Title

Presentation

Eaton Corporation plc beats earnings expectations. Reported EPS is $2.81, expectations were $2.73.

Operator: Thank you for standing by, and welcome to Eaton’s First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] 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, Investor Relations. Please go ahead, sir.

Yan Jin: Hey, good morning. Thank you all for joining us for Eaton’s First Quarter 2026 Earnings Call. With me today are Paulo Ruiz, Chief Executive Officer; and Dave Foster, Executive Vice President and Chief Financial Officer. Our agenda today, including the opening remarks by Paulo, then I will turn it over to Dave who will highlight the company’s performance in the first quarter. As we have done on our past calls, 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 note that our comments today will include forward-looking statements with respect to sales, earnings and other matters.

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

Paulo Sternadt: Thanks, Yan, and thanks, everyone, for joining us. Starting on Page 3, I’m happy to report we have delivered solid results to start the year. From a demand perspective, we continue to see tremendous strength. Rolling 12-month orders are up in all businesses, 42% in Electrical Americas and 13% in both Electrical Global and Aerospace. We are winning business at unprecedented rates, resulting in our backlog hitting a new record high in both Electrical and Aerospace with book-to-bill increasing to 1.2 combined on a rolling 12-month basis and even stronger than that year-over-year. Our accelerating orders driven by data center orders up 240% prove continued strong demand and our winning value proposition as an end-to-end solutions provider.

Overall, the businesses are executing nicely to start the year. We posted record revenue of $7.5 billion, along with Q1 record segment profit of $1.7 billion and margins of 22.7%. We are pleased to beat our adjusted EPS guide and consensus. All the bid was operational. We also delivered strong total revenue growth of 17% and higher margins than anticipated. We are also executing well on our deals to boost growth. We closed Ultra PCS in January and Boyd Thermal in March, both ahead of schedule. Our partnerships with NVIDIA resulted in a complete solution for their generation of chips, Vera Rubin. Thanks to our teams for the strong work as we keep shaping our portfolio. As we look toward the rest of the year, with an unprecedented demand backdrop we raised our organic growth outlook by 200 basis points to a midpoint of 10% and also raised our adjusted EPS midpoint expectations to now $13.28 for the year, which covers the EPS dilution from the Boyd acquisition.

Another important update, on March 2, we announced Dave Foster as CFO. We are thrilled to have you back, Dave, and he has 29 years career with Eaton, which brings deep understanding of our business and markets as well as a proven ability to drive performance. Dave and I will dive into Q1 and the 2026 outlook. But first, let’s move to Slide 4. We continue to drive eaten forward with our bold strategy to lead, invest and execute for growth. All 3 pillars are designed to accelerate our growth and create sustained value for shareholders. Today, we will discuss how we are executing for growth in Electrical Americas investing for growth, including the Boyd Thermal acquisition and leading for growth with a customer-centric approach. Slide 5 includes an update on how we are executing for growth in Electrical Americas.

Demand remains incredibly robust. We are winning like never before, and the order and the backlog growth supports that. Meanwhile, we’re accelerating our production ramp in the Americas to meet demand. The investments we are making over $1 billion in CapEx are at record scale for us, but well within our capability to navigate. And most importantly, we are on track as planned and feel confident on our path forward, given our strong position in growing markets and proven track record of solid execution at Eaton. Americas recovered well from a tough January and February with impact from the winter storms in our facilities and across the supply chain. Our team recovered well in March. April was another strong month. From both sales and margin perspective, Q1 will be the trough and as mentioned in our last earnings call in February.

We expect progress as we enter Q2 and momentum in Q3 and Q4, which will set up the business to meet or exceed our margin target of 32% by 2030. Turning to Page 6 and our investing for Growth strategic pillar where we are doubling down on high-growth, high-margin markets to capitalize on once-in-a-lifetime opportunities. We’ve taken both portfolio actions in the last year, including the successful integration of Fiber bond, which enhances our model approach. Resilient power, which fast tracks our solid-state transformer technology and various partnerships like the design partnership with NVIDIA and the on-site power partnership with Siemens Energy to help solve for global power constraints. Now Eaton’s broad portfolio has been further enhanced by the acquisition of Boyd Thermal.

Our complete offering to data centers now has leading liquid cooling solutions, a true grid to chip approach that is unique to Eaton. We have solutions from power generation and the grid, gray space power infrastructure and now a stronger presence in the white space, along with cooling solutions. More specifically on Eaton’s Boyd Thermal, this business is a core design partner to leading hyperscalers and silicon providers. As [indiscernible] plates expand across compute, networking and rack-level components, Boyd system level position drives also increased CDU adoption. Embedded at a cheap and system level, Boyd Thermal expands Eaton’s presence in the white space and gives Eaton early visibility into evolving data center platform requirements, advancing next-generation power and cooling management.

The cooling business is on track to record $1.7 billion or better in revenue in the full year of 2026, of which about $1.4 billion will be included in Eaton financials for the year with margins generally in line with the prior expectations. The Boyd business had a very strong start of the year, up well over 100% in Q1 versus prior year. In fact, Boyd’s backlog doubled over the last 6 months. Boyd’s recent wins underscore strong momentum in liquid cooling, reflecting customer preference for its deep engineering integration, early design engagement, speed of execution, manufacturing readiness and ability to scale globally. Therefore, we are confident in 2026 outlook. We are very excited to welcome the strong team to the Eaton portfolio and look forward to continued success together.

Turning to Page 7. We are leading for growth by striving to move fast, co-creating innovative solutions with our customers at the center of everything we do. Here, we highlight the Eaton [indiscernible] DSX platform as part of our collaboration with NVIDIA to support the next generation of AI factories with end-to-end grid to cheap infrastructure. AI factories represent a new class of infrastructure, and they are driving a massive global build-out, where data center power demand could nearly triple between 2025 and 2030. This unprecedented demand requires end-to-end solutions for faster builds and more efficient energy usage. That’s why we developed the Eaton [indiscernible] DSX platform. It delivers a complete modularized implementation of AI factory infrastructure, spanning grid connection, power distribution, advanced cooling and structural architectures engineered for higher speed, efficiency and resilience, truly an ideal solution.

By integrating Eaton’s grid to cheap architecture, we are enabling our customers to move beyond custom designs toward efficient, reliable and modular solutions. It’s a unique collaboration tailored to help our customers with their greatest challenges, and we couldn’t be more excited for our customers to benefit from this technology. Now I will turn over to Dave to walk through the financials.

David Foster: Thanks, Paulo. I would first like to say how honored I am to be back at Eaton. I’ve seen a lot of great changes in my almost 30 years with the company, but I’ve never been more excited than I am today to be part of Eaton’s growth journey by how well positioned we are to deliver on our commitments. I’ll start by providing a brief summary of Q1 results on Page 8. Organic growth for the quarter was 10%, driven by strength in Electrical Americas, Electrical Global and Aerospace, partially offset by lower sales and mobility driven by — primarily by a deliberate action to fix the tail, exiting a low-margin North America light vehicle business. Excluding declines in mobility, our organic growth would have been almost 12%.

We generated record Q1 revenue of $7.5 billion, and a Q1 record $1.7 billion of segment operating profit. Adjusted EPS of $2.81 is a Q1 record and $0.06 above the midpoint of our guidance range. We also had a strong quarter for free cash flow, which was up 245% over prior year. Now let’s move on to the segment details. On Slide 9, we highlight the Electrical Americas segment. Demand is accelerating. Our negotiations pipeline was up 81% in Q1 over prior year, translated into record orders and backlog. The business maintained strong operational momentum, delivering record sales and Q1 record operating profit. Organic sales of 14% was driven primarily by strength in data centers, up about 50% along with strong growth in commercial and institutional and machine OEM.

Operating margin was 25.6%. As we discussed last quarter, we expected early 2026 headwinds as America’s ramping capacity at an unprecedented scale to meet the accelerating demand. While revenue growth was very strong, we faced additional headwinds in the quarter from higher input costs than originally planned, along with costs related to delivering higher volumes in the quarter. The higher costs are short-term timing headwind, which is being offset with an announced April 1 price increase and other additional price actions. We have confidence to execute on our commitments for 2026. Now I will summarize the results for our Electrical Global segment. Total growth of 21% included organic growth of 9% and 6% attributed to the Boyd acquisition. Overall, a very strong performance for the quarter.

We had strength in data center, residential and machine OEM. Operating margin of 19.2% was up 60 basis points over prior years, driven primarily by higher sales and continued operational efficiencies. As you can see on the chart, demand in Global remains incredibly strong, driven by strong orders, up 13% on a rolling 12-month basis with broad end market momentum and exceptional strength in data center demand. This reinforces a powerful growth trajectory ahead for the business. Before moving on to our industrial businesses, I’d like to briefly recap the combined Electrical segment’s performance. For Q1, we posted an organic growth of 13% and total growth of 20%, a great start to the year, and we are pleased with the progress we are making on all of our acquisitions.

Segment margins were 23.4%. On a rolling 12-month basis, orders accelerated up 32%, and our book-to-bill ratio for our electrical sector grew to 1.2 from 1.1 last quarter. In the quarter, Electrical Sector orders were up 47%. As a result, total electrical backlog increased 48% over prior year. Demand continues to surge, providing tremendous visibility and underpins our confidence in the Electrical business. Page 11 highlights our Aerospace segment. Organic sales growth of 9% remained at a high level and resulted in record sales with particular strength in defense aftermarket along with strength in commercial OEM and commercial aftermarket. We closed the acquisition of Ultra PCS in January and the business performed in line with our expectations, contributing 5 points of total sales growth.

Operating margin expanded by 360 basis points to a record 26.7%, driven primarily by sales growth and a onetime facility sale gain in the quarter. Even excluding the onetime gain, aerospace margin expanded 80 basis points over prior year, very strong performance to start the year. The robust orders and a growing backlog continue to position Aerospace for growth. Moving to our mobility segment on Page 12. In the quarter, the business now including both vehicle and eMobility, declined by 6% on an organic basis driven primarily by the decision I mentioned earlier to exit a low-margin business. Margins are flat year-over-year, primarily driven by mix and operational improvements to offset higher commodity and wage inflation. We remain on track to execute the spin of the segment by the first quarter of 2027.

Now I will turn it back to Paulo to discuss our updated guidance and close out the presentation.

Paulo Sternadt: Thanks, Dave. Page 13 includes our end market growth assumptions. The demand in data center and distributed IT market continues to grow even faster than we estimated 3 months ago. We now estimate 32 gigawatts of total data center capacity under construction in the U.S., of which 70% is AI. Total data center backlog has grown to 228 gigawatts or 12 years of backlog at a 2025 build rates, up from the 11 years in our last update. As you can see on the chart, data center is not our only strong market. We see durable strength in many electrical markets and in Aerospace. These many paths for sustainable growth gives confidence to deliver continued differentiated growth in 2026 and beyond. Moving on to Page 14. We summarized our 2026 revenue and margin guidance.

Following a strong quarter, we now expect total company organic growth to be between 9% to 11%, up 200 basis points at the midpoint, with strength in Electrical Americas and Electrical Global, which both increased 300 basis points at the midpoint. For segment margins, our guidance range of 24.1% to 24.5% is 50 basis points lower than the prior guide, primarily due to Electrical Americas Q1 performance. We are taking decisive actions to offset temporary cost headwinds in Electrical Americas. And as we discussed earlier, we are confident with our sequential margin improvement in Electrical Americas and expect to exit the year with margins north of 30%. On the next page, we have the balance of our guidance for 2026 and Q2. For 2026, we are raising the low end of our adjusted EPS guide.

Now we expect full year EPS to be between $13.05 and $13.50, $13.28 at the midpoint. For the full year, adjusted EPS guidance includes flowing through the full Q1 beat and absorbing the Boyd dilution to EPS. The tariff impacts are included in this guidance and considered immaterial. We are reaffirming our cash flow expectations for the year, and we have provided a guidance for Q2 on this page. Healthy end markets, combined with our record backlog provides strong visibility into our outlook for the year. With the industry’s best positioned portfolio, we are highly focused on disciplined execution throughout 2026. I will close with a quick summary on Page 16. Our strategy to lead, invest and execute for growth is working. We continue to transform our portfolio, allocating capital and resources towards higher growth, higher-margin businesses.

The demand environment remains exceptional. We are winning at unprecedented rates. Our orders accelerated once again and our record backlogs provide visibility going forward. This was another strong quarter for Eaton. We delivered record Q1 adjusted EPS and segment profit, along with record revenue reflecting improved execution, ramping capacity as well as the impact of strategic actions we have taken to drive earnings performance. Bottom line, we see a compelling and exciting runway ahead with our strongest growth opportunities still in front of us. And with that, I look forward to taking your questions.

Yan Jin: Thanks, Paulo. [Operator Instructions] With that, I will turn it over to the operator for instructions.

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Operator: Our first question for today comes from the line of Scott Davis from Melius Research.

Scott Davis: I’m sure you’re going to get a lot of questions on margins, so I’ll go in a different direction. But there’s a lot of debate around the long-term architectures and data centers and I think a lot of confusion out there. Can you guys just talk a little bit about your competitive position in the landscape for solid-state transformers or on the medium voltage side? And maybe even a TAM, if you could address that?

Paulo Sternadt: Sure. Well, thanks, and thanks for starting with a strategic question. I appreciate that. I will start talking about this in broader terms. You said it correctly, a lot of the discussion is around the medium voltage solid state transformers technology, but we’re also leading the pack more broadly as a company on how to transform the complete data centers into direct current technology. So it’s broader than just the power transformers, right, all the way from the utility down to the chips. So we got to think about power distribution as well, power protection, 800 [indiscernible] DC or higher actually for future applications. And this is exactly — I want to clarify, this is exactly the broad scope of our partnership with NVIDIA that we launched for the new generation of Rubin chips.

So that the [indiscernible] scope is already 800-volt DC. But the most important question for investors is, why does this matter? Why does it matter so much for data center operators and I would say it is because the industry wants to increase tokens per megawatt. In other words, to increase the efficiency the data centers. So if you look at where we operate as a company and other companies operate as well, the biggest lever to increase this efficiency is to reduce the use of chillers because today, chillers consume around 20% of the data center power. So with the new cheap technology, for example, the one that NVIDIA announced at the beginning of the year, as they can run hotter and counting our advanced cooling solutions from Boyd, we can make this possible.

So that’s the biggest lever. But the second biggest lever is exactly what you mentioned here, Scott, is to move from AC architecture to DC architectures. If you look at today’s efficiency, even in the most improved designs in AC, efficiency runs at 93% and we estimate and all the industry leaders estimate that switching to this direct current technology 800 volts or above can save up to 5% from data center operations, moving the efficiency all the way up to 98%. So if you think about this, this is huge dollars and huge efficiency gains that can change completely the economics of the data center. So I want to get that out. I would say this, we as a company, we are in a leading position to commercialize our medium voltage solid-state transformers to get more specific to your question.

The fact that we acquired Resilient Power Systems accelerate their [indiscernible] development because we acquired an immersion code offering that drives much more power density in a much smaller footprint. So it really leapfrogged our evolution here. And we have more than a handful of solid-state transformer pilots actually approaching 2 handful, including hyperscaler customers. What we are getting from those discussions with them, it’s a lot of positive feedback. We are working through those pilots. And in the meantime, we start taking the leading role also developing industry codes and standards in the U.S. but also in Europe. And as I mentioned before, as we are taking the commercial lead here, we’re already providing quotes on 800-volt DC projects now.

We expect orders in the second half of the year for shipments starting in late 2027 and some of those also beginning of ’28. So we’re making solid progress there. So if I’m to conclude here in summary, while there are other companies working on this technology, which I would say is good for quicker adoption of the industry, we are very confident in our leadership position in the solid-state transformers, and I would say more broadly to lead the complete power conversion to DC.

Operator: And our next question comes from the line of Chris Snyder from Morgan Stanley.

Christopher Snyder: Maybe I’ll balance for Scott and ask more of a near-term 1 here. So Q1 Electrical Americas margins came in below expectations. It sounded like there’s maybe some unexpected cost inflation. So maybe just some incremental color on that. And then what gives you confidence or could you help unpack the drivers that get that Americas margin to 30% or maybe even a little bit higher into the back half. It sounds like from the prepared remarks that there’s price coming. So just anything on how material that could be in the time line there to lift those back half margins.

Paulo Sternadt: Thanks, Chris. Well, thanks for this question. Certainly top of mind for all investors, I’d like to get started by providing a little bit of context to this margin discussion because we need to take this discussion in a broader sense of our growth trajectory. And as you heard in our prepared remarks, the demand is fantastic. And I just want to give this team — this group of people, 3 data points for us to reflect on. The first one, look at orders, right, 60% up year-over-year. And this is on top of a very strong base in ’25, having data centers being 240% growth validating our strategic choices. So this is a one strong data point. The second one I will mention, as you heard, our backlogs are up 44% in Electrical Americas.

So this was a high bar in ’25, and this business added $4.4 billion to the backlog in just 1 year. It’s incredible what the team was able to add, while we’re still delivering double-digit growth on top line. So that’s the second data point. The third one is the negotiation pipeline, as you heard from Dave, is up 81%. Now if you take a step back here and look at all those data points, I would say we are the precipice of a new growth cycle here for this business, a real growth cycle, an inflection point and we are starting to get ready for it. We need to get ready for that inflection point. So as a reminder to everyone, I’m getting to the weeds of the margin development. As a reminder to everyone, we finalized the construction, and we are currently ramping up 12 factories as we speak to handle this growth.

The bulk of this ramp-up cost is concentrated in Q4 last year and the first half of this year and these expansions are going well. They are progressing as planned. Now to the details on the margin development, the year-over-year margin is temporarily impacted by 2 reasons. I reemphasize temporarily impacted. The first temporary impact is a negative price cost lag based on commodity inflation beginning of the year. This temporary impact will be more than offset in the full year by pricing that we already implemented on April 1. So that’s the first part of the margin recovery. The second one, we accelerated ramp-up costs in Q1 to deliver 30% higher revenue growth. So as you remember, in February, when we discussed, we committed to a 10% midpoint growth for Electrical Americas.

Now we are committing to 13% growth. So we needed to upload investments in Q1. So this is part of it. It’s also a temporary effect, given this ordinance trends, we took this deliberate action and followed [indiscernible] investments in Q1, and we are accelerating our ramp. As you know, we discussed in the last earnings call, every time you add fixed cost, labor, depreciation of new CapEx and start-up expenses ahead of volume, it creates this temporary margin headwind. Most importantly, I want to report that if you look at the product unit economics, the product margins remain very healthy, and we continue to expect in this new guidance, we continue to expect our full year 2026 segment profit in dollars to be roughly the same, around $4.4 billion as per prior guide.

And if you ask what the confidence we have, I have and the team has on our second half margins, I would say we’re on the right trajectory to get started. We finished March with strong performance in Q1 and April was also a good start for Q2. So that’s the first point I want to get out. But the second and most importantly, looking towards the second half as utilization increases and recent pricing actions take effect, we expect to have strong operating leverage and margin recovery over the coming quarters, which reflects into our guidance, as you see, that shows sequential margin improvement starting from Q2 and gaining momentum towards the second half. And as explained through our last 2 earnings calls, this is the year of execution for the Americas, for sure.

And the team is very focused. I want to report the team is really focused and very supported by the whole corporation. And the progress is tangible at even weekly meetings we have with the team, we can see progress week over week. So we remain confident about the strong exit rate for 2026 and we are committed to the 32% margin by 2030.

Operator: [Operator Instructions] Our next question comes from the line of Deane Dray from RBC Capital Markets.

Deane Dray: Yes. Sorry, can you hear me now?

Paulo Sternadt: Yes.

Deane Dray: I’ll also add my welcome back to Dave and my question is directed to Dave. I’d be really interested in hearing about your early observations now that you’re back at Eaton and where are your priorities and focus as CFO?

David Foster: Dean, thanks for the welcome. Let me start with culture, which is one of the reasons I’ve worked at Eaton for almost 30 years. So I can already see and feel positive changes within the company and we have an increased focus on our customers, and we’ve had a lot of focus on improving our team operating dynamics. It’s been great to see. If I look at growth, I’ve never seen this level of organic growth across the company in my career. And it’s more than just an Electrical Americas story. We see it in Electrical Global. We see it in Aerospace. And then Paulo talked about it a little bit in his last answer, but the commitment that we’ve made to invest to grow the company organically really stands out to me, both people and assets.

I personally reviewed the growth projects in the Americas during my first 3 weeks on the job, and I came away very confident in our ability to deliver 2026. No, I’m going to — this will be a little different take. But for me, coming back, I clearly see the benefits of functional transformation efforts that have been ongoing at Eaton over the last 4 years. I see it across the enterprise, but let me share 1 of the many examples from the finance function. So in late 2023, we went all in on centralized and specializing our credit collections teams. And I’m really happy to say that we delivered record past due percentage performance at the end of 2025, and then we beat it again by 100 basis points at the end of Q1. So the end result is improved cash flow and reduced risk, but it also helps us free up time in our plants and divisions to focus on operations.

So very similar to what policies since I’ve been back for 9 weeks, I can see visible progress and improvement across the total company. I see it in the numbers. I see it in the reviews that I sit in. And again, secondly, what Paulo said, we finished March very strong and the preliminary results for April are continue to build the momentum that we take into the second half of the year. So if I look at the top priorities for myself and the company, one, obviously, deliver our commitments for growth, margins and cash flow in 2026 and make sure we’re positioned well to exceed or meet or exceed our expectations for 2030. For me, personally, I get a chance to leverage my strong operations background and my pricing experience with large direct customers.

I understand the Eaton business system very well and how we operate as a company. So it’s made it very easy for me to plug back into the company. And then I have strong relationships with all the operating leaders across the globe, and that really helps to drive results and resolve issues as they come up. If I look at it, we’re going to — one of the big objectives this year is to successfully integrate the Boyd Thermal Ultra-PCS and fiber bond acquisitions as well as execute the spin of our mobility business. And maybe many of you don’t know, but last year, I supported the businesses at Eaton on both the Boyd and Ultra PCS acquisitions. And I also spent some time on the mobility spend in the fourth quarter of last year. And that experience has allowed me to hit the ground running and engage with our efforts involving all of these projects.

I clearly know what we need to do to deliver synergies in both of the deals as well as understanding the base business. And then finally, on a functional point of view, I’m going to continue to work with our leadership team in finance to drive finance transformation objectives. And personally, I’m going to really lead a continuous improvement culture across all the finance that mirrors the rest of the enterprise with the simple goal of just getting better every day. So hopefully, that answers your question.

Operator: And our next question comes from the line of Nicole DeBlase from Deutsche Bank.

Nicole DeBlase: I guess just kind of following on to all the highlights of the strong order growth that we’re seeing and Paulo, what you said about this kind of being an inflection with respect to demand. I’m just thinking about do you have enough capacity to address that inflection in demand based on what’s been done so far and what’s ongoing within Electrical Americas? Or should we be expecting maybe another tranche of capacity expansion in the quarters and years to come? And if so, like could that expansion be of a similar size to what you guys have embarked upon in EA already? Or could it be a bit smaller?

Paulo Sternadt: Thanks. As we stated before, we announced the expansion of 24 facilities, and we are done with 12 of them. We are ramping there are still 6 to come online by the end of the year that we’re going to ramp next year and the other 6 beyond 2027. Of course, there’s a lot of success in our orders. There’s a lot of success in our combined portfolio and our growing backlog, negotiation pipeline, all of that, but I wouldn’t expect to see such an increase in capacity investments all at once hitting our business anytime soon. It’s going to be more like a continuous investment over time. and something that we are really focused as well as the team is to sweat those assets, right? We are inserting very good operators inside every part of the Electrical business, they’re showing results.

We’re going to make those new plans work, and we’re going to get the high returns our investment. So in short, I would say half — more than half of the pain is gone, is highly concentrated in Q4. As I said before, and then starts to get back in a much better situation for the second half as we ramp those volumes. And there will be a continuous improvement and continuous investment, but nothing of this magnitude of 24 plants in the space of 2 years.

Operator: And our next question comes from the line of Chad Dillard from Bernstein.

Charles Albert Dillard: So I’ve got a question for you on competitors buying into the cold plate market. So I guess, part one is what share of cold places is represented in Boyd. And then part 2 is how do these acquisitions impact the competitive landscape?

Paulo Sternadt: Great question, another top of mind topic for investors. Thanks for that question. I would just start by just showing my welcome and my excitement to have the Boyd team as part of Eaton. I would say, is a winning team in the fastest-growing portion of the data center market, the advanced liquid cooling. So we are really happy to be able to count the support of that talented team. And I’m glad I told you, I hope you were in our last earnings call, I made a short comment sarcastically that we should brace for comments around cooling coming up every month. And I would say this is truer than ever with the latest news we saw from the market. But now seriously, if I look back even a space of 3 months, I would say that I believe this investor community evolved in their thinking in the last months.

And I believe most understand now that co plates are not commodities, I saw a couple of really good reports coming out from analysts. So there is understanding that cold plates are actually strategic assets for our customer co-development customer centricity and future wins that actually can be paired and can pull wins for system business like CDUs for cooling and power management, especially one of those 3 things under the same rule. So there is much more understanding of its growth potential. I’m happy that’s the case now. If we start looking at the recent co plate acquisitions, I would say that a further, in my opinion, further validate our strategy because it demonstrates the attractiveness of this tremendous market growth opportunity we saw earlier on.

And the other thing I want to highlight in terms of landscape — competitive landscape to the second part of your question, before acquiring Boyd, the team really did — our team really did the homework and we systematically evaluated the market landscape for over a year. So we did that on our own. We hired an external consultant. We hired a cooling expert from the Department of Energy. All those 3 independent data points of browsing the market pointed to Boyd. So we are confident we bought the BaaS business, the market leader at the right multiple, also very important to say that. And based on Boyd’s world leading market position, we are also very happy about their capabilities and the scale they can implement in the next months and years.

And as you said, there’s a lot of deals. We are familiar with those deals. In my opinion, that does not change our view of the market because as I said before, we browse the market for the best deal possible. And this game around liquid cooling is a game, in my opinion, will define as a game of trust given the high stakes of being so close to the chips and keeping the servers working and the revenue generation assets operating well. It’s a game of trust, it’s a game of speed and cost on innovation. Constant innovation is what marks this market very strongly. So the other thing I want to say, and this is the mindset of our team here that we will protect you will learn from and will augment what made Boyd great, which is their speed, the superior engineering they have, the manufacturing quality at increased scale.

So we are really focused there. Now if I stop, this is a big picture for the business and the cooling market. We know that the future is bright for this technology. But then we should ask ourselves what makes us feel good about the shorter term. And here, once again, if you look at the Boyd’s business and now we call it our liquid cooling business at Eaton, revenues should meet or exceed this $1.7 billion in revenue, certainly a huge growth over $1.1 billion this team achieved last year. And we feel really confident. Why we feel confident on that number. Q1 revenues from this cooling business at Boyd more than doubled year-over-year. And also the backlog doubled from 6 months ago. So the business is really growing really fast and winning big.

The second thing, I would say, the run rate in Q1 was already around $400 million. So we modeled to stay at that level in Q2 and raised the second half to $450 million per quarter, it’s reasonable, it’s conservative, and we think it’s perfectly feasible as the business is ramping. Now we only owned the business for 3 weeks. So we thought it was premature to raise the full year forecast at this time. But I want to reassure everyone we are aiming for an upside and we’ll be prepared for that upside. So in summary, just to give you my final words on this topic, market validation of our strategy given the last years, we’re extremely happy to have Boyd in our portfolio, and I’m very confident in delivering our own growth plans for ’26 and beyond.

Operator: And our next question comes from the line of Andy Kaplowitz from Citi.

Andrew Kaplowitz: Obviously, you raised your organic revenue guide for the year which seems like it’s mostly coming from data center strength, but what are you seeing in terms of other mega projects? Are you simply further unlock there? And maybe your thoughts on broader economic trends impacting EA and Electrical Global, any impact from the Middle East on your business, for instance?

Paulo Sternadt: Very good question. I’ll give you a flavor on mega projects first. Another strong quarter, another strong quarter. The announcements were up 29% year-over-year, growing 36% in full year ’25. So if you put a 2-year stack, the stack [indiscernible] 65% up. So a very strong development in mega projects. So the backlog of mega projects now is around $3.3 trillion and is up 31% year-over-year. But the most important thing for Q1 is that we saw an uptick on mega project starts, which is when people start spending money and buying equipment. So mega projects parts reached $54 billion in Q1. So it’s more than double the same period last year. And since we start tracking that in 2021, it’s the third best quarter on record.

So very strong tailwinds that will come from mega projects in the years to come. You had a second and third part to your question. I will just give you some flavor on the other markets, so we allow other colleagues to ask questions. But we also had strength — we see strength in utility orders, we see strength in machine OEM, we see strength in aerospace more broadly for the company. So we have different vectors of growth, which are not necessary data center only. So I’ll not give full details now, so we allow other colleagues to ask their questions as well. But thanks for your highlights on the mega projects. So strong quarter once again.

Operator: And our next question comes from the line of Patrick Baumann from JPMorgan.

Patrick Baumann: I just had a quick one on the EA margin again for the commentary you made on March and April being better and then the incremental pricing you put through in April. I’m just wondering if you could give any insight into how much improvement that you saw in those months. And then what kind of improvement you expect in margin from first quarter to second quarter? Because it does sound like you expect it to get better. But it’s not really clear to what extent?

Paulo Sternadt: Great. So I would get started also allow Dave to make some comments later. We see the biggest mission for this business actually to reach the top line and keep growing. And they did that exceptionally well in March. We have a very strong end of the quarter. That performance repeated in April. And in terms of margin development, the 2 things I said before, I shared before, there are temporary headwinds. They will be solved as we execute on the volume ramp. So this is on the right track, and that give us confidence. The second thing, which hasn’t hit our numbers yet entirely is the pricing that we implemented at beginning of April. So if you put these 2 together, the business is demonstrating top line growth and executing on the expansion well, also took the right measures in terms of pricing already implemented.

So we’ll see that coming in the second half. And to just go back to what we said last year in terms of the EPS split between first and second half is pretty much what we see in this guidance as well, right? So I will start by making those comments, and I’ll allow Dave to give some color here from his perspective.

David Foster: Yes. Based on our — how we finished March and April, with our guidance, we’re up 150 basis points from Q1 to Q2 and the Electrical Americas. And keep in mind, on the price actions we don’t get the full take in the first quarter when we execute them. That tends to come through in the following quarter. So again, we’re confident in our guide for Q2 for Electrical Americas. And again, April demonstrated that we’re continuing the momentum that we saw at the end of Q1.

Patrick Baumann: And that’s 150 basis points you’re saying from 1Q to 2Q is the expectation?

David Foster: Correct.

Operator: And our next question comes from the line of Andrew Buscaglia from BNP.

Andrew Buscaglia: I just wanted to check on — a lot of discussion on the data center front and orders were quite strong there. But can you give some commentary on what’s going on order-wise and trend-wise by the other subsegments within Electrical Americas?

Paulo Sternadt: Sure. I will give you a commentary. Let me talk about utilities because it’s an important market, and it’s tightly connected with the data center boom as well as you guys know. So we continue to see very strong momentum in terms of orders for the utility business here. So we had double-digit growth on a 12-month rolling basis for Electrical Americas and for Electrical Global mid-single digits. So strong orders coming our way on the utility side. And on the strategic commentary, I want to say that we continue to make progress gaining share in voltage regulators, capacitors and switchgear, which are actually 3 product groups we are ramping up with our investments, so we keep winning shares in that area. And that’s our focus because it has most differentiated performance.

We are a bit more selective on single-phase transformers because it’s the smallest part of our portfolio, also the least differentiated and I would say this, we expect the market to remain strong for a very long period of time. Just if you recall all those data center announcements triggered, what I would say, everyone already sees the power generation and transmission investment. So it’s very well reflected in power gen and power transmission, but it’s not so much yet reflected in the power distribution utility business, right? We see this uptick in orders, but we believe the biggest wave in investment is going to come later. And just to remind everyone, how good it is to see investment in power generation for us at Eaton, every investment in generation creates a compounding opportunity for it.

And first of all, when there is a power generation project, we sell the medium voltage gear required for this project. And then in a later stage, when there’s power to get distributed by the grid once again, opportunity for us to distribute protect those [indiscernible]. And then lastly, and even more impactful to us is when this power reaches our end customers, being data centers, being commercial, institutional, any other end market because we need to manage that power reliably and safely. So we are very, very convinced that the utility business is going to remain stronger for longer. And we also — I would say this, I will give you some color on the short cycle businesses we have. So again, short cycle, high single digits in Q1 revenues from mid-single digits in Q4.

So we see this continued momentum quarter-over-quarter. And then if you go through the details of what makes the short-cycle businesses, we saw some recovery in Americas for resi, low single digits. And once again, we are not counting on the resi market to be strong for us to make our numbers by any means. And we saw also a stronger recovery in the EMEA business in the residential space. MOEM is back — up for both Americas and Global. And distributed IT, we see high single digit in the Americas, up, right? High single digits up, and it was a little bit down global versus last year. So we see green shoots coming from Q4 extending into Q1 on the short-cycle markets. And I will say this, and I’m proud to say our team is capitalizing on this market recovery and recovery and winning.

And this is important because we also drive utilization of our factories that serve those end markets. I hope that helps.

Operator: And our next question comes from the line of Joe Ritchie from Goldman Sachs.

Joseph Ritchie: I wanted to — I wanted to circle back on Boyd. So clearly off to a great start this year. I’m curious, how are you managing like potential disruption from the integration of this asset with legacy Eaton? And then also as it relates to capacity, I know you addressed the capacity for your core business. But I guess, as Boyd coming in, what kind of capacity additions are necessary in order to fulfill like their backlog and how fast they’re growing?

Paulo Sternadt: Great question. So to the first 1 — first part of your question, as I said before, it’s a game of trust, it’s a game of speed. It’s a game of getting the technology implemented and also getting the ramp done in the right way. We are taking a very cautious and deliberate approach to integrating this business into Eaton. The reason we went after Boyd was that they were the market leader. We didn’t want to go for a smaller asset, which we’ve found will be very difficult to make it work in our organization. So here, they know what they’re doing. They were part of Goldman before and they were performing before. So our philosophy cannot be any harder or more difficult in side item at all. So we are taking very good care of the team, a very talented team.

They are retaining them. They report directly to our COO at the sector level. They report directly to Heath, so high visibility, high attention. And in terms of investments, over time, this business grew fantastic rates at very low CapEx rates versus sales, like think about 3%, 4%. And with this explosive growth they have now, they have more investment in terms of sales approaching double digits temporarily is already part of our guidance for the year, and it’s all been implemented. So the teams are running, and as I said before, a very good Q1 in terms of output and growth. We just got the April numbers yesterday, also very strong performance. So we are really excited about the business. We are respectful of what they built and we’re actually leveraging some of their connections with cheap manufacturers to be a lead for other technologies of Eaton to win.

And a good example of that could be also what we are doing with NVIDIA and other companies. So we keep high touch connection with this team. We want them to run fast, and we are supporting them to run fast.

Operator: And our next question comes from the line of Julian Mitchell from Barclays.

Julian Mitchell: Maybe just to circle back to the sort of ramp-up slope that the guidance is predicated on, and I suppose 2 sides to that. One is overall firm-wide EPS, is the sort of guide based on a $4 type number in Q4? And sort of allied to that, on the Electrical Americas division, I think incremental margins you’re guiding year-on-year at about 10% in Q2 year-on-year. should we think about third quarter in the 20s and then fourth quarter in the sort of 50s percent type incremental margin?

Paulo Sternadt: Yes. I will start, I’ll also, Dave, to provide color. Thanks for your question. Here, I would say couple of things. Once again, you’re perfectly right in analysis. That’s exactly what we’re committing to. And the reasons behind are, once again, twofold: One is the pricing already implemented; and two, we’re going to get the leverage from the ramp-up investments that we have that’s going to start implementing our profits, improving our incremental here. And also all the efficiencies we are dealing with as we learn how to operate in those plants will be behind us. So yes, absolutely in line, and this is perfectly feasible and aligned with the previous guidance we had between first half and second half EPS breakdown. Any additional comments, Dave?

David Foster: The only thing I would add is, in addition to the benefits we see on the scale of the growth on the manufacturing costs, we also see the benefit on reducing support costs as a percentage of sales in the back half of the year.

Paulo Sternadt: Okay. Thanks. I’d like to make a couple of comments just to close here the call, some closing remarks. Very interesting questions. I’m glad we moved to this one question per analyst format, maybe more dynamic. We could talk to more people. Let me just make a couple of comments to conclude the call. I will start by saying that I would say our strategy is working, right? We are, in my opinion, we are closer to our customers, and we are designing the future together with them. This is really important for the future development of this company. We are shaping our portfolio at fast pace. Just think about how much ground we covered last year, we allocated capital boldly, and I also say, surgically, the proof point in our numbers, you can see the Electrical business grew 20% total sales with 13% organic and Aerospace grew 16% total sales with 9% organic.

So those were 2 markets where we decided to invest and allocate capital. And in terms of execution, I would just highlight once again, we are executing an unprecedented demand. Record orders and backlogs are paired with strong negotiation pipeline, and this give us very high level of visibility and confidence moving forward. I would say also, we showed demonstrated operational improvements that allow us to beat our top line commitment for the quarter and also to raise organic growth guidance for the full year. And in terms of margins and the Americas development, the ramp is on track. We are accelerating the execution. As I said before, we have confidence in the top line and the margin upside as the year progresses. So in a nutshell, this allowed us to beat the Q1 EPS, have confidence to absorb the EPS impact of our acquisitions and still be able to raise the full year EPS guidance.

So thanks to everyone for your time, and thanks for your questions. Thank you.

Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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