Eaton Corporation plc
CEO : Mr. Craig Arnold
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | 12.2% YoY | 32.8% | 31.2% | 2023-02-08 |
Tom Okray says,
Q4 2022 Financial Performance
- Revenue increased by 12% with 15% organic growth, partially offset by a 4% foreign exchange headwind and 1% net impact from acquisitions
- Operating profit grew 21% and adjusted EPS grew 20%
- All-time record adjusted earnings of $825 million and adjusted EPS of $2.06
- Electrical Americas set all-time records for sales, operating profit, and margin with organic sales growth of 20%
- Aerospace posted all-time record sales and operating profit with organic growth of 11%
Working Capital Efficiency
- Investments in working capital to support orders and backlog for Electrical and Aerospace businesses
- Net working capital to orders and inventory reduced significantly from 2019 to 2022
- Inventory as a percentage of backlog roughly cut in half from end of 2019 to end of 2022
2023 Guidance
- Organic growth guidance of 7% to 9%, with Electrical Americas and Aerospace at 8% to 10% and eMobility at 35%
- Segment margins guidance of 20.7% to 21.1%, a 70-basis point improvement at midpoint from 2022
- Adjusted EPS guidance of $8.04 to $8.44, a 9% growth over 2022
- Operating cash flow guidance of $3.2 billion to $3.6 billion, a 34% increase at midpoint over 2022
- Share repurchase guidance of $300 million to $600 million
Market Outlook
- End-market growth assumptions provided on Q3 earnings call and updated by Craig in the presentation
- Tremendous visibility and confidence in 2023 outlook due to increased backlog and strong organic growth
Craig Arnold says,
Quarterly Performance Highlights
- Generated adjusted EPS of $2.06 for the quarter and $7.57 for the year, both all-time records in each period
- Q4 adjusted EPS was up 20% from prior year
- Sales were $5.4 billion, up 15% organically
- Q4 margins of 20.8% were up 150 basis points from prior year, near the high end of our guidance range
- Record segment margins of 20.2%, up 130 basis points from prior year
- Orders continue to remain very strong, with Electrical orders up 25% and Aerospace orders increased 24%
- Generated record free cash flow in the quarter with adjusted free cash flow up 41%
Performance Highlights for Last Year
- Exceeded three of four key financial metrics
- Posted 13% growth for organic revenue, which was actually more than 60% above original guidance at the midpoint
- Record margins of 20.2% in 2022, 10 basis points above original guidance at the midpoint
- Adjusted EPS of $7.57 was $0.07 higher than the midpoint of original guidance
- Missed free cash flow guidance for the year due to higher levels of sales and orders, and the record backlogs
Market Dynamics and Growth Outlook
- Eaton is positioned at the center of major trends including the need to transition from fossil fuels to renewables, electrification of the economy, and digitalization
- Eaton predicts that the long-term growth goals of 5% to 8% annual growth will be exceeded due to market dynamics and government stimulus spending
- U.S. and EU programs will expand Eaton’s addressable market by some $11 billion to $14 billion over the next 5 years
Financial Performance and Shareholder Returns
- Eaton has delivered higher growth, higher margins and better earnings consistency over the past decade
- Eaton has significantly outperformed benchmarks in total shareholder returns for 3, 5 and 7 years
Q & A sessions,
Market Assumptions for 2023
- 85% of markets expected to see positive growth
- Commercial and institutional segment expected to have strong growth
- Residential market expected to be the only down market
- Data center market expected to remain strong with mid-teens growth over next 3 to 4 years
Company Performance
- 13% organic growth with record orders and backlog
- 2022 was a year of record profits, margins, adjusted earnings and EPS
- 20% increase in adjusted EPS growth in Q4 indicates positive indicator for 2023
- On track and likely ahead of schedule for delivering 2025 goals for revenue, margins, free cash flow, and adjusted EPS
Global Business Growth
- Mid-single-digit growth expected for Global business in face of typical recession
- China and Asia market could be stronger than anticipated
Inventory and Distributor Performance
- No inventory destocking to speak of
- Some inventory adjustment taking place with European distributors
- U.S. and Asia market still tight
Organic Growth Opportunities
- Plenty of organic growth opportunities to grow the enterprise
- Opportunistic approach to acquisitions
- Entered into joint ventures to shore up strategic position in China
No bad stock 