our backlogs up. and we're going to benefit from the strength of this market for years to come, right? If you think about all the announced projects. We also took this size of portfolio moves to structurally transform the company. And I believe, I truly believe that new ETH is taking shape as we speak towards higher growth and higher margins. We have this unique grid to chip capabilities. So all in all, a much stronger team and a stronger portfolio. and execution continues to improve especially with Electrical America's improvements. We're going to keep moving margins up as we progress and consequently I would just remind you that we could print a very strong operational bid in Q2 which gave us confidence to raise our guidance once again for the year. So thanks for your interest. Great afternoon to all. Thank you. Thanks guys.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.