Eaton Corporation, plc Ordinary Shares 2026 Q2 Earnings Call

Please go ahead. Hey, good morning.

Thank you all for joining us for Eaton's second quarter 2026 earning call. With me today are Paulo Ruiz, Chief Executive Officer, and Dave Foster, Executive Vice President and Chief Financial Officer. Our agenda today includes opening remarks by Paulo, then he will turn it over to Dave, who will highlight the company's performance in the second quarter. As we have done in our past calls, we'll be taking questions at the end of Paulo's closing commentary. The press release and the presentation we'll go through today, including reconciliations to non-GAAP measures, have been posted on our website. A replay of this webcast will be accessible on our website after the call. Before we begin, I would like to remind our comments today will include forward-looking statements with respect to revenue, earnings, and other matters.

Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our recent SEC filings. With that, I'll turn it over to Paulo.

Hey, thanks, Yan, and thanks, everyone, for joining us. Starting on page three, I'm happy to share the strong second quarter results driven by improved execution. Adjusted EPS of $3.15 exceeded guidance by $0.10 at the midpoint, reflecting strong operating performance by our teams. We posted record revenue of $8.5 billion with 21% total revenue growth, 14% organic growth, and 23.1% margins, all better than the high end of our guidance. Americas continues to execute well through its capacity ramp, delivering 18% organic growth and 190 base points of margin expansion over the prior quarter, all stronger than expected and very encouraging. We also continue to see unprecedented demand. Our total company book-to-bill remains strong at 1.2, with the Americas book-to-bill expanding to 1.3 and Aerospace to 1.2. While demand is broad-based across end markets, you can see here that data center orders and revenue remain robust.

Overall, accelerating orders and growing backlogs are clear proof points that our customer-focused end-to-end solutions are winning in the market. This strong first half of the year gives us confidence to raise our guidance again, organic growth by 200 basis points to a midpoint of 12%, and our adjusted EPS midpoint by $0.22 to $13.50 for the year. Dave and I will dive further into Q2 and the 2026 outlook, but first, let's move to slide four. Okay. A year ago, we began our journey to show what a new focus Eaton could deliver through our bold strategy to lead, invest, and execute for growth. The progress is real and is gathering pace, and I have strong confidence where we are going. We are leading with a stronger team and a sharper enterprise mindset.

We're investing with discipline in the portfolio and capabilities that will define our future, and we are executing for growth through operational discipline across every part of this company. Today, we will provide an update on our strong progress and share how our focus on culture is helping us grow faster, serve our customers better, and win for investors for years to come. Moving to slide five, enabling this unprecedented demand is our ability to execute, which rests on the work we are doing to evolve and strengthen our culture. Leading for growth through an evolved way of working is how we deliver results at scale. Together, the combination of our growth strategy, market dynamics, and culture is how we will win.

Thinking big, we are transforming a leadership position we had in gray space for data centers into an unparalleled portfolio from grid to chip and leading the conversion to direct current applications. Through thinking big, we've positioned Eaton's portfolio ahead of secular demand, focusing on serving high-margin and high-growth end markets. By acting boldly, we've prioritized what matters and led decisively, making the bold calls to acquire companies like Fibrebond, Resilient Power, Ultra PCS, and Boyd that are delivering higher growth and accretive margins to their respective segments. We made the necessary hard calls, like separating our Mobility business to align our capital to the highest return, highest growth opportunities. We also continue to invest organically with conviction, making Eaton a stronger partner to our customers. We win together. As one Eaton, we are pushing decision-making and leadership closer to where the action is, to the customer, the engineering and sales teams, the plant and service teams.

We are scaling our advantage by fostering a culture of humility, courage, and learning, putting problems and opportunities on the table fast and solving for them as one unified team. This is not just about our executive leadership. It is about empowering 100,000 people to win together. We are transforming Eaton to win by being leaner, more agile, more customer-centric, more competitive, and more innovative. We see this culture internally every day, and you see this culture reflected in our numbers. Moving to slide six, we are already seeing how this mindset and discipline translates into real results. We've said before that 2026 is Eaton's year of execution, and we are making solid progress in Electrical Americas.

Scaling capacity to turn demand into revenue remains the clear priority in the business. As you know, we are investing more than $1 billion in capacity expansion and bringing online two dozen projects across Electrical Americas. As these facilities ramp, we see clear momentum in revenues per day. We are delivering roughly 25% growth in revenue per day since the start of 2025, up 16% in a year, and another impressive 8% in Q2 over Q1. Q1 to Q2 represented the largest quarterly ramp in production output in our financial model, and we over-deliver on it. It is behind us. We remain laser-focused for the second half of the year. Demonstrating such strong execution milestones give us even more confidence as we step up in the second half. Importantly, we are realizing margin improvements from our Execute for Growth strategy in Americas.

Margins improved 190 basis points quarter-over-quarter and will improve further in the second half of the year. Meanwhile, even after 18% organic growth, backlog continues to expand due to strong demand and winning projects at record pace. Altogether, higher shipments, improving margins, and backlog driving extended visibility demonstrate that our Execute for Growth strategy is working and give us confidence in the second half and beyond. I want to thank our Electrical Americas and all the supporting teams for the tremendous work they are doing. Now I'll hand over to Dave, who will cover our financials.

Thanks, Paulo. I'll start by providing a brief summary of our strong Q2 results on page seven. Total revenue grew by 21% with a strong contribution of seven points from acquisitions. Each acquisition is at or above our expectations for growth and margins. Organic growth for the quarter was 14%, driven by the strength in Electrical Americas and Electrical Global. Excluding Mobility, our organic growth would have been 16%. Adjusted EPS of $3.15 exceeded our original expectations and was a Q2 record. Adjusted EPS for the first half of $5.96 was also a first-half record. We generated a strong $0.25 segment profit beat versus our guidance that was partially offset by $0.15 from a higher tax rate. We also posted Q2 record cash flow, with operating cash flow up 23% over prior year. Let's move to the segment details. On slide eight, we highlight our Electrical Americas segment.

Organic sales growth accelerated to 18%, driven primarily by strength in data centers up about 65%, along with strong growth in machine OEM and commercial and institutional. We are pleased with our better-than-expected margins of 27.5%, 190 basis points higher than Q1. Again, a reflection of our Execute for Growth strategy starting to work. From a year-over-year perspective, the majority of the margin decline was driven by temporary negative price cost. With the pricing actions taken in Q2 and early Q3, we are confident this will return to a roughly neutral impact in the second half. Meanwhile, demand is accelerating. Our negotiations pipeline was up 60% year to date over prior year, translating to record orders up 41% on a rolling 12-month basis and a book-to-bill increasing to 1.3. This is solid progress and gives us even more confidence to execute on our commitments for 2026.

Now I will summarize the strong results for our Electrical Global segment. Total growth of 44% included organic growth of 18% from strength in data center utility and machine OEM, along with 25% attributed to the Boyd acquisition. We are very pleased with Boyd's performance and the strong growth ahead of us in the liquid cooling market. Operating margin of 19.8% was down 30 basis points over prior year, but about a point higher than I had expected for the quarter. We have also pulled in our planned general price increase from Q4 to Q3, which gives us even more confidence in our full-year guidance. As you can see on the chart, demand in Global increased, driven by our accelerating order growth up 33% on a rolling 12-month basis with broad end market momentum and exceptional strength in data center demand.