Eaton (NYSE:ETN) Q3 2026 Earnings Call

0:00 Thank you for standing by and welcome to the Third Quarter 2026 Earnings Results Conference Call. at this time all participants are in listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you'll need to press star 1 1 on your telephone if your question has been answered and you'd like to remove yourself from the queue simply press star 1 1 again we ask that you please limit yourself to one question each you may get back in the queue as time allows as a reminder today's program is being recorded and now I'd like to introduce your host for today's program, Yan Jin, Senior Vice President of Investor Relations. Please go ahead, sir.

0:38 Hey, good morning. Thank you all for joining us for Eaton's third quarter's 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 we'll turn it over to Dave will highlight the company's performance in the third quarter. As we have done our past course, 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, and a replay of this webcast will be accessible on our website after the call. Before we begin, I would like to remind you that our commentary today will include forward-looking statements with respect to the sales, earnings, and other matters.

1:32 Our actual results will differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our recent ICCC filings. With that, I will turn it over to Paulo.

1:47 Thanks, Yan, and thanks everyone for joining us. Starting on page three, our very strong third quarter shows the power of demand meeting execution. We said the second half would show the benefit of our capacity investments. And in Q3, our teams delivered on that promise. We came in above the high end of our guidance on every key metric. Organic growth was 19%. The segment margins were all time record at 25.3%. Our adjusted EPS was $3.68, an all time record and 17 cents above the midpoint of our guidance. Revenue reached a record of $8.9 billion up 28%.

2:33 Our strategy is working and Electric for America is a strong proof point. Organic growth accelerated to 22% and margins reached 29.8% up 230 basis points from Q2. Our new capacity is now turning into output and into margin. Growth in electrical global was even stronger with 27% organic growth and strength across all end markets. And across the business, demand is both accelerating and broadening. Our electrical and aerospace combined book to build remains strong at 1.2 with America strong at 1.3 and aerospace at 1.2. While demand is broad based across end markets, You can see here that the data center orders for the 12 months rolling are over 100% and revenues up 65% remain really strong.

3:31 Overall, accelerating orders and growing backlogs are a clear proof point that our customers are choosing Eaton because we bring end to end critical power solutions. Our performance in the year give us confidence to raise our guidance for the third time this year. We are raising organic growth by 200 basis points to a midpoint of 14% and our adjusted EPS midpoint by 25 cents to a $13.75. Dave and I will walk you through Q3 and the rest of the year outlook. But first, let's turn to slide four. We continue to drive Eaton forward with our bold strategy to lead, invest, and execute for growth. The strategy is working and we are transforming our company at a fast pace.

4:22 All three pillars are designed to accelerate our growth and create sustained value for our shareholders. Today, we'll talk about how our strategy is fueling growth in the Americas and global, and we'll conclude with a short update on Boyd. Now, starting with Electrical Americas, this page five shows what we are seeing right now. Demand is strong and broad-based. well beyond data centers and every lead indicator is pointing up. First, customer investment keeps building. Mega project announcements are up 85% so far this year. These are large multi-year infrastructure and electrification projects and they will turn into demand for our products and solutions.

5:08 Second, our negotiations pipeline is up about 55% year to date. That's our earliest signal of future orders and it's brought across every end market we serve. Third, backlog is up 33% to another record and is still growing even as we grow top line at 22% rate. Demand continues to run ahead of what we can convert. Finally, orders up 39% on a 12 month basis with book to bill of 1.3 Orders can be lumping quarter to quarter, as you know, but the pipeline and the backlog keep building. Taken together, this is a business that continues to benefit from powerful secular trends, utility investment, grid modernization, industrial reshoring, AI driven data center expansion, and broader electrification.

6:05 We remain focused on execution and bringing new capacity online. Our strong pipeline, orders, and backlog give us the confidence in the durability of growth in Electric Americas. And that's a great growth story for ETH. Turning now to slide six. Electrical Global continues to outperform expectations. We now expect organic growth about 16% in 2026, well above our prior guidance and more than double the 7% we delivered in 2025. This acceleration is no accident. It reflects deliberate strategic moves we made over the past few years. We took the lessons we learned and applied the pillars of our lead, invest, and execute for growth strategy to our global business.

6:56 And we are growing with better margins. There are the four moves behind this performance. First, we restructured early. We realigned Europe well ahead of the demand acceleration. building a leaner organization that's closer to our customers and centered on solving their biggest challenges. Those efforts are now paying off. Second, we scale globally. Our brand, our trusted technology and our relationships with global customers travel with us. Our differentiated solutions let us compete in complex applications where reliability, safety and performance are critical. And we are following our global customers whatever they build.

7:41 Third, we shifted our portfolio to high growth areas. We are in the right markets at the right time, data centers, but also utility and machine OEM. So we expanded in modular power with Nordic EPOD and our agreement to acquire COL Group will add even more scalable technologies, capabilities and capacity in Europe. Finally, we are winning share through strong execution. Growth is broad-based, with revenue and orders rising together, and we are outgrowing our markets in GEIS, EMEA, and APAC. We are seeing the strongest competitive growth in APAC, and that gives us real confidence in what's ahead. And there is more to come. Starting March 27, Boyd Thermal becomes part of organic growth, adding one of the fastest growing businesses in the data center market to our organic base.

8:37 Taking together these strengths give us confidence not only in 2026, but in our long-term ambitions. Our current target for electrical global growth is 5% five-year CAGR from 2026 to 2030. With boy turning organic and the strength we continue to see across global, we expect to update that target in 2027. Turning to page seven. Boyd Thermo is an important accelerator for Electrical Global. Since our last update, Boyd has continued to significantly outperform our expectations, reinforcing the strategic rationale for the acquisition and validating the strength of Eaton's position in the data center infrastructure market.

9:23 The business delivered nearly triple-digit year-over-year growth, with demand remaining exceptionally strong across the portfolio. Growth has been supported by accelerating customer investments in AI and next-generation data center infrastructure. And orders continue to accelerate at similar rates as well, highlighting strong customer adoption of liquid cooling, architectures, and both differentiated capabilities in thermal management. Demand strength is also reflected in the backlog, which saw three times growth year over year, providing strong visibility into future growth and reinforcing confidence in the long-term outlook. Beyond the near-term financial performance, we are increasingly seeing the strategic benefits of combining Boyd with Eaton. Boyd's industry-leading thermal management capabilities, combined with Eaton's global scale, balance sheet strength, channel reach, and supply chain capabilities are creating opportunities to accelerate growth beyond Boyd's standalone potential.

10:30 So this moment is why we are raising Boyd's full year revenue outlook again, the third increase this year to $1.9 billion. Specifically, Eaton is helping expand Boyd's customer access through our global sales channels, accelerating commercialization of new solutions and enabling broader participation in large-scale data center projects. At the same time, our combined expertise in electrical power and thermal management position us to help customers to move toward more integrated power and cooling architectures, an increasingly important requirement as AI workloads drive higher power densities. Overall, Void strengthens Eaton's ability to deliver differentiated grid-to-chip solutions while increasing our exposure to some of the fastest growing segments of the data center market. Now I'll pass it on to Dave to walk through the financials.

11:28 Thanks, Paulo. I'll start by providing a brief summary of our strong Q3 results on page eight. Total revenue grew by 28% with a strong contribution of eight points from acquisitions. Our acquisitions continue to deliver at or above our expectations for growth and margins. Organic growth for the quarter was 19% driven by Strength in Electrical Americas and Electrical Global. Excluding mobility, our organic growth would have been 21%. Adjusted EPS of $3.68 was an all-time record, up 20% over prior year and 12 cents above the high end of our guidance. We generated a strong 32 cent segment profit beat versus our guidance with incremental margins of 26% stepping up from 19% last quarter. Now let's move to the segment details.

12:23 On slide nine, we highlight our Electrical America segment. Organic sales growth accelerated to 22% driven by strengthened data centers up 54% along with strong growth in machine OEM and commercial and institutional. Our sequential margin improvement continues. Margins reached 29.8%, up 230 basis points from Q2, and more than 400 basis points since Q1. A clear sign our execute for growth strategy is working. From a year-over-year perspective, the majority of the margin decline was driven by temporary commodity cost headwinds. The pricing actions we took in Q2 and early Q3 are working, as price cost was positive on a dollar basis in Q3.

13:10 Demand keeps building. We had record orders over $5 billion. Our negotiations pipeline was up 55% year to date and rolling 12 month orders were up 39% with book to build held at 1.3. Electrical Americas is exiting 2026 with real momentum and we are well positioned for a strong 2027. Now I will summarize the strong results for our electrical global segment on slide 10. Total growth of 58% included organic growth of 27% from strengthened data center, utility, and machine OEM, along with 31% attributed to the Boyd acquisition. Organic revenue growth was broad in all regions, with particular acceleration in APAC up nearly 50%.

14:00 Boyd continues to outperform. Sales grew 24% from Q2, with triple-digit growth year over year. backlogged nearly tripled year-over-year, giving us strong visibility into the liquid cooling demand ahead. Operating margin of 21.1% was up 200 basis points over prior year, driven largely by higher sales. Each region posted strong year-over-year margin improvement. Demand in global is accelerating fast. We had record orders in the quarter, as rolling 12-month orders were up 51%. with momentum across our end markets and exceptional strength in data centers. Electrical Global is built for this moment and with orders and backlog at these levels, we see a long runway of above market growth ahead.

14:49 Before moving on to our industrial businesses, I'd like to briefly recap the combined electrical segments performance. For Q3, we posted organic growth of 24% and total growth of 34%, a great third quarter. Segment margins were 26.4%, 190 basis points higher than Q2. On a 12-month basis, orders accelerated up 43%, and our book-to-bill ratio for our electrical sector was 1.2. Our total electrical backlog reached another record of more than $20 billion, up 46% from last year. Page 11 highlights our aerospace segment's performance for the quarter. Organic sales growth of 6% resulted in Q3 record sales and segment profit with particular strength in commercial OEM.

15:42 Ulta PCS added five points of growth this quarter with margins well above the second average. It continues to be accretive to aerospace. Total aerospace margins were 24.9% up more than 200 basis points from Q2. Year over year, margins were down 100 basis points driven by mix. Demand in aerospace has never been stronger with record orders driving backlog expansion and book to bill remaining a strong 1.2. We are well positioned to convert that backlog into growth and earnings. Moving to our mobility segment on page 12. Mobility had a strong quarter. Sales grew 10% with 9% organic growth and one point from currency, a clear return to growth.

16:29 Meanwhile, margins increased 370 basis points to 17.2%, the highest level since 2018, driving incremental margins of more than 50%. Now we'll turn it back to Paulo to discuss our updated guidance and close out the presentation.

16:47 Thanks, Dave. Moving to page 13, we summarize our updated 2026 organic growth and margin guidance. Following another strong quarter, We now expect total company organic growth to be between 13% and 15%, up 200 basis points at the midpoint from the prior 11% to 13% range. This increase is driven by strength in Electric Americas, up 400 basis points to a midpoint of 19%, and Electrical Global, up 400 basis points to a midpoint of 16%. We are maintaining our total segment guidance range of 24.1 to 24.5%. On the next page, we have the balance of our guidance for 26 and Q4.

17:37 For 2026, we are raising our adjusted EPS guide. Now we expect full year EPS to be between $13.70 and $13.80. $13.75 at the midpoint up 14% from 2025. We're also reaffirming our cash flow expectations for the year. Additionally, we have provided guidance for Q4 on this page. As a reminder, we also provide supplemental guidance, which includes raising Boyd's full year revenue to $1.9 billion, of which $1.6 billion will be in Ethan's books for the year. Continuous strength across end markets, combining for record backlog, provide strong visibility into our outlook for the year. This is the third time we've raised organic growth and adjusted EPS guidance this year. With the industry best position portfolio and demand still building, we are not just finishing 2026 strong, we are carrying real momentum into 2027 and beyond.

18:46 So now shifting our perspective ahead to 2027 on page 15, we provide our view of our end market growth assumptions for the next year. I won't go line by line, but the key takeaway here is simple. None of our end markets are expected to decline in 2027. Approximately 90% of our portfolio is in markets we expect to grow and the rest being residential and light vehicles should hold flat. Data centers and distributed IT along with commercial aerospace remain our strongest markets both expected to grow strong double digits. Together, that's roughly a third of our sales. All in, that adds up to about 11% growth across our end markets in total.

19:33 With some outgrowth on top of that, 2027 growth would be well ahead of our 2026 to 2030 organic growth target of 6% to 9% CAGR. Let me be clear. That's double-digit market growth again in 2027. We have the right portfolio in the right markets at the right time. And we expect 2027 to be another year of differentiated growth and strong returns for our shareholders. Now let me wrap on page 16. This quarter showed what Eaton can do when robust demand meets strong execution. And we are just getting started. First, demand is accelerating and broadening. Electrical orders are up 43% and backlog is up 46%. Let's not forget, this isn't just data centers.

20:27 We are seeing strength across commercial and institutional, utilities, industrial facilities, machine OEM, and residential. We are winning at a pace we've never seen before. Second, execution is compounding. Electrical America's margins reached 29.8%, up 230 basis points sequentially in a single quarter. And 18 of our 25 expansion processes are complete with the steepest part of the ramp behind us. The results are clear, new capacities turning into output and output into earnings. Third, our lead invest and execute strategy is working and is gathering pace. We are transforming our portfolio and evolving our culture.

21:14 We are positioning the company to capture strong demand, to accelerate growth, and to beat our own short and long-term commitments so we can deliver meaningful value creation for our shareholders. And finally, when you put it all together, strong demand, improving execution, higher shipments, and growing earnings, it gives us real confidence in both our near-term outlook and our long-term commitments. You can see that in the organic growth and EPS guidance We are raising today for the third time this year. And we are remaining focused, staying close to customers, innovating with speed, leading and investing in growth, and executing with discipline. So the best years are still ahead of us. With that, let's open up for your questions.

22:03 Hey, thanks, Paulo. Moving to the Q&A, we ask you to please limit your opportunity just one question per person. We appreciate your cooperation so we can accommodate as many participants as possible today. With that, I will turn it over to the operator for guidance. Certainly, and our first question for today comes from the line of Nigel Koh from Wolf. Your question, please.

22:28 Yeah, good morning, everyone. Thanks for the question. So, since it's just one question, maybe just, Paulo, maybe talk about where we are in sort of the Transition to Next Generation Nate and Revolt DC Solutions. I think the sidecar kind of rack-based solutions for the first half of next year. Just wondering, are you starting to see orders for kind of facility-level DC power at this point? And where are we on the solitary transformer commercialization and production?

23:03 Thanks, Nigel. Good morning to you. Thanks for the question. is also top of mind for investors. We get that question all the time, so thanks for that. So we remain, I would say this, I'll leave with the tagline, we remain a strong leading position for our solid-state transformers, both in the U.S. and globally. Let me just give you an update on what happened the last quarter. In the U.S., for example, in October, our 15 kV, 2 megawatt unit, the mini-voltage solid-state transformer, successfully passed all the UL tests. There's a new UL norm. And to our knowledge, we are the first multi-megawatt unit that successfully cleared all those tests, which is a great thing.

23:48 And I would say this, more importantly than being the first, the system is truly unique. That's the most important part. It's unique in the market. It's the only system in the market which is at the same time liquid-cooled, It's multi-port, meaning you have AC and DC port that gives maximum flexibility to customers. It is also outdoor ready. So this provides with customers the most flexible and compact brains, as you will, for the next generation of either complete DC architectures or, to your question, to hybrid architectures with AC and DC playing together. And then also in parallel, our global team is also advanced.

24:33 Our technology here. So in the EIC markets, which are the European and the Asian markets, the Eaton Indoor Unit also passed all the tests, this time with the TUV, the German Institute, which is a global third-party testing certification organization. So we're really excited that we are pushing this leadership even further in this case. For me, the good thing for us to keep in mind is that this direction of travel in terms of migrating from AC to DC is real because of the large power savings that the customers see in this new technology. But the timing of that transition is not under our control.

25:18 So the industry is definitely moving to DC distribution as an alternative to AC because of those savings. and I remind you that you asked about solid state transformer which is a key part of this new architecture but it's only one of the four key building blocks that you need to have to win in this new era and I would say Eaton is leading all their three as well and I'll name them again so you guys can remember so the other one is DC breaker technology the third one is power quality so think about power electronics and UPS in distribution and Advanced Cooling with Boyd. So we are leading all four of them. And then the other thing I want you and investors to have in mind is that the current architectures, the EC architectures are not that and we are fine either way. Ethan's position is that we sell powertrain in both architectures.

26:13 We are architecture agnostic and we win either way, we win in either path. So we want you to frame this as an opportunity more than a bet and a good option for us in the future. So specifically on the pilots we are running, we have 10 pilots running parallel and multiple 15 KV projects that we're going to ship this year. And we expect this to turn into volume moving to next year. And here the conclusion for us is very simple. We are a leader today in the current data center architectures and will continue to be a leader in the future. We are ready for that future with the DC portfolio we are building.

26:59 Thank you. And our next question comes from the line of Nicole DeBlase from Deutsche Bank. Your question please.

27:06 Yeah, thanks. Good morning guys and thanks for the question. Hi Nicole. Hi. Clearly data center markets remain robust. We all see that. But how are the balance of your electrical ed market performing in terms of growth?

27:23 Thanks for the question. Let me make a comment on data centers first because we keep checking this market and it keeps surprising us on the upside. So data centers continue to represent an enormous opportunity for us. We tracked the projects that were announced and now they amount to 366 gigawatts. In contrast to the last update we gave you in earnings call was 307. So that keeps building. So that's good for us. Just think about, contrast that with the install capacity of 50 gigawatts. It's an enormous build-out. In my opinion, this will last for many years to come. But if you look beyond that, we are doing really well in that market, in data centers.

28:09 We grew 65% sales, and it's the ninth consecutive quarter we printed growth beyond 35%, which is amazing. And orders were up 101%. So we remain very excited about this business. I will just recall in our long-term plan, we baked 17% growth in our long-term plan and here, year to date, we grew 60%. So it's an incredible opportunity for us. But the beauty to the core of your question, Nicole, the beauty of our strategy in our portfolio is that we are anchored on secular trends that are even broader than data centers. So we have meaningful growth opportunities beyond data centers.

28:54 So just to give you some examples here, if you look at organic revenue, we have meetings for commercial institution, institutional, which remains a big segment for us. So meetings growth there. Mid-30s growth, incredible growth for machine OEM in the quarter. Double digits for industrial facilities, mid to high single digit growth for other markets like utilities, resi, and distributed IT. So that's the look back. If you try to have a look forward on markets that are not data center, we better look at our orders here. So our Q3 orders were also very strong on a 12-month basis. Utility orders were up around 20%, resi 25%, and machine OEM 55%. So just to conclude here, I think it's pretty clear to everyone that demand is strong and is broadening much beyond data centers.

29:50 Yeah, I would even add, Paulo, commercial and institutional are both up north of 25% in the quarter. Great. Thank you. And our next question comes from the line of Andrew Ogun from Bank of America. Your question, please. I guess. Good morning.

30:10 Hey, Andrew. Hey, how are you? You know, it's been a popular topic this quarter is modular capabilities. Can we just talk about what it is you guys have and what's your competitive differentiation in terms of modular on data centers? Thank you. Great, great question. Thanks for the question here. I think the most important thing is that to highlight first that our business is doing really well in terms of execution and There's a great pull from customers. That's why we're asking this question, because we take labor away from their job sites and we push this activity to our factories, which is much better and better controlled, but also increases speed of deployment for this incredible backlog our customers have that I just mentioned.

31:01 And last but not least, when the models are put outside the data hall, you also free up space for for the servers where our customers generate revenue. So it's a great value proposition for our customers to start with. What differentiates Eaton from most other players is that we actually are experts in everything that goes inside those models, inside those boxes, right? Think about everything we design and manufacture. because we do that not only for the models, but we design and manufacture the transformers, the switchgear, the circle breakers, and the UPSs that go inside those models. Then we can, and we always do, integrate them both in enclosed solutions but also skidded solutions. And many of the companies that talk about model today, they are integrators or assemblers.

31:55 They don't make the breakers or the transformers that go inside, and that's a big difference. So when you have all those elements that go inside the model, like Ethan, this vertical integration gives us the cost position, the lead time control, and also supply certainty. If you think about hyperscale and co-location customers, that's what they're looking for. And for the customers, those customers, it means one vendor, one warranty, one commissioning team, few interfaces, and fewer single points of failure. So that's the biggest differentiation between us and other players. And then just to give a proof point here, Fiberbond, we acquired them April last year. In their first year, $375 million in revenue.

32:42 In the first year of us owning the business, they jumped already to $600 million and margins are accretive to Electrical America. So it's a great business growing at fast pace with great margins. So we decided to double the capacity we had for Fiberbone in their existing site. They had one site. And now we're going to double that again with the facility we announced in Arkansas, which comes online in 2029. So if you think about the business we already had before Boyd and the business we have with Boyd in moderate business, only in the Americas that business is going to reach $1 billion in revenue already in 2026. And just to conclude, let's not forget Modera isn't new for us.

33:27 We invested in Nordic Eport in EMEA in 2024. So we have a partner there. We have a joint venture and we acquired Fiberbone in 25. And in Asia, we have multiple partners that we can also work with the Modera solutions. And now, as you think about the white space, we're going to start exploring as a company. We can take that expertise all the way down to the white space as well. So it's a great moment for us. Thanks for the question. Thank you. And our next question comes from the line of Scott Davis from Milius Research. Your question, please. Hey, good morning, Paulo and Dave and John. Hey, Scott. Good morning. Good morning. Good morning. Paulo, I wanted to follow up a little bit on that and talk about M&A a bit because you've been busy.

34:15 You just mentioned the fiber bond deal and the Partnership of Nordic, EPOD, the COL that was announced today, you did Void, probably some stuff that I'm not even remembering. But it seems like you're going down a strategy of trying to fill in some product gaps, perhaps more aggressively than if you look in the history of Eaton. I assume that is a strategy, so I'm asking that as part of the question. And are the remaining product gaps, I guess, is a better way to ask it. and if so, are you guys kind of done with the M&A stuff or are you going to be equivalently aggressive over the next 12 months or so?

34:55 Well, thanks, Scott. We remain very consistent with what we share with you in New York during our investor day. We would put our M&A dollars to work in electrical and aerospace and that's exactly what we did. So our pipeline stays active, mostly on the electrical side this time. But let me set expectations to be very clear. I think that's the core of your question. We've already put $14 billion to work in our acquisitions. And as you heard from Dave, we are happy that every acquisition we made is delivering better numbers than what we initially forecasted. We underwrote for the deals with great, great performance for all the acquisitions we made. And we always talk about organic growth, but if you look at our total growth for the company, incredible 28%. So that's another mark we would like to highlight in Q3. Very strong number and better margins, creative margins for the company. So great moves so far.

35:58 So for now, I would say the big deals are behind us. We don't see any large acquisitions in the short term. That, I think, is the core of your question. And honestly, we are in this integration phase. We have a lot of organic and inorganic growth to deal with right now. And executing on this growth is our top priority. We are executing on it. We'll continue to execute on it. On gaps, which was the second part of your question, we don't see any gaps in North America. Just look at our data center portfolio. It goes all the way from the grid to the chip. So we don't see any product gap here. Where we'd like to scale more, if we find the right deal, the right bolt-on, will be in Europe and perhaps in Asia as well. And the agreement we just made with COL to acquire this company based in Italy is a good example.

36:51 This bolt-on adds technologies, capabilities, and capacity in Europe to accelerate the organic plants we had on the deck anyways. So you should expect more bolt-ons on the electrical side. We'll keep this flexibility if something comes along, but don't expect any Boyd-sized deal in the next 12 months. I think that's the key takeaway. Perfect. Best of luck, guys. We'll pass it on.

37:17 Thank you. Thank you. And our next question comes from the line of Jeffrey Spray from Vertical Research Partners. Your question, please.

37:26 Thank you, everyone. I hope everyone is well. Paulo, maybe we can pick up on Boyd, actually. It looks like your revenue forecast for Q4 is roughly flat sequentially, and you made the point about it's going to flip into organic and be a growth driver into next year. So just looking at that revenue trajectory, is this particular business capacity constrained at this point? Do you have new capacity coming on? Maybe give us an early thought on how 2027 may play out for that business. Thank you.

38:03 Yeah, so it was breaking up, so I think you're inquiring about Boyd's growth right into Q4 next year. So the first thing I want to say is this team is always surprising us on the upside. Every quarter is the same. And the reason is that they are winning with a number of different platforms. And since they engaged early in the design phase, The ramp process is pretty smooth. It's not easy. No business grows at the pace they are growing without problems, but they are always ahead of the other competitors. So we remain excited. So on Q4, I wouldn't be surprised if again they beat their own numbers, to be honest.

38:50 And as we think about 2027, I think that's the core of your question. We see at least a $2.7 billion business for next year, which is roughly 50% growth over our previous 1.8 guide. So strong growth once again. They have the design wings. They have the orders and the backlogs to sustain that. And we are really excited to keep winning on new platforms of things that are going to come live 28 and beyond. Strong performance, winning new business, and ramping at speed. So we are confident here. Thank you. And our next question comes from the line of Andrew Piscaglia from BNP Paribas. Your question, please.

39:38 Hey, good morning, everyone. Good morning.

39:41 Morning. Morning.

39:43 I wanted to touch on what caught my eye this quarter. You know, electrical global accelerated 27%. So that's up. Last quarter was up about 18%. So I'm wondering what's behind that step change and then should we assume that this segment's now kind of entered in an elevated growth phase?

40:05 Yeah, no, thanks for the question. I'm glad you raised that point because this segment really, really surprised all of us on the upside this quarter. But all the actions behind that growth were deliberate. It was not an accident. So if you look at the growth rates of this business, we started Q1 at 9% and then Q2 18% growth and now Q3 27%. So incredible progression here. And just to remind you, the last question I got from Jeff Spray was on Boyd. Boyd is not included in those numbers. So Boyd actually adds 31 points of growth to a total of 58% growth. and we'll become organic in March 27. So I think if you look at the legacy electrical global business we have is accelerating specifically across the complete portfolio and boy add significant organic growth on top of it. So really exciting platform. I'm gonna go to the sustainability of that growth in a minute.

41:11 If you cut this growth and you look at the growth regionally business by business, I will lead with the affirmation that every business inside Electrical Global did the work. APAC led with fantastic, almost 50% organic growth. Guys in EMEA both grew around 20%, which is clearly ahead of the market. If you think about this Asian performance, we are beating local players on growth. And in Europe and Asia, we are winning with the same hyperscale customers and multi-talent customers we serve in North America. which is great news. They want us to be successful with them everywhere they build. We talked about that in the past. Now the reality is here to prove us right in that case.

41:57 And then if you, I made the cut by business. If you cut by end market and you look at the performance by end market, also very strong performance. Our data center business grew almost 100% in global, so 97%. Machine OEM, 29%. and Utilities 21%. So really broad based here as well. So with that in mind that every business is doing well and every end market is doing well, we believe, we truly believe this electrical global business has entered what we call a sustained growth phase. And the order book sustains that with our orders are up 51% on a 12 month basis. So that gives us the confidence and if you look at the backlog as a result of that, even with the strong organic growth, they more than doubled the backlog in a year-over-year basis. And even if they exclude the void backlog, I always get that question, it's still 76% up.

43:01 So everywhere you look, end market, business by business, with or without void, you see you come to the same conclusion. So those drivers in our opinion are structural, they're not cyclical, and again, didn't happen by accident. We restructured Europe well ahead of this demand. We were early. We are adding capacity in Asia. We are focusing on winning share and not looking at PMIs. That's the way this team is wired. They really want to win and we want to grow faster than the market. So let's not forget, once again, Void will add to that when it becomes part of organic. And just to conclude, we are rigorously applying our strategy, the three pillars of our strategy here in the global business. And we are all proud of this team because we believe we turned this segment into another high growth platform for Eaton.

43:53 So we continue to deliver this strong growth moving forward and we keep expanding margins for Electrical Global.

43:59 Yes, I want to add to that. If you look at the Geis business, you talk about execute for growth. They expanded margins almost 400% from H1 to H2. Thank you. Thank you. And our next question comes from the line of Steve Toussaint from Wells Fargo. Your question, please. Hi, guys. Good morning. Hey, good morning.

44:34 Just on the margin, I think your 4Q incremental in EA is like, I know it's a bit of a range, but something in the 40 to 45% range. Can you just talk about how you kind of feel about that next year? There's probably an easy comp in the first half, a little bit tougher in the second half. And then somewhat related to that on pricing strategy, are you guys pricing similar products within the data center channel the same way as you would be pricing them if it's the same product like in a more standard application like in a CNI application or something like that? Maybe just talk about how you manage that price across the channels as well. Thanks.

45:16 Great question. So on the ESA margin, I will leave with the bottom line message here that we are in line with the full year margin guidance range. And our three quarters under our belt give us the confidence to make that point. And as you know, we are still operating in a very high inflationary environment. So we are managing that very well, I would say, if you look at the performance quarter by quarter and first half versus second half. and on your point on incremental discussions for ESA, we will continue to improve our incrementals from Q3 to Q4. So we had high 20s in Q3, that's gonna get high 30s to close to 40% incrementals moving to Q4. So that's going the right direction again.

46:07 And that for us, I would say again, I'm proud of the team because taking that the way they did, and the margin development from, if you look at the margin development from the first half to the second half, the progression will be over 400 basis points, which is a great result in this environment specifically. And then specifically on the question about pricing, I'll say this, we have pricing power and we have also good contracts in place where we have correction for commodities, et cetera. and we see that we are leading with pricing announcements as well when required on price list and we negotiate pretty well with our project by project as well.

46:55 So we have in this environment the pricing power and also the good relationship with the customers to have those debates.

47:03 Yeah, the only thing I would add to that is in October we finalized negotiations with two of our large customers We have a handful to finalize in Q4. I kind of talked about this in the last earning call that we'd have discrete price negotiations with larger customers. And then we just announced today that we would have general price increases in ESA, EMEA, and GEIS effective January 2nd. So it's going to be a combination of those going forward. And that's how we're going to price in the market.

47:32 And we are on the right trajectory. And just to make a short commentary on October, We just got the top line and it looks really strong. So it's a good start of the quarter as well. Thank you. And our next question comes from Amit Barotra from UBS. Your question please. Great. Thanks. Good morning everybody. I guess I just wanted to follow up on that question. It was nice to see the PDA margins.

48:06 Okay, it was breaking up a lot, but I think you're inquiring about

48:35 Margin Development into 27, and also the fact that we have a new transformer plant coming online, correct?

48:44 Yeah, just the size of that three-phase transformer facility, I think, is orders of magnitude larger than sort of the 18 that's been put up over the last year and a half. And so I'm just trying to understand what kind of impact that could have on the funding for that on 27. Yes.

49:00 Yes. So first of all, we are really excited about the margin development for Electric Americas, as I said before. I would just caution you not to take Q4 and multiply by 4 because there's some seasonality with the business, especially in the distribution business, etc. So there's some seasonality there. But the direction of travel is very clear. We have a strong start. We have record backlogs. So if you're really good about it, On a specific question about the transformer facility, yes, it's larger than the other ones we did, but we also learned our lessons. We hired early. We hired our workers early. We are training them in our Wisconsin plants already.

49:45 So when we start to run, we go with, you know, it's going to be a learning curve in the new facility, but they're already trained in a facility that runs those products today. So we are taking lessons here. I would also tell you that we are dealing with six expansions now versus 18. So it's a much easier setup and we have a much stronger team dealing with this expansion. So we learned our lessons. It's less disruptive than it was for the full year last year and the first half of this year. And I think we have a good team around it. So we feel confident as we meet with them every week to check progress. Thank you. And our next question comes from the line of Andy Kaplowitz from Citi. Your question, please.

50:38 Good morning, everyone.

50:41 Morning. Morning, Andy.

50:42 Can you give us more color into the health of the aero markets and in particular your aero supply chain at this point? It would seem since you didn't change your aero organic revenue for the year that you think you have your arms around any supply chain issues and that revenue growth could even improve a bit in Q4, but maybe you could give us a little more color around the markets what you're seeing and doing to mitigate supply chain risk.

51:04 Yeah, thank you. So I believe it's clear that demand for aerospace is strong. You just look at our orders, we're up 20% and specifically defense OEMs up 36%. So there's a lot of growth and we keep growing our backlog as well. Now to a record of 5.6 billion, which is 33%. So the demand signals are clear and very strong. In terms of execution, we face some specific supplier issues in some commodities. There are punctual problems. We are working on them and we are solving them with different strategies. Helping those suppliers to ramp is one of them.

51:52 Creating second source in partnership with our customers is a second, you know, type of measure we are taking the third one in some cases we are insourcing where we see some suppliers struggling we have the machining capability and capacity we are insourcing that so we are taking that holistic approach and partnering with our customers to approve that because you know in aerospace you can't shift a supplier without authorization from your from your customers so we are working in collaboration with them So that's what I would say here. The demand is pretty clear. It's strong. We are winning. We have those platforms for today and tomorrow. And we are dealing with those punctual problems in supply chain that are cut across the whole industry. And we are both collaborative with customers, but also with the supplier base. And we continue to develop in that direction.

52:45 So we still think our Q4 is going to be a bit better in terms of top line and growth. We're just cautious that this situation of the supply chain is fully behind us. Then we can start liquidating more of the backlog. We keep winning. It's just a matter of conversion of that backlog.

53:06 Appreciate the call. Thank you. Thank you. And our next question comes from the line of David Rasso from Evercore ISI. Your question, please.

53:17 Hi, thank you for the time. Just trying to get a little more granular on the numbers for 27 versus 26. Can you characterize for us how price costs will play out this year and just what's the base case of how you're thinking about how you're setting pricing now for 27? And also the level of inefficiencies you alluded already to, obviously a little bit easier to ramp up six factories than 18. Maybe just some sense of, I don't know, Dave, how you might and quantify it some way the inefficiencies in 26 and I would assume less than 27 and also just any sense of capacity available to you in 27 versus 26 given the ramp you've done on the 18 factories. Thank you.

54:00 So I'll go first and then Dave can add color. So we're still planning. Dave, we're not ready to share the 2027 guidance yet but I can give you a good framework for your model as you start thinking about our business in 2027. So you saw from the end market perspective, for example, that we see our end markets growing at at least 11% next year. You know that we usually plan to outperform the market. So think about a growth path which is higher than 11% here. We also expect to improve incremental margins from 2026. We are looking at 26%, around 23%. So we are certainly going to do something higher here. But again, it's premature for us to guide.

54:51 We're going to do that in February when the complete planning process is done. If you think about adjusted EPS for a moment, when we gave you the targets for the five-year plan last year, we said we will go every year beyond 12% EPS growth. This year, with the guidance we just shared with you for 26, we are aiming at 14% growth of EPS. And if you look at the second half of this year, it's a 20% growth. So we are on the right path here as a company. And that embeds much of the questioning you're asking about inefficiencies, capacity turning into earnings, et cetera. Most of it is already here, right? So again, The two portfolio items I want everyone to remind in 2027 that shouldn't be confused with underlying performance and they are material for 2027 are the following. First of all, Boyd.

55:55 We are planning, I just said, I got that question around Boyd. We are planning on 2.7 billion for that business, which is 50% growth again. Next year. And that growth, again, becomes organic after mid-March. So think about three quarters of this year being organic for us. That would turbocharge the growth for Electrical Global, the organic growth rate. And on the other direction, though, mobility will contribute around $800 million in revenue only. reflecting a close with the Dana transaction around Q1. So those are things I want you and investors to keep in mind as you start modeling and comparing our 2026 with 2027 framework.

56:44 Yeah, I think, Paulo, you covered really where we are in the process right now. The segments are reviewing it with their leaders this week. I've seen some preliminary looks and I'm feeling good about 2027. Paulo and I will review it here the third week of November and, you know, But that's where we stand right now. Too early to share any real concrete numbers. Thank you. Thank you. And our next question comes to the line of Chad Dillard from Bernstein. Your question, please.

57:19 Hey, good morning, guys. So my question is on how you're winning in Europe on the data center build-out. Can you just talk about what you're doing from a share perspective and then maybe if you can share how you're thinking about win rates in electrical global versus what you've been seeing in electrical Americas.

57:42 So I'm not sure it was really faded, but the question is on EMEA data center.

57:47 Is that? Yeah, exactly. It's on just your win rate and how you're getting share in that market.

57:57 Yeah, so you could see that, you know, with those growth rates, we are clearly gaining share in Europe and in Asia, etc. The fact, the actions behind these numbers are that we were traditionally, for data centers in Europe, specifically to our question, we were and we remain leaders in UPS business in Europe. and what we are doing today, step by step, we are building the same fortress, the same leadership in our portfolio as we have in the Americas. So building the power distribution portfolio that we're gonna speed up now with the acquisition of COL when that comes to fruition.

58:43 So we are building that power distribution portfolio. We also over time increased our transformer capacity in Turkey in our plant. So think about it, we looked at our, Thank you very much. in that area. And despite all those fantastic growth numbers, no one is taking a victory lap in that team. They remain focused.

59:34 They know what they need to do. So all hands on deck. We're going to keep building that portfolio. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Paulo Ruiz for any further remarks.

59:51 No, thank you. So, I mean, this is very, very good, Paul, very good questions. Let me add some closing remarks. First, I'd like to thank you, all the analysts and investors around the call, for your interest in Eaton, your analysis, your deep questions today. I also wanted to thank the Eaton team. I'm pushing you hard, guys. I know you're listening to this call, but you keep delivering quarter after quarter. I'm proud of the progress, and we are committed to keep improving, which is the most important thing. No one is taking victory laps here. We remain focused, and I love the culture we are building here. And I will lead with this to investors. It's clear that our strategy is working. Our lead invest and execute growth strategy is working, is gathering pace.

1:00:37 And you can see the results already, right? Record sales, growth, earnings above the high end of our guidance. So we are really happy with the progression we have here. The demand keeps accelerating and is broadening beyond data centers. We talked about that. So I think it's important we highlight this. It's cutting across different end markets, which is good to see. And data centers, despite all the discussions on the market today, they have a long runaway. They have a very long runaway beyond 28 and 29 and many projects. And with this large backlog, it's going to come in terms of multiple years of work So this is a great platform. And the new Eaton, as we put this all together, this new Eaton is taking shape.

1:01:26 Our portfolio moves have structurally transformed the company. And then if you add the future of this technology in terms of 800 volts, et cetera, we are ready for that transformation. So we feel really good about it. We are also very proud. I think I want to highlight that. The Electrical Global is the new growth engine for the company. We restructured early. We're scaling globally. So we turned this business into a next growth platform, and we all feel really proud of it. And as you look at it, we are really focused on execution as well. Electrical Americas see the capacity coming online, turning into output and into margins and earnings. So that's great to see as well.

1:02:12 and I'm also, you know, I think this was all a lot of work from the team. We're also satisfied with the third beaten race this year. This is what we want to do constantly now. Give us confidence in 27 in our 2030 commitment. So I will conclude to say thank you once again and we believe the best years ahead of us. Have a great day. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. Good day.