Eaton(ETN) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 18% year-over-year, reaching $3.33, aligning with the midpoint of guidance [5][15] - Quarterly revenue was reported at $7.1 billion, with segment margins hitting a record of 24.9%, up 20 basis points year-over-year [5][15] - Organic growth for the quarter was 9%, driven by strength in aerospace and Electrical Americas, partially offset by weaknesses in vehicle and e-mobility [15] Business Line Data and Key Metrics Changes - Electrical Americas segment achieved organic sales growth of 15%, primarily driven by data center demand, which surged by approximately 40% [16] - Aerospace segment reported organic sales growth of 12%, with operating margin expanding by 120 basis points to 24.1% [18] - Vehicle segment experienced a decline of 13% in organic sales, primarily due to weaknesses in the North America truck and light vehicle markets [19] Market Data and Key Metrics Changes - Orders in Electrical Americas increased by 16% on a trailing 12-month basis, with total quarterly orders rising sequentially by over 18% [16] - Backlog in Electrical Americas reached $15.3 billion, growing 29% year-over-year, while aerospace backlog increased by 16% [12] - Mega project backlog rose by 30% year-over-year to $3 trillion, with data centers representing 54% of year-to-date announcements [11] Company Strategy and Development Direction - The company plans to spin off its mobility business into a separate publicly traded entity, aiming to sharpen strategic focus and optimize its portfolio [7][10] - Investments of $13 billion were announced for 2025, including acquisitions to enhance growth in high-margin markets [5][10] - The company is focused on leading, investing, and executing for growth, particularly in electrical and aerospace markets [6][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in double-digit growth in data center markets, supported by strong order trends and backlog [32][36] - The company anticipates continued strong demand and structural organic growth rates through 2030, driven by record backlogs and market trends [12][24] - Management acknowledged temporary headwinds from capacity ramp-up costs but remains optimistic about long-term growth potential [54][58] Other Important Information - The company is experiencing unprecedented demand, reflected in continued order acceleration and growing backlogs [24] - The transition of CFO Olivier Leonetti is planned for April 1, 2026, as part of a management transition [20] Q&A Session Summary Question: Confidence in double-digit growth in data center markets - Management highlighted strong market indicators, including a 200% year-over-year increase in industry announcements and backlog, supporting optimism for future growth [32][34] Question: Recent market developments in liquid cooling technology - Management noted that liquid cooling is growing faster than the average market, with synergies expected between cooling and power management solutions [37][38] Question: Quarterly cadence of the 2026 EPS guidance - Management explained that the first half of 2026 is expected to show lower growth due to ramp-up costs, with a stronger performance anticipated in the second half [47][50] Question: Challenges related to capacity expansion - Management acknowledged temporary headwinds from capacity expansion but expressed confidence in the long-term growth potential of the business [52][54] Question: Clarification on Electrical Americas margins - Management indicated that the impact of ramp-up costs would be more pronounced in the first half of 2026, with expectations for margin recovery later in the year [64][82]