Fourth Quarter 2015 Earnings Release February 3, 2016

Transcription

1 Fourth Quarter 2015 Earnings Release February 3, 2016 Alexander M. Cutler

2 Forward-looking Statements and Non-GAAP Financial Information This presentation or the comments we make on our call today contain forward-looking statements concerning, among other matters, the first quarter 2016 operating earnings per share, full year 2016 operating earnings per share, segment margins, capital expenditures, cash flow, tax rate, corporate expenses, projected revenue growth, foreign currency exchange impact, stock repurchase plans and the costs and benefits associated with planned restructuring actions. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company s control. The following factors could cause actual results to differ materially from those in the forwardlooking statements: unanticipated changes in the markets for the company s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; unanticipated changes in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; the performance of recent acquisitions; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; interest rate changes; stock market and currency fluctuations; war, civil or political unrest or terrorism; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements. This presentation includes certain non-gaap measures as defined by SEC rules. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided in the investor relations section of our website at 2

3 Highlights of Q4 Results Operating earnings per share of $1.17, above midpoint of guidance by $0.07 $44M net benefit from restructuring in Q4 Sales of $5.1B, down (9)% Organic revenue down (4)% Forex impact of (5)% Record Q4 segment operating margins of 16.0%, up 150 bps from Q Operating cash flow of $742M and $2.4B for full year 2015 Repurchased $228M of shares in quarter, with 2015 total repurchases of $682M 3

4 Comparison to Q4 Guidance Operating EPS Reconciliation vs. Guidance Midpoint of guidance $ 1.10 Higher volume 0.01 Higher net restructuring savings* 0.02 Lower tax rate 0.02 Lower corporate expense 0.02 Q Operating EPS $ 1.17 * From activities announced in Q2 earnings call 4

5 Financial Summary (M) 4Q 15 4Q 14 V 14 Sales $5,057 $5,565 9% Segment Operating Profit as Reported % Acquisition Integration Charges (13) (26) Segment Operating Profit % Segment Operating Margin 16.0% 15.9% 10bps Operating Earnings % Net Income % Sales Growth: Organic (4)% Acquisitions 0% Forex (5)% Total (9)% Reconciliation of net income to operating earnings Net income per share assuming dilution $ 1.15 Per share impact of acquisition integration charges 0.02 Operating earnings per share $

6 Electrical Products Segment (M) 4Q 15 4Q 14 V 14 Sales $1,730 $1,821 5% Operating Profit as Reported % Acquisition Integration Charges (8) (17) Segment Operating Profit % Operating Margin 17.7% 17.6% 10bps Sales Growth: Organic (1)% Acquisition 0% Forex (4)% Total (5)% Bookings down 1% in Q4 on weakness in Asia Pacific, and marginally lower Americas Net restructuring impact +$2M, +10bps impact 6

7 Electrical Systems & Services Segment (M) 4Q 15 4Q 14 V 14 Sales $1,494 $1,650 9% Operating Profit as Reported % Acquisition Integration Charges (5) (8) Segment Operating Profit % Operating Margin 13.9% 15.2% 130bps Sales Growth: Organic (5)% Acquisition 0% Forex (4)% Total (9)% Q4 bookings down 2% with particular weakness in the Asia Pacific region Net restructuring impact +$9M, +60bps impact 7

8 Hydraulics Segment (M) 4Q 15 4Q 14 V 14 Sales $552 $673 18% Operating Profit as Reported % Acquisition Integration Charges -- (1) Segment Operating Profit % Operating Margin 11.2% 12.2% 100bps Sales Growth: Organic (12)% Acquisition 0% Forex (6)% Total (18)% Bookings declined 22% in Q4 Continued broad-based weakness in stationary and mobile equipment markets Net restructuring impact +$17M, +300bps impact 8

9 Aerospace Segment (M) 4Q 15 4Q 14 V 14 Sales $440 $456 4% Segment Operating Profit % Operating Margin 17.5% 15.4% 210bps Sales Growth: Organic (2)% Divestitures 0% Forex (2)% Total (4)% Bookings increased 6% in Q4, with aftermarket bookings up 14% Net restructuring impact +$2M, +50bps impact 9

10 Vehicle Segment (M) 4Q 15 4Q 14 V 14 Sales $841 $965 13% Segment Operating Profit % Operating Margin 18.4% 16.9% 150bps Sales Growth: Organic (6)% Acquisition 0% Forex (7)% Total (13)% NAFTA Class 8 shipments down 6% in Q4 Net restructuring impact +$4M, +40bps impact 10

11 Highlights of Full Year 2015 Results Organic growth at (2)%, reflects the continued decline of end markets through 2015 Our 2015 restructuring program totaled $129M in cost, yielding $78M of benefits in 2015 Segment operating margin of 15.2%, including (30)bps of net restructuring impact Free cash flow of $1.9B equal to 94% of net income Repurchased 11.3M shares, 2.4% of outstanding shares at beginning of 2015 Paid down $1.0B of debt related to Cooper Successfully completed 3 year Cooper integration 11

12 Update on 2015 Restructuring Actions 2015 $M 1H Q3 Actual Q4 Plan Q4 Actual Total Restructuring Cost $(14) $(113) $(10) $(2) $(129) Savings $9 $23 $35 $46 $78 Net vs $(5) $(90) $25 $44 $(51) Net benefits in Q4 were $19M better than expected 12

13 2015 Restructuring Costs and Benefits $M Actual Restructuring Costs 2015 Actual Benefits Electrical Products $(12) $3 Electrical Systems & Services $(29) $14 Hydraulics $(31) $33 Aerospace $(5) $2 Vehicle $(34) $8 Corporate $(18) $18 Total $(129) $78 13

14 We are Accelerating and Expanding our Restructuring Actions $M Cost 2015 Actuals 2016 Estimate 2017 Estimate Total Annual Benefits Cost Incremental Annual Benefits Cost Incremental Annual Benefits Estimated Cost Estimated Cumulative Benefits $(129) $78 $(140) $185 $(130) $105 $(399) $418* Expanding our restructuring program with $96M of additional spending, yielding an additional $108M of full year benefits Total program will now spend approximately $400M over three years, yielding $418M of cumulative benefits In 2016 restructuring actions will deliver $174M incremental profit versus 2015, up from Q3 estimate of $138M In 2017 the program will yield $115M incremental profit versus 2016 * Full year effect of 2017 actions yield additional $50M of benefit in

15 For 2016, We Expect Organic Revenues Will Decline (2) - (4)% Segment 2016 Organic Revenue Growth Electrical Products 0% - 2% Electrical S & S (2)% - (4)% Hydraulics (9)% - (11)% Aerospace 1% - 3% Vehicle (7)% - (9)% Total (2)% - (4)% 15

16 Segment Operating Margin Expectations Full Year 2015 Actual* 2016 Guidance* Electrical Products 16.9% 17.0% % Electrical Systems and Services 13.3% 13.7% % Hydraulics 10.1% 10.0% % Aerospace 17.2% 17.8% % Vehicle 17.5% 16.7% % Eaton Consolidated 15.2% 15.3% % * includes net impact of restructuring actions in 2015 and

17 Our Multi-Year Share Repurchase Program In July, our new capital plan outlined the repurchase of 1-2% of outstanding shares per year In 2015, paid off $1.0B of outstanding debt and repurchased $682M or 2.4% of outstanding shares For the period 2015 through 2018, we plan to deploy a majority of excess cash to repurchase shares Targeting $3B in share repurchases through 2018, inclusive of 2015 repurchases 17

18 EPS Guidance 1st Quarter $ $0.90 Operating EPS / Net Income Per Share Organic revenue down (5)% from Q4 Tax rate between 8% - 10% Segment margins in Q1 between 13.5% % Guidance includes restructuring cost of $(70)M Full Year $ $4.45 Operating EPS / Net Income Per Share Guidance includes net restructuring impact of $174M and $45M benefits from Cooper integration versus 2015 Operating EPS flat year-to-year with revenues down $1B Margins up 40bps Stock repurchases will offset impact of tax rate increase 18

19 2016 Outlook Summary Organic Revenue Growth (2)% - (4)% Acquisition Revenue Growth $35M Forex (2)% Segment Operating Margins 15.3% % Corporate expenses $80M below 2015 levels Tax Rate 9% - 11% Operating EPS / Net Income Per Share Operating Cash Flow Free Cash Flow Full Year $ $4.45 Q1 $ $0.90 $2.6B - $2.8B $2.1B - $2.3B CAPEX $525M 19

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