Fourth Quarter 2019 Earnings Release February 4, 2020

Craig Arnold

© 2020 Eaton. All rights reserved.

Forward-looking Statements and Non-GAAP Financial Information

This presentation or the comments we make on our call today contain forward-looking statements concerning, among other matters, the anticipated completion of the sales of our lighting and hydraulics businesses and the use of those proceeds, performance of our worldwide end markets, first quarter and full year 2020 adjusted earnings per share, expected organic revenue growth, expected revenue from acquired businesses and divested businesses, adjusted segment operating margins and tax rate, and full year 2020 corporate expenses, capital expenditures, cash flow, and share repurchases. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company's business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; unanticipated changes in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the performance of recent acquisitions; unanticipated difficulties closing or integrating acquisitions; unexpected difficulties completing divestitures, new laws and governmental regulations; interest rate changes; stock market and currency fluctuations; war, civil or political unrest or terrorism; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.

This presentation includes certain non-GAAP measures as defined by SEC rules. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided in the investor relations section of our website at www.eaton.com.

© 2020 Eaton. All rights reserved.

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Recent Highlights

  • Announced agreement to sell Hydraulics business for $3.3B to Danfoss A/S for 13.2x 2019 EBITDA
  • Closed acquisition ofSouriau-Sunbank, completed sale of Automotive Fluid Conveyance, signed agreement to sell Lighting business, and announced acquisition of Power Distribution, Inc.
  • Earnings per share of $1.09
  • Earnings per share of $1.46, excluding charges of $0.28 per share for acquisition and divestiture costs and $0.09 per share for expected Vehicle warranty costs
  • Sales of $5.2B
    • Organic revenue down (4)%; excluding Lighting and Hydraulics down (2)%
    • Currency translation (½)% and acquisitions +½%
  • Adjusted segment margins of 17.8%, a 4Q record, excluding acquisition and divestiture costs and expected Vehicle warranty costs
  • Operating cash flow of $937M

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3

Financial Summary

(M) Sales

Segment Operating Profit as Reported

4Q '19

4Q '18

V '18

$5,238

$5,459

4%

857

950

10%

Acquisition & Divestiture Costs

Vehicle Warranty Costs

Adjusted Segment Operating Profit

Adjusted Segment Operating Margin

Net Income

Adjusted Earnings

Adjusted EPS

Sales Growth:

Organic

(4)%

Acquisition

½%

Forex

(½)%

(26)

---

(50)

---

933

(1)

950

2%

17.8%

(1)

17.4%

40 bps

452

631

28%

605

(1)

631

4%

$1.46

(1)

$1.46

---

  • Earnings per share $1.09
  • Adjusted earnings per share $1.46(1)
  1. Excluding Acquisition & Divestiture costs and Vehicle warranty costs

Total (4)%

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Electrical Products Segment

(M)

4Q '19

4Q '18

V '18

Sales

$1,753

$1,797

2%

Operating Profit as Reported

340

327

4%

Divestiture Costs

(15)

---

Adj. Segment Operating Profit

355

327

9%

Adjusted Operating Margin

20.3%

18.2%

210 bps

Sales Growth:

Organic

(2)%

Forex

0%

Total

(2)%

  • Organic growth +1%, excluding Lighting
  • Record 4Q margins of 20.3%
  • Sale of Lighting business for $1.4B, expected to close in 1Q 2020
  • Excluding Lighting, orders (2)% with strength in residential and commercial construction markets in the Americas offset by weakness in industrial markets globally

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Electrical Systems & Services Segment

(M)

4Q '19

4Q '18

V '18

Sales

$1,669

$1,611

4%

Operating Profit as Reported

276

268

3%

Acquisition & Divestiture Costs

(10)

---

Adj. Segment Operating Profit

286

268

7%

Adjusted Operating Margin

17.1%

16.6%

50 bps

Sales Growth:

Organic

2%

Acquisitions

2%

Forex

0%

Total

4%

  • Record 4Q margins of 17.1%
  • Orders up 2.5% on a rolling 12 month basis with growth across all regions
  • Excluding hyperscale data center orders, 12 month rolling average of orders up 4%
  • Announced acquisition of Power Distribution, Inc. with $125M sales in 2019

6

Hydraulics Segment

(M)

4Q '19

4Q '18

V '18

Sales

$565

$653

13%

Segment Operating Profit

$54

$85

36%

Operating Margin

9.6%

13.0%

340 bps

Sales Growth:

Organic

(13)%

Forex

0%

Total

(13)%

  • Announced sale of Hydraulics business for $3.3B and 13.2X 2019 EBITDA, expected to close end of 2020
  • Retaining Filtration and Golf Grip Businesses
  • Orders down (11)% driven by continued weakness in the global mobile equipment market

© 2020 Eaton. All rights reserved.

7

Aerospace Segment

(M)

4Q '19

4Q '18

V '18

Sales

$512

$497

3%

Operating Profit as Reported

123

114

8%

Acquisition Costs

(1)

---

Adj. Segment Operating Profit

124

114

9%

Adjusted Operating Margin

24.2%

22.9%

130 bps

Sales Growth:

Organic

2%

Acquisition

1%

Forex

0%

Total

3%

  • Record 4Q margins of 24.2%
  • Orders up 6% on rolling 12 month basis with particular strength in military, aftermarket and business jets
  • Closed acquisition ofSouriau-Sunbank Connection Technologies

© 2020 Eaton. All rights reserved.

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Vehicle Segment

(M)

4Q '19

Sales

$664

Operating Profit as Reported

63

Vehicle Warranty Costs

(50)

Adjusted Segment Operating Profit

113

Adjusted Operating Margin

17.0%

(1)

(1)

4Q '18 V '18

$821 19% 147 57%

---

147 23%

17.9% 90 bps

Sales Growth:

Organic

(18)%

Forex

(1)%

Total

(19)%

  • Warranty charge to correct performance of a product which incorporated a defective part from a supplier
  • Revenue down due to GM strike, lower Class 8 market, and continued weakness in light vehicle markets
  • Completed sale of Automotive Fluid Conveyance business

© 2020 Eaton. All rights reserved.

(1) Excluding Vehicle warranty costs

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eMobility Segment

(M)

4Q '19

4Q '18

V '18

Sales

$75

$80

6%

Segment Operating Profit

1

9

89%

Operating Margin

1.3%

11.3%

10 pts

Sales Growth:

Organic

(6)%

Forex

0%

Total

(6)%

  • $450M of mature year revenue wins since formation in 1Q 2018
  • Currently in discussions on a large number of additional programs
  • Margin decline driven by additional R&D investments and manufacturingstart-up costs associated with new electric vehicle programs

© 2020 Eaton. All rights reserved.

10

Highlights of Full Year 2019 Results

  • All-timerecord segment margins of 17.6% increased 80bps over 2018, excluding pre-tax charges for acquisition and divestiture costs and expected Vehicle warranty costs
  • EPS of $5.76, excluding these above items, up 7% over 2018*
  • Free cash flow of $2.9B, up 20% over 2018* & free cash flow to sales of 13.4%
  • Delivered significant portfolio transformation with $1.2B paid for 3 acquisitions in Electrical and Aerospace; and signed 2 divestitures, including $1.4B for Lighting expected to close in 1Q
  • Returned $2.2B to shareholders in 2019
    • $1.2B in dividends
    • Repurchased $1.0B (12.5M shares), 3% of shares outstanding at beginning of 2019
  • Total shareholder return of 43% in 2019, +500bps over median of proxy peers
    • Excluding $0.48 EPS and $300M cash impact from arbitration payment in 2018

© 2020 Eaton. All rights reserved.

11

2020 Organic Growth and Margin Guidance

Segment

Organic Revenue

Adjusted Segment

Growth

Operating Margin

Electrical Products

1

- 3%

21.2%

- 21.8%

Electrical Systems and Services

0

- 2%

16.4%

- 17.0%

Hydraulics

(4)

- (6)%

11.7% - 12.3%

Aerospace

2

- 4%

22.9%

- 23.5%

Vehicle

(7)

- (9)%

15.7%

- 16.3%

eMobility

3

- 5%

2.5%

- 3.1%

Eaton

(1) - 1%

17.8%

- 18.2%

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12

2020 Guidance

2020 Full Year Outlook

Adjusted Earnings Per Share

$5.60

- $5.90

Organic Revenue

(1) - 1%

Acquisition Revenue

2%

Divested Revenue

(7.5)%

Adjusted Segment Operating Margins

17.8%

- 18.2%

Corporate Expenses (interest, pension, other corporate)

Flat with 2019 levels

Tax Rate on Adjusted Earnings

14.8%

- 15.8%

Operating Cash Flow

$3.4B

- $3.6B

Free Cash Flow

$2.8B

- $3.0B

Capex

$550M

Share Repurchases

$2.4B

- $2.8B

1st

Quarter Outlook

Adjusted Earnings Per Share

$1.16

- $1.26

Organic Revenue

(3)%

Acquisition Revenue

2%

Divested Revenue

(3)%

Adjusted Segment Operating Margins

15.8%

- 16.2%

Tax Rate

15%

- 16%

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© 2020 Eaton. All rights reserved.

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© 2020 Eaton. All rights reserved.

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© 2020 Eaton. All rights reserved.

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Eaton Corporation plc published this content on 04 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 February 2020 11:53:06 UTC