Eaton(ETN) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported quarterly revenue of $7 billion, with adjusted earnings per share (EPS) increasing by 8% year-over-year to $3.07, which is at the high end of the guidance range [20][25] - Segment margins reached a record 25%, up 70 basis points year-over-year [5][20] - Organic growth for the quarter was 7%, driven by strength in aerospace and Electrical Americas, partially offset by weakness in short-cycle markets [20] Business Line Data and Key Metrics Changes - Electrical Americas segment achieved organic sales growth of 9%, primarily driven by data centers, which saw a 40% increase [20][21] - Aerospace segment reported organic sales growth of 13%, with operating margin expanding by 150 basis points to 25.9% [23] - Vehicle segment experienced a decline of 9% on an organic basis, primarily due to weaknesses in the North America truck and light vehicle markets [24] Market Data and Key Metrics Changes - Orders in Latin America accelerated by 7% on a rolling 12-month basis, with a backlog growth of 20% year-over-year [4] - EMEA orders increased by over 30%, driven by data center orders, including sizable orders in the Middle East [22] - The global liquid cooling market is expected to grow around 35% annually through 2028, driven by demand for high-performance AI chips [11][45] Company Strategy and Development Direction - The company outlined a strategy with three pillars: lead, invest, and execute for growth, focusing on capitalizing on key megatrends [6] - The acquisition of Boyd's thermal business aligns with the strategy to invest for growth, particularly in the data center market [7][15] - The company aims to provide comprehensive solutions for data centers, integrating power distribution and cooling technologies [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained growth due to strong demand indicators and a robust backlog [5][17] - The company reaffirmed its 2025 guidance, expecting continued order acceleration and strong visibility into future growth [25][27] - Management highlighted the importance of integrating various systems to enhance technical performance and rapid deployments in data centers [14] Other Important Information - The company is targeting a 100 basis point margin expansion for 2025, with a long-term growth target of 6%-9% CAGR through 2030 [18][26] - The Boyd acquisition is expected to generate $1.7 billion in sales next year at an adjusted EBITDA margin of 25% [7][49] Q&A Session Summary Question: Outlook for Electrical Americas LTM orders - Management remains bullish about orders growth in Q4, supported by strong project tracking and a growing negotiations pipeline [29][30] Question: Impact of AI data centers on sales per megawatt - The company expects to reach close to $3 million per megawatt at the high end of the guide with the addition of Boyd [34][38] Question: Drivers of aerospace performance and margins - Aerospace is on track to meet 2030 margin commitments, with historical wins in defense platforms and ongoing improvements in manufacturing efficiency [59][61]