Citi 2015 Industrials Conference
Richard H. Fearon, Vice Chairman and Chief Financial and Planning Officer
September 17, 2015
© 2015 Eaton. All Rights Reserved..
Forward Looking Statements and NonGAAP Financial Information
This presentation and the comments we make today contain forward-looking statements concerning,
among other matters, the impact of planned restructuring actions, the third quarter 2015 operating
earnings per share, full year 2015 operating earnings per share, segment margins, capital expenditures,
certain corporate expenses, cash flow and tax rate, organic revenue growth, foreign currency exchange
rates, the impact in 2015 from foreign exchange on revenues and earnings and our capital allocation
plans. 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; unanticipated changes 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; strikes or other labor unrest; the performance of recent
acquisitions; unanticipated difficulties integrating acquisitions; new laws and governmental regulations;
interest rate changes; stock market and currency fluctuations; war, civil or political unrest or terrorism; 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 www.eaton.com and is contained in your packet.
© 2015 Eaton. All Rights Reserved..
2
Eaton – A Power Management Leader
• Power management strategy is working
• Leading Electrical franchise with a successful
Cooper integration nearing completion
• Industrial businesses are well positioned for
growth
• Strong margin, cash flow and attractive capital
deployment alternatives strengthen prospects
• Outlook
© 2015 Eaton. All Rights Reserved..
3
Eaton is a premier power management
company…
We are uniquely positioned to provide reliable, efficient, safe and
sustainable power management solutions for critical markets
Cities &
Buildings
Infrastructure
Energy & Utilities
Information
Technology
Electrical
Industrial &
Machinery
Fluid
© 2015 Eaton. All Rights Reserved..
Transportation
Mechanical
4
…consisting of leading global power
management businesses
2014 Sales % of Sales
Electrical Sector
$7.3B
Products
32%
Providing comprehensive
solutions from generation to the
end user
Systems &
Services
$6.5B
29%
Hydraulics
$3.0B
13%
Aerospace
$1.9B
8%
Serving global OEMs, airlines
and governments
18%
Delivering solutions to the
global commercial vehicle and
passenger car markets
Industrial Sector
Vehicle
$4.0B
$22.6B total
© 2015 Eaton. All Rights Reserved..
Bringing a broad product portfolio
to diverse global end markets
5
We have aggressively executed our strategy
Goals
Strategy
Actions Since 2000
• Invested $5.5 billion
in research &
development
• Higher earnings
growth
• Change the business
mix
• Reduced volatility
• Upgrade the talent
• Maintain high return
on capital
• Run the business
better with EBS
© 2015 Eaton. All Rights Reserved..
• Deployed $20 billion
of capital to acquire
66 businesses,
markedly changing
the mix
• Divested businesses
with sales of over
$1.5 billion
6
Our strategy has resulted in a balanced
business that serves diverse markets
Electrical
61%
Segment
Early
Cycle
Aerospace
Vehicle
13%
8%
18%
Late
Mid
31%
No
29%
29%
Int’l Developed
USA
Country
Hydraulics
11%
Int’l Emerging
52%
25%
23%
End Market
© 2015 Eaton. All Rights Reserved..
7
Over the last decade we have driven strong
growth…
Sales ($B)
Cash from Operations ($B)
$3.0
$25
Operating EPS ($)
$5.00
$2.5
$20
$2.0
Mix
$15
$4.00
$3.00
$1.5
$5
$2.00
Performance
$10
$1.0
$1.00
$0.5
$0
$0.0
2004
2014
$0.00
2004
2014
2004
2014
Note: Cash from Operations and Operating EPS exclude Q2 2014 litigation settlements and gain from Aerospace divestitures
© 2015 Eaton. All Rights Reserved..
8
…and with the addition of Cooper, we have
a less volatile earnings stream
EBIT Margin Range
EBIT Growth Volatility
2004-2014
2004-2012
12%
0.4
8%
6%
Volatility of Earnings
10%
0.3
0.2
4%
2%
0.1
0%
0.0
Eaton Stand Alone
PF Eaton and Cooper
Among the most stable in our peer group
Notes: Eaton Pro Forma includes Cooper results prior to the acquisition
Volatility of earnings is standard deviation of YoY EBIT growth data from Capital IQ
© 2015 Eaton. All Rights Reserved..
9
We have grown our dividend at a rapid rate…
Dividends per Share
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2005
2006
2007
2008
2009
2010
© 2015 Eaton. All Rights Reserved..
2011
2012
2013
2014
2015e
10
…and continue to aggressively return cash
to our shareholders
Dividend Yield vs. Peers
as of 8/31/2015
Last 12 Months Share Repurchases ($M)
$400
Total Cash Returned to
Shareholders last 12 months ($M)
$2,000
$326
$721
$1,697
Share
Repurchases
Total
$1,600
$300
$225
$1,200
$200
$170
$976
$800
$100
$400
$0
$0
$0
Dividends
Q3:14
Q4:14
Q1:15
Q2:15
In the last 12 months we returned ~$1.7B to shareholders
or 4.6% of our market cap on July 1, 2014
© 2015 Eaton. All Rights Reserved..
11
Over the long-run, we have generated
outstanding returns for our shareholders
2000 – Aug 31, 2015
CAGR*
Return
Index
Cumulative Shareholder Returns
700
600
11.8%
500
10.3%
400
300
4.8%
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Eaton
Note –
S&P 500
Aug
31,
2015
Peer Group**
** Peer Group represents an equal weighted index of ABB, DHR, DOV, EMR, HON, IR, ITW, LR, PH, ROK, SIE, SU, UTX
*CAGR = Calculated using the End Point Methodology
Source Data: Capital IQ, Eaton analysis
© 2015 Eaton. All Rights Reserved..
12
Eaton – A Power Management Leader
• Power management strategy is working
• Leading Electrical franchise with a successful
Cooper integration nearing completion
• Industrial businesses are well positioned for
growth
• Strong margin, cash flow and attractive capital
deployment alternatives strengthen prospects
• Outlook
© 2015 Eaton. All Rights Reserved..
13
Our Electrical businesses deliver solutions
for the entire power system
Data Centers
Industrial
Utility
© 2015 Eaton. All Rights Reserved..
Commercial / Resi
Machinery
14
Our Electrical businesses are balanced both
geographically and across key end markets
Electrical End Market Mix
2014 Sales $13.7B
Electrical Geographic Mix
2014 Sales $13.7B
Resi
9%
Industrial
23%
Utility
12%
Non-U.S.
45%
U.S.
55%
Data
Center / IT
15%
Machine
Builders
11%
Commercial &
Institutional / Gov’t
30%
© 2015 Eaton. All Rights Reserved..
15
The successful integration of Cooper
continues to drive significant earnings growth
500
+$115M $475
Synergy profit ($M)
Integration Update
400
+$150M
$360
• The Cooper integration is
nearing completion in 2015
300
200
100
• We are close to capturing all
sales and cost-out synergies
+$95M $210
$115
0
2013
2014
2015
2016
• By January 2016, we will
have fulfilled our commitment
to pay down the acquisition
debt
Profits from Revenue Synergies
Cost Synergies
© 2015 Eaton. All Rights Reserved..
16
Cost synergies come from five main areas
and are approaching mature levels
EBS
Plant &
Distribution
Rationalization
projects on-schedule
Application of
EBS Tools
Implementation of
tools proceeding per
plan
Supply Chain
Leveraging Eaton’s
Economies of Scale
Infrastructure
Leveraging common
spend
Consolidating indirect
spend
Successful disposition
of excess properties
Operating SG&A
actions ahead of plan
Office consolidation
projects complete
Corporate Cost
Reduction
All actions completed
IT and data center
migrations ahead of
schedule
Leveraging distribution
footprint to reduce
freight costs
60% complete
70% complete
70% complete
90% complete
100% complete
Note: percentages indicate cost synergies completed.
Balance of work is underway and will be finished by year end.
© 2015 Eaton. All Rights Reserved..
17
Sales synergies come from four main areas
Boost
Channel Sales
Larger Package to
Common Customers
Service
Business
Completed the rollout of a
new distributor program
to channel partners
(EDAP)
Implemented integrated
selling organizations on a
global basis
Coupled service offers to
all Industrial, Commercial
and Utility quotations and
projects
Launched new channel
web portal tools
(MyEaton)
Added resources to focus
on global accounts and
key EPC firms
Rolled out a service
channel module to key
distributors
75% of total 2016 sales synergies
Geographic
Expansion
Integrated selling,
service, and channel
activities in key regions
Enhanced and expanded
Eaton Tech Days in Asia,
Africa, and the Middle
East
25% of total 2016 sales synergies
© 2015 Eaton. All Rights Reserved..
18
We continue to leverage innovation and
product vitality to drive organic growth…
Extending UPS technology
to additional markets
Marine Duty
Uninterruptable
Power Supplies
Utilizing LED technology
to increase flexibility
WaveStream
Architectural
Solutions
Drives technology for
every application
General Purpose,
Machine & EU
Directive Drives
Creating oil & gas technology to
enhance safety and maintenance
CXH Low
Voltage
Assemblies
Hazardous
Area Boltless
Enclosures
• Marine certified UPS
for marine safety,
control, bridge and
commercial systems
• Expanded
WaveStream LED
solutions for more
design freedom
• General purpose and
machinery drives
expand functionality and
increase ease of use
• CXH - Increased
safety and reliability
with unmatched arc
flash mitigation
• Standard and
engineered solutions
address end user
applications
• Provides best in class
optical control,
brightness control and
energy efficiency
• Simple motor drives
meet new European
energy savings directive
• Hazardous location
boltless cover reduces
installation and
maintenance costs
© 2015 Eaton. All Rights Reserved..
19
…and leverage our software capabilities to drive
product differentiation and integrated solutions
Rationale
Open architectures and
the absence of product
pull makes system wide
control a distinct business
decision for customers and
industry participants
Connected products with
supervisory control add
incremental customer value
Eaton Electrical Software Strategy
Strategy
Description
Examples
Manage disparate systems
at a facility level
Broad process, plant and facility
management
Building management
Mfg. execution systems
Distributed controls
Discrete, stand alone
business decisions
Strategy
Description
Examples
Connecting smart
products to provide
unique value and
insights
Narrow, well defined supervisory control,
monitoring and analysis that:
• is tied to market needs
• serves specific applications
• integrates across products
• drives value to end customers
Controlled light
Demand response
Protective relays
Forseer Data Center monitoring
Power analytics
Yukon utility optimization
Strategy
Software enabled products
are a foundation for driving
customer value
Building smart
products
Description
Every device has embedded software:
• Firmware to operate effectively
• Communication capabilities
• Embedded device control
• Programming / setup
• Local HMI
Software drives advanced product features /
© 2015
Eaton. All Rights
Reserved..
functionality
that
are important to customers
Examples
Variable frequency drives
Lean automation
Intelligent circuit breakers
Uninterruptible power supplies
Smart power distribution units
Intelligent lighting
20
Eaton – A Power Management Leader
• Power management strategy is working
• Leading Electrical franchise with a successful
Cooper integration nearing completion
• Industrial businesses are well positioned for
growth
• Strong margin, cash flow and attractive capital
deployment alternatives strengthen prospects
• Outlook
© 2015 Eaton. All Rights Reserved..
21
Our Hydraulics business serves large and
diverse end markets
2014 Sales of $3.0B
Market Mix
Business Mix
Other
• 65% Mobile Equipment
Construction
& Mining
• 35% Stationary Equipment
• 50% Direct
Processing
• 50% Through Distribution
Why We Like Hydraulics
Material
Handling
Agriculture
Manufacturing
• Large $40B global and diverse market
Commercial Vehicles
Energy
• Broad product portfolio
• Positioned to outgrow end markets
Expected 2015 operating margin of 11.1% to 11.7%*
* Excludes impact of 2H restructuring program
© 2015 Eaton. All Rights Reserved..
22
Hydraulics is addressing short-term market conditions
and is positioned to capitalize on growth opportunities
Addressing Softer Markets
Investing in Key Technologies
Growing Aftermarket
•
Market mix: 70% stable, 30%
cyclical
•
Launching industry leading
technologies
•
$12B market opportunity;
3% CAGR
•
Key actions to improve
profitability through cycles
•
Leveraging Eaton’s electrical
and hydraulic expertise
•
One third of 2014 sales
•
$18B installed base of Eaton
products
•
Business is both profitable and
stable
•
Key actions
•
•
•
•
Investing to grow in stable
end markets
Improving product mix
Reducing fixed costs and
optimizing our global
footprint
2014 and 2015 restructuring
actions
Margins Through the Cycle
13-14%*
15-16%
Current point in the cycle
17%+
•
Targeting new solutions for
machine OEM market
•
•
$4B market; 3% CAGR
$720M market opportunity
•
•
•
Variable Speed Drive
Solutions for MOEM
Localizing products
Building service capabilities
Adding channel partners
Mining in Australia
On-site 24/7 service
*Excluding restructuring
© 2015 Eaton. All Rights Reserved..
23
Our Aerospace business is balanced across
market segments and diverse platforms
2014 Sales of $1.9B
Market Mix
Other OE
Business Mix
• 65% Commercial / 35% Military
Military
Aftermarket
Commercial
OEM
• 65% New Aircraft / 35% Aftermarket
Commercial
Aftermarket
Why We Like Aerospace
• Steady market growth
Military OEM
• Long-cycle industry
• Advantageous technology position
Expected 2015 operating margin of 16.1% to 16.7%*
* Excludes impact of 2H restructuring program
© 2015 Eaton. All Rights Reserved..
24
Winning technologies and aftermarket focus will drive
profitable growth on both legacy and new platforms
Increasing Content on
Next Generation Platforms
4x
B767
Commercial Transport
B787
7x
•
Driving more than $3B in recent
wins
•
Commercial Transport
•
UH-60 CH-53K
F-18
Pure Power engine seals improve
fuel efficiency and extend life cycle
on 777X, a $620M opportunity
•
Military Rotorcraft
2x
•
8x
•
Optimized subsystems to improve
engine buildup on A350-1000, a
$425M opportunity
Regional Jets
Hydraulic system advantages in quality
and reliability on E2 jet, a $400M
opportunity
Business Jets
•
$4B global market; 2.5%
CAGR
•
Aggressive focus on:
•
•
Military Fighters
F-35
Growing Aftermarket
Launching New Technologies
•
Improving operational
performance
Dedicated Aftermarket
organization
Driving modifications and
upgrades
Aftermarket Sales
7% CAGR
Falcon Falcon
5X
900
6x
ERJ
170/190
Regional Jets
E2
Prior platforms
New OE platforms
•
Military Tanker
Closed loop system optimizes fuel flow
on KC-46A, a $300M opportunity
2014
2018
$120M in outgrowth by 2018
*Photo provided by GE Aviation
© 2015 Eaton. All Rights Reserved..
25
Our Vehicle Group provides targeted solutions
for both commercial and passenger markets
2014 Sales of $4.0B
Market Mix
Other Ag / Off Highway
Business Mix
• Americas: 70%
Pickup and Delivery
Passenger
• EMEA: 20%
Vocational
• APAC: 10%
Why We Like Vehicle
• Regulations create large opportunities for innovation
Line Haul
• Leader in fuel economy and emissions reduction
• Positioned to outgrow end markets
Expected 2015 operating margin of 17.4% to 18.0%*
* Excludes impact of 2H restructuring program
© 2015 Eaton. All Rights Reserved..
26
Vehicle Group is focused on four nearterm drivers of market outgrowth
Automated Transmissions
Medium Duty Market
• NAFTA heavy-duty market converting to
automation
2014
% Automation
Procision Dual Clutch Transmission
2018
% Manual
• Automation growth creates a large market
opportunity with 40-50% higher price point
than equivalent manual products
•
•
•
Launching new Medium-duty product
Targeted toward Class 6 and 7
markets with improved fuel economy
2014 new business wins of $300M
Engine Technologies
•
•
•
•
Leveraging Alliances
Solutions to help customers meet
regulatory requirements
Hollow Valves – 10% weight reduction
and higher heat tolerance
Variable Valve Actuation – improves
engine efficiency by adjusting valves
for power needs
Cylinder Deactivation
•
•
Strategic alliances expanding global scope and
driving growth
Cummins Alliance: SmartAdvantage™
•
•
•
© 2015 Eaton. All Rights Reserved..
3-6% better fuel economy
Shaanxi Fast Gear Co., Ltd. joint venture enhances
clutch presence in China
Nittan joint venture extends our valvetrain reach in
Asia
27
Our Vehicle business is responding well to
industry challenges…
The NAFTA heavy duty truck market is undergoing
two distinct, but related, transitions:
• A portion of the truck assemblers have
moved to a vertically integrated model for
engines and transmissions – this transition is
largely complete
NAFTA Heavy-duty
• The adoption of automated manual
transmissions is accelerating

AMTs provide the fuel economy of a base manual
transmission, with the efficiency improvement and
convenience of automation

The SmartAdvantage™ integrated powertrain with
AMT is 2-7% more fuel efficient than comparable
vertically integrated powertrains

2014
2018
% Manual
% Automation
AMTs particularly improve the performance of
inexperienced drivers
© 2015 Eaton. All Rights Reserved..
28
…and we are taking actions that will enable Eaton
to grow total revenues in the Vehicle Segment
• Our enhanced product offerings continue to be preferred by
most fleets
•
•
•
•
Fuel economy and service drive value for fleets
Eaton/Cummins partnership drives improved engine/transmission
system performance
Eaton’s SmartAdvantage AMT improves fuel economy up to 7%
Roadranger® service in the field
• The move to AMTs increases Eaton revenue
•
40% - 50% higher selling price than equivalent manual products
• Launching Procision to penetrate the NA medium-duty
market
• Continued focus on growing share in aftermarket
© 2015 Eaton. All Rights Reserved..
29
Eaton – A Power Management Leader
• Power management strategy is working
• Leading Electrical franchise with a successful
Cooper integration nearing completion
• Industrial businesses are well positioned for
growth
• Strong margin, cash flow and attractive capital
deployment alternatives strengthen prospects
• Outlook
© 2015 Eaton. All Rights Reserved..
30
We expect good margin improvement in
2015, consistent with our long-term trend
Segment Operating Margin
20%
Flat
to
up
60 bps
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e
Note: Excludes acquisition integration charges
and impact of restructuring program
© 2015 Eaton. All Rights Reserved..
31
Our cash flow continues to grow rapidly
and our cash earnings are strong
Cash Earnings
Exceed Operating EPS
($B)
Cash from Operations
$3
$9
$2
$6
$1
$3
$0
$0
2011
2012
2013
2014*
2015E
2015E
Operating EPS
Indicates 2015 guidance range
EBITDA / Share
Notes: 1. Operating EPS excludes acquisition integration charges, Q2 2014 litigation
settlements and gain from Aerospace divestitures
2. EBITDA / Share excludes acquisition integration charges
© 2015 Eaton. All Rights Reserved..
32
Our capital allocation strategy has
changed over time
Eaton Capital Allocation Over Time
Portfolio Transformation
2000-2012
Balance Sheet Repair
2013-2015
Driving Equity Value
2016-2020
1%
1%
11%
23%
7%
15%
32%
31%
38%
11%
67%
14%
33%
Acquisitions
Capex
Share Repurchase
© 2015 Eaton. All Rights Reserved..
Dividends
17%
Debt Repayment
33
Summary of capital allocation plan
• We are comfortable maintaining an “A-” long-term debt
rating
• Dividends are targeted to grow in line with future earnings
growth

Since 2005, dividends have increased by a CAGR of 14%
• We intend to use dividends and share repurchases to
return between 4%-5% of our market cap to shareholders
on an annual basis


We plan to repurchase 1% to 2% of our shares each year
Coupled with our historic dividend yield of ~3%
• For the balance of available capital, we intend to pursue
M&A to continue advancing our businesses’ strategies
© 2015 Eaton. All Rights Reserved..
34
Eaton – A Power Management Leader
• Power management strategy is working
• Leading Electrical franchise with a successful
Cooper integration nearing completion
• Industrial businesses are well positioned for
growth
• Strong margin, cash flow and attractive capital
deployment alternatives strengthen prospects
• Outlook
© 2015 Eaton. All Rights Reserved..
35
For 2015, organic revenue growth is
expected to be 0% - 1%
2015 Organic
Revenue Growth
Segment
Electrical
1% - 3%
Hydraulics
(6)% - (8)%
Aerospace
2% - 4%
Vehicle
1% - 3%
Eaton Consolidated
0% - 1%
© 2015 Eaton. All Rights Reserved..
36
Given slow market conditions, we are undertaking
restructuring actions in 2015 and 2016
2015
$M
Q3
Q4
Restructuring Cost $(110) $(10)
Savings
Net
2016
2H
Total
$(120)
$(25)
$20
$25
$45
$80
$(90)
$15
$(75)
$55
Total restructuring program cost of
$145M with annualized savings of $125M
© 2015 Eaton. All Rights Reserved..
37
2015 Outlook
Organic Revenue Growth
Forex
Segment Margins*
Corporate pension, interest, and
general corporate expenses
Tax Rate
Operating EPS
0% - 1%
(5)%
Elec. Products
17.0% - 17.6%
15.3% - 15.9%
Elec. Systems
and Services
13.7% - 14.3%
Hydraulics
11.1% - 11.7%
Aerospace
16.1% - 16.7%
Vehicle
17.4% - 18.0%
$(10)M - $(30)M
Below 2014 levels
9% - 11%
Full Year
$4.40 - $4.60
Q3
$1.00 - $1.10
Operating Cash Flow
$2.4B - $2.8B
Free Cash Flow
$1.8B - $2.2B
CAPEX
2015 Expected
Segment Margins*
$575M
* Excluding impact of 2H 2015 restructuring program
© 2015 Eaton. All Rights Reserved..
38
Summary
Our power management strategy is effective
• We are a global power management leader with strong positions in critical markets
Our balance provides stability
• Across uneven market conditions, we have produced strong results
We will continue to drive strong earnings growth in a slow growth
environment
• Our technical vitality and front-end capabilities combined with Cooper synergies
and benefits from restructuring programs are producing results
We are positioned for greater cash redeployment optionality
• Growing cash flow and improved cash flow margin provide us with attractive capital
allocation alternatives
© 2015 Eaton. All Rights Reserved..
39
© 2015 Eaton. All Rights Reserved..
40