• Adjusted EPS: $2.83, up 11% from prior year.
• Segment Margins: 24.7%, up 190 basis points from last year.
• Electrical Orders: Up 12% on a rolling 12-month basis.
• Electrical Americas Orders: Up 16%.
• Aerospace Orders: Up 10%.
• Q4 Sales: $6.2 billion.
• Free Cash Flow: $1.3 billion, up 8% versus prior year.
• Electrical Americas Backlog: Up 29% year over year.
• Aerospace Backlog: Up 16% year over year.
• Data Center Backlog: Up 50% over prior year.
• Operating Margin: 31.6% for Electrical Americas, up 310 basis points versus prior year.
• Vehicle Segment Revenue: Down 10%, including a 7% organic decline.
• E-mobility Revenue: Down 11%, including a 10% organic decline.
• Total Backlog: $15.5 billion, with electrical at $11.8 billion and aerospace at $3.7 billion.

• Warning! GuruFocus has detected 3 Warning Sign with ETN.

Release Date: January 31, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Eaton Corp PLC (NYSE:ETN) reported a record Q4 adjusted EPS of $2.83, up 11% from the previous year.
• The company achieved record segment margins of 24.7%, an increase of 190 basis points from last year.
• Electrical Americas orders were up 16%, and aerospace orders increased by 10%, indicating strong market activity.
• Eaton's backlog grew significantly, with Electrical Americas up 29% and aerospace up 16%, both with book-to-bill ratios above 1.
• The company expects continued strong growth in data centers, projecting double-digit growth for 2025 and beyond.

Negative Points

• The aerospace industry strikes and Hurricane Helene negatively impacted Q4 sales by approximately $18 million.
• The vehicle segment experienced a 10% decline in total revenue, driven by weaknesses in light vehicle markets.
• E-mobility business saw a 10% organic decline due to program launch and production ramp-up delays.
• Operating margin for the electrical global segment decreased by 110 basis points due to unfavorable mix.
• Residential and MOEM markets showed unplanned weakness, impacting overall performance.

Q & A Highlights

Q: Can you discuss the drivers behind the expected growth in organic revenue and adjusted EPS for 2025? A: Olivier Leonetti, CFO, explained that the EPS guidance for the year is balanced between the first and second halves, with the first half representing 48% and the second half 52% of the full-year guidance. The Q1 EPS guide implies a sequential decline of 4%, attributed to merit increases and investments in demand generation and manufacturing. Paulo Ruiz, COO, added that revenue growth is expected to be 7% in the first half and 9% in the second half, with Electrical Americas accelerating due to additional capacity.

Q: How are megaprojects impacting Eaton's business, and what is the outlook for 2025? A: Craig Arnold, CEO, noted that megaprojects have significantly impacted Eaton's business, with the company doubling its megaprojects in 2024 to over $600 million. The negotiation pipeline is up 60%, indicating a strong growth cycle ahead. Paulo Ruiz added that Dodge data forecasts over $300 billion in 114 projects for 2025, suggesting a continued growth trajectory.

Q: What is the current state of the supply chain, and how is Eaton addressing potential constraints? A: Craig Arnold stated that supply chain constraints have eased, with new capacity in place and suppliers responding well. However, labor remains a potential bottleneck, particularly in skilled trades. Eaton is working closely with suppliers, providing visibility and certainty to support growth forecasts.

Q: Can you provide insights into the data center market and Eaton's growth expectations? A: Craig Arnold highlighted that data centers are expected to be Eaton's strongest market, with strong double-digit growth anticipated for 2025. The backlog is rapidly increasing, and customers continue to forecast significant capital investments. Paulo Ruiz added that Eaton has multiyear visibility on forecasts and is working closely with data center operators to accelerate build-outs.

Q: How is Eaton positioned for growth in the Electrical Americas segment, and what are the margin expectations? A: Paulo Ruiz explained that Electrical Americas is well-positioned for growth, with strong backlogs and additional capacity coming online. The segment's margins are expected to improve, driven by volume growth and operational efficiencies. While pricing is normalizing, the focus remains on manufacturing efficiencies and capacity ramp-ups.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.