annual investor conference · • 4 global intelligent power management businesses • ~85% of...

Annual Investor Conference

Craig Arnold, Chairman and Chief Executive Officer March 2, 2020

© 2020 Eaton. All rights reserved.

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Today’s key messages


Eaton is becoming a leading intelligent power management company with differentiated global businesses• Each business is strong on its own but we’re stronger together

We are actively managing our portfolio and expect the new Eaton to deliver higher margins and more consistent earnings

• >85% of our profits will come from Electrical and Aerospace markets post the Hydraulics divestiture

2019 was a strong year, and in 2020 we expect to maintain flat EPS • Despite recent divestitures and weak industrial markets

Our cash generation is strong and resilient and we will redeploy capital to drive shareholder returns• Free cash flow margins will be above 14% in 2020

Our businesses are supported by secular growth trends and we’re investing for organic growth• With a focus on sustainability, intelligent / connected products, and electrification / energy transition

We are well positioned to deliver 8% - 10% EPS growth over the next 5 years

Flat earnings per share in 2019 and 2020 excludes acquisition integration and divesture costs and in 2019 Vehicle segment warranty charge

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Eaton is becoming a leading intelligent power management company…


What you should know about Eaton… and why we win…

• 4 global intelligent power management businesses

• ~85% of sales and profit in Electrical and Aerospace

• Aligned with important secular growth trends

• Doing mission critical work – safe, reliable, and efficient

• Providing highly engineered products and solutions

• Committed to deliver for all stakeholders

• Brands that customers trust

• Strong distribution channels

• Global businesses with scale

• Broad product and solutions capabilities

• Large installed base that creates aftermarket

• Market knowledge and application expertise

4© 2020 Eaton. All rights reserved.

…that makes what matters work by solving real world problems


To improve the quality of life and the environment through the use of power management technologies and services.

Our mission

…which is reflected in the mission of the company

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• Be the preferred supplier to customers and channel partners• Make work exciting, engaging and meaningful for our employees• Ensure the safety, health and wellness of our employees• Be a model of inclusion and diversity in our industry• Make our communities stronger• Be active stewards of the environment

Our mission is built on the belief that employees want to work for a company with a purpose that they care about…


…delivering superior returns to shareholders and fulfillingour broader obligations to society.


…and we’re pleased that our statement of purpose is in line with the recently announced definition supported by the Business Roundtable

This is also what we think is needed to create a truly sustainable company…

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Eaton is also committed to delivering industry-leading ESG practices…


Committing to climate action and enabling others

to do the same

Creating long-term value for all of our stakeholders

Doing business right, now and into the future

Social responsibilityEnvironment Governance

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…and we’re making good progress across all of our goals


• GHG emissions down 10% in 2019, and we achieved Carbon Disclosure Project leadership level

• 164 zero waste to landfill sites, up 11% over last year

EnvironmentCommitting to climate action and enabling others to do the same

Social responsibilityCreating long-term value for all of

our stakeholders

GovernanceDoing business right,

now and into the future

• Named as one of 100 Best Corporate Citizens by CR Magazine

• Named to FTSE4Good Index

• Diverse Board of Directors, with nearly ½ women and minorities

• Safety reaching world class level of 0.54 total recordable case rate, 18% reduction in 2019

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We continue to transform the company…


1930Enter the engine valve

Wilcox-Rich

1994Expand electrical by

acquiring Westinghouse DCBU

1999Acquire Aeroquip-Vickers, foundation of Aerospace

2005-2008Double size of Aerospace

Cobham Air-Fuel, Perkin ElimerAir & Fuel, and ArgoTech

2012Expand electrical Cooper Industries

2020Divesting Lighting

and Hydraulics

1911Joseph Eaton and Viggo

Torbensen begin manufacturing truck axles

1978Cutler-Hammer, establishing

an electrical business

2000Exit semiconductors

Axcelis spin-off

1997Divest truck

axle business

2008Expand electrical Moeller and

Phoenixtec acquisitions

2019Acquire Souriau-Sunbank,

more electric aircraft, Ulusoy, IEC assemblies

2020Acquire PDI

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…by using consistent criteria to evaluate the attractiveness of our businesses


Portfolio criteria Portfolio actions

Ability to lead in large global markets

Above-average growth potential

Capable of delivering high margins

High returns on capital

Consistent profitability

• 71 acquisitions and 50 divestitures since 2000

• Established joint venture with Cummins for automated truck transmissions

• Invested $1.4B in acquisitions • Electrical: Ulusoy, PDI, Innovative Switchgear• Aerospace: Souriau-Sunbank

• Divesting ~$4B revenue of businesses that don’t meet our criteria

• Hydraulics: $2.2B• Lighting: $1.6B• Automotive Fluid Conveyance: $0.1B

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We intend to re-segment some of our businesses in 2020


Electrical to be split between Americas and Global

• Sale of $1.6B Lighting business, was part of Electrical Products

• Electrical markets are divided between NEMA and IEC standards

• Aligned with the way we run the company

Aerospace segment will add 3 new businesses

• Adding electrical aerospace connectors business, formally a part of Electrical Products

• Filtration and Golf Grip businesses added to Aerospace segment

Electrical Global ~$5B revenue • Segment will include Europe, Middle East, Africa and Asia

Pacific as well as Global Crouse-Hinds and B-Line businesses

Aerospace ~$3B revenue• Adding $440M in revenue between Filtration, Golf Grip, and

Aerospace Connectors

Electrical Americas ~$7B revenue • Segment will include North and South America, but not

Global Crouse-Hinds and B-Line businesses

We will report on a new segment basis beginning with our Q1 results

Portfolio and organizational changes create the opportunity to re-segment

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Our portfolio actions and operational execution have transformed Eaton…


2008 Profit

ElectricalAmericas

ElectricalRoWHydraulics

Aerospace

Vehicle

2020 PF Profit

ElectricalAmericas

ElectricalGlobal

Aerospace

Vehicle

eMobility

Changed portfolio• Established Truck Transmission joint venture

• Divesting Hydraulics & Lighting

• Acquired Cooper Industries

Improved performance• 540 bps expansion in segment margin

Significant free cash flow growth• 10% CAGR, resulting in ~$3B in 2019

Disciplined capital allocation• ~$12B invested in capex and R&D

• ~$16B invested in acquisitions

• ~$5.5B share repurchases

85% of profit will come from Electrical and Aerospace

2020 PF excludes Hydraulics and Lighting

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…which has helped Eaton to consistently expand margins


Segment Operating Margin

Segment operating margin excludes acquisition integration and divestiture costs and 2019 Vehicle segment warranty charge

5%

20%

2000 - 04 2005 - 09 2010 - 14 2015 - 19 2020 Target

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…resulting in record segment margins that have additional upside potential


10%

20%

2019 A 2020 E Target

Electrical Americas

Electrical Global

Aerospace

Vehicle

eMobility

2020 proforma sales mix excludes Lighting and Hydraulics, includes full year impact of acquisitionsSegment operating margin excludes acquisition integration and divestiture costs and 2019 Vehicle segment warranty charge

Segment Margin Targets2020PF Sales Mix~$18B sales Operating Margin

Segment Target

Electrical Americas 21%

Electrical Global 19%

Aerospace 24%

Vehicle 18%

eMobility 15%

Total 20%

All 5 segments to deliver attractive margins, above the average of our peers

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A look at our new Electrical Americas segment


Operating Margin2020E End Market Mix~$7B sales 2020E Products / Systems Mix

Products

Systems

15%

20%

2020E Target

Utility

Industrial facilities &

MOEM

Data center / IT

Commercial & institutional construction

Industry leader in serving the low / medium voltage electrical and power quality markets

Residential construction

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A look at our new Electrical Global segment


Industry leader in serving the low / medium voltage electrical, power quality, and harsh and hazardous markets

Operating Margin2020E End Market Mix~$5B sales 2020E Products / Systems Mix

10%

20%

2020E Target

Utility

Industrial facilities & MOEM

Data center / IT

Commercial & institutional construction

Residential construction

Products

Systems

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A look at our new Aerospace segment


Commercial construction

Operating Margin2020E End Market Mix~$3B sales 2020E Geographic Mix

A leading provider of fuel, hydraulic, electrical and conveyance systems for aircraft and engines

15%

25%

2020E Target

Defense OEM

Filtration

Other

CommercialOEM

Aftermarket

Americas

EMEA

APAC

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Our Vehicle segment


Operating Margin2020E End Market Mix~$2.6B sales 2020E Geographic Mix

A leader in powertrain solutions and engine air management

10%

20%

2020E Target

Passenger Car

Commercial Vehicle

Other

Americas

EMEA

APAC

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Our recently created eMobility segment


Operating Margin2020E End Market Mix~$0.3B sales 2020E Geographic Mix

Providingelectrical power conversion and power distribution and protection solutions to the fast-growing electric vehicle market

0%

15%

2020E Target

Passenger Car

Commercial Vehicle

Off Road

Americas

EMEA

APAC

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Our corporate strategy continues to be focused on three initiatives…


Organic Growth Expand Margins Disciplined Capital Allocation

• Technology • Partnerships• Superior value

• Eaton Business System• Operational excellence• Focus on outliers

• Invest in organic growth• Return of capital• Acquisitions

Digitalization

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…and includes advancing our digitalization initiatives across every part of the company


Industry 4.0 / Intelligent “Factory

of the Future”

Revenues from Connected

Intelligent ProductsInternal Productivity

Customer Facing Processes

Revenues from Connected

Intelligent Products

Assets Intelligence

ConnectivityBusiness Model


Organic Growth

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Our businesses are tied to secular growth trends


Sustainability Connectivity & Intelligence

Electrification & Energy Transition

Climate change, energy efficiency and increasing regulations require

new solutions

Interconnectivity of products and systems are leading to new

business models

Electrification, renewables and the changing grid will continue to

drive growth

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We are also investing in core capabilities that support our transition to an intelligent power management company…


Intelligent Power

Management

Recurring revenue and services

Integrated energy solutions

Embedded intelligence and connectivity Strong partnerships

Delivering superior value

Investing in core technology

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Assets Cybersecurity Connectivity Intelligence Business model

…and are uniquely positioned to benefit from more electric mobility solutions and the emerging requirements of a flexible grid


Transmission

Traditional generation

Distribution

Grid-scale renewables

Grid-scale storage

Enabling a more electric ecosystem

Data centers

IndustrialCommercial

Residential

Distributed storage

Microgrids Electric vehicles

Commercial vehicles

More electric aircraft


Expand Margins

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EBS is how we work at Eaton – how we execute, grow and continue to learn…


EBS is built on a belief in common standards, relentless learning, and an expectation of getting better every day.

• Works on behalf of all stakeholders

• Disciplined 4-stage continuous improvement cycle

• Applied to all activities and every employee

• Built on solid foundational Eaton values

Plan

Learn ExecuteGrow & Operate

Assess

Eaton values

Stakeholders

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It begins with driving operational excellence across our factories and functions


Manufacturing excellence• Deliver world-class performance on High 5 metrics –

safety, quality, on-time delivery, productivity, and inventory

Functional excellence• Create and run shared services thru common centers of

excellence

Productivity improvement• Leveraging our scale, automation, and increasing mix of

best cost country manufacturing and services

Operational excellence

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And keeping our team focused on those activities that create the highest value


Grow the head• Increase focus on businesses where we have:

• The right to win • A strong value proposition• Attractive margins

• Acquire companies using established criteria

Fix the tail• Determine and fix root cause of low performance• Exit business that no longer meet our criteria

• Hydraulics• Lighting• Automotive Fluid Conveyance

Move the mean and improve marginsGrow the head, fix the tail

Focus on outliers

Profit margin


Disciplined Capital Allocation

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We will remain disciplined in how we allocate capital


Reinvest in the business to drive organic growth1 Invest to win

Return cash to shareholders with a growing dividend2 Top quartile dividend yield

Repurchase shares of 1% - 2% of market cap annually3 $400M - $800M

Pursue strategic acquisitions while maintaining price discipline4 Focus in Electrical and Aerospace

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We have the right strategy, a proven track record and will continue to deliver attractive financial results


Key financial metrics 2020 outlook Targets

Organic sales growth (1%) - 1% CAGR of 2% - 3%

Segment margin % 17.8% - 18.2% ~20%

Free cash flow $2.8B - $3.0B ~$3B

Adjusted earnings per share growth

~flat$5.60 - $5.90 guidance CAGR of 8% -10%

Flat earnings per share in 2019 and 2020 excludes acquisition integration and divesture costs and in 2019 Vehicle segment warranty charge

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Today’s key messages

© 2020 Eaton. All rights reserved.Flat earnings per share in 2019 and 2020 excludes acquisition integration and divesture costs and in 2019 Vehicle segment warranty charge

Eaton is becoming a leading intelligent power management company with differentiated global businesses• Each business is strong on its own but we’re stronger together

We are actively managing our portfolio and expect the new Eaton to deliver higher margins and more consistent earnings

• >85% of our profits will come from Electrical and Aerospace markets post the Hydraulics divestiture

2019 was a strong year, and in 2020 we expect to maintain flat EPS • Despite recent divestitures and weak industrial markets

Our cash generation is strong and resilient and we will redeploy capital to drive shareholder returns• Free cash flow margins will be above 14% in 2020

Our businesses are supported by secular growth trends and we’re investing for organic growth• With a focus on sustainability, intelligent / connected products, and electrification / energy transition

We are well positioned to deliver 8% - 10% EPS growth over the next 5 years

annual investor conference · • 4 global intelligent power management businesses • ~85% of...

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