Eaton Corp plc (ETN) Q2 2026 Earnings Call Transcript

Thank you for standing by, and welcome to Eaton's Second Quarter 2026 Earnings Results Conference Call. 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 of Investor Relations. Please go ahead.

Good morning. Thank you all for joining us for Eaton's Second Quarter 2026 Earnings Call. With me today are Paulo Sternadt, Chief Executive Officer; and Dave Foster, Executive Vice President and Chief Financial Officer. Our agenda today includes operating remarks by Paulo. Then he will turn it over to Dave, who will highlight the company's performance in the second quarter. As we have done in 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 remind our comments today will include forward-looking statements with respect to revenue, 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.

Thanks, Yan, and thanks, everyone, for joining us. Starting on Page 3, I'm happy to share the strong second quarter results driven by improved execution. Adjusted EPS of $3.15 exceeded guidance by $0.10 at the midpoint, reflecting strong operating performance by our teams. We posted record revenue of $8.5 billion with 21% total revenue growth, 14% organic growth and 23.1% margins, all better than the high end of our guidance. Americas continues to execute well through its capacity ramp, delivering 18% organic growth and 190 basis points of margin expansion over prior quarter, all stronger than expected and very encouraging. We also continue to see unprecedented demand. Our total company book-to-bill remains strong at 1.2, with Americas book-to-bill expanding to 1.3 and Aerospace to 1.2. While demand is broad-based across end markets, you can see here, the data center orders and revenue remain robust. Overall, accelerating orders and growing backlogs are clear proof points that our customer-focused end-to-end solutions are winning in the market. This strong first half of the year gives us confidence to raise our guidance again: organic growth by 200 basis points to a midpoint of 12% and our adjusted EPS midpoint by $0.22 to $13.50 for the year. Dave and I will dive further into Q2 and the 2026 outlook. But first, let's move to Slide 4. Okay. A year ago, we began our journey to show what a new focused Eaton could deliver through our bold strategy to lead, invest and execute for growth. The progress is real and is gathering pace, and I have strong confidence in where we are going. We are leading with a stronger team and a sharper enterprise mindset. We're investing with discipline in the portfolio and capabilities that will define our future. And we are executing for growth through operational discipline across every part of this company. Today, we will provide an update on our strong progress and share how our focus on culture is helping us grow faster, serve our customers better and win for investors for years to come. Moving to Slide 5. Enabling this unprecedented demand is our ability to execute, which rests on the work we are doing to evolve and strengthen our culture. Leading for growth through an evolved way of working is how we deliver results at scale. Together, the combination of our growth strategy, market dynamics and culture is how we will win. Thinking big, we are transforming a leadership position we have in gray space for data centers into an unparalleled portfolio from grid to chip and leading the conversion to direct current applications. Through thinking big, we've positioned Eaton's portfolio ahead of secular demand, focusing on serving high-margin and high-growth end markets. By acting boldly, we've prioritized what matters and led decisively, making the bold calls to acquire companies like Fibrebond, Resilient Power, Ultra PCS and Boyd that are delivering higher growth and accretive margins to their respective segments. And we made the necessary hard calls like separating our Mobility business to align our capital to the highest-return, highest-growth opportunities. We also continue to invest organically with conviction, making Eaton a stronger partner to our customers. We win together. As One Eaton, we are pushing decision-making and leadership closer to where the action is — to the customer, the engineering and sales teams, the plants and service teams. And we are scaling our advantage by fostering a culture of humility, courage and learning, putting problems and opportunities on the table fast and solving for them as one unified team. This is not just about our executive leadership. It is about empowering 100,000 people to win together. We are transforming Eaton to win by being leaner, more agile, more customer-centric, more competitive and more innovative. We see this culture internally every day, and you see this culture reflected in our numbers. Moving to Slide 6. We are already seeing how this mindset and discipline translates into real results. We've said before that 2026 is Eaton's year of execution, and we are making solid progress in Electrical Americas. Scaling capacity to turn demand into revenue remains the clear priority in the business. As you know, we are investing more than $1 billion in capacity expansion and bringing online two dozen projects across Electrical Americas. As these facilities ramp, we see clear momentum in revenues per day. We are delivering roughly 25% growth in revenue per day since the start of 2025, up 16% in the year and another impressive 8% in Q2 over Q1. Q1 to Q2 represented the largest quarterly ramp in production output in our financial model, and we overdelivered on it. It is behind us. We remain laser-focused for the second half of the year. Demonstrating such strong execution milestones gives us even more confidence as we step up in the second half. Importantly, we are realizing margin improvements from our execute-for-growth strategy in Americas. Margins improved 190 basis points quarter-over-quarter and will improve further in the second half of the year. Meanwhile, even after 18% organic growth, backlog continues to expand due to strong demand and winning projects at record pace. Altogether, higher shipments, improving margins and backlog driving extended visibility demonstrate our execute-for-growth strategy is working and give us confidence in the second half and beyond. I want to thank our Electrical Americas and all the supporting teams for the tremendous work they are doing. And now I'll hand over to Dave, who will cover our financials.

Thanks, Paulo. I'll start by providing a brief summary of our strong Q2 results on Page 7. Total revenue grew by 21% with a strong contribution of 7 points from acquisitions. Each acquisition is at or above our expectations for growth and margins. Organic growth for the quarter was 14%, driven by the strength in Electrical Americas and Electrical Global. Excluding Mobility, our organic growth would have been 16%. Adjusted EPS of $3.15 exceeded our original expectations and was a Q2 record. Adjusted EPS for the first half of $5.96 was also a first half record. We generated a strong $0.25 segment profit beat versus our guidance that was partially offset by $0.15 from a higher tax rate. We also posted Q2 record cash flow with operating cash flow up 23% over prior year. Now let's move to the segment details. On Slide 8, we highlight our Electrical Americas segment. Organic sales growth accelerated to 18%, driven primarily by strength in data centers, up about 65%, along with strong growth in machine OEM and commercial and institutional. We are pleased with our better-than-expected margins of 27.5%, 190 basis points higher than Q1, again, a reflection of our execute-for-growth strategy starting to work. From a year-over-year perspective, the majority of the margin decline was driven by temporary negative price/cost. With the pricing actions taken in Q2 and early Q3, we are confident this will return to a roughly neutral impact in the second half. Meanwhile, demand is accelerating. Our negotiations pipeline was up 60% year-to-date over prior year, translating to record orders up 41% on a rolling 12-month basis and a book-to-bill increasing to 1.3. This is solid progress and gives us even more confidence to execute on our commitments for 2026. Now I will summarize the strong results for our Electrical Global segment. Total growth of 44% included organic growth of 18% from strength in data center, utility and machine OEM, along with 25% attributed to the Boyd acquisition. We are very pleased with Boyd's performance and the strong growth ahead of us in the liquid cooling market. Operating margin of 19.8% was down 30 basis points over prior year, but about 1 point higher than we had expected for the quarter. We have also pulled in our planned general price increase from Q4 to Q3, which gives us even more confidence in our full year guidance. As you can see on the chart, demand in global increased, driven by our accelerating order growth, up 33% 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 in this segment. Before moving to our industrial businesses, I'd like to briefly recap the combined Electrical segment's performance. For Q2, we posted organic growth of 18% and total growth of 27%, a great second quarter. Segment margins were 24.5%, 110 basis points higher than Q1. On a rolling 12-month basis, orders accelerated up 38%, and our book-to-bill ratio for our Electrical sector was 1.2. Our backlog for our total electrical business increased 43% over prior year. Page 10 highlights our Aerospace segment's performance for the quarter. Organic sales growth of 7% remained at a high level and resulted in record quarterly sales and Q2 record segment profit with particular strength in commercial OEM, along with strength in commercial aftermarket. The Ultra PCS acquisition is performing to our expectations. It added 6 points of growth and is accretive to Aerospace margins. Total Aerospace operating margin expanded by 60 basis points to 22.8%. Demand remains strong in Aerospace with robust orders driving backlog expansion and book-to-bill increasing to 1.2. While we make progress in our Electrical businesses, Aerospace continues to see strong demand now and into the foreseeable future, resulting in higher sales growth with attractive margins. Moving to our Mobility segment on Page 11. In the quarter, the business declined by 2% organically, which was fully offset by positive foreign exchange impact. Excluding the impact of the intentional exit of the low-margin business that I mentioned in our prior earnings call, organic growth would have been slightly positive. Meanwhile, margins increased 90 basis points year-over-year. Now I will turn it back to Paulo to discuss our updated guidance and close out the presentation.

Thanks, Dave. Page 12 includes our end market growth assumptions. We've raised our expectation for the MOEM market to solid growth on the chart. I shared last quarter the demand in the data center and distributed IT market continues to grow even faster than we estimated in our initial guidance. And today, it's even stronger than we expected three months ago. Total U.S. data center backlog has grown to 307 gigawatts or 15 years of backlog at 2025 build rates, up from 12 years in our last update. Only roughly 20% of this backlog converts near term. The majority will translate to 2028 and beyond deliveries, a very nice tailwind for Eaton for years to come. We also continue to expect durable strength in many of the remaining electrical markets and in aerospace. All in, we estimate our total addressable market will grow about 10% this year. These many paths for sustainable growth give us confidence to deliver continued differentiated growth in 2026 and beyond. Now moving to Page 13, we summarize our updated 2026 organic growth and margin guidance. Following another strong quarter, we now expect total organic growth to be between 11% and 13%, up 200 basis points at the midpoint from the prior 9% to 11% range. This increase is driven by strength in Electrical Americas, up 200 basis points to a midpoint of 15% growth, and Electrical Global, up 450 basis points to a midpoint of 12% growth. Our margin progress is encouraging and provides the confidence to reaffirm our segment margin guidance ranges. On the next page, we have the balance of our guidance for 2026 and Q3. For 2026, we are raising our adjusted EPS guide. Now we expect full year EPS to be between $13.40 and $13.60, $13.50 at the midpoint. We are reaffirming our cash flow expectations for the year. We have also provided guidance for Q3 on this page. As a reminder, we also provide supplemental guidance, which includes raising Boyd's full year revenues to $1.8 billion of which $1.5 billion will be in Eaton's books for the year. Continued strength across end markets, combined with our record backlog, provides strong visibility into our outlook for the year. With the industry's best positioned portfolio, strong end market demand and significant secular tailwinds, we are confidently entering the back half of 2026 and very well positioned to extend our momentum into 2027. To wrap up on Page 15, these results reinforce what we've been saying for some time. First, our lead, invest and execute for growth strategy is working and is gathering pace. We are transforming our portfolio and evolving our culture. We are positioning the company to capture strong demand to accelerate growth and beat our own short- and long-term commitments so we can deliver meaningful value creation for our shareholders. Second, execution continues to be a difference maker. Our teams are doing a great job increasing capacity, serving customers and turning demand into shipments and earnings. We are making real progress, and there's still plenty of runway ahead of us, all while we continue to innovate, scale acquisitions and reshape the portfolio to achieve higher growth with higher margins for better earnings consistency. Third, we continue to see very strong customer demand. Orders, backlog and our project pipeline all give us confidence that the opportunities in front of us remain significant, and we are winning because customers value our technology, our solutions and our ability to deliver. And finally, when you put it all together, strong demand, improving execution, higher shipments and growing earnings, we feel confident in both the near-term outlook and the long-term commitments we've laid out. That's reflected in the guidance increase we are announcing today and our confidence in delivering on our 2026 and 2030 commitments. We are remaining focused, staying close to customers, innovating with speed, leading and investing in growth and executing with high discipline. I believe the best is still ahead of us. Now we will open the floor to your questions.

Thanks, Paulo. Moving to the Q&A. With that, I will turn it over to the operator for instructions.

Our first question comes from the line of Deane Dray from RBC.

We're seeing continued strong growth in data center. I mean, really, that's what we were expecting. That's really good execution on the team. But I'd like to put the spotlight, if I could, on your other non-data center electrical businesses, the end markets there. Can you take us through the growth that you're seeing and what that means for the second half?

Sure, Deane. I'll answer your question, but let me make a couple of comments first. Thanks for the question, by the way. But I want to make a comment to recognize your strong career. So after 30 years and plus in the industry, 12 years at RBC, you're stepping into a well-deserved retirement. And we couldn't let this call pass without recognizing that. So our huge congrats from this team on behalf of the complete Eaton team, truly a remarkable career. And I hope you turn this next chapter into something fun with your family, well-deserved rest. And please note that we are very grateful for all the candor, your tough questions, your right questions over the years and also your support. So thank you very much. It was a pleasure working with you. You cannot see, but the team here is nodding. So thank you, Deane, and congratulations once again. Now to your question, we expect a lot of questions on data center. So thanks for asking us a question which allows us to talk about the other parts of the portfolio. So I'm going to just make a comment on data centers because it's important. What we have ahead of us in terms of demand is still very incredible. It's an enormous growth opportunity. Just think about this 300 gigawatts of announcements versus the 50 gigawatts that was built over decades that's going to be online by the end of this year, six times what this industry built ever is going to be built in the next years to come. So it's an incredible opportunity. I don't want this to go unnoticed. But the beauty of our strategy and, frankly, about our portfolio, is that we are anchored in deep secular trends that are even broader than data centers. So we have other meaningful growth opportunities beyond data centers. Your question was around Electrical. I'm going to answer around Electrical, but we also have a strong Aerospace business. As you look beyond data centers in Electrical, you'll see that we realized strong growth across most of Electrical end markets in the quarter, including double-digit organic revenue in commercial and institutional, which is still a very important market for us. Machine OEM is recovering really strongly, also double digits, and distributed IT is recovering nicely, also double digits. So that was revenues. In terms of orders, it's even more encouraging. Orders are accelerating broadly again, with growth in all of our end markets. I'm going to give you some highlights here. Our total Electrical orders increased mid- to high-teens for commercial, institutional, utility, industrial and even residential, which is a market that is not as strong as you know. And the machine OEM market rebounded even faster with orders in the mid-30s. So very strong, all 12-trailing months conclusion. So I just want to say to this team and everyone and our investors that we are anchored on these secular trends beyond data center. We have many paths to growth, and we remain committed to data centers. So our end markets are really strong. Thanks, and congratulations again, Deane. And just — Deane, all the best to you. Before we go to the second question.

No, I'm going to keep to the one question, no follow-up. I just appreciate all the support you and your team have provided me, and I wish you all continued success.

Same to you. Take care. All the best. Before we move to the second question, operator, I just want to recognize that our IR team received a number of inbound calls regarding the IEEPA refund. So in respect to all of you, in order to make this call a bit more fluid, I'd rather address that upfront and clear the air. So I want to say that our impact in Q2 from the IEEPA refunds is less than $3 million, so it's less than $0.01 of EPS. So it's a clearly operational beat when Dave talked about $0.25 beat, it's truly operational. I just want to make that very clear. And then the impact of the tariffs for the second half is immaterial, the refunds, and is already embedded in the guidance. I just want to clear the air on that because I think we have multiple calls into Yan and his team.

Our next question comes from the line of Andrew Obin from Bank of America.

Yes. Thank you for the IEEPA data point. I will go to data centers. So lots of questions on Boyd. You raised your full year guidance for Boyd revenues. The business appears to perform well. Can you remind us how you look at Boyd's competitive advantages compared to competitors and maybe also talk about Boyd's cadence between Q3 and Q4?

Thank you. So thanks for the question. So I think it's important that I highlight we are very, very excited to have Boyd as part of our portfolio. We are really happy with the acquisition. They're performing really, really well. Why are we so happy? Not only do I see this business as a winning business with this leadership position in cooling, but also as you're going to see in a minute through my comments, they're also a high performer financially. And the third thing that I love about this business is that it gives a lot of early strategic read into the chip development that will determine the future of the data center. So it's a very strong business, but also very strategic and performs well financially. So nothing not to like here. As I said last quarter, and I want to get back to it, many questions on cooling over time. I truly believe the investor community evolved in their thinking in the last months and most understand its growth potential and how strategic it is. So I don't want to spend much time there. Now looking at the cooling business we have today, we are glad to say Boyd is part of us now. We are very confident they're going to deliver on this raised forecast for the full year, $1.8 billion. It is certainly a huge jump from last year of $1.1 billion, but we believe this team can deliver, and I will be surprised if they cannot overdeliver on this number, to be honest. Now if you look at Q2, they delivered $432 million in revenue, which was 20% above their commitment and our Q2 guidance. So very, very strong performance. So in the short term, we know we are in a very good position. I guess your question was more how can we be sure they will continue to win? What is their competitive advantage? If I'm to address that, I would start by saying that I believe they're going to continue to win because they are the partner, the design partner for broad-based chip providers. They are always in their road maps and give them a first look and a first chance to bid, which I think is fascinating. If you look at their size and scale for liquid cooling, they are the market leaders for liquid cooling, if you think about the cold plates and the CDUs. And this team has proven over time they can scale reliably and with high quality. So I think this is really important for most data center players. If you compare to other companies, some are rather small. So there are question marks of whether they can scale with the same quality and efficiency and some are actually showing some quality issues from the get-go. So I think they're going to win also on quality and the capacity to ramp. I must say, and you guys probably remember when we announced the deal, they cut their teeth. They developed their pedigree in aerospace. So it is very stringent technically where failure is not an option. So they bring that DNA to the data center environment. So I think it's a winning formula. And I also believe they have a deep breadth of products and systems. It's a very well-balanced portfolio. And they have, as I said multiple times, the deepest engineering team and experience. So whatever comes next, they're going to be able to lead the market. So that's what I think makes all the difference. Now I'll talk about the way we are integrating them to the rest of the portfolio, which is also very important. They provide us grid-to-chip capability so we can say now we have the full portfolio from grid to chip. And a couple of words on integration because some of you might be interested in how the integration is going. I would say it's going really, really well. Our approach to it is that we are accelerating their development. At the same time, we are protecting, we are learning from it, and we are augmenting what made this company great, which is their superior engineering once again, their manufacturing quality at increased scale. So we are really taking good care of it. So I think it's a high-performance team that leads a high-successful business, and we are just making them better as we continue to invest. So beyond cooling, the other thing that not many people realize but is really important is the strategic importance to have the seat at the table with the chip manufacturers. That will bring benefits to our power and also our software business. So in summary, I think our customers validate our strategy. I am extremely happy to have Boyd in our portfolio, and we are all very confident they're going to deliver on the growth plan.

Our next question comes from the line of Chris Snyder from Morgan Stanley.

I wanted to ask on Electrical Global organic growth, which was the biggest upside surprise in our model, at least. So you guys, I guess, high teens organic versus high singles expectations. So just kind of wondering what drove that level of upside and organic inflection? Is it the legacy business getting better? Like is data center coming to market? Are you starting to see maybe revenue synergies or tailwinds from the contribution of Boyd? So just what are you seeing there? And what gives you confidence in — it seems like the guide is saying it's going to hold double digits into the back half. So just any color there would be great.

Thanks, Chris. I'll give you two reads. I'll first talk about the individual businesses and then give you a read into the end markets, so you have a complete view on how the segment is behaving and performing. I'll start by saying that in Q2, and I'm very pleased to say this, all businesses — our EMEA, our APAC and our GIS businesses — all performed meaningfully ahead of organic growth expectations; all did really well. So if I go individually, revenues were up 20% in both EMEA and APAC, and they were up high teens in GIS. So you see the 18% combined segment organically. So very strong performance by all, and we are very pleased. If you cut this by end market, we are getting a lot of traction in data center. Organic revenues were up 65% and much faster than the underlying market that is growing at 23%. So definitely gaining momentum, gaining share. And if you look also at the traditional markets we had for this segment like machine OEM, they are also up more than 20%. So it's a strong data center story, but not only a data center story. OEMs were up 20%, utilities were up low teens and so was commercial institutional also low teens. So the comment I want to make, and I hope you get this very clearly, is that growth was broad in terms of geographies and businesses. Every business did well, but it's also broad in terms of end markets. In conclusion, this was a look-back view. If you look towards the future, orders were up 33% on a 12-month basis. The total backlog, as you could see in the chart, is up 103%. There is a contribution of Boyd in that, of course. But even if you take the Boyd contribution out, the organic backlog is up 54%. So very strong performance by the team. So that's what gave us this confidence, Chris, to raise our guidance from 7.5% to 12%. We believe this team can deliver. And I think I'm also going to talk about execution for a moment here because this is an integral part of our strategy. We said in multiple events and calls that it's well known that the APAC team is a center of excellence for us in terms of operation, a high-performance team competing in a very tough market. I think there's no surprise there. I would like to shed some light and recognize the EMEA team in this call because their turnaround in the last 18 months is really remarkable. So their organic growth of 20% and they keep expanding margins, gaining share and momentum; it's really a great performance. So here, you see our three pillars of our strategy implemented at speed and at scale as we move forward. And just connecting the dots a little bit to the question before from Andrew on Boyd: let's not forget that Boyd joined that group now. So it's the new elite player who joined the Electrical Global segment. They keep winning. I talked about their performance. So I'm not going to repeat that. So just think about the moment where they start joining their organic growth rates — it's going to be a great moment for this business as well. We'll continue to deliver good news as EMEA, APAC and GIS keep delivering. And we are looking forward to Boyd joining the organic growth in 2027. It's going to be a good moment for us.

Our next question comes from the line of Scott Davis from Melius Research.

Congrats on the improved quarter. Paulo, I think you just crossed a year as CEO. Any reflections? Any — maybe you can talk through some of the ups and downs and how it makes you think about the business going forward?

Thank you for the question. I appreciate the strategic angle to it. The team has accomplished a lot, Scott. So my answer is going to be a bit long because I need to pay justice to what the team has just done. I had the benefit to be announced months before I took over. So we could think about the strategy a little bit in advance and hit day one really as one team moving forward, which was great. I give credit to Craig and the Board for allowing me to do so. As you know, we developed this strategy having three pillars, and you should ask yourself, why did we include growth into each one of those pillars. We looked back as a team, even before I started as CEO, and we looked at all the things we loved about the company, all the things we wanted to keep that made Eaton great. At the same time, we looked forward at the growth opportunity ahead of us, and we concluded that what brought us here would not necessarily be enough for us to double the size of the company moving forward. For perspective, if you look at our history here, it took us more than 100 years to hit $20 billion in top line when we acquired Cooper. Then the following decade we didn't grow much. We just grew $1 billion in top line. But what we did do as a team, we started reshaping the portfolio. We divested hydraulics and increased margins in that period. So we became this premium company with premium valuation, and we are proud of that. Now if you start looking at the last three years, including our guidance today, from 2024 beyond is when the line actually bends for us. It's an inflection point in terms of growth. So if you look at the three years, beginning of 2024 to end of 2026, including our renewed guidance, we will add $10 billion to the top line. So in three years, we're going to do ten times what we did in the prior decade. So that's what we are getting the company prepared for. I believe this is only the beginning. The opportunity now we have as a company is actually to add much more to our top line and bottom line, not in 100 years, not in 10, but in the next four years until 2030. So that's the spirit. I'll give you a bit of a hint on the performance of each one of the pillars. First of all, why lead for growth? What we are trying to achieve here? It's about culture. It's about strong values we want to keep. And it's also about improving speed and customer centricity. Over time, why was this required? Over time, we moved to more of a hybrid go-to-market model. In the past, we were primarily a distribution model. Now we have strong distribution and strong direct accounts, and the team needed help in getting there. So we put a program together to provide coaching to our leaders, and we involved over 1,000 people in the organization. Four different levels of the organization are supported by this program. We also recognized — I did recognize in my executive team we needed to set the tone from the top and lead by example. So we looked and strengthened my executive team for faster results. We are building a more focused and integrated team with high collaboration, not only internally but also with our customers. Under invest, the idea is to focus on the structural transformation of our portfolio. I still believe that story is now fully appreciated by the market. But every quarter, we're going to be working to prove that we are transforming the company. Within the first year, we deployed capital to acquire businesses to accelerate both growth and margins. Just a reminder, we acquired Fibrebond for data center modularization; Resilient Power, which is the medium-voltage solid-state transformer for 800-volt DC; Boyd, giving us the cooling capability; and Ultra PCS, a leader in technology in defense systems. We continue to refine our portfolio including the tough call on the Reverse Morris Trust to move away from the automotive sector. Those are required measures. Part of invest for growth is also organic investments. We are ramping several facilities, as you know. Most of the pain now is behind us, which happened in Q4 and Q1. So we start to see the plants delivering better volume, better output. Going forward, expect more productivity out of the plants and the learning curve is getting easier as we move forward. So top line should grow faster with fewer bottlenecks. On execution, we know we have pockets of excellence in the company. I talked about APAC being a center of excellence. We still have room to improve in operations in all high-margin businesses — Electrical Americas, Europe and Aerospace. That gives us hope. We are focusing on that, and that can bring us a lot of self-help for the future. All in all, having this new leadership team and portfolio in hand, we are now fully focused on executing for growth. I want to say this gives us full confidence for the year, but also for 2027 and our 2030 commitment. I'm thankful and proud of this team for what we achieved together in the first year. I would say I'm very confident the best years for Eaton are still ahead of us. Thanks for allowing me to talk about it.

Our next question comes from the line of Nigel Coe from Wolfe Research.

Great. I think this is going to be a short answer. Before I ask my question, can I just clarify — I know you don't want to talk about tariffs, Paulo, but I heard $30 million. The transcript's got $30 million. I think you meant to say $3 million. Is that correct?

Less than $3 million. $2.8 million, if you want to be precise.

Okay. $2.8 million, that's perfect. Okay. I just wanted to double-click on the Electrical Americas margin ramp in the back half of the year. And you talked about better price. So I just want to really understand how much is coming from kind of better price versus cost? And then what benefit are you seeing from factory productivity, lead times, et cetera?

Thanks for the question. I'll kick it off to give the big picture, and then I will not steal Dave's thunder. I just want to remind everyone that something really important: we know this is top of mind. Rest assured, we spend a lot of time on this as a team. We're really focused. We know what we need to do. The demand, once again, is fantastic. We cannot talk about margin progress without understanding how much capacity we are adding and how we are growing this business. I would say this: you see the orders keep growing our backlog. Only in Electrical Americas, we had $5 billion since the beginning of last year and sequentially another $700 million. Although the organic growth accelerates to 18%, we keep growing backlog. So that needs to be taken into consideration as we look for the second half and the future of that business. The other thing I want to say: the acquisitions we made, how we are reshaping our execution model and our leadership model — I truly believe we are at the precipice of what I call a new growth cycle for the whole company and especially for Electrical Americas, and we're getting ready for it. The bulk of the disruption we expected to happen happened in Q4 and Q1 for the ramp. By now, the expansions are going well and progressing better than planned in Q2. We are starting to get speed on this. We cleared the biggest hurdle we had in terms of sequential revenue-per-day growth, which was the sequential Q1 to Q2. So that was the strongest hurdle we had to clear, and we did that successfully. No one is taking a victory lap; the whole team stays absolutely laser-focused to meet the commitments. We meet as a team every week. My executive team is working to support the Electrical Americas group to achieve that. I'll hand it to Dave now to go through the sequential walk.

All right. So we'll start out with the first quarter to second quarter sequential. We're up almost 190 basis points. About 100 points of that was price/cost and the other 90 points was pure output as we got to scale that Paulo just talked about. If we look at H1 versus H2, some of you like to look at it that way, we'll be up 450 to 500 basis points. About 300 basis points will come from price/cost relationship. All of our pricing actions have either been implemented in Q2 or early August. And then we'll get about 150 to 200 basis points from output and productivity. Then if you look at Q2 to Q3, which is a 250 basis point improvement, 150 basis points is price/cost and 100 basis points is output and productivity. Again, the difference maybe from Q1 to Q2 compared to Q2 to Q3 is not only do we get to scale, but to Paulo's point earlier, we're starting to see productivity in those factories as our workers get more experience. Then if you look at the sequential from Q3 to Q4, again, it's a 200 to 250 basis point improvement, 150 basis points is price/cost and 50 to 100 is output and productivity. So we're on the right trajectory. We finished Q2 really strong. I have early reads on July as of this morning. Again, it's an improvement from what we saw in second quarter. So I'm feeling very confident about our exit rate for 2026, and we're still committed to our 32% margin by 2030.

Our next question comes from the line of Jeffrey Sprague from Vertical Research Partners.

I was going to ask about 800 volt. But given that answer — I was going to ask about 800 volt, but I think I want to come back to the ramp. I appreciate all that color. It looks like your guide, right, for Electrical Americas actually assumes relatively flat sequential revenues, right, Q2 to Q3 to Q4. So that lift in margins tied to price/cost and output sounds like that requires higher revenue, right? You're going to have more revenue coming through on price and you're going to have more factory output supporting the margin improvement. So is there any kind of mutual exclusivity between revenue and margin here as we think about that bridge? Perhaps you're still just being a little bit cautious on the ramp in terms of what you gave us here today.

Some of it, to be quite honest, is that when you look at the difference between Q2 and Q3, we'll be doing more on regular time versus overtime as an example. We're going to have less premium costs involved because we're already ramped. The biggest ramp was from Q1 to Q2. We have more experienced operators, and the manufacturing engineers are making cost-out improvements. Then if you look from Q3 to Q4, we have productivity investments we've made as well in our capital spending that will drive cost out as we move forward. So it's your normal improvements as you go through and get more comfortable with the product you're making at these plants, and we're seeing it in our numbers already in July.

And also, price/cost is going to normalize.

Absolutely.

Our next question comes from the line of Nicole DeBlase from Deutsche Bank.

I wanted to ask about Electrical Global. Organic growth there was much stronger, I think, than you guys had expected. Curious what really drove the upside? And then thinking about how you're framing the rest of the year, you've got the full year up 11% to 13%. I know that's up from prior, but it does embed a pretty material deceleration in the back half. Was there any sort of pull forward of demand? Or could that maybe be a bit of conservatism?

We are very prudent here, but we just raised 450 basis points. So we are still prudent in our guidance, but it's still a large upside for Electrical Global. If you look at our trajectory, we started the year saying we'd grow 8%. In the last earnings call, we said we'd grow 10%. Now we said 12%. The same is true for Americas. We want to continue that trajectory, keep improving and keep proving that we can do more. There is no downside here. We keep pushing as hard as we can.

Our next question comes from the line of Andy Kaplowitz from Citi.

Paulo, now that Boyd has been part of the portfolio and you've had several quarters of very high data center orders, maybe you can update us on what you're thinking for content per megawatt in data centers. Is $3.4 million the right number to think about now? And you gave us last quarter your view on Eaton's positioning for 800 VDC as your confidence has been improving that when the dust settles on that transition that you feel good about Eaton's ultimate content at least in that $3.4 million range?

Thanks. I would answer your question directly: $3.4 million is the right number to think about for dollars per megawatt. Regarding the 800-volt trajectory, there are a number of elements here. The medium-voltage solid-state transformer is a very important part of that transition, and we are clearly ahead in terms of technology after the acquisition of Resilient Power last year, and we are accelerating their development. But there are more elements to this transition. To be a great player in this new world you need core DC breaker technology to be able to break the circuit reliably. You need power electronics and power quality capabilities — think about UPS capabilities where we are also a leader. And the fourth big element is cooling; cooling becomes even more important, both cold plates and CDUs. To win in this new era you need those four technical blocks strongly, be a leader and be able to supply that to your customers. Even when you get all of them, you still need service available; having a strong service network that can show up at a site in an hour, not in days, is required. So it's not for everyone. Many companies will be missing one or more of these blocks and will have a hard time convincing customers to buy a packaged solution. For modeling, $3.4 million per megawatt is the right number to use, and our integrated capabilities give us confidence in our positioning in that transition.

Our next question comes from the line of Chad Dillard from Bernstein.

I was hoping you could spend some time on prefab and modularization. Could you talk through what share of your RFPs are for prefab and modular? And then how does that change your competitive positioning? And then third, what does it mean for the adoption of this approach as we think towards 800-volt architecture?

Great question. There is a clear trend toward modular solutions because one of the bottlenecks in the industry is the availability of electricians, plumbers and other tradespeople for stick builds. That's why we acquired Fibrebond: they are a strong market leader in prefabricated and modular buildings and systems. They package UPSs, switchgear and other equipment into modules. As we migrate into white space with 800-volt DC, modularization becomes even more attractive. It's a different skill set than working in a manufacturing site, requiring professional engineers and project managers. That's exactly why we acquired Fibrebond, and we are scaling them up. They are strong already in gray space, and as we move into white space and 800-volt architectures we can tap their capability and form partnerships to win in that space. We'll do this responsibly and effectively to meet what our customers want.

Our next question comes from the line of Jeff Hammond from KeyBanc.

Thanks for the color on the bridge. That was very helpful. I just ask, as you kind of expand your capacity comes online, you get more productive. I'm just wondering what you're seeing on lead times for some of your longer lead time items. And then as you get more productive and your lead times are maybe better in line relative to your competitors, what's your line of sight where you start to get more of your fair share as these lead times get better and these plants come on?

Very good question. Lead time is important to our customers, especially in a fast-moving market like data centers. We are constantly working to improve lead times. If you see our growth in data centers where lead times are even more important, we grew 65%. We completed eight consecutive quarters of growth beyond 35% in data centers, which is fascinating. When we shared the 2030 commitments, we only baked 17% of the data center growth into our model, so we are clearly ahead of that trajectory. We cannot be winning at that pace without being competitive on lead times. We are addressing product lines where lead times are extended, ramping capacity in factories, increasing engineering support, and knocking down lead times quarter by quarter. Thanks, everyone. It was a very intense and productive call. I just want to conclude with my closing remarks. First of all, once again, Deane, congrats, well-deserved retirement. Many thanks to all of you for interest in Eaton, for all your analysis and your questions. I want to say once again, thanks to the Eaton team. I know I've been fair but demanding with all of you, and you guys are responding exceptionally well. I'm pleased with the progress, knowing that we are committed to continue to improve. Our strategy is working and is gathering pace. Our markets are strong and durable. We accelerated organic growth and keep moving our backlogs up. We're going to benefit from the strength of this market for years to come, if you think about all the announced projects. We also took decisive portfolio moves to structurally transform the company. The new Eaton is taking shape as we speak toward higher growth and higher margins. We have unique grid-to-chip capabilities. A much stronger team and a stronger portfolio. Execution continues to improve, especially with the Electrical Americas improvements. We're going to keep moving margins up as we progress. Consequently, I would remind you that we printed a very strong operational beat in Q2, which gave us confidence to raise our guidance once again for the year. Thanks for your interest. Great afternoon to all. Thank you.

Thanks, guys.

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