UBS Industrial Leadership Conference

Transcription

1 Eaton Corporation UBS Industrial Leadership Conference Richard Fearon, Vice Chairman and Chief Financial and Planning Officer May 6, 2011

2 Forward-looking statements and Non-GAAP financial information This presentation contains forward-looking statements concerning the second quarter 2011, and full year 2011 net income per share and operating earnings per share, full year 2011 revenues, our worldwide markets, our growth in relation to end markets and our growth from acquisitions. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: unanticipated changes in the markets for the company s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; increases in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; the impact of acquisitions and divestitures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in currency exchange rates; stock market or currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements. This presentation includes certain non-gaap measures as defined by SEC rules. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided in the investor relations section of our website at 2 2

3 Eaton Corporation A Premier Diversified Power Management Company A balanced power management company Progress over a decade Continued growth and improved profitability 2011 outlook 3 3

4 Eaton is a leader across the power management spectrum We provide reliable, efficient and safe power management for: Cities & Buildings Industrial & Machinery Information Technology Transportation Infrastructure Energy & Utilities 4 4

5 Our organization is aligned to effectively serve our markets 2010 Sales by Sector Electrical Sector Industrial Sector Electrical Americas $6.4 B $7.3 B Aerospace Hydraulics Electrical Rest of World Vehicle 5 5

6 The Electrical Sector delivers a broad array of power solutions through a regionally focused organization Power Distribution Power Quality Control and Automation Services and Aftermarket Circuit breakers Switchgear Panelboards and switchboards Transformers Assemblies Uninterruptible power supplies Single phase 3 phase Power distribution units Meters and software Drives Sensors Human machine interface Control components Engineering and consulting services Turnkey design, build and management Maintenance and aftermarket Power audits and studies 2010 Sales $3.7B Americas business $2.7B Rest of World business 6 6

7 The Electrical Americas business is well positioned to take advantage of recovering markets Residential Data Center, IT & Related Electrical Americas Sales 2010 $3.7 B Sales by Market Segment Commercial Institutional Utility Government Industrial Machinery Infrastructure Industrial Facilities Growth Drivers Continued strong growth in industrial machinery leveraging Moeller and Micro Innovation products Recovery of mission critical business Stabilization of residential business Continued growth in some specialty construction markets, including government and institutions Flattening of nonresidential market by mid year, followed by modest growth 7 7

8 The Electrical ROW business is broadly diversified across markets and channels Residential Electrical ROW Sales 2010 $2.7B M Sales by Market Segment Data Center, IT & Related Commercial Institutional Government Infrastructure Utility Industrial Facilities Industrial Machinery Growth Drivers Continued rapid expansion in China Deeper penetration into mission critical applications in APAC and EMEA Double digit growth for machinery OEM s, particularly in Europe Entry into residential solar inverter market Increased access to the Middle East and Africa through acquisition of Actom and joint ventures 8 8

9 Eaton's Industrial Sector is a leader in the management of mechanical and fluid power Aerospace Hydraulics Truck Automotive Hydraulic Systems Controls Transmissions Valvetrain Conveyance Systems Electrical, Sensing and Controls Fuel Systems Fluid Conveyance Power Filtration Heavy Duty Light / Medium Duty Clutch Hybrid Supercharger Torque Control Fluid Connectors Fuel and Powertrain 2010 Sales $7.3B portfolio of Industry leading businesses 9 9

10 Our Aerospace business brings both component expertise and system capabilities to a wide range of markets Aerospace Sales 2010 $1.5B Sales by Market Segment General Aviation Business Jet Regional Transport Large Transport Rotorcraft Military Transport Military Fighters Other Military Rotorcraft Growth Drivers Emerging economies Acquisitions and alliances Energy efficient solutions Positions on growth platforms Eaton Aerospace Today Sales Mix Commercial: 60% Military: 40% Market Mix Original Equipment: 65% Aftermarket: 35% 10 10

11 Our Hydraulics business offers product breadth and serves diverse end markets Filtration Hydraulics Sales 2010 $2.3B Sales by Market Segment Recreation Construction Growth Drivers Emerging markets Leading technologies Acquisitions and alliances Energy efficiency Other Mobile Other Stationary Processing Industrial Machinery Energy Truck, Bus, Engine Material Handling Agriculture Eaton Hydraulics Today End Market Mix Mobile: 75% Stationary: 25% Channel Mix Direct: 55% Distribution: 45% 11 11

12 Our Truck business serves global markets with leading technology Agriculture Transmissions Truck Sales 2010 $2.0B Sales by Market Segment Medium/Light Duty Transmissions Clutch Heavy Duty Transmissions Growth Drivers Continued global expansion New products and programs Industry leadership in hybrids Eaton Truck Today Global Presence NAFTA: 50% Rest of World: 50% Market Mix OEM: 75% Aftermarket: 25% 12 12

13 Our Automotive business is positioned to win in emissions and fuel economy Detroit 3 (NAFTA) Automotive Sales 2010 $1.5B Sales by Market Segment Alternative Markets Growth Drivers Energy efficiency and emissions New products Emerging economies Relationship with Nittan Other Asia / Asian Brands Eaton Automotive Today > 75% of business is outside of Detroit 3 / NAFTA Nittan partnership: 10% Asian OEM brands: 20% Europe Brands 13 13

14 Eaton Corporation A Premier Diversified Power Management Company A balanced power management company Progress over a decade Continued growth and improved profitability 2011 outlook 14 14

15 EBS underlies our recent and long-term success A powerful combination of proven foundation elements, tools and processes, EBS is at the heart of our strategy for becoming a premier diversified industrial Rapid deployment of best practices Eaton University Growth & Operating Excellence Prescriptive processes Continuous assessment Growth Robust strategic planning process for growth and profitability Outgrowing end markets through innovation Identifying higher growth markets Established acquisition strategy and processes Profitability Operational excellence Global scale Efficient functional support Capital Efficiency Effective working capital management Capital expenditures targeted to support growth Culture and Values Doing business right Employee development Customer focus Supplier partnerships 15 15

16 Over the last decade, we have markedly changed our mix towards higher growth/margin segments Eaton Sales by Segment 100% 80% 60% 40% 20% $7.8 B 23% 19% 19% 9% 31% $13.7 B 11% 15% 16% 11% 47% 0% Electrical Aerospace Hydraulics Truck Automotive 16 16

17 and have greatly expanded our international and emerging market footprint Global Sales by Region Global Sales by Type of Market 20% 8% 25% 55% 80% U.S 45% 92% 75% 45% U.S. International Developed Economies Emerging Economies 17 17

18 Our businesses are well balanced across the economic cycle 2010 Global Sales by Cycle 100% 80% 60% 40% 20% 0% 15% 22% 31% 32% 2010 Early Mid Late No Cycle $2.1 B in Revenues Electrical Service, Defense, Filtration, Aerospace Aftermarket $3.0 B in Revenues Commercial Aerospace, Nonresidential Construction, Large Data Centers $4.2 B in Revenues Hydraulics, Industrial Controls, Medium Duty Truck, Mid-sized Data Centers $4.4 B in Revenues Residential Electric, Single Phase Power Quality, Heavy Duty Truck, Automotive 18 18

19 Core market growth, profitability and cash generation have improved significantly Core Growth Rate Through the Cycle 5% 4% Segment Operating Margin 10.4% 12.7% Cash Conversion Cycle Free Cash Flow $1.3 B $0.4 B $0.2 B $0.9 B Pension Pension FCF FCF Cont. Cont Notes: Segment Operating Margin excludes acquisition integration charges Free Cash Flow is operating cash flow less capital expenditures Cash Conversion Cycle is DSO + DOH DPO 19 19

20 Our businesses have generated attractive returns over the past decade Return on Equity Return on Invested Capital 25% 25% 20% 20% 15% Median = 14.2% 15% 10% 5% 0% Median = 10.5% 10% 5% 0%

21 Our dividend yield and share price appreciation have greatly exceeded our peers 5% Dividend Yield 200% Cumulative Price Appreciation % 4% 150% 3% 2% 1% Median = 2.1% 100% 50% 65% 0% Eaton 0% Eaton DI Median DI Median Note: DI dividend yield and cumulative price appreciation based on data from Capital IQ and Eaton analysis 21 21

22 Return Index delivering strong results to our shareholders Cumulative Shareholder Returns Apr Eaton S&P 500 S&P 1500 Mach DI Group PDI Group ODI Group CAGR* 15.4% 11.0% 9.7% 9.4% 8.2% 1.9% Note DI Group represents an equal weighted index of ABB, DHR, DOV, EMR, GE, HON, IR, ITT, ITW, MMM, PH, SI, SPW, TXT, TYC, UTX; *CAGR = Calculated using the End Point Methodology Source Data: Capital IQ 22 22

23 Eaton Corporation A Premier Diversified Power Management Company A balanced power management company Progress over a decade Continued growth and improved profitability 2011 outlook 23 23

24 Our 2015 goals reflect higher growth and performance targets as we build upon 2010 results Growth Performance 30% of sales from emerging markets 9% free cash flow margin 12-14% sales growth 2015 Goals 16% segment margin 20% earnings growth 15% ROIC Returns Note: Segment Margin excludes acquisition integration charges 24 24

25 From , we expect annual revenue growth between 12% and 14% Growth Strategy Expected Market Growth Rate During Recovery Penetration of Emerging Markets 1.5% 7% 2% Recovery Outgrowth Acquisitions 2-4% Eaton Growth Innovation & New Markets 1.5% Market Growth 7% 5% Long-Term Core Growth 12-14% Eaton Sales Growth

26 We maintained our investments in technology in the downturn and are realizing the benefits Annual Research and Development Expense $500 Global Economic Recession 5% $400 4% ($ in millions) $300 $200 3% 2% (% of Sales) $100 1% $ % R&D Expense % of Sales 26 26

27 from new products and services in the Electrical sector New markets Extending our value-enhancing capabilities Electric Vehicle Charging Alternative Energy Energy Efficiency Services Cooling Solutions Global Electrical Platforms Introducing level 2 and level 3 charging stations with complete balance of system electrical infrastructure Collaborating with vehicle OEMs, fleets, governments, utilities and integrators Launching UL version of residential photovoltaic inverters Introducing new line of commercial photovoltaic inverters Performing turnkey system installation Building an efficiency focused consulting, commissioning, retrocommissioning and performance contracting capability Expanding our power distribution and power quality service footprint outside North America Rapidly growing our metering, software and monitoring business Entering the airflow management cooling business with new, innovative products Developing cost efficient and easily scalable heat containment systems Launching new IEC low voltage and medium voltage switchgear designs Serving customers around the globe with modular design that can be assembled in Eaton facilities or by OEM partners 27 27

28 and from new products in the Industrial Sector New products, programs and applications COMAC 919 High Pressure Piston Pumps Medium Duty Hybrid Vehicles Fuel Efficiency Supplying critical fuel and hydraulic conveyance systems, cockpit panel assemblies and dimming control system Expanding high pressure piston pump offerings for industrial and mobile markets New products offer open circuit and closed circuit options for global stationary and mobile applications >4,500 Hybrid Electric Systems (HEV) trucks globally Expect 200+ Plug-in Hybrid Electric Systems (PHEV) to >50 utility and municipal fleets in Launched Hydraulic Launch Assist (HLA) product for refuse trucks Introduced new Superchargers that offer up to 25% fuel economy improvement without sacrificing performance Superchargers are the best boosting option for engine downsizing and downspeeding 28 28

29 We have resumed growing our portfolio through acquisitions and joint ventures Electrical Hydraulics Aerospace COMAC JV Sales: $24 million Energy engineering and energy services company Announced: July 2010 Sales: $58 million South African manufacturer of motor controls and electrical components Announced: January 2011 Sales: $35 million Manufacturer of hydraulic quick coupling solutions Announced: December 2010 JV with Commercial Aircraft Corporation of China (COMAC) to develop and manufacture fuel and hydraulic conveyance systems for the C919 aircraft Announced: July 2010 Sales: $101 million Manufacturer of enclosures, rack systems, and cooling systems Announced: August 2010 Sales: $35 million Manufacturer of electrical and electromechanical systems Announced: September 2010 Sales: $55 million Manufacturer of advanced filtration technologies Announced: March

30 while maintaining our disciplined approach for future acquisitions Acquisition Criteria Leadership in a key strategic market or region Attractive opportunities for growth and profitability Proprietary content in products and services Strong underlying industry fundamentals Target minimum returns of at least 3% pts above Weighted Average Cost of Capital We continue to create value through our acquisitions We are geared for growth through acquisitions We have a robust pipeline of potential acquisition opportunities Expect activity to return to pre-recession levels in 2011 Ample free cash flow available for acquisitions 30 30

31 We are targeting sales from emerging markets to reach 30% by 2015 Global Sales by Region 22% 25% 30% 33% 30% 30% 45% 45% 40% e U.S. International Developed Emerging Markets Sales to emerging markets increased 30% from 2009 to

32 We expect profitability and cash flow to improve markedly by 2015 Segment Operating Margin 12.7% 16% Cash Conversion Cycle Results 2015 Goal Free Cash Flow % of Sales $2.3B 9% $0.9B 6% 2010 Results 2015 Goal 2010 Results 2015 Goal Notes: Segment Operating Margin excludes acquisition integration charges Free Cash Flow is operating cash flow less capital expenditures; Operating cash flow is after pension contributions 2010 Guidance as of February 26,

33 Eaton Corporation A Premier Diversified Power Management Company A balanced power management company Progress over a decade Continued growth and improved profitability 2011 outlook 33 33

34 We project growth of 10% in our markets in E Total Electrical Americas Index (20) 0 7 U.S E Non U.S. 7 Electrical ROW Index (18) 7 7 n/a 7 Hydraulics Index Aerospace Index Truck Index Automotive Index Eaton Consolidated Index (35) (4) (23) (20) (20%) 29 (1) % % % % 34 34

35 and higher margins in all segments, leading to record segment margins 20% 2011E Segment Operating Margins 15% 15% 15.5% 14% 17% 14% 12% 11% 10% 5% 0% Electrical Americas Electrical RoW Hydraulics Aerospace Truck Automotive Eaton Consolidated E Note: Segment operating margin excludes acquisition integration charges 35 35

36 2011 EPS Guidance Bridge 2010 Operating EPS $2.81 Several Pluses: Market improvement of 10% at 33% margin $1.19 Market outgrowth at 33% margin 0.39 FOREX 0.05 Non-recurring 2010 lawsuit provision 0.08 Acquisitions 0.04 $1.75 Several Negatives: Higher tax rate $(0.29) Unrecovered commodity costs (0.13) Increase in number of shares outstanding (0.06) Increase in pension expense (0.11) Increase in other (Healthcare, LIFO) (0.12) ($0.71) 2011 Operating EPS $3.85 Updated April 20,

37 Summary of 2011 guidance January Guidance February Guidance April Guidance Market Growth Forecast 8% 9% 10% Market Growth $1,100M $1,200M $1,400M Outgrowth of Market $450M $450M $450M Acquisition Revenue $160M $160M $160M Growth from Forex $0M $0M $200M Tax Rate 15% 17% 15% 17% 16% 18% Operating EPS Fully Diluted EPS Full Year Q2 $ $0.96 Full Year $3.46 $3.76 $3.51 $3.81 $3.66 $3.96 Q2 Operating Cash Flow $3.50 $3.80 $1.6B $1.7B $3.55 $3.85 $1.6B $1.7B $3.70 $4.00 $ $0.95 $1.6B $1.7B Free Cash Flow $1.05M $1.15M $1.05M $1.15M $1.05M $1.15M 37 37

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