Eaton Corp plc
For the period ended Jun 30, 2024. Filed Aug 1, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 1, 2024
ETN$341.72+4.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-30.
0001551182-24-000013
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-01.
0001551182-24-000035
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 93 previous paragraphs and 102 current paragraphs.
66 unchanged; 18 reworded; 17 added; 9 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 14 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
Portfolio Changes
Current report
The Company continues to actively manage its portfolio of businesses to deliver on its strategic objectives. The Company is focused on deploying its capital toward businesses that provide opportunities for above-market growth, strong returns, and align with secular trends and its power management strategies. During 2023 and 2024, Eaton continued to selectively add businesses to strengthen its portfolio.
Current report
Gross profit margin increased from 36.1% in the second quarter of 2023 to 38.0% in the second quarter of 2024. Material factors affecting this increase were a 270 basis point increase from higher sales and a 140 basis point increase from operating efficiencies, partially offset by a 90 basis point decline from higher commodity and wage inflation and a 60 basis point decline from higher costs to support growth initiatives.
Current report
Gross profit margin increased from 35.3% in the first six months of 2023 to 37.6% in the first six months of 2024. Material factors affecting this increase were a 310 basis point increase from higher sales and a 150 basis point increase from operating efficiencies, partially offset by a 90 basis point decline from higher commodity and wage inflation and a 70 basis point decline from higher costs to support growth initiatives.
Current report
•Backlog: Includes orders to which customers are firmly committed
Current report
•Organic change in backlog: Percentage change in backlog, excluding the impact of foreign currency, acquisitions and divestitures
Current report
•Organic change in customer orders: Percentage change in firm customer orders on a trailing twelve month basis, excluding the impact of foreign currency, acquisitions and divestitures
Current report
•Book-to-bill: Average of the ratio of firm customer orders to Net sales for the last four quarters
Current report
The increase in organic sales in the second quarter and first six months of 2024 was due to strength in industrial and data center end-markets, partially offset by weakness in residential end-markets.
Current report
The operating margin increased from 26.4% in the second quarter of 2023 to 29.9% in the second quarter of 2024. Material factors affecting this increase were a 530 basis point increase from higher sales and a 190 basis point increase from operating efficiencies, partially offset by a 170 basis point decline from higher costs to support growth initiatives and a 130 basis point decline from higher commodity and wage inflation. The operating margin increased from 24.7% in the first six months of 2023 to 29.5% in the first six months of 2024. Material factors affecting this increase were a 640 basis point increase from higher sales and a 220 basis point increase from operating efficiencies, partially offset by a 190 basis point decline from higher costs to support growth initiatives and a 130 basis point decline from higher commodity and wage inflation.
Current report
The operating margin increased from 18.5% in the second quarter of 2023 to 19.0% in the second quarter of 2024. Material factors affecting this increase were a 110 basis point increase from higher sales and a 100 basis point increase from operating efficiencies, partially offset by a 140 basis point decline from higher wage inflation. The operating margin increased from 18.4% in the first six months of 2023 to 18.6% in the first six months of 2024. Material factors affecting this increase were a 110 basis point increase from operating efficiencies, partially offset by a 100 basis point decline from higher wage inflation.
Current report
The increase in organic sales in the second quarter and first six months of 2024 was due to strength in commercial OEM, commercial aftermarket, and military OEM.
Current report
The operating margin decreased from 22.5% in the second quarter of 2023 to 21.5% in the second quarter of 2024. Material factors affecting this decrease were a 250 basis point decline from operating inefficiencies, a 240 basis point decline from higher commodity and wage inflation, and a 110 basis point decline from higher costs to support growth initiatives, partially offset by a 500 basis point increase from higher sales. The operating margin decreased from 22.5% in the first six months of 2023 to 22.3% in the first six months of 2024. Material factors affecting this decrease were a 260 basis point decline from higher commodity and wage inflation, a 160 basis point decline from operating inefficiencies, and a 140 basis point decline from higher costs to support growth initiatives, partially offset by a 450 basis point increase from higher sales and a 130 basis point increase from the gain on the sale of a production facility in the first quarter of 2024.
Current report
The decrease in organic sales in the second quarter of 2024 was due to weakness in the North American light vehicle and European truck markets, partially offset by strength in the South American region. The decrease in organic sales in the first six months of 2024 was due to weakness in the North American and European regions, partially offset by strength in the South American and Asia Pacific regions.
Current report
The operating margin increased from 15.3% in the second quarter of 2023 to 18.0% in the second quarter of 2024. Material factors affecting this increase were a 320 basis point increase from operating efficiencies and a 240 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 140 basis point decrease from lower income from investments in associate companies. The operating margin increased from 14.9% in the first six months of 2023 to 17.0% in the first six months of 2024. Material factors affecting this increase were a 290 basis point increase from operating efficiencies and a 120 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 120 basis point decrease from lower income from investments in associate companies.
Current report
The operating margin increased from negative 0.5% in the second quarter of 2023 to positive 1.3% in the second quarter of 2024. Material factors affecting this increase were a 590 basis point increase from higher sales and a 490 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 480 basis point decline from unfavorable product mix and a 320 basis point decline from additional manufacturing costs due to increased capacity and product launches. The operating margin increased from negative 1.6% in the first six months of 2023 to negative 0.6% in the first six months of 2024. Material factors affecting this increase were a 570 basis point increase from higher sales and a 420 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 570 basis point decline from unfavorable product mix, a 160 basis point decline from higher costs to support growth initiatives, and a 150 basis point decline from higher commodity and wage inflation.
Current report
On May 21, 2024, a subsidiary of Eaton issued Euro denominated notes (2024 Euro Notes) with a face value of €1,000 million ($1,084 million), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The 2024 Euro Notes are comprised of 2 tranches of €500 million each, which mature in 2031 and 2036, with interest payable annually at a respective rate of 3.601% and 3.802%. The issuer received proceeds totaling €995 million ($1,079 million) from the issuance, net of financing costs. The 2024 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2024 Euro Notes contain customary optional redemption and par call provisions. The 2024 Euro Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2024 Euro Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense - net over the respective terms of the 2024 Euro Notes. The 2024 Euro Notes are subject to customary non-financial covenants.
Removed paragraphs (9)
Previous report
Gross profit margin increased from 34.4% in the first quarter of 2023 to 37.3% in the first quarter of 2024 primarily due to higher sales volumes and net price realization, and operating efficiencies in the Electrical Americas and Vehicle business segments, partially offset by higher costs to support growth initiatives in the Electrical Americas and Aerospace business segments, unfavorable product mix in the Aerospace business segment, and lower sales volume in the Vehicle business segment.
Previous report
Net sales increased 17% in the first quarter of 2024 driven entirely by organic sales growth. The increase in organic sales reflects broad-based strength in end-markets, with particular strength in commercial & institutional, industrial, and data center end-markets.
Previous report
The operating margin increased from 22.9% in the first quarter of 2023 to 29.2% in the first quarter of 2024 primarily due to higher sales volumes and net price realization, and operating efficiencies, partially offset by higher costs to support growth initiatives.
Previous report
The operating margin was flat at 18.3% in both the first quarter of 2024 and 2023.
Previous report
Net sales increased 9% in the first quarter of 2024 driven entirely by organic sales growth. The increase in organic sales was primarily due to broad-based strength across all end markets with particular strength in commercial OEM and aftermarket.
Previous report
The operating margin increased from 22.5% in the first quarter of 2023 to 23.1% in the first quarter of 2024 primarily due to higher sales volumes and net price realization, and a gain on the sale of a production facility in the first quarter of 2024, partially offset by higher costs to support growth initiatives and unfavorable product mix.
Previous report
The operating margin increased from 14.5% in the first quarter of 2023 to 16.0% in the first quarter of 2024 primarily due to operating efficiencies and net sales price realization, partially offset by lower sales volumes.
Previous report
Net sales increased 7% in the first quarter of 2024 driven entirely by organic sales growth. The increase in organic sales reflects strength in the European region, partially offset by weakness in the North American region.
Previous report
The operating margin was flat at negative 2.7% in both the first quarter of 2024 and 2023.
Reworded paragraphs (18)
Previous wording
Acquisition integration, divestiture charges and transaction costs in 2024 and 2023 are primarily related to acquisitions completed prior to 2023, including other charges and income to acquire and exit businesses. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other income - net. In Business Segment Information in Note 15, the charges were included in Other expense - net.
Current wording
Acquisition integration, divestiture charges and transaction costs in 2024 and 2023 are primarily related to acquisitions completed prior to 2023, including other charges and income to acquire and exit businesses. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other expense (income) - net. In Business Segment Information in Note 16, the charges were included in Other expense - net.
Previous wording
During the first quarter of 2024, Eaton implemented a new multi-year restructuring program to accelerate opportunities to optimize its operations and global support structure. These actions will better align the Company's functions to support anticipated growth and drive greater effectiveness throughout the Company. Restructuring charges incurred under this program were $63 million in the first quarter of 2024. This restructuring program is expected to be completed in 2026 and is expected to incur additional expenses related to workforce reductions of $216 million and plant closing and other costs of $96 million, resulting in total estimated charges of $375 million for the entire program. The Company expects mature year benefits of $325 million when the multi-year program is fully implemented.
Current wording
During the first quarter of 2024, Eaton implemented a new multi-year restructuring program to accelerate opportunities to optimize its operations and global support structure. These actions will better align the Company's functions to support anticipated growth and drive greater effectiveness throughout the Company. Restructuring charges incurred under this program were $15 million in the second quarter and $78 million in the first six months of 2024. This restructuring program is expected to be completed in 2026 and is expected to incur additional expenses related to workforce reductions of $208 million and plant closing and other costs of $89 million, resulting in total estimated charges of $375 million for the entire program. The Company expects mature year benefits of $325 million when the multi-year program is fully implemented.
Previous wording
Net sales increased 8% in thefirst quarter of 2024 driven entirely byorganic sales. The increase in organic sales was primarily due to strength in commercial & institutional, industrial, and data center end-markets in the Electrical Americas and Electrical Global business segments, strength in sales to commercial OEM and aftermarket in the Aerospace business segment, and strength in the European region in the eMobility business segment.
Current wording
Organic sales increased 9%in thesecond quarter and firstsix months of 2024 due to strength in industrial end-markets in the Electrical Americas business segment, strength in data center end-markets in the Electrical Americas and Electrical Global business segments, strength in commercial OEM, commercial aftermarket, and military OEM in the Aerospace business segment, and strength in the European region in the eMobility business segment, partially offset by weakness in residential end-markets in the Electrical Americas and Electrical Global business segments.
Previous wording
The effective income tax rate for the first quarter of 2024 was expense of 17.9% compared to expense of 16.1% for the first quarter of 2023. The increase in the effective tax rate in the first quarter of 2024 was primarily due to greater levels of income in higher tax jurisdictions, partially offset by a larger impact from the excess tax benefits recognized for employee share-based payments in the quarter.
Current wording
The effective income tax rate for the second quarter of 2024 was expense of 16.8% compared to expense of 17.0% for the second quarter of 2023. The decrease in the effective tax rate in the second quarter of 2024 was due to the reduction of valuation allowances on foreign tax attributes, partially offset by greater levels of income in higher tax jurisdictions. The effective income tax rate for the first six months of 2024 was expense of 17.3% compared to expense of 16.6% for the first six months of 2023. The increase in the effective tax rate in the first six months of 2024 was due to greater levels of income in higher tax jurisdictions, partially offset by a larger impact from the excess tax benefits recognized for employee share-based payments and the reduction of valuation allowances on foreign tax attributes.
Previous wording
The following is a discussion of Net sales, operating profit (loss) and operating margin by business segment.
Current wording
The following is a discussion of Net sales, operating profit (loss) and operating margin by business segment. Additionally, the Company uses the following metrics as indicators of customer demand and future revenue expectations in the Electrical Americas, Electrical Global, and Aerospace business segments. The Company believes these metrics are useful to investors for the same reasons.
Previous wording
The increase in organic sales in the first quarter of 2024 was primarily due to strength in commercial & institutional, industrial, and data center end-markets, partially offset by weakness in utility, machine OEM, and residential end-markets. Additionally, the increase in organic sales was primarily due to strength in the Asia Pacific region and the Global Energy Infrastructure Solutions (GEIS) business, partially offset by weakness in the European region.
Current wording
The increase in organic sales in the second quarter of 2024 was due to strength in utility and data center end-markets, partially offset by weakness in residential end-markets. The increase in organic sales in the first six months of 2024 was due to strength in data center end-markets, partially offset by weakness in residential end-markets. Additionally, the increase in organic sales in the second quarter and first six months of 2024 was due to strength in the Asia Pacific region and the Global Energy Infrastructure Solutions (GEIS) business, partially offset by weakness in the European region.
Previous wording
The decrease in organic sales in the first quarter of 2024 was primarily due to weakness in the North American region, partially offset by strength in the Asia Pacific region.
Current wording
The increase in organic sales in the second quarter and first six months of 2024 was due to strength in the European region, partially offset by weakness in the North American region.
Previous wording
Total corporate expense increased from $320 million in the first quarter of 2023 to $371 million in the first quarter of 2024 primarily due to higher Restructuring program charges and Other expense - net, partially offset by lower Interest expense - net and Intangible asset amortization expense. The increase in Other expense - net is primarily due to higher costs for litigation matters.
Current wording
Total corporate expense decreased from $366 million in the second quarter of 2023 to $307 million in the second quarter of 2024. Material factors affecting this decrease were lower Other expense - net, Restructuring program charges, and Interest expense - net. The decrease in Other expense - net is due to lower acquisition and divestiture costs. Total corporate expense decreased from $686 million in the first six months of 2023 to $678 million in the first six months of 2024. Material factors affecting this decrease were lower Interest expense - net and Intangible asset amortization expense, partially offset by higher Restructuring program charges.
Previous wording
Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of March 31, 2024 and December 31, 2023, Eaton had cash of $473 million and $488 million, short-term investments of $1,969 million and $2,121 million, and short-term debt of $1 million and $8 million, respectively. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term debt.
Current wording
Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of June 30, 2024 and December 31, 2023, Eaton had cash of $540 million and $488 million, short-term investments of $2,241 million and $2,121 million, and short-term debt of $4 million and $8 million, respectively. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term debt.
Previous wording
Net cash provided by operating activities increased by $140 million in the first three months of 2024 compared to 2023 primarily due to higher net income in 2024, partially offset by higher working capital balances.
Current wording
Net cash provided by operating activities increased by $236 million in the first six months of 2024 compared to 2023. Material factors affecting this increase was higher net income of $432 million, partially offset by higher working capital balances of $162 million.
Previous wording
Net cash provided by investing activities increased by $156 million in the first three months of 2024 compared to 2023 primarily driven by an increase in sales of short-term investments to $150 million in 2024 compared to purchases of short-term investments of $27 million in 2023 and proceeds from the sale of certain facilities in 2024, partially offset by an increase in capital expenditures for property, plant and equipment to $183 million in 2024 from $126 million in 2023.
Current wording
Net cash used in investing activities decreased by $519 million in the first six months of 2024 compared to 2023. Material factors affecting this decrease were a decrease in purchases of short-term investments to $126 million in 2024 from $719 million in 2023 and an increase in proceeds from sales of property, plant and equipment to $77 million in 2024 compared to no proceeds in 2023, partially offset by an increase in capital expenditures for property, plant and equipment to $370 million in 2024 from $286 million in 2023 and an increase in cash paid for acquisition of a business to $51 million in 2024 compared to no cash paid in 2023.
Previous wording
Net cash used in financing activities increased by $255 million in the first three months of 2024 compared to 2023 primarily due to no proceeds from borrowings in 2024 compared to proceeds from borrowings of $318 million in 2023, and an increase in repurchase of shares to $138 million in 2024 compared to no repurchase of shares in 2023, partially offset by a decrease in net payments of short-term debt to $7 million in 2024 from $236 million in 2023.
Current wording
Net cash used in financing activities increased by $726 million in the first six months of 2024 compared to 2023. Material factors affecting this increase were an increase in repurchase of shares to $738 million in 2024 compared to no repurchase of shares in 2023, an increase in payments on borrowings to $399 million in 2024 from $5 million in 2023 and an increase in cash dividends paid to $756 million in 2024 from $692 million in 2023, partially offset by an increase in proceeds from borrowings to $1,084 million in 2024 from $818 million in 2023 and a decrease in net payments of short-term debt to $4 million in 2024 from $225 million in 2023.
Previous wording
Capital expenditures were $183 million and $126 million in the first three months of 2024 and 2023, respectively. The Company plans to increase capital expenditures over the next five years to expand production capacity across various markets to support anticipated growth. As a result, Eaton expects approximately $800 million in capital expenditures in 2024.
Current wording
Capital expenditures were $370 million and $286 million in the first six months of 2024 and 2023, respectively. The Company plans to increase capital expenditures over the next five years to expand production capacity across various markets to support anticipated growth. As a result, Eaton expects approximately $800 million in capital expenditures in 2024.
Previous wording
Cash dividend payments were $368 million and $334 million in the first three months of 2024 and 2023, respectively. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating cash flows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to continue to pay quarterly dividends in 2024.
Current wording
Cash dividend payments were $756 million and $692 million in the first six months of 2024 and 2023, respectively. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating cash flows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to continue to pay quarterly dividends in 2024.
Previous wording
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion of ordinary shares (2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to $5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 2022 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three months ended March 31, 2024, 0.5 million ordinary shares were repurchased under the 2022 program in the open market at a total cost of $138 million. During the three months ended March 31, 2023, no ordinary shares were repurchased. The Company will continue to pursue share repurchases in 2024 depending on market conditions and capital levels.
Current wording
On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion of ordinary shares (2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to $5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 2022 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three and six months ended June 30, 2024, 1.9 million and 2.3 million ordinary shares, respectively, were repurchased under the 2022 program in the open market at a total cost of $600 million and $738 million, respectively. During the three and six months ended June 30, 2023, no ordinary shares were repurchased. The Company will continue to pursue share repurchases in 2024 depending on market conditions and capital levels.
Previous wording
There were no business acquisitions in the first three months of 2024 and 2023. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for higher growth and strong returns, and align with secular trends and its power management strategies.
Current wording
The Company paid cash of $51 million to acquire a business in the first six months of 2024. There were no business acquisitions in the first six months of 2023. The Company paid cash of $68 million for investments in associate companies in the first six months of 2024 and 2023. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for higher growth and strong returns, and align with secular trends and its power management strategies.
Previous wording
The Company manages a number of short-term and long-term debt instruments, including commercial paper. At March 31, 2024, the Company had Short-term debt of $1 million, Current portion of long-term debt of $994 million, and Long-term debt of $8,192 million. The Company believes it has the operating flexibility, cash flow, and access to capital markets to meet scheduled payments of long-term debt.
Current wording
The Company manages a number of short-term and long-term debt instruments, including commercial paper. At June 30, 2024, the Company had Short-term debt of $4 million, Current portion of long-term debt of $1,278 million, and Long-term debt of $8,555 million. The Company believes it has the operating flexibility, cash flow, and access to capital markets to meet scheduled payments of long-term debt.
Previous wording
Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture), September 15, 2017 (the 2017 Indenture) and August 23, 2022 (as supplemented by the First and Second Supplemental Indentures of the same date and the Third Supplemental Indenture dated May 18, 2023, the 2022 Indenture). The senior notes of Eaton Corporation are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Capital Unlimited Company, a subsidiary of Eaton, is the issuer of five outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). The Eurobonds and the Registered Senior Notes (together, the Senior Notes) comprise substantially all of Eaton’s long-term indebtedness.
Current wording
Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture), September 15, 2017 (the 2017 Indenture) and August 23, 2022 (as supplemented by the First and Second Supplemental Indentures of the same date and the Third Supplemental Indenture dated May 18, 2023, the 2022 Indenture). The senior notes of Eaton Corporation are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Capital Unlimited Company, a subsidiary of Eaton, is the issuer of six outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). The Eurobonds and the Registered Senior Notes (together, the Senior Notes) comprise substantially all of Eaton’s long-term indebtedness.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Additional information related to acquisitions of businesses is presented in Note 2.