annual investor conference · 2021. 3. 1. · annual investor conference. craig arnold, chairman...

© 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


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

3

We delivered strong results in 2020 despite a historic reduction in global markets

Footnote (1) described in Appendix


• 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


• 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

5

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

© 2021 Eaton. All rights reserved.. 6

…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


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


Ability to lead in large global markets

Above-average growth potential

Capable of delivering high margins

High returns on capital

Consistent profitability

8

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


…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


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


(1)


(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)


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)


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


Organic growthtarget 4% - 6% organic revenue CAGR from 2020 thru 2025


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


…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


Digital customer experience

17

Driving digitalization initiatives across every part of the company

Factory of the Future – Industry 4.0

FunctionalProductivity

New business models


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

18


Expand Marginsexpect 400 bps to 500 bps margin upside potential from 2020


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


Eaton Business System (EBS)

21

Expand MarginsBegins with driving operational excellence across our factories and functions

Industry 4.0

Manufacturing excellence

Functional excellence

Productivity improvement


Focus on outliers3

1


Expand MarginsFocus on activities that create the highest value

Grow the head

Fix the tail

Move the mean and improve margins


Focus on outliers3

Eaton Business System (EBS)1


Disciplined Capital AllocationExpect $9B cash optionality thru 2025 while continuing to invest for organic growth


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


Disciplined Capital AllocationGrowing dividend and attractive yield

Invest in organic growth1



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


Disciplined Capital AllocationStrategic acquisitions creating value




~$20B(1) redeployed since 2010, with focus on Electrical and Aerospace…

…and expect to have $5B- $7B additional acquisition capacity thru 2025




Disciplined Capital AllocationShare repurchases increasing shareholder value



Repurchased over $7B of shares since 2010…

…and expect to repurchase 1% - 2% of shares annually




OutlookIncreased long-term targets


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


…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


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


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.

annual investor conference · 2021. 3. 1. · annual investor conference. craig arnold, chairman...

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