Post on 31-Jul-2021
© 2021 Eaton. All rights reserved..1© 2020 Eaton. All rights reserved.
Annual Investor ConferenceCraig Arnold, Chairman and Chief Executive Officer March 1, 2021
© 2021 Eaton. All rights reserved..
Eaton is an intelligent power management company with differentiated businesses in large global markets• ~90% of profit from Electrical and Aerospace businesses excluding Hydraulics
We delivered strong results in 2020 despite a historic reduction in global markets• Resilient margins and cash flow generation led to strong shareholder returns
Eaton has an unyielding commitment to industry-leading ESG practices• Our goal is a 50% reduction in greenhouse gas emissions and carbon neutrality by 2030
We have transformed the company and will deliver higher growth, higher margins, and more consistent earnings• Active portfolio management, investing for growth and focusing on execution
Our businesses are supported by secular growth trends and we’re investing to win• Growth will accelerate as electrification, energy transition and digitalization trends gain traction
We have significant cash optionality• Balanced approach to redeploying capital to drive growth and shareholder returns
We are well-positioned to deliver 11% - 13% EPS growth over the next 5 years
2
Today’s key messages
© 2021 Eaton. All rights reserved..
Strong margin performance• 16.4% segment margin, well above prior recessionary periods of 2009 and 2014 • Decremental margins at 23% on solid cost execution
Resilient cash flow generation• $2.6B free cash flow(1), above mid-point of post-COVID guidance range• Record 14.3% free cash flow as a percent of sales
Significant cash returned to shareholders while investing for growth• $1.6B share repurchases, equivalent to 4% of shares outstanding at the beginning of 2020• $1.2B dividend, providing above peer average yield of 2.3%
Repositioning the portfolio for higher growth, stronger margins, and more consistent performance• Established two new joint ventures, Abunayyan and HuanYu, expanding our presence in emerging markets• Exited Lighting and selling Hydraulics• Completed PDI and Optimum Path Systems acquisitions
We generated total shareholder return considerably outpacing both the median peer and S&P500• 31% TSR in 2020, outpacing the median peer by 20% pts, and S&P500 by 13% pts
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We delivered strong results in 2020 despite a historic reduction in global markets
Footnote (1) described in Appendix
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• 4 global intelligent power management businesses
• Aligned with important secular growth trends
• Doing mission critical work – safe, reliable, and efficient
• Providing highly engineered products and solutions
• ~90% of profit in Electrical and Aerospace
• Committed to deliver for all stakeholders
4
Eaton is an intelligent power management company
What you should know about Eaton… and why we win…
• Brands that customers trust
• Strong distribution channels
• Global businesses with scale
• Broad product and solutions capabilities
• Market knowledge and application expertise
• Large installed base creates aftermarket opportunities
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• Ensure the safety, health and wellness of our employees
• Be the preferred supplier to customers and channel partners
• Make work exciting, engaging and meaningful for our employees
• Be a model of inclusion and diversity in our industry
• Make our communities stronger
• Be active stewards of the environment
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Our mission is built on the belief that employees want to work for a company with a purpose that they care about…
…delivering superior returns to shareholders and fulfilling our broader obligations to society.
To improve the quality of life and the environment through the use of power management technologies and services.
Our mission
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…that makes what matters work by solving real world problems
EnvironmentCommitting to climate action and enabling others to do the same net zero carbon emissions
50% reduction in GHG emissions from operations
15% reduction in indirect emissions
100% manufacturing sites certified as zero waste-to-landfill
$3B+ investment in R&D targeted at sustainable solutions
$
Social responsibility Creating long-term value for all ofour stakeholders
GovernanceDoing business right now and into the future
2030 Sustainability targets
Eaton has an unyielding commitment to industry-leading ESG practices
© 2021 Eaton. All rights reserved..
We have successfully transformed the company by actively managing the portfolio
Mob
iliza
tion
Ener
gy T
rans
ition
1911
Div
ersi
ficat
ion
Build scale as a diversified automotive & truck
component supplier
Becoming anintelligent power
management company
Over 120 acquisitions and divestitures since 2000 1940s 1970s 2000s Today
7
Portfolio expansion beyond truck and auto, creating a diversified industrial
Refocus as a power management
company
Ener
gy E
ffici
ency
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Ability to lead in large global markets
Above-average growth potential
Capable of delivering high margins
High returns on capital
Consistent profitability
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We actively manage our portfolio using stringent criteria to evaluate businesses…
Portfolio criteria Recent portfolio actions
Invested ~$6B in acquisitions• Electrical: Tripp Lite, Optimum Path Systems, PDI,
Ulusoy, Innovative Switchgear• Aerospace: Cobham Mission Systems, Souriau-Sunbank
Established joint ventures• Building out presence in emerging market with HuanYu
and Abunayyan• Cummins for automated truck transmissions
Divested ~$4B revenue of businesses that don’t meet our criteria
• Hydraulics, Lighting, Automotive Fluid Conveyance
© 2021 Eaton. All rights reserved.. 9
…and recently announced agreements for two acquisitions
2020 revenue of ~$430M
Purchase price of ~$1.65B, equating to 2021 EBITDA multiple of ~11x
U.S.-based provider of power quality and connectivity solutions
Expands our presence in the distributed IT market
• Attractive growth prospects driven by increased connectivity, the launch of 5G and edge computing
Tripp Lite2020 revenue of ~$720M
Purchase price of ~$2.83B, equating to 2021 EBITDA multiple of ~13x(1)
Manufacturer of air-to-air refueling systems, air separation modules for fuel tank inerting, oxygen systems, and actuation products
Complementary product portfolio that builds out our fuel systems business and adds new capabilities
• Attractive growth prospects driven by sole-sourced position on defense aircraft while the fleet is modernized
Cobham Mission Systems
(1) EBITDA multiple calculated on purchase price excluding the amount paid for tax benefits
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We have consistently expanded margins over the years…
Segment Operating Margin
0%
25%
2001-05 2006-10 2011-15 2016-20 2021-25E
We remain confident in our ability to sustain margin expansion in the years to come
Footnote (1) described in Appendix
(1)
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(1)
11
…and continue to have strong free cash flow generation
Free Cash Flow
$0B
$3B
2001-05 2006-10 2011-15 2016-20 2021-25E
Footnotes (1) (2) (3) described in Appendix
(2) (3)
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This has contributed to our strong shareholder returns, with a 20% point outperformance of the median of our peers in 2020
12
0%
35%
Eaton S&P500
PeerMedian
XLI
Annu
aliz
ed T
SR
1-year TSR
0%
20%
Eaton S&P500
PeerMedian
XLI
Annu
aliz
ed T
SR
3-year TSR
0%
15%
Eaton PeerMedian
S&P500
XLI
Annu
aliz
ed T
SR
20-year TSR
Source: Capital IQ
(1)
XLI – Industrial Select Sector SPDR; Footnote (1) described in Appendix
(1) (1)
© 2021 Eaton. All rights reserved.. 13
Our corporate strategy continues to be focused on three initiatives
Organic Growth Expand Margins Disciplined Capital Allocation
• Technology • Partnerships• Superior value
• Eaton Business System• Operational excellence• Focus on outliers
• Invest in organic growth• Return of capital• Acquisitions
Digitalization
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Organic growthtarget 4% - 6% organic revenue CAGR from 2020 thru 2025
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Our businesses are tied to secular growth trends…
Sustainability Digitalization Electrification & Energy Transition
Climate change, energy efficiency and increasing regulations require
new solutions
Interconnectivity of products and systems are leading to new
business models
Electrification, renewables and the changing grid will continue to
drive growth
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…and we are investing in new technologies to participate In the changing world
Transforming the electrical power value chain, creating an “EVERYTHING AS A GRID” environmentEnergy Transition
Adapting digital technologies to transform power management for safer and more sustainable and efficient power useDigitalization
Investing to win in electric vehicles marketsElectrification
Focused on developing sustainable products and solutions
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Digital customer experience
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Driving digitalization initiatives across every part of the company
Factory of the Future – Industry 4.0
FunctionalProductivity
New business models
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We recently launched Brightlayer, our data and software collaboration platform
Brightlayer is our market-facing platform that allows us to create value from our data
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© 2021 Eaton. All rights reserved.. 19
Expand Marginsexpect 400 bps to 500 bps margin upside potential from 2020
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Expand MarginsEBS - How we execute, grow and continue to learn
Operational excellence2
Focus on outliers3
Eaton Business System (EBS)1
EBS is built on a belief in common standards, relentless learning, and an expectation of getting better every day.
Plan
Learn ExecuteGrow & Operate
Assess
Stakeholders
© 2021 Eaton. All rights reserved..
Eaton Business System (EBS)
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Expand MarginsBegins with driving operational excellence across our factories and functions
Industry 4.0
Manufacturing excellence
Functional excellence
Productivity improvement
Operational excellence2
Focus on outliers3
1
© 2021 Eaton. All rights reserved.. 22
Expand MarginsFocus on activities that create the highest value
Grow the head
Fix the tail
Move the mean and improve margins
Operational excellence2
Focus on outliers3
Eaton Business System (EBS)1
© 2021 Eaton. All rights reserved.. 23
Disciplined Capital AllocationExpect $9B cash optionality thru 2025 while continuing to invest for organic growth
© 2021 Eaton. All rights reserved.. 24
Disciplined Capital AllocationOrganic growth remains our prime focus
Return cash to shareholders through attractive and growing dividend2
Pursue acquisitions3
Repurchase shares with excess cash4
Invest in organic growth1~$6B of capex and R&D invested over the last 5 years…
…and expect organic growth to accelerate
© 2021 Eaton. All rights reserved.. 25
Disciplined Capital AllocationGrowing dividend and attractive yield
Invest in organic growth1
Pursue acquisitions3
Repurchase shares with excess cash4
Return cash to shareholders through attractive and growing dividend
2
Dividend per share growing at 10% CAGR since 2010…
…and expect to continue increasing dividends with long-term earnings
© 2021 Eaton. All rights reserved.. 26
Disciplined Capital AllocationStrategic acquisitions creating value
Return cash to shareholders through attractive and growing dividend2
Invest in organic growth1
Repurchase shares with excess cash4
~$20B(1) redeployed since 2010, with focus on Electrical and Aerospace…
…and expect to have $5B- $7B additional acquisition capacity thru 2025
Pursue acquisitions3
Footnote (1) described in Appendix
© 2021 Eaton. All rights reserved.. 27
Disciplined Capital AllocationShare repurchases increasing shareholder value
Pursue acquisitions3
Repurchase shares with excess cash4
Repurchased over $7B of shares since 2010…
…and expect to repurchase 1% - 2% of shares annually
Return cash to shareholders through attractive and growing dividend2
Invest in organic growth1
© 2021 Eaton. All rights reserved.. 28
OutlookIncreased long-term targets
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We confirm our 2021 guidance…
17.6% - 18.0% $5.40 - $5.80 $1.8B - $2.2B $500M - $700MSegment Operating
MarginsAdjusted EPS(1) Adjusted Free
Cash Flow(2)Share Repurchases
4 – 6%Organic Growth
2021 Full Year Outlook
Footnotes (1) (2) described in Appendix
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…and our mid-term targets reflect higher growth and margins
30
4% to 6% Organic revenue growth
~21% Segment operating margin
~14% Free cash flow as a percent of sales
11% to 13% Adjusted EPS Growth
22% Electrical Americas
19% Electrical Global
24% Aerospace
18% Vehicle
15% eMobility
Mid-term targets Segment margin targets
© 2021 Eaton. All rights reserved.. 31
Today’s key messages
Eaton is an intelligent power management company with differentiated businesses in large global markets• ~90% of profit from Electrical and Aerospace businesses excluding Hydraulics
We delivered strong results in 2020 despite a historic reduction in global markets• Resilient margins and cash flow generation led to strong shareholder returns
Eaton has an unyielding commitment to industry-leading ESG practices• Our goal is a 50% reduction in greenhouse gas emissions and carbon neutrality by 2030
We have transformed the company and will deliver higher growth, higher margins, and more consistent earnings• Active portfolio management, investing for growth and focusing on execution
Our businesses are supported by secular growth trends and we’re investing to win• Growth will accelerate as electrification, energy transition and digitalization trends gain traction
We have significant cash optionality• Balanced approach to redeploying capital to drive growth and shareholder returns
We are well-positioned to deliver 11% - 13% EPS growth over the next 5 years
© 2021 Eaton. All rights reserved.. 32
© 2021 Eaton. All rights reserved.. 33
Appendix
Footnote from page 3:(1) Free cash flow of $2.55B was operating cash flow of $2.94B less capital expenditures of $0.39B
Footnote from page 10:(1) Adjusted for expected Vehicle warranty costs recorded in 2019
Footnotes from page 11:(1) 2014 free cash flow excludes certain legal settlements(2) 2018 free cash flow excludes impact of arbitration decision(3) 2021 guidance for adjusted free cash flows excludes $450M of estimated cash taxes on Hydraulics sale and $200M U.S. qualified pension contribution
Footnote from page 12:(1) 1, 3 and 20 year TSR from 1/1/2020, 1/1/2018 and 1/1/2001 through 1/1/2021, respectively.Peers are as shown in the most recent proxy: ABB, ALSN, AXL, BWA, CMI, DE, DOV, EMR, HUBB, HON, IR, ITW, LR, MOG, PH, ROK, SIE, SU, RTX, WWD
Footnote from page 26:(1) Acquisition amount includes Tripp Lite and Cobham Mission Systems expected to close in 2021
Footnotes from page 29:(1) Adjusted EPS is the only element of guidance which includes impact for announced Tripp Lite and CMS acquisitions. 2021 adjusted earnings per share excludes the per share impact of acquisition and divestiture charges, restructuring program charges, intangible asset amortization expense, and includes the per share net accretion from Tripp Lite and Cobham Mission Systems(2) 2021 guidance for adjusted free cash flows excludes $450M of estimated cash taxes on Hydraulics sale and $200M U.S. qualified pension contribution.