Electrical Products Group Conference

Transcription

1 Electrical Products Group Conference Alexander M. Cutler Chairman and Chief Executive Officer May 21, 2013

2 Forward-looking statements and non-gaap financial information The information provided at our conference today will include forward-looking statements relating to our goals and estimates for future years, including statements about expected sales, acquisition synergies, operating earnings per share, cash flow, segment margins, our worldwide markets, our anticipated effective income tax rate, the tax treatment of our dividends and others. 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; increases 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; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions or realizing expected synergies from the Cooper acquisition; new laws and governmental regulations; interest rate changes; changes in currency exchange rates; stock market fluctuations; 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 and is contained in your packet. 2

3 Eaton is a global leader in power management Electrical Fluid Mechanical Cities & Buildings Information Technology Energy & Utilities Industrial & Machinery Infrastructure Transportation Uniquely positioned to provide safe, reliable, efficient and sustainable power management solutions for our global customers 3

4 In 2012, we completed the transformational acquisition of Cooper Industries + Grows the global scale of our electrical business + Improves our breadth of products with virtually no overlap + Increases leverage to global megatrends: energy efficiency, utility grid upgrade, industrial safety + Brings our overall portfolio to $21.8 B in revenue + Combined company has 103,000 employees, sales in 175 countries Founded Sales $5.9 B 29,000 Employees Manufacturing in 23 countries Sales in over 100 countries 4

5 Cooper has a wide range of complementary electrical businesses Power Systems $1.4 B sales Distribution grid protection & automation Crouse-Hinds $1.2 B sales Global leader in electrical solutions for harsh & hazardous environments Safety $650 M sales Leading European provider of emergency lighting, notification & video security Lighting $1.2 B sales Broad lighting packages for indoor & outdoor use Bussmann $750 M sales Global leader in circuit protection B-Line $500 M sales Global provider of structural systems & wire management solutions Wiring Devices $300 M sales Electrical devices for commercial & residential power distribution 5

6 Cooper is positioned to capitalize on similar global trends as historic Eaton business Global Opportunity Eaton Cooper Utility Grid Upgrades $1.8T in grid upgrades over the next two decades Reliability Mission critical applications growing as a share of total consumption Alternative Energy Safety / Protection Energy Efficiency Renewables share of generation to double by 2025 Increasing emphasis on electrical safety $100B building energy efficiency market by 2017 LED Lighting Over 60% of all lighting by

7 The combined business is balanced and has substantial platforms for future growth Residential Commercial / Infrastructure Oil & Gas / Other Industrials Utility Machine Builders Data Center/IT Six primary platforms for growth Each >$1B in sales All have global scope Market and channel position substantially enhanced in at least four of the platforms Eaton Electrical Cooper 7

8 Our expanded capabilities position us to provide solutions across a broad range of end markets Structural Solutions & Wiring Devices Engineering Services Legacy Eaton Legacy Cooper Backup Power Protection Power Distribution & Circuit Protection Control & Automation Solutions for Harsh & Hazardous Environments Lighting & Security Data Centers 8

9 The synergies expected from the acquisition remain on track against our latest forecast Annual Pre-tax Synergies from Cooper Industries Acquisition ($Millions) Sales synergies Cost-out synergies Total Operational Synergies Global cash management and resultant tax benefits Acquisition integration costs, pre-tax

10 Operating synergies will be derived from five main areas EBS Plant & Distribution 133 small / medium plants 64 distribution centers $3.8B in fixed costs High % of fixed overhead in small / medium plants Application of EBS Tools ELSS EQS 6% average improvement in our manufacturing costs on large Electrical acquisitions Supply Chain Economies of Scale $4.8B direct spend $2.3B indirect spend $0.5B logistics 4% average supply chain savings on large Electrical acquisitions Leveraging Eaton s Infrastructure Technology centers in Pune, Shenzhen, Prague Global shared service centers $290M in mature year cost-out savings Corporate Cost Reduction Corporate functions Back office support Data centers 10

11 and sales synergies will come from four key areas Larger Package to Common Customers Oil & Gas Data Centers Mining Utility Boost Channel Sales Strengthen regional presence Stronger niche presence Service Business Build on strong Global infrastructure Use Lighting to extend Energy Services Deal Enables Geographic Expansion China Mexico Middle East Africa Russia $565M in incremental mature year sales 11

12 Next generation efficient backup power protection Bringing the efficiency of our industry-leading 9395 to smaller data centers Smallest footprint in the industry 30kW 200kW Up to 99% efficient in Energy Saver System mode Best-in-class functionality for 3-phase applications Modular, integrated solution 40kW 200kW Up to 99% efficient in Energy Saver System mode Ability to manage virtual machines 93E UPS Targeting the 200,000+ small data centers Addressing $4.8B global market opportunity 93PM UPS Targeting the 95,000+ mid-size data centers 2013 Eaton. All Rights Reserved. 12

13 WaveStream TM LED Technology Optimized LED technology and compelling value proposition Design Freedom Maximum Efficiency Low cost material Brightness Control Up to 100+ lumens/watt Cost parity in mainstream applications: Replacing traditional ambient fluorescent Superior energy efficiency Lower maintenance costs Dimming and lighting control integration $10B NA market opportunity 2013 Eaton. All Rights Reserved. 13

14 Structural solutions for Industrial & Commercial installations Innovative solutions that dramatically reduce weight and cost Unique I-Beam and splicing designs Achieves weight reduction and a stronger solution 1 lb. reduction above water equals 4 lbs. reduction below water (offshore Oil & Gas) Customer cost savings in the hundreds of thousands of $$$ Cable tray systems Over $700M global opportunity in Oil & Gas Bolted framing strut systems Safety grating 2013 Eaton. All Rights Reserved. 14

15 Despite slower forecasted global growth, we are targeting 8% revenue growth through the cycle Six Percent + Two Percent Core Revenue Growth ~2x GDP Growth from Acquisitions High Growth End Markets Innovation Emerging Markets 15

16 We expect record margins in 2013, with further expansion through E 2015 Target Electrical Products N/A 16.0% 18% Electrical Systems & Service N/A 14.0% 16% Hydraulics 13.0% 13.5% 17% Aerospace 12.4% 14.0% 16% Vehicle 14.6% 16.0% 17% Eaton Consolidated 13.8% 15.0% 17% 16

17 We project market growth of 2% to 3% for E Total U.S. 2013E Non U.S. Electrical Products Index 3% 4% 2% Electrical Systems & Service Index 4% 4% 4% Hydraulics Index (4)% (5)% (3)% Aerospace Index 2% 1% 4% Vehicle Index 2% 1% 3% Eaton Consolidated Index 2-3% 2-3% 2-3% Eaton Weightings 50% 50% Now expect market growth to be towards the lower end of the range 17

18 2013 Outlook Core Revenue Growth $900M Net Acquisition Revenue $6,000M Incremental Margin 33% Tax Rate 7% - 9% Operating EPS Full Year $4.05 $4.45 Q2 $ $1.15 Operating Cash Flow $2.6B to $2.7B Free Cash Flow $1.9B to $2.0B 18

19 2013 the start of a new era for Eaton We have the balance across our businesses to drive strong earnings growth throughout the economic cycle The transformed company will be higher growth, higher margin We expect revenue growth through the cycle of 8% We have raised our 2015 segment margin goal to 17% Post the Cooper acquisition, Eaton s earnings volatility is near the midpoint of performance for peer diversified industrials The Eaton Business System powers our integrated operating model, and will drive the integration of Cooper Strong EPS accretion from year one; exceeding original estimates We remain confident in the current and mature year synergies from the acquisition Our dividend provides a yield in the top third of our peers, and for U.S. shareholders is expected to be treated as a return of capital over the medium term Performance in 2013 is more dependent on execution than on global growth 19

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