Eaton Corporation (NYSE:ETN) Q4 2025 Earnings call February 03, 2026 11:00 AM ET Company ParticipantsAndrew Obin - Managing Director of Equity ResearchNigel Coe - Managing DirectorOlivier Leonetti - EVP and CFOPaulo Ruiz - CEOYan Jin - SVP of Investor RelationsConference Call ParticipantsChris Snyder - Research AnalystDeane Dray - Managing Director and Multi-Industry and Electrical Equipment Equity AnalystNicole DeBlase - Managing Director and Lead AnalystOperatorGood day and welcome to the Eaton fourth qua ...

Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 18% year-over-year, reaching $3.33, aligning with the midpoint of guidance [5][16] - Quarterly revenue was reported at $7.1 billion, with segment margins hitting a record of 24.9%, up 20 basis points year-over-year [5][16] - Organic growth for the quarter was 9%, driven by strength in aerospace and Electrical Americas, partially offset by weaknesses in vehicle and e-mobility [16] Business Line Data and Key Metrics Changes - Electrical Americas segment achieved organic sales growth of 15%, primarily driven by data center demand, which was up about 40% [16][17] - Aerospace segment reported organic sales growth of 12%, with operating margin expanding by 120 basis points to 24.1% [19] - Vehicle segment experienced a decline of 13% on an organic basis, primarily due to weaknesses in the North America truck and light vehicle markets [20] Market Data and Key Metrics Changes - Orders in Electrical Americas increased by 16% on a trailing 12-month basis, with total quarterly orders up more than 50% [17][12] - Aerospace orders increased by 11% on a rolling 12-month basis, driven by defense OEM and aftermarket [19] - Data center orders accelerated approximately 200%, indicating strong demand in that market [4][16] Company Strategy and Development Direction - The company plans to spin off its mobility business into a separate publicly traded entity, aiming to sharpen strategic focus and optimize the portfolio [6][10] - Investments of $13 billion were announced for 2025, including acquisitions to enhance growth in key markets [5][6] - The company is focused on higher growth, higher margin businesses to improve earnings consistency and drive long-term value [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in double-digit growth in data center markets, supported by strong order trends and backlog [33][34] - The company anticipates a strong 2026, with guidance for organic growth between 7%-9% and segment margins of 24.6%-25% [24][23] - Management acknowledged the challenges of ramping up capacity but remains optimistic about long-term growth potential [54][56] Other Important Information - The backlog in Electrical Americas reached an all-time high of $15.3 billion, with a total backlog of $19.6 billion across segments [12][17] - The company is experiencing unprecedented demand, reflected in continued order acceleration and growing backlogs [25][26] Q&A Session Summary Question: Confidence in double-digit growth in data center markets - Management highlighted strong market indicators, including a 200% year-over-year increase in industry announcements and backlog, supporting optimism for future growth [33][34] Question: Quarterly cadence of the 2026 EPS guide - Management explained that the first half of 2026 is expected to show lower growth due to ramp-up costs, with a stronger performance anticipated in the second half [47][48] Question: Challenges related to capacity expansion - Management acknowledged the challenges of ramping up capacity but emphasized that investments are necessary to meet strong market demand [51][52]

Fourth Quarter 2025 Earnings Release Paulo Ruiz & Olivier Leonetti | February 3, 2026 © 2026 Eaton. All rights reserved. 1 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, first quarter and full year 2026 earnings per share, adjusted earnings per share, organic growth and segment operating margins; full year 2026 operating cash flow, free cash flow, and anticipated sha ...

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Core Viewpoint - Eaton reported quarterly earnings of $3.33 per share, matching the Zacks Consensus Estimate, and showing an increase from $2.83 per share a year ago, indicating a positive earnings surprise of +0.12% [1] Financial Performance - The company posted revenues of $7.06 billion for the quarter ended December 2025, which was 0.71% below the Zacks Consensus Estimate, but an increase from $6.24 billion year-over-year [2] - Over the last four quarters, Eaton has surpassed consensus EPS estimates four times and topped revenue estimates twice [2] Stock Performance - Eaton shares have increased approximately 12.9% since the beginning of the year, significantly outperforming the S&P 500's gain of 1.9% [3] Future Outlook - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $3.04 for the upcoming quarter and $13.54 for the current fiscal year [7] - The Zacks Rank for Eaton is currently 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Manufacturing - Electronics industry, to which Eaton belongs, is currently in the top 40% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Financial Performance - Fourth quarter 2025 earnings per share reached a record $2.91, with adjusted earnings per share at $3.33, up 18% from 2024[2][8] - Sales for the fourth quarter were $7.1 billion, a record high, representing a 13% increase from the fourth quarter of 2024, driven by 9% organic growth[3][5] - Segment margins for the fourth quarter were 24.9%, a record and a 20-basis point improvement over the same period in 2024[4][8] - For the full year 2025, sales totaled $27.4 billion, up 10% from 2024, with 8% organic growth contributing to this increase[5][6] - The company reported operating cash flow of $2.0 billion and free cash flow of $1.6 billion for the fourth quarter, both records and up 23% and 17% respectively from 2024[4][7] - Total net sales for Q4 2025 reached $7,055 million, a 13.1% increase from $6,240 million in Q4 2024[25] - Net income attributable to Eaton ordinary shareholders for the year ended December 31, 2025, was $4,087 million, up 7.7% from $3,794 million in 2024[25] - Free cash flow for Q4 2025 was $1,573 million, compared to $1,342 million in Q4 2024, reflecting a 17.2% increase[29] - Eaton's operating cash flow for the year ended December 31, 2025, was $4,472 million, slightly up from $4,327 million in 2024[29] - Eaton's total assets increased to $41,251 million as of December 31, 2025, up from $38,381 million in 2024[26] Future Expectations - For 2026, the company expects earnings per share to be between $11.57 and $12.07, representing a 13% increase at the midpoint over 2025[8][10] - The company anticipates organic growth of 7-9% and segment margins of 24.6-25.0% for 2026[15] - The company expects adjusted earnings per ordinary share for 2026 to be between $13.00 and $13.50, reflecting strong future performance expectations[29] Segment Performance - The Electrical Americas segment achieved record sales of $3.5 billion in the fourth quarter, up 21% from the same period in 2024[10] - Aerospace segment sales reached a record $1.1 billion, up 14% from the fourth quarter of 2024, with operating margins of 24.1%[14] - Eaton's segment operating profit for Q4 2025 was $1,760 million, a 14.2% increase from $1,542 million in Q4 2024[25] Acquisitions and Strategic Moves - The acquisition of Fibrebond Corporation for $1.43 billion is expected to enhance Eaton's capabilities in modular power enclosures, with Fibrebond reporting sales of approximately $378 million for the twelve months ended February 28, 2025[32] - Eaton plans to acquire Boyd Thermal for $9.5 billion, which is expected to close in Q2 2026, enhancing its position in thermal components for data centers[36] - The company announced plans to spin off its Mobility business, which includes Vehicle and eMobility segments, by the end of Q1 2027[38] Restructuring and Charges - Eaton has incurred $335 million in charges since the inception of its multi-year restructuring program, which is expected to total $475 million by completion in 2026[42] - The restructuring program is anticipated to yield mature year benefits of $375 million once fully implemented[42] - For the three months ended December 31, 2024, total restructuring charges after income taxes amounted to $56 million, translating to $0.14 per diluted share[43] - The total restructuring charges for the year ended December 31, 2024, were $202 million, with a net amount after income taxes of $160 million[43] - The company expects additional expenses of $102 million related to workforce reductions and $38 million for plant closing and other costs as part of the restructuring program[42] Intangible Assets - The total intangible asset amortization expense for the twelve months ended December 31, 2025, was $486 million, with a net amount after income taxes of $384 million[44] - The intangible asset amortization expense for the three months ended December 31, 2025, was $121 million, compared to $107 million for the same period in 2024[44] - The income tax benefit related to intangible asset amortization for the twelve months ended December 31, 2025, was $101 million[44] - The Electrical Global segment incurred $24 million in restructuring charges for the three months ended December 31, 2025, while the Aerospace segment incurred $10 million[43] - The Vehicle segment reported a restructuring credit of $10 million for the three months ended December 31, 2025[43]

Core Insights - Eaton Corporation reported record fourth quarter 2025 earnings per share of $2.91, with adjusted earnings per share reaching $3.33, also a record [1][4] - The company achieved fourth quarter sales of $7.1 billion, marking a 13% increase from the same period in 2024, driven by organic sales growth of 9% [2][3] - For the full year 2025, Eaton's sales totaled $27.4 billion, a 10% increase from 2024, with segment margins reaching a record 24.5% [3][4] Financial Performance - Fourth quarter operating cash flow was $2.0 billion and free cash flow was $1.6 billion, both records and up 23% and 17% respectively from 2024 [2][5] - For the full year 2025, operating cash flow was $4.5 billion and free cash flow was $3.6 billion, reflecting increases of 3% and 1% respectively over 2024 [5] - The company reported net income of $1.133 billion for the fourth quarter, up from $972 million in the previous year [23] Business Segments - The Electrical Americas segment achieved record sales of $3.5 billion in the fourth quarter, up 21% from 2024, with operating profits of $1.0 billion [9] - The Aerospace segment also reported record sales of $1.1 billion, a 14% increase from the previous year, with operating profits of $268 million [13] - The Vehicle segment experienced a decline in sales to $586 million, down 9% from the fourth quarter of 2024 [15] Strategic Outlook - Eaton's CEO highlighted the company's strategy of "Lead, Invest and Execute for Growth," which has driven strong demand and backlog growth [3][6] - The company anticipates organic growth of 7-9% and segment margins of 24.6-25.0% for the full year 2026 [8] - Eaton plans to pursue a spin-off of its Mobility business, which includes its Vehicle and eMobility segments, expected to be completed by the end of Q1 2027 [38]

Core Insights - Eaton Corporation (ETN) is anticipated to show improvements in both revenue and earnings for Q4 2025, with earnings estimated at $3.33 per share and revenues at $7.11 billion [1][6] Earnings Estimates - Fourth-quarter earnings estimates have decreased by 0.6% over the last 60 days, but still reflect a 17.67% increase compared to the same quarter last year [2] - ETN expects earnings to range between $3.23 and $3.43 per share, with quarterly revenues projected to increase by 13.87% year-over-year [2] Earnings Surprise History - Eaton has consistently beaten the Zacks Consensus Estimate in the last four quarters, with an average surprise of 0.70% [3][4] Earnings Prediction Model - The current model does not predict an earnings beat for Eaton this quarter, as it has an Earnings ESP of -0.13% and a Zacks Rank of 3 (Hold) [7] Factors Driving Performance - Eaton's strong order wins are supported by a solid backlog and a book-to-bill ratio above 1, indicating stable demand for its products [9] - Growth is driven by electrification, global megatrends, energy transition, and reindustrialization, with significant demand from AI data centers [10] - Ongoing investments in R&D are enhancing product quality and innovation, contributing to expected organic revenue growth of 8.5-9.5% for the quarter [11] Share Repurchase Impact - The company's share repurchase program, funded by free cash flow, is likely to positively influence fourth-quarter earnings [12] Financial Performance Metrics - Eaton's trailing 12-month return on equity (ROE) stands at 24.36%, surpassing the industry average of 19.27%, indicating efficient use of shareholders' equity [13] Valuation Comparison - Eaton is currently trading at a premium compared to its industry, with a forward 12-month P/E ratio of 25.61, while the industry average is 23.03 [16]

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Core Viewpoint - Analysts expect Eaton (ETN) to report quarterly earnings of $3.33 per share, reflecting a year-over-year increase of 17.7%, with revenues projected at $7.11 billion, up 13.9% from the previous year [1] Earnings Projections - The consensus EPS estimate has been revised downward by 0.9% over the past 30 days, indicating a collective reassessment by analysts [1][2] - Revisions to earnings projections are critical for predicting investor behavior and are linked to short-term stock performance [2] Key Metrics Projections - Analysts project 'Net Sales- eMobility' to reach $150.51 million, indicating a year-over-year change of +2.4% [4] - 'Net Sales- Aerospace' is expected to be $1.10 billion, reflecting a +13.1% change from the prior year [4] - 'Net Sales- Vehicle' is forecasted at $588.71 million, showing a decline of -9% from the previous year [4] Segment Sales and Profit Estimates - 'Net Sales- Electrical Global' is estimated to be $1.71 billion, with a year-over-year change of +8.8% [5] - 'Net Sales- Electrical Americas' is projected at $3.55 billion, indicating a +22.2% change year over year [5] - 'Segment operating profit (loss)- Aerospace' is expected to be $261.86 million, up from $222.00 million a year ago [5] Segment Operating Profit Projections - 'Segment operating profit (loss)- Vehicle' is anticipated to reach $87.35 million, down from $122.00 million in the same quarter last year [6] - 'Segment operating profit (loss)- Electrical Global' is projected at $332.24 million, compared to $277.00 million a year ago [6] - 'Segment operating profit (loss)- Electrical Americas' is expected to be $1.04 billion, up from $918.00 million the previous year [7] - 'Segment operating profit (loss)- eMobility' is forecasted at $3.24 million, slightly up from $3.00 million in the same quarter last year [7] Stock Performance - Over the past month, Eaton shares have increased by +9.1%, outperforming the Zacks S&P 500 composite, which changed by +0.8% [7]