1. No category

Annual Investor Conference
Rick Fearon, Vice Chairman and Chief Financial and Planning Officer
February 27, 2015
© 2015 Eaton. All Rights Reserved..
Eaton – a power management leader
Recap of recent performance
Greater cash optionality
2015 guidance
© 2015 Eaton. All Rights Reserved..
3
Over the last decade we have driven strong
growth…
Sales ($B)
Cash from Operations ($B)
$3.0
$25
$4.00
$2.0
Mix
$15
$5.00
$2.5
$20
Operating EPS ($)
$3.00
$10
$5
$0
Performance
$1.5
$2.00
$1.0
$1.00
$0.5
$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..
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…and, with the addition of Cooper, have created a
less volatile earnings stream
EBIT Margin Range
EBIT Growth Volatility
2004-2014
2004-2012
12%
0.4
Volatility of Earnings
10%
8%
6%
4%
2%
0.3
0.2
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..
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2014 was a record year
Strong performance in a low growth environment
• 13% Operating EPS growth
• 15.3% Segment operating margin
• $2.5B Cash from operations
Returning significant cash to shareholders
• $650M share repurchases
• $929M dividends paid
• Raised quarterly dividend earlier this week
De-risking for future growth
• $582M debt repayment…approaching target capital structure
• Resolved outstanding litigation
Notes: Operating EPS and Cash from Operations exclude Q2 2014 litigation settlements and gain from Aerospace divestitures
Segment operating margin excludes acquisition integration charges© 2015 Eaton. All Rights Reserved..
6
Eaton – a power management leader
Recap of recent performance
Greater cash optionality
2015 guidance
© 2015 Eaton. All Rights Reserved..
7
The rapid growth in cash flow gives us significant
options to redeploy capital
Cash from Operations ($B)
$4
$3
$2
$1
$0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015e
Note: Cash from Operations excludes Q2 2014 litigation settlements and gain from Aerospace divestitures
© 2015 Eaton. All Rights Reserved..
8
We have grown our dividend at a rapid rate…
Dividends per Share
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2005
2006
2007
2008
2009
2010
© 2015 Eaton. All Rights Reserved..
2011
2012
2013
2014
2015e
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…and continue to aggressively return cash to
our shareholders
Dividend Yield vs. Peers
Total Cash Returned to
Shareholders in 2014 ($M)
2014 Share Repurchases ($M)
as of 2/13/2015
4%
$400
$2,000
$326
3%
$1,600
$300
$225
2%
$650
$1,579
Share
Repurchases
Total
$1,200
$929
$200
$800
1%
$99
$100
$400
ABBN
SIE
EMR
SU
ETN
LR
ROK
DOV
UTX
ITW
PH
HON
IR
DHR
0%
$0
$0
Dividends
Q2:14
Q3:14
Q4:14
In 2014 we returned ~$1.6B to shareholders or 4.4%
of our market cap at the beginning of the year
© 2015 Eaton. All Rights Reserved..
10
Our commitment to retire $2.1B of debt postCooper will be completed in early Q1:2016…
Debt Maturities ($M)
$700
$600
$500
$400
$300
$200
$100
$0
Q1:14
Q2:14
Q3:14
Q4:14
Q1:15
Q2:15
Q3:15
Q4:15
Q1:16
$1.2B of debt payments remaining through Q1:16
© 2015 Eaton. All Rights Reserved..
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…at which time we will have many options to
deploy capital to create further value
Capital Deployment
Financial Transition Period
Balance Sheet Repair
Driving Equity Value
2010-2012
2013-2015e
2016e-2018e
Optionality:
Share
Repurchases
and M&A
Debt Repayment
Dividends
Capex
© 2015 Eaton. All Rights Reserved..
Share Repurchases
M&A
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Eaton – a power management leader
Recap of recent performance
Greater cash optionality
2015 guidance
© 2015 Eaton. All Rights Reserved..
13
Global growth remains modest with marked
differences around the world
Europe (EU 28)
2015 Growth
% of Total*
GDP
1.5%
23%
Mfg. IP
1.5%
21%
US
2015 Growth
World
% of Total*
GDP
2.9%
22%
Mfg. IP
3.3%
17%
China
2015 Growth
2015 Growth
GDP
2.8%
GDP
6.7%
13%
Mfg. IP
2.5%
Mfg. IP
5.2%
22%
Brazil
2015 Growth
% of Total*
India
% of Total*
GDP
-1.2%
3%
Mfg. IP
-1.2%
3%
2015 Growth
% of Total*
GDP
7.4%
3%
Mfg. IP
4.1%
3%
*2013 Share of World GDP and Mfg. IP
© 2015 Eaton. All Rights Reserved..
Note: Eaton estimates
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Core growth is expected to be 3% - 4%
Segment
Electrical
2015 Core
Revenue Growth
3% - 5%
Key Drivers
• Strength in North American residential and non-residential markets
• Utility markets grow about 1%
• Global power quality markets flat
•
•
•
•
US construction equipment markets mid-single digits; China markets still weak
Industrial equipment markets mid-single digits
Mining markets negative
Retrenchment in global agriculture markets, particularly large equipment
Hydraulics
(2)% - 0%
Aerospace
2% - 4%
• Global commercial markets up mid-single digits
• US defense markets down slightly
Vehicle
5% - 7%
• 330K NAFTA Class 8 truck production
• US pass car and light truck retail sales in high 16M’s
• Latin American markets remain soft
Eaton
Consolidated
3% - 4%
© 2015 Eaton. All Rights Reserved..
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We expect good margin improvement in 2015,
consistent with our long-term trend
Segment Operating Margin
20%
+60 bps
to
+120 bps
YoY
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
© 2015 Eaton. All Rights Reserved..
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Our cash earnings are strong, and free cash flow
conversion is expected to improve
Cash Earnings Comparison
2015 Free Cash Flow Conversion Expected To Be ~100%
$9
$6
Notes: Operating EPS excludes Q2 2014 litigation settlements and gain from Aerospace divestitures
© 2015 Eaton. All Rights Reserved..
EBITDA / Share excludes acquisition integration charges
Other
Tax
Free Cash Flow
EBITDA / Share
Pension
Operating EPS
2015E
Capex
2014
Amortization
$0
Net Income
$3
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Pension funding requirements are on a
decreasing trend
U.S. Qualified Plan
•
U.S. Qualified Plan Funding as % of
Cash from Operations excl. U.S. Qualified Funding
85% funded at end 2014
•
($570M) underfunded
•
Reflects new mortality tables
20%
•
4% discount rate in 2015
•
50 bps increase in discount rate improves funding
level by 5 percentage points
10%
Discount Rate
10%
8%
6%
4%
2%
0%
0%
2000
2005
2010
2015
2009 - 2012
2013 - 2014
2015E
Note: Cash from Operations excludes Q2 2014 litigation settlements and gain from Aerospace divestitures
© 2015 Eaton. All Rights Reserved..
18
2015 guidance remains unchanged
Organic Revenue Growth
Forex
17.7% - 18.3%
Elec. Systems
and Services
14.5% - 15.1%
15.9% - 16.5%
Hydraulics
12.1% - 12.7%
$30M - $40M
above 2014 levels
Aerospace
15.1% - 15.7%
Vehicle
17.0% - 17.6%
(4)%
Segment Margins
Corporate pension, interest, and general
corporate expenses
Tax Rate
Operating EPS
Elec. Products
3% - 4%
9% - 11%
Full Year
$4.75 - $5.05
Q1
$0.95 - $1.05
Operating Cash Flow
$2.7B - $3.1B
Free Cash Flow
$2.0B - $2.4B
CAPEX
$675M
© 2015 Eaton. All Rights Reserved..
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Solid results and positioned well for the future

Strong and predictable earnings growth

Significant cash flow generation providing optionality for capital redeployment

Dividend growth and repurchases provide strong cash returns to shareholders
Self-help strategy driving solid growth in slower global growth environment
© 2015 Eaton. All Rights Reserved..
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