Electrical Products Group Conference

Transcription

1 Electrical Products Group Conference Alexander M. Cutler Chairman and Chief Executive Officer May 18, 2015

2 Forward Looking Statements and Non- GAAP Financial Information 2

3 Eaton is a premier power management company We are uniquely positioned to provide reliable, efficient, safe and sustainable power management solutions for critical markets Cities & Buildings Energy & Utilities Infrastructure Information Technology Industrial & Machinery Transportation Electrical Fluid Mechanical 3

4 We have aggressively executed our strategy Goals Strategy Actions Since 2000 Higher earnings growth Reduced volatility Maintain high return on capital Change the business mix Upgrade the talent Run the business better with EBS Invested $5.5 billion in research & development Deployed $20 billion of capital to acquire 66 businesses, markedly changing the mix Divested businesses with sales of over $1.5 billion 4

5 Our strategy has resulted in a balanced business that serves diverse markets Electrical Hydraulics Aerospace Vehicle Segment 61% 13% 8% 18% Early Mid Late No Cycle 31% 29% 29% 11% USA Int l Developed Int l Emerging Country 52% 25% 23% End Market 5

6 Our returns have substantially exceeded those of our peers and the S&P 500 Return Index Cumulative Shareholder Returns 2000 Apr 30, 2015 CAGR* 13.5% 11.3% % Apr 30, 2015 Eaton S&P 500 Peer Group** Note ** Peer Group represents an equal weighted index of ABB, DHR, DOV, EMR, HON, IR, ITW, LR, PH, ROK, SIE, SU, UTX *CAGR = Calculated using the End Point Methodology Source Data: Capital IQ, Eaton analysis 6 6

7 Our Electrical business is balanced both geographically and across key segments Electrical Geographic Mix 2014 Sales $13.7B U.S. 55% Non- U.S. 45% Data Center / IT 15% Electrical End Market Mix 2014 Sales $13.7B Utility 12% Resi 9% Industrial 23% Machine Builders 11% Commercial & Institutional / Gov t 30% 7

8 Electrical Products is a $7.3B segment with scale and technological innovation to compete globally Electrical Products Circuit Protection & Power Distribution Components Industrial Controls Lighting Power Quality 1-Phase Safety Structural Solutions Wiring Devices Growth Drivers Leading the conversion to LED lighting Growth in the global distribution channel Global power quality product offering for IT markets Leveraging our portfolio of industry leading electrical components Operating Margin 17.7% % 17.2% E 8

9 Systems & Services is a $6.5B segment providing solutions to all levels of the value chain Electrical Systems & Services Engineering Services Power Distribution Assemblies Power Quality 3-Phase Power Systems Solutions for Harsh & Hazardous Environments Growth Drivers Arc flash and explosion-proof technologies Capitalizing on leadership position for energy-efficient UPS IEC assemblies for global markets Exploiting our extensive project management capabilities and value-added services Operating Margin 14.5% % 13.8% E 9

10 We continue to leverage innovation and product vitality to drive organic growth Extending UPS technology to additional markets Utilizing LED technology to increase flexibility Drives technology for every application Creating oil & gas technology to enhance safety and maintenance Marine Duty Uninterruptable Power Supplies WaveStream Architectural Solutions General Purpose, Machine & EU Directive Drives CXH Low Voltage Assemblies Hazardous Area Boltless Enclosures Marine certified UPS for marine safety, control, bridge and commercial systems Standard and engineered solutions address end user applications Expanded WaveStream LED solutions for more design freedom Provides best in class optical control, brightness control and energy efficiency General purpose and machinery drives expand functionality and increase ease of use Simple motor drives meet new European energy savings directive CXH - Increased safety and reliability with unmatched arc flash mitigation Hazardous location boltless cover reduces installation and maintenance costs 10

11 Our Electrical businesses deliver solutions for the entire power system Data Centers Industrial Utility Commercial / Resi Machinery 11

12 We have a broad portfolio of products and solutions for the utility segment Primary and secondary medium voltage assemblies, monitoring and control Power transformers & surge arrestors Lighting & structural solutions Installation, commissioning and maintenance services 12 12

13 and the data center market segment UPS/backup power Power distribution assemblies and components Cable tray, racks and airflow management Lighting/control Installation/commissioning 13 13

14 We also have a broad portfolio serving the commercial building segment Power distribution equipment Outdoor/indoor lighting Structural supports for pipes and cabling Boxes/connectors/wiring device Control and drives Backup power and surge 14 14

15 Eaton has strong anchor brands and a powerful corporate brand Data Centers Industrial Utility Commercial / Resi Machinery 15 15

16 The successful integration of Cooper continues to drive significant earnings growth Synergy profit ($M) $95M $115 +$150M $210 +$115M $475 $ Profits from Revenue Synergies Cost Synergies Integration Update The Cooper integration is nearing completion in 2015 We are close to capturing all sales and cost-out synergies By January 2016, we will have fulfilled our commitment to pay down the acquisition debt 16

17 Cost synergies come from five main areas and are approaching mature levels EBS Plant & Distribution Application of EBS Tools Supply Chain Economies of Scale Leveraging Eaton s Infrastructure Corporate Cost Reduction Rationalization projects on-schedule Successful disposition of excess properties Implementation of tools proceeding per plan Leveraging common spend Consolidating indirect spend Leveraging distribution footprint to reduce freight costs Operating SG&A actions ahead of plan Office consolidation projects complete All actions completed IT and data center migrations ahead of schedule 60% complete 70% complete 70% complete 90% complete 100% complete Note: percentages indicate cost synergies completed. Balance of work is underway and will be finished by year end. 17

18 Sales synergies come from four main areas Boost Channel Sales Larger Package to Common Customers Service Business Geographic Expansion Completed the rollout of a new distributor program to channel partners (EDAP) Implemented integrated selling organizations on a global basis Coupled service offers to all Industrial, Commercial and Utility quotations and projects Integrated selling, service, and channel activities in key regions Launched new channel web portal tools (MyEaton) Added resources to focus on global accounts and key EPC firms Rolled out a service channel module to key distributors Enhanced and expanded Eaton Tech Days in Asia, Africa, and the Middle East 75% of total 2016 sales synergies 25% of total 2016 sales synergies 18

19 We are driving significant margin improvement across all five business segments Segment Operating Margin 20% 18% 16% +60 bps to +120 bps YoY 14% 12% 10% 8% 6% 4% 2% 0% e Note: Excludes acquisition integration charges 19

20 Our cash flow continues to grow rapidly and our cash earnings are strong Cash from Operations Cash Earnings Comparison $3 $9 ($B) $2 $6 $1 $3 $ * 2015E $ E Indicates 2015 guidance range Operating EPS EBITDA / Share Notes: Operating EPS excludes Q litigation settlements and gain from Aerospace divestitures EBITDA / Share excludes acquisition integration charges 20

21 Starting later in 2015, we expect to have increased cash optionality Significant Cash Generation in Near-Term Capital Allocation Optionality $4 Repurchase shares we repurchased $650M in 2H 2014 and $170M in 1Q 2015 (2.5% of shares outstanding) ($B) Mid-year 2015 cash optionality Increase dividend continue to grow dividends in line with earnings growth Invest in acquisitions Cooper expanded our addressable electrical market from ~$125B to ~$195B $0 Free Cash Flow - 2H 2015 through 2016 Dividend Payments Debt Repayment Capital optionality 21

22 For 2015, organic revenue growth is expected to be 2% - 3% Segment 2015 Organic Revenue Growth Electrical 2% - 4% Hydraulics (2)% - (4)% Aerospace 2% - 4% Vehicle 3% - 5% Eaton Consolidated 2% - 3% 22

23 2015 Outlook Organic Revenue Growth 2% - 3% Forex (5)% Segment Margins 15.9% % Corporate pension, interest, and general corporate expenses $10M - $20M above 2014 levels Tax Rate 9% - 11% Operating EPS Operating Cash Flow Full Year $ $4.95 Q2 $ $1.20 $2.7B - $3.1B 2015 Expected Segment Margins Elec. Products 17.7% % Elec. Systems and Services 14.5% % Hydraulics 11.1% % Aerospace 16.1% % Vehicle 17.0% % Free Cash Flow $2.0B - $2.4B CAPEX $675M 23

24 Summary Our power management strategy is effective We are a global power management leader with strong positions in critical markets Our balance provides stability Across uneven market conditions, we have produced strong results We will continue to drive strong earnings growth in a slow growth environment Our technical vitality and front-end capabilities combined with Cooper synergies are producing results We are positioned for greater cash redeployment optionality Growing cash flow and improved cash flow margin provide us with attractive capital allocation alternatives 24

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