2020 Guidance and Financial Overview · Flat earnings per share in 2019 and 2020 excludes acquisition integration and divesture costs and in 2019 Vehicle segment war ranty charge

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2020 Guidance and Financial Overview

Rick Fearon, Vice Chairman, Chief Financial and Planning Officer March 2, 2020

© 2020 Eaton. All rights reserved.

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Today’s key messages


2019 was a year of strong performance for Eaton, particularly in cash flow generation

Self-help efforts and portfolio actions expected to result in higher adjusted margins in 2020

We anticipate earnings per share will be flat in 2020 despite the divestitures and sluggish markets

Our business generates consistently growing cash flow

We expect to return $3.6B to $4.0B to shareholders through dividend and share repurchases in 2020

We generated 43% TSR in 2019 and over the last 20 years have generated 12.5%, considerably outpacing the median peer

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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Record adjusted margins and earnings per share, excluding acquisition and divestiture costs and the Vehicle segment warranty charge

• Record 17.6% segment margin and 14.4% EBIT margin• Record eps of $5.76

Record cash flow generation• $2.9B free cash flow• 13.4% free cash flow as a percent of sales

Significant cash returned to shareholders through an attractive dividend and meaningful share repurchases

• $1.2B dividends, a top quartile yield of 3.0%• $1.0B share repurchases, equivalent to 3% of shares outstanding at the beginning of 2019

Repositioning the portfolio for higher growth, stronger margins, and more consistent performance• Invested $1.2B for three acquisitions in Aerospace and Electrical

• Just closed acquisition of PDI and new joint venture, Eaton Arabia• Exiting Lighting, Hydraulics, and Automotive Fluid Conveyance

2019 was another strong year for Eaton…


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20 year TSR

0%

15%

Eaton Peer median S&P 500

Annu

aliz

ed T

SR

0%

50%


Annu

aliz

ed T

SR

1 year TSR

0%

20%


Annu

aliz

ed T

SR

3 year TSR

…adding to our long track record of strong returns to shareholders


1, 3 and 20 year TSR from 1/1/2019, 1/1/2017 and 1/1/2000 through 1/1/2020, respectivelyPeers are as shown in the most recent proxy: ABB, ALSN, AXL, BWA, CMI, DE, DOV, EMR, HUBB, HON, IR, ITW, LR, MOG, PH, ROK, SIE, SU, UTC, WWDSource Data: Capital IQ, Eaton analysis

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US 2020 growth % of total

GDP 1.6% 25%

Mfg. IP (0.6)% 17%

Brazil 2020 growth % of total

GDP 1.8% 2%

Mfg. IP 1.8% 2%

Europe (EU 28)

2020 growth % of total

GDP 1.0% 23%

Mfg. IP (1.0)% 21%

China 2020 growth % of total

GDP 5.7% 17%

Mfg. IP 4.9% 28%

Global 2020 growthGDP 2.3%Mfg. IP 1.2%

India 2020 growth % of total

GDP 5.4% 3%

Mfg. IP 1.2% 3%

We expect below-trend economic growth in 2020


% of total is share of 2018 world GDP and manufacturing IP

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2020 organic growth expected to be flat


Segment 2020 organic revenue growth Key market drivers

Electrical Americas 1% - 3%

Residential products up mid-single digitsUtilities markets up low-single digitsData center markets up low-single digitsCommercial projects to remain at high levels of activityIndustrial markets should see modest declines

Electrical Global 0% - 2%Commercial projects in EMEA and APAC up modestlyData center markets up low-single digitsIndustrial markets should see modest declinesHarsh and hazardous markets to decline amid oil & gas capex pullback

Aerospace 1% - 3%Continued strength in military OEM marketCommercial aftermarket supported by older aircraft in useCommercial OEM weakness due to MAX production halt and twin-aisle weakness

Vehicle (7)% - (9)%Growth in Brazil vehicle marketsGlobal internal combustion engine light vehicle markets down low-single digitsNA Class 8 truck market down to 230K from 2018 & 2019 elevated levels

eMobility 3% - 5% Double digit electric vehicle growth offset by declines in legacy internal combustion engine platforms

Hydraulics (5)% - (7)%China construction equipment markets may continue to see boost from regulationHydraulics inventory levels should stabilize after significant destockingEnd market demand for mobile equipment is falling globally

Eaton (1)% - 1%

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• Renewed focus on operational excellence, productivity, and growing the head / fixing the tail

• Invested $6B in R&D and CapEx

• Invested ~$550M in restructuring our operations

• Significant portfolio changes• Divestitures of Lighting, Hydraulics, and Automotive

Fluid Conveyance• Acquisitions of Souriau-Sunbank, Ulusoy,

Innovative Switchgear, and PDI• Formation of Cummins, SFGW, and Eaton Arabia

joint ventures

10%

15%

20%

2015 2016 2017 2018 2019 2020PF

Segm

ent M

argi

n

Segment Margin 2015 - 2019

Over the last 5 years, our self-help actions and portfolio changes resulted in much improved margins


excluding Lighting and Hydraulics

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

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Margins under new segmentation


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Margins under new segmentation 2019 2020 guidance

Electrical Americas 18.9% 19.7% - 20.3%

Electrical Global 17.3% 17.1% - 17.7%

Aerospace 24.0% 22.7% - 23.3%

Vehicle 16.8% 15.7% - 16.3%

eMobility 5.3% 2.5% - 3.1%

Hydraulics 8.8% 11.0% - 11.6%

Total Eaton 17.6% 17.8% - 18.2%

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

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Adjusted EPS for 2020 is expected to be in the range of $5.60 to $5.90 - Divestitures of Lighting and Automotive Fluid Conveyance - Higher tax rate+ Accretion from the acquisitions of Souriau-Sunbank, Ulusoy, PDI,

and Innovative Switchgear+ Benefits of $2.4B - $2.8B of share repurchases

We expect Adjusted EPS to be flat in 2020 as acquisitions and share repurchases offset divestitures and a higher tax rate


$5.00

$6.00

2019

Div

estit

ure

Tax

Acqu

isiti

on

Shar

e re

purc

hase

2020

E

Flat adjusted EPS in 2019 and 2020 excludes acquisition integration and divestiture costs and in 2019 Vehicle segment warranty charge

10

$0

$1

$2

$3

$4

$5

$6

$7

$8

2015 2016 2017 2018 2019 2020E

EPS Cash EPS

$0

$1

$2

$3

$4

$5

$6

$7

$8

2015 2016 2017 2018 2019 2020E

Cash EPS Free cash flow per shareOn average ~$0.75 higher than EPS

2020 guidance range

On a per share basis, we generate strong and growing cash flow


EPS excludes acquisition integration and divestiture charges, in 2019 excludes Vehicle segment warranty charge, in 2018 excludes impact of arbitration decision, in 2017 excludes gain on formation of Cummins JV, and in 2017 excludes income from U.S. tax reformCash EPS is EPS as defined as above plus per share after-tax corporate amortizationFree cash flow per share excludes payments for 2018 arbitration decision

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Free Cash Flow

$1B

$2B

$3B

2015 2016 2017 2018 2019 2020E

Free Cash Flow as a % of Net Income

50%

100%

150%

2015 2016 2017 2018 2019 2020E

2020 guidance range

Free cash flow is at record levels, with cash conversion of ~130% and free cash flow margin over 13%


Free cash flow excludes payments for the 2018 arbitration decision Net income excludes 2017 gain on the formation of the Cummins JV, 2017 income from U.S. tax reform, and 2018 arbitration decision

Free Cash Flow as a % of Sales

0%

6%

12%

18%

2015 2016 2017 2018 2019 2020E

12

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-$1.5

$0.0

$1.5

$3.0

2013 2014 2015 2016 2017 2018 2019

Eaton Market G

rowth, %

YoYFr

ee C

ash

Flow

($B)

Free Cash Flow Eaton Market Growth

Our cash flow has consistently grown through varied market conditions


Free cash flow excludes payments for 2018 arbitration decision and certain 2014 legal settlements

Eaton Free Cash Flow vs. Eaton Market Growth

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Next 3 years2020 – 2022 cumulative

Free cash flow

Proceeds from sale of business

Available cash

R&D and Capex

Share repurchases

Dividends

~$4B

~$8B

~$12B

We expect to have ~$12B cash available for deployment over the next 3 years

Period of increased optionality2020 – 2022 cumulative


Optionality

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Annual CapEx + R&D Reinvestment • Annual reinvestment in organic growth

of $1.2B • Expect to reinvest 5.5% - 6% of sales going

forward

• ~3% in R&D

• ~2.5% - 3% in CapEx

• 40% of our engineers are in low-cost countries• Are awarded over 1,000 new patents each year

Over the last 10 years, we have invested ~$12B in CapEx and R&D


$0.0

$0.5

$1.0

$1.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

Rei

nves

tmen

t ($B

)

CapEx R&D

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Dividend Yield(as of Feb 26, 2020)

3.0% dividend yield, top quartile among peers

$0

$1

$2

$3

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Dividend per Share(2010 – 2020)

10% dividend per share CAGR 2010 - 2020

0%

1%

2%

3%

4%

SIE

ABBN ET

N

EMR SU ITW

HO

N

UTX

RO

K LR PH

DO

V IR

We continue to grow our dividend rapidly, offering shareholders a top quartile yield


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0%

2%

4%

6%

8%

$0

$1

$2

$3

2014

2015

2016

2017

2018

2019

2020

E

Eaton Share Repurchases

$B s

pent

on

repu

rcha

ses

% of prior year-end share count repurchased

• Repurchased $5.2B of shares from 2014 - 2019• 16% of our shares

• Expect to repurchase $2.4B to $2.8B worth of shares in 2020

• In future years, anticipate repurchasing 1% - 2% of shares per year

• $400M - $800M per year at current market cap

We are stepping up our repurchases in 2020


2020 guidance range

17© 2020 Eaton. All rights reserved.

Areas of focus

• Electrical• Aerospace• eMobility

• Technologies• Geographic expansion• Product gaps• Channel coverage

and service

Qualitative criteria Financial criteria

We have a disciplined M&A process and a clear set of target criteria for evaluating future acquisitions

• Leadership in a key strategic market or region

• Attractive opportunities for growth and profitability

• Proprietary content in products and services

• Alignment with secular growth drivers

• Target minimum returns of 300 bps above costof capital

• Earnings per share accretive after 2 years

• Ability to drive sustainable top and bottom line synergies


We have actively managed our portfolio, with over 120 M&A transactions since 2000

Since 200071ACQUISITIONS 50 DIVESTITURES

5 ACQUISITIONS / JVs 3 DIVESTITURESSince 2019

Includes planned sales of Lighting and Hydraulics


Sales Employees Plants

$363M ~3,200France, Dominican

Republic, India, Morocco, Mexico,

and U.S.

$126M ~780 Turkey and Indonesia

$125M ~325 Virginia and California

Ulusoy Elektrik

Power Distribution, Inc.

Souriau-Sunbank

Since the start of 2019 we have invested $1.4B in acquisitions / JVs

Products

20Free cash flow is cash from operations minus capital expenditures Source data: Capital IQ, Eaton analysis

0%

4%

8%

SIE

PH ETN SU

EMR

UTX LR

HO

N IR

DO

V

ITW

RO

K

ABBN

Peer median

-6%

0%

6%

12%

RO

K

ITW PH ETN

HO

N LR

UTX IR

DO

V

SU SIE

EMR

ABBN

Peer median


Our free cash flow generation outpaces our electrical and multi-industry peers…

2019 Free Cash Flow Conversion

Free Cash Flow Yield(as of Feb 26, 2020)

Free Cash Flow Per Share Growth (10 year CAGR through 2019)

2019 Free Cash Flow Margin

0%

10%

20%IT

W

HO

N

RO

K LR

EMR

ETN PH SU

DO

V IR

UTX SI

E

ABBN

Peer median

50%

100%

150%

SU PH ETN LR

UTX SI

E IR

EMR

RO

K

DO

V

ABBN ITW

HO

N

Peer median

21

6x

12x

18x

RO

K

ITW

ABBN LR

HO

N IR

DO

V

PH

EMR SU ETN

SIE

UTX

EV /

EBIT

DA Peer median


…but our multiple continues to be lower than the peers

~$15 upside potential from trading at the peer median multiple

Note: EV / LTM EBITDA multiple as of February 26, 2020Source data: Capital IQ, Eaton analysis

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Our results in Q1 are being impacted by the coronavirus


Eaton sales to China customers total ~$100M per month

With the quarantines now in effect and the decline in new business investment due to disruption in normal business decision-making and execution, we expect to see a significant shortfall in sales in Q1

‒ Most likely the sales will be caught up as we go through the rest of the year

We do not expect sales outside Asia to be impacted much, since we sell almost everything we make in China into China and the rest of Asia

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2020 Full Year Outlook

Adjusted Earnings Per Share $5.60 - $5.90

Organic Revenue (1)% - 1%

Acquisition Revenue 2%

Divested Revenue (7.5%)

Adjusted Segment Operating Margins 17.8% - 18.2%

Corporate Expenses (interest, pension, other corporate) Flat with 2019 levels

Tax Rate on Adjusted Earnings 14.8% - 15.8%

Operating Cash Flow $3.4B - $3.6B

Free Cash Flow $2.8B - $3.0B

Capex $550M

Share Repurchases $2.4B - $2.8B

2020 guidance


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Today’s key messages


2019 was a year of strong performance for Eaton, particularly in cash flow generation

Self-help efforts and portfolio actions expected to result in higher adjusted margins in 2020

We anticipate earnings per share will be flat in 2020 despite the divestitures and sluggish markets

Our business generates consistently growing cash flow

We expect to return $3.6B to $4.0B to shareholders through dividend and share repurchases in 2020

We generated 43% TSR in 2019 and over the last 20 years have generated 12.5%, considerably outpacing the median peer

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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2020 Guidance and Financial Overview · Flat earnings per share in 2019 and 2020 excludes acquisition integration and divesture costs and in 2019 Vehicle segment war ranty charge

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