Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Second Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And as a reminder, today's call is being recorded. I would now like to turn the conference over to your host. Please go ahead.

Good morning. Thank you all for joining us for Eaton's second quarter 2024 earnings call. With me today are Craig Arnold, our Chairman and CEO; and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today includes operating remarks by Craig, then he will turn it over to Olivier 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 Craig's closing commentary. The press release and the presentation we'll go through today have been posted on our website. This presentation, including adjusted earnings per share, adjusted free cash flow and other non-GAAP measures, are reconciled in the appendix. A webcast of this call is accessible on our website and will be available for replay. I would like to remind you that our commentary today will include statements related to the expected future results of the Company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projection due to a wide range of risks and uncertainties that are described in our earnings release and the presentation. With that, I will turn it over to Craig.

Okay. Thanks, Yan. We'll start with some highlights on Page 3. I'll lead off by noting that we delivered another strong quarter, and we're pleased with the first half of the year. Our teams continue to deliver on our commitments, propelled by strong markets and good execution, exceeding our expectations and consensus on strong revenue, margins, and earnings per share growth. We generated adjusted EPS of $2.73 in the quarter, an all-time record and up 24% from the prior year. We also delivered record segment margins of 23.7%, up 210 basis points from last year. Our markets continue to be strong. On a rolling 12-month basis, electrical orders were up 9% and aerospace orders increased by 4%. This led to another quarter of growing and record backlogs, up 27% in Electrical and 14% in Aerospace with strong book-to-bill ratios. The strength in our orders and backlogs continues to support our view that megatrends will keep the Company growing for some time to come. We're in the early stages and once again, our markets are well positioned for the future. Our growing backlog allows us to once again raise our full-year guidance. We're raising our guidance on organic growth, segment margins, adjusted EPS, and cash flow for the year. On balance, we're very pleased with our results, and we're well positioned for the second half of the year. Turning to Page 4, we once again are sharing the key trends in end markets that are expected to drive Eaton's long-term growth. The broad number of megatrends noted on this chart have created and will continue to create a strong growth environment for these markets. Eaton is uniquely positioned in that these are our primary end markets. As a reminder, we're in the early phase and expect to see growth for years to come. Today, we'll continue our practice of covering one of these megatrends and how it's impacting growth in one of our key markets. Last quarter, we gave an end market update on our industrial facilities and markets as well as our latest view on growth expectations in the rapidly growing data center market. Today, we'll provide an update on reindustrialization through the lens of mega projects where the activity remains extremely robust. And we'll provide a summary of our growth outlook for our single largest end market, commercial and institutional facilities. Turning to Slide 5, we summarize the growth rates in our key end markets. This data has not changed from what we shared in recent quarters or at our technology showcase earlier this year. This is a once-in-a-lifetime opportunity in that the megatrends we shared are having a broad and significant impact on the growth outlook for most of our end markets, and we're seeing the benefit in our sales results, and more significantly in our orders, backlog, and negotiation pipeline, all of which are at record levels and growing. And we'll share in a few slides that we're investing to support the orders and commitments that we received from our customers. Turning to Slide 6 in the presentation. We provide a summary of mega projects that have been announced in January of 2021 in the North America market. A mega project is a project with an announced value of $1 billion or more. The list now includes 444 projects and $1.4 trillion of cumulative value. This is double where we were this time last year, and the backlog for mega projects now stands at $1.6 trillion, up some 25%. It's important to point out that we have not seen any slowdown in the number of announced projects. In fact, Q2 was one of the strongest quarters ever. Recently, we've seen data center and power generation/renewable projects take the lead in new project announcements, these two project types represent some 40% of announced projects in the last 12 months. The cancellation rate continued to be modest, around 11%, which is well below historical levels. Only 15% of these projects have started, and for projects that have started, we've won over $1.4 billion of orders, and our win rate has been approximately 40%. We're actively negotiating another $1.3 billion of electrical customers. There's lots more to come here. Turning to Slide 7, we continue to highlight the commercial and industrial end markets. For 2023, commercial and industrial institutional end markets represented 20% of total Eaton sales and 28% of our electrical sales. For Eaton overall, we estimate that new office real estate exposure is only 2% to 3% of our revenues. We noted this has been a concerning point for some of you, but as you can see, it represents a very small part of our sales. While the entire category is growing, we expect to see significant strength in the institutional infrastructure segments, which represent 50% of our commercial and institutional exposure in Electrical Americas. Institutional infrastructure includes education, health care, government, and includes waste and wastewater. The electrical content in these segments is much higher than office buildings and other light industrial projects. The same set of megatrends, including digitalization, energy transition, and stimulus spending are driving our growth in this segment, and something that we expect to continue for years to come. On Slide 8, we provide an overview of the products and software that we sell as part of our commercial and institutional building portfolio. We include this slide to provide a perspective on how broadly we play across the electrical infrastructure and buildings. We have the industry's broadest set of electrical solutions. Some of the newer categories for us include energy storage, EV charging network managers, and microgrid controllers that control energy behind the meter. In addition to the complete suite of digitally enabled hardware, we have our BrightLayer software suite that manages energy across buildings and campuses, all of which are supported by our comprehensive service organization. On Slide 9, we want to provide an update on our incremental growth investments. We're investing more than $1 billion of incremental capital to support growth with $750 million in North America over the next few years. These investments expand our production capacity for a variety of products and support most of our electrical end markets. The market has several capacity constraints. We're working closely with customers to ensure that our capacity additions are in line with the demand and, in many cases, our contractual agreements. To provide you with a feeling of the magnitude of these investments, they will impact 25 of our sites and add over 2 million square feet of manufacturing space. Overall, these projects remain on track, with many sites already ramping up new capacity. Additional production capacity will be coming online later this year and into the first half of 2025. We recently opened a new state-of-the-art campus in Helsinki to increase capacity for UPS systems, which includes our latest energy-aware UPS. This is the industry's leading UPS and is 30% smaller than most competitive products. Most recently, we signed an agreement to build a new electrical campus in Dubai to expand our commercial, manufacturing, and support functions in the rapidly growing Middle East region. Turning to Page 10, we're excited to have closed a strategic investment in NordicEPOD. NordicEPOD designs and assembles standardized power modules for the European data center market. Their solution is designed to standardize and is a pre-engineered system that allows for faster market response. The standard power module, or EPOD, contains all the critical power, electrical gear, backup power, cooling, and control systems needed to support a data center. The EPODs are manufactured in Norway, are designed to operate in harsh weather environments, and can supply up to 2 megawatts of electrical power. The power modules are an increasingly preferred approach for many data center customers in Europe. Eaton will supply a significant amount of the electrical equipment and services. This is an outstanding new platform that will allow Eaton to increase our participation in the rapidly growing European data center market. Now I'll turn it over to Olivier, who will take us through the financial results for the quarter.

Thanks, Craig. I'll start by providing a summary of our Q2 results. We posted record sales of $6.4 billion, up 8% in total and up 9% organically. This represents nine quarters of growth of 20% on a two-year stack. We posted record segment profit and margins. Operating profit grew 90%, and segment margin expanded 210 basis points to 23.7%. Adjusted EPS of $2.73 increased by 24% over the prior year. This is a quarterly record and well above the high end of our guidance range. This performance resulted in Q2 record operating cash flow of $946 million, up 11% year-over-year, and Q2 record free cash flow of $759 million, up 10% versus prior year. On Slide 12, we summarize Electrical Americas very strong results. We continue to raise the bar setting new records for sales, operating profit, and margin. Organic sales growth remained strong at 13%, which reflects strength in data center and industrial end markets. On a two-year stack, organic growth is up 32%. Electrical Americas has generated double-digit organic growth for 10 consecutive quarters. Record operating margin of 29.9% was up 300 basis points versus prior year, benefiting from higher sales and manufacturing efficiencies that were partially offset by higher costs to support growth initiatives. On a rolling 12-month basis, orders were up 11%, demonstrating strength across various megatrends. We have particular strength in the data center end market. Our major project negotiations pipeline in Q2 was up 18% versus prior year and up 42% since Q2 2022. Electrical Americas backlog increased 29% year-over-year with a book-to-bill ratio of 1.2 on a rolling 12-month basis. These results underscore the tailwinds from secular trends, strong execution, and a robust backlog that have allowed us to increase growth and margin guidance for the year which we will discuss later in the presentation. This chart summarizes the results for our Electrical Global segment. Organic growth was up 3.5%, partially offset by FX headwinds. We have strength in data center markets, partially offset by weaknesses in residential end markets. Regionally, we continue to see strength in our APAC and GEIS businesses, partially offset by weakness in our EMEA business. Operating margin of 19% was up 50 basis points versus prior year, driven by higher sales and operating efficiencies, partially offset by wage inflation. Orders were up 7% on a rolling 12-month basis with strength in data center and utility end markets. Book-to-bill continues to remain strong. Q2 was 1.1 on a rolling 12-month basis. Before moving to our industrial businesses, I'd like to briefly recap the combined electrical segments. For Q2, we posted organic growth of 10% and segment margin of 26%, which was up 260 basis points over prior year. On a rolling 12-month basis, orders were up 9%, and our book-to-bill ratio for our electrical sector remains very strong at 1.1. We remain confident in our positioning for continued growth with strong margins in our overall electrical business. Page 14 highlights our Aerospace segment. We posted record sales and a Q2 record operating profit. Organic growth was 13% for the quarter, driven by strength in commercial OEM, commercial aftermarket, and military OEM. Operating margin of 21.5% was down 100 basis points year-over-year, driven by operating inefficiencies and higher costs to support growth initiatives that were partially offset by higher sales. On a rolling 12-month basis, orders increased 4%, driven by commercial OEM and aftermarket. Within the quarter, orders increased 21% year-over-year with commercial OEM up 22% and military OEM up 53%. Year-over-year backlog increased 14% and was up 3% sequentially. On a rolling 12-month basis, our book-to-bill for our Aerospace segment remains strong at 1.1. We are pleased with more than $2 billion Life of Program wins in the quarter. Moving to our vehicle segment on Page 15. In the quarter, total revenue was down 4%, including a 3% organic decline and 1 percentage point of unfavorable FX. Weakness in the North America light vehicle market and European truck was partially offset by strength in South America. Operating margin came in at 18%, 270 basis points above prior year, driven by operating efficiencies offsetting lower volume. We are pleased to have won $83 million in mature year sales across our commercial and passenger vehicle portfolio. On Page 16, we show results for our e-mobility business. Sales were up 18% on an organic and total basis. Our organic growth significantly outperformed the market, driven by new program ramp-ups in the European market. Operating profit was $2 billion, and we continue to incur large costs related to new programs expected to ramp up over the coming quarters. In the quarter, we launched major power protection programs, battery disconnect units, and Breaktor and were awarded additional $82 million in mature year sales. Moving to Page 17. We show our Electrical and Aerospace backlog updated through Q2. We continue to build backlog with Electrical stepping up to $11.4 billion and Aerospace reaching $3.5 billion for a total of $14.9 billion. Versus prior year, our backlogs have grown by 27% in Electrical and 14% in Aerospace. Electrical backlog benefited from acceleration in order intake from tailwinds of the secular trends, including hyperscale orders within the data center end market. The continued growth in our backlog underscores our confidence in 2024 and beyond. Now, I'll turn it back to Craig for the end market outlook and financial guidance updates.

Thanks, Olivier. Turning to Page 18. We show a summary of our end market growth assumptions for the year. Overall, our markets continue to perform as expected, and most of these indicators have not changed from what we shared during our last two earnings calls. We are, however, seeing stronger-than-expected growth in data centers and in commercial and institutional markets in the U.S., which is why we're raising our revenue growth guidance for the year. We continue to expect growth in about 80% of our end markets supported by the key megatrends of electrification, energy transition, reindustrialization, and digitalization. Moving to Page 19, we show our fiscal year organic growth and operating margin guidance. Overall, our 2024 organic growth is now expected to be between 8% and 9%, which is an increase of 50 basis points at the midpoint, raising our organic growth guidance in Electrical Americas by 150 basis points to 11.5% to 13.5% from 10% to 12% and in Aerospace by 100 basis points to 10% to 12% from 9% to 11%. We're lowering and tightening the range of our e-mobility organic growth guidance to 17% to 23% given the well-reported softening in some of these end markets, and we're reiterating the growth guidance for the remaining segments. For segment margins, we're increasing the Company's margin guidance range by 50 basis points at the midpoint to 23.5%. This is driven by the improved outlook in Electrical Americas, where we're seeing strong demand and strong operational execution. We're increasing our margin outlook by 90 basis points to a midpoint of 28.9%. We're also reiterating our guidance for remaining segments and we're well positioned to continue to deliver strong financial performance for the balance of the year. On the next page, we have additional guidance for metrics for 2024 and Q3. For 2024, our adjusted EPS is expected to be between $10.65 and $10.75 a share, the $10.70 midpoint represents 17% growth in adjusted EPS over the prior year, a $0.55 increase over the initial 2024 guidance and a $0.30 increase over the prior guidance. We tightened the range for free cash flow and now expect $4.2 billion to $4.4 billion for operating cash flow and $3.4 billion to $3.6 billion for free cash flow, an increase of $100 million at the midpoint on both measures. For Q3, we expect organic growth to be between 8% and 9%, segment margins to be between 23.5% and 23.9%, and adjusted EPS in the range of $2.73 to $2.83 a share. So let me just close with a summary on Page 21. Once again, the trends driving growth in our end markets continue to play out as we expected, even better in our Electrical Americas business, driven by data center markets and the reindustrialization trend that we're seeing across multiple markets in North America. We delivered a strong quarter of financial results and continue to see outstanding execution on our key initiatives across the Company. As a result, we raised our guidance for organic growth by 50 basis points, our segment margins by 50 basis points, and our adjusted EPS by $0.30 at the midpoint. We're especially pleased to see the strength in our negotiations, our orders, and our growth and backlog, all of which are at record levels, validating our medium- and long-term growth outlook. So, we leave the quarter with a high level of confidence when we say Eaton will deliver higher growth, higher margins, and consistent earnings growth for years to come. With that, I'll open things up for any questions you may have.

Thanks, Craig. With that, I will turn it over to the operator to give you guys the instructions.

The first question will come from the line of Joe Ritchie from Goldman Sachs. Please go ahead.

Craig, I want to start with, I guess, maybe just a longer-term question on what happened with the PJM auction this past week and how they saw record high prices. I'm trying to understand what that means for your utility business going forward and when you can maybe start to see an inflection. I know that business has been growing well, but maybe further inflection given how tight capacity is.

Yes. As we've talked about, Joe, I appreciate the question that the utility market is just one of many markets for us that we're thrilled about the growth prospects. The big trends of energy transition, the electrification of the economy, climate change, and the need to build grid resiliency are all converging at the same time, creating unique opportunities in the utility markets. Our long-term growth rates being in the low teens for that business are already translating into attractive growth, including this current quarter, and we expect it to continue for some time.

I like that you highlighted the investments that you're making to increase capacity. What does the additional 2 million-plus square footage represent as a percentage of your total capacity today? And how much flexibility does this give you through 2027, 2028?

In terms of a percentage ad, I don't have that number offhand. But in every one of those businesses where we are capacity constrained, we're making investments to support our medium-term outlook. The response time to put on new capacity varies widely depending on the business. But we know how to do it well and will be ready to support our customers as they continue to grow.

The next question is from Jeff Sprague from Vertical Research Partners. Please go ahead.

Craig, really solid results and outlook. But where do you have exposure to smaller projects or machine OEM and things like that? Are you seeing pockets of weakness underneath the surface, even with the strong performance from data centers?

Jeff, I appreciate that question. We're spending a lot of time focusing on mega projects, which are fundamentally changing the dynamics of our order flows. However, for projects under $1 billion, we're seeing a similar pattern of growth. We are seeing a broad-based increase in our project-related business, and we have not seen any let-up in the level of activity.

What about the global side of electrical? Is it primarily residential weakness and general macro pressures that hold it back? Are there prospects for growth there to pick up as we move into next year?

Your statement is largely accurate. The megatrends driving growth are just as relevant in Europe. However, the U.S. has seen a reindustrialization trend that isn't as pronounced in Europe. Over time, we would expect Europe to show more growth, but currently, it's overshadowed by macro economic challenges.

The next question is from Andrew Obin from Bank of America. Please go ahead.

Can you talk about the pace of electrical orders and your win rate specifically on AI data centers?

Andrew, I appreciate the question. Today, very little of our growth in data centers is a result of specific investments in AI. Most growth is tied to conventional data centers as companies move applications to the cloud.

I want to follow up on capital allocation. You've bought back $740 million in the first half. How should we think about the cadence of buybacks for the balance of the year?

We see today, based on what we see in the market, a strong upside in the value of our stock. So, we will continue to buy back shares. We believe we would be more at the high end of our guidance range and will remain opportunistic.

The next question is from Steve Tusa from JPMorgan. Please go ahead.

Can the backlog for electrical continue to grow through the rest of this year?

If you'd ask me that question at the beginning of the year, I would have imagined that we would start to see a leveling out in the backlog. However, given how strong markets have remained, my guess is we'll probably continue to build backlog. The negotiations are up about 18% in our electrical business. So, it’s possible we will continue to grow.

Regarding electrical margins and how they performed sequentially, what is driving the step-down in incrementals?

The first half of the year saw very strong incrementals. In the second half, we are ramping up spending which brings, obviously, depreciation and new capacity investments. We continue to surprise in execution, so there could still be some upside.

The next question comes from David Raso from Evercore ISI. Please go ahead.

Can you give us an update on Electrical Americas, particularly in terms of pricing power or volume versus price growth?

Today, we've recovered from being upside down on price versus cost. Our price versus volume expectations will vary by customer, but we continue to be in an advantageous position with respect to our overall demand versus capacity.

For Electrical Global, do you expect organic growth to accelerate in the second half after the first half's slower pace?

It's largely a function of easier comps, as we have seen slight weaknesses in residential markets primarily affecting Electrical Global.

The next question is from Deane Dray from RBC. Please go ahead.

Can you put a spotlight on your data center business outside of the U.S.? How are win rates and market share doing?

We don't have as much electrical content in data centers in Europe as we do in North America. We have strength in UPS but are less strong in electrical switchgear and transformers. The data center market in Europe represents a smaller share of the total business.

How far out are the deliveries for your backlog? Is it over two years, especially in transformers?

Overall, based on industry context, the data center market is looking at an 8-year backlog of production. Eaton’s constraints will mainly come from the industry’s ability to build out data centers at a faster rate.

The next question is from Julian Mitchell from Barclays. Please go ahead.

What’s happening with the product side of your business? It seems sluggish compared to systems, particularly in the last nine months.

We don't look at our business anymore by product versus systems. We look at it largely around the various end markets that we sell into. Some end markets have been slow, while the larger parts of our business continue to perform strongly.

Could you provide clarity on the operating margins guidance for the second half of the year?

We are investing and bringing on capacities that incur startup expenses and depreciation costs. Thus, we expect margins to remain flat in the back half of the year. Our teams continue to execute very well, and upside is possible.

The next question comes from Nicole DeBlase from Deutsche Bank. Please go ahead.

The Aerospace margin was down year-on-year. Why are you maintaining full-year guidance?

Margins can be lumpy in Aerospace due to shipment differences and inefficiencies. Our confidence in the second-half outlook is based on the strong orders we have in-house and visible demands.

Is there an opportunity to bring the NordicEPOD modular solution to the U.S.?

We'll see how the North American market evolves. Modular solutions have more traction in Europe and Asia than in the U.S. at this time.

The next question is from Scott Davis from Melius Research. Please go ahead.

Craig, is the 40% win rate now higher than where it was historically?

Yes, the win rate is currently higher than our underlying market share in North America. We're encouraged by this start at 40%, especially as many projects remain to be started.

Any update on the CEO succession?

The Board is busy working on the question of CEO succession. I will continue in my role until the end of May next year, and we will announce decisions once the Board is ready.

The next question is from Nigel Coe from Wolfe Research. Please go ahead.

What are your thoughts on the investment spending and where the new capacity is ramping up? Any sequential considerations to keep in mind as this progresses?

Investment spending will begin to ramp up in the second half of this year. The capacity will come online at varying rates, and we do expect some impacts from start-up costs and depreciation.

What about other players entering the transformer market? Are you concerned about Cleveland-Cliffs and their recent investment?

Cleveland-Cliffs' announcement is not concerning. The investment is modest in transformer manufacturing, and we don't see it having any significant impact on our growth or the industry at large.

The final question in the queue is from Joe O'Dea from Wells Fargo. Please go ahead.

Can you provide more detail on the $750 million of spend on capacity in the Americas? Which categories will see the biggest capacity addition?

We're making investments across multiple product lines where we have capacity constraints today. We are committed to staying ahead of our capacity needs without becoming a bottleneck in the industry.

How does the backlog relate to the capacity expansion? Can you describe the order activity and the end markets that contributed to the increase?

It's difficult to determine how much backlog is tied specifically to capacity expansion. However, our backlog is extensive and covers multiple segments, not solely relying on expanded capacity.

Okay, great. Thanks, guys. We've reached the end of our call and I appreciate everybody's questions. As always, the IR team is ready for any follow-up questions. Thanks for joining us. Have a great day.

Thank you. And that does conclude our conference for today. Thank you for your participation and using AT&T teleconference. You may now disconnect.