Annual Investor Conference - Eaton

© 2016 Eaton. All Rights Reserved..

Annual Investor Conference

Uday Yadav, COO, Industrial Sector February 26, 2016

2 © 2016 Eaton. All Rights Reserved..

Key themes for today • We have industry-leading businesses across the Industrial Sector

• Positions us to capitalize on macro trends and leverage shared end markets

• Challenging short-term market outlook • We expect market conditions to improve over the five-year period

• Global macro trends continue to support our long-term growth strategy

• Investing to support outgrowth and win with customers • Leveraging shared technology to drive growth and protecting our base business

• Aggressively managing cost structure • Continuing to reduce costs through restructuring actions to position us competitively for the future

• Focus on operational excellence to run the business better


Key

appl

icat

ions

Commercial and military aircraft

Passenger cars

Off-highway equipment

Stationary equipment

Commercial vehicles

We provide reliable, efficient and safe power management for…


We have industry-leading businesses across the Industrial Sector

• Hydraulic pumps, motors & valves

• Airframe and engine fuel pumps and valves

• Sealing technology and debris monitoring

• Conveyance and ducting

• Hollow and solid valves

• Valve actuation & cylinder deactivation

• Lockers and limited slip differentials

• Heavy-Duty and Medium-Duty manual transmissions & clutches

• Hydraulic pumps

• Valves

• Steering control units

• Low speed high torque motors

• Conveyance and fittings

Aerospace Hydraulics Vehicle

Customer value

Leader in fuel economy and emissions reduction

Solutions for the world’s most demanding

power needs

Mission critical, safe and reliable solutions

Segments

Leading products

~70% of Industrial Sector products have a leading global or regional market share


Serving diverse end markets

Broad end-market exposure, but facing short-term challenges

Aerospace: 9% of ETN revenue • Commercial transports • Regional jets • Business jets • General aviation • Civil rotorcraft • Commercial Aftermarket • Military transports • Military fighters • Military rotorcraft • Military Aftermarket

Vehicle: 18% of ETN revenue • Commercial vehicles • Passenger vehicles (APAC, EMEA,

Americas) • Medium-Duty trucks • Light-Duty trucks • Agriculture • Construction & material handling • Vehicle Aftermarket

Hydraulics: 12% of ETN revenue • Construction & mining • Agriculture • Oil & gas • Commercial vehicles • Discrete manufacturing • Material handling • Industrial processing • Recreation • Filtration • Hydraulics Aftermarket

Industrial Sector end market mix


Vehicle

2014 and 2015 • Completed $120M of restructuring actions

• Reduced headcount by ~10%

• Closed or consolidated 10 facilities 2016 and 2017 • Manufacturing footprint and outsourcing

• Staffing level adjustments

• Announced significant new restructuring actions

Restructuring to address market conditions and build competitive future position

•Driving a flexible business model to reduce the impact of volatility

2013 2015

Fixed-cost reductions

Hydraulics Aerospace


Global macro trends continue to support our long-term growth strategy

Global CO2 standards to reduce emissions by 20-30% (2010-2020) and U.S. targeting 1B tonne reduction by 2027

Passenger traffic to grow by 4.9% per annum; 38,500 new aircraft to be built over the next 20 years

Intelligent worksites with condition-based and predictive-maintenance practices to generate $360B of potential value by 2020

From 2010 to 2050, global food demand is projected to increase by ~ +70% and urbanization to increase by ~ +40%


Strategic growth initiatives to drive long-term outgrowth for each business

Delivering organic growth in a challenging environment

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2015 Growth Aftermarket 2020

• Long-term market growth dynamics

• Growth driven by:

• Technology leadership with new products

• Regulatory trends and embedded intelligence

• Deliver superior value in our existing products

• Channel and service strength in the Aftermarket

Vehicle Hydraulics Aerospace


Uniquely positioned to capitalize on the future of intelligent systems and the interconnected world

Power Efficiency

Intelligent Machines in Manufacturing Fuel Economy/Emissions

The Cloud Wireless communication

Designing the next generation of intelligent products within each of our businesses


Hydraulics overview • Challenging 2015 performance; impacted by

severe volume decline

• Continued market softness driven by extended commodity downturn

• Aggressive multi-year restructuring underway

• Long-term growth driven by:

• Intelligent products and leveraging shared markets

• Differentiated products and services

• Continued focus on Aftermarket


Hydraulics market outlook

Short-term markets remain challenged; recovery expected by 2020

2016 outlook

• U.S. large Ag equipment

• U.S. mining & oil and gas

• China construction

• Commercial vehicle

Organic revenue: (9%) – (11%)

2015 – 2020 outlook

• U.S. large Ag equipment

• U.S. mining & oil and gas

• China construction

• Commercial vehicle


Hydraulics market outlook

•Focus is on competitive positioning for a recovery

Commodities are simultaneously declining resulting in an extended downturn • Hydraulics market has traditionally followed the

U.S. economy • This down cycle is expected to be slightly longer

• U.S. economy not experiencing a broader recession; industrial malaise continuing

• Global reduction in capital goods spending

• Changing government policies driving demand dislocations (e.g., China, S. America) -40%

80%

1985 1995 2005 2015

Hydraulics NA market


Multi-year Hydraulics restructuring strategy creates a competitive long-term position

Delivering stronger margin performance through future cycles

Actions completed in 2014 and 2015: • 15% reduction in support costs

• Reduced fixed manufacturing expenses by 12%

• Completed $47M of restructuring actions

Longer-term strategy: • Announced new restructuring plans for 2016 and 2017

• Adjusting our manufacturing footprint to match market demand

• Consolidating operations to more efficient plants 2015 Long-term

Target

Fixed costs as a % of sales target


Driving long-term growth with new technology

$170M of additional annual revenue by 2020 from new technology

Advanced mobile control valves in mobile machinery

$850M Mobile control market; ~10% CAGR

• Increasing crop yields through precision farming and work sites

• Intelligent components coupled with OEM controls for autonomous operations

Hybrid fork lift

$2.1B Lift truck market; 3% CAGR

• 35%+ fuel efficiency

• Reduction in emissions and maintenance

• Integrates full power management of engine


Evolution of our product offerings and solutions in commonly served markets with electrical

Expanding the base business product offering

Palm oil processing Stationary industrial machinery

• Axis Pro Internal diagnostics system

• Capability to communicate issues to central controller - minimize downtime

• Integrated SmartWire electronics system

• ~40% cost savings through automation upgrade

• Integrated SmartWire-DT panel assembly

• Palm processing plant incorporated wireless monitoring capability


$12B market opportunity; 2% CAGR

• $18B installed base of Eaton product; 1/3 of 2015 sales

• Initiatives focused on: • Enhanced channel capability through training and

integration programs

• Expanding global distribution partner network and authorized service partners

• Customizing products to local requirements

2015 2020

Eaton’s Aftermarket sales

3% CAGR

•$130M of additional annual revenue by 2020

Expanding our Aftermarket presence


2015 2016E Through thecycle

Segment margins Key drivers

• Aftermarket growing at 3% CAGR

• Targeting 50% distributor/50% OEM mix

• Enhancing product offering

• Restructuring actions

10.0%-10.6%

13.0%-16.0%

Hydraulics business outlook

10.1%

Note: 2015 segment margins exclude acquisition integration charges


Aerospace overview • Strong 2015 performance

• Aftermarket mix increasing, restructuring and improving program management

• Modest short-term market growth; long-term market strength


• Wins on new OE platforms

• Rate and content increases on legacy platforms

• Continued Aftermarket focus


Commercial

• OE

• Aftermarket

Military

Aerospace market outlook

2016 outlook

Modest 2016 growth with overall outlook improving

Organic revenue: 1% – 3%

2015 – 2020 outlook Commercial

• OE: 1 – 3%

• Aftermarket: 1 – 3%

Military: (1) – +1%


Driving long-term growth with new technology

Intelligent solutions, reliability and improving fuel economy

$5B Commercial OE market; 4% CAGR

• Improves fuel economy by reducing weight and power consumption

• Higher power electronics and embedded intelligence

Hydraulic power generation on aircraft

$5B Military OE market; 1% CAGR

• Optimized system efficiency

• Reduced weight improves fuel economy

• High reliability - reduced maintenance cost

Aircraft fuel and inerting systems


New OE platforms will drive future growth

F-35

A350

Legacy 450/500 A400M

Falcon 5X E2

KC46A KC390

CH53K

0

100

200

300

400

500

600

2015 2016 2017 2018 2019 2020

New OE U

nits

$370M of additional annual revenue by 2020 from new OE programs


$4B global market; 2.5% CAGR • Global installed base of $14B+; 39% of 2015 revenue

• 22% growth since 2012; 300bps mix change

• Initiatives focused on:

• Expand kitting and enhancing data analytical capabilities

• Capturing entitlement

• Driving modifications and upgrades

• Developing regional MRO partnerships 2015 2020



4% CAGR

Expanding our Aftermarket presence




• New OE platforms: Growing content and new technology

• Legacy OE rate increases


• Restructuring actions

17.8%-18.4% 16.0%-19.0%

Aerospace business outlook

17.1%



•Dramatically more stable margin performance

Vehicle overview • Strong 2015 performance; delivered on Q4

expectations despite volume decline

• Slower growth ahead

• Proactive restructuring during market upswing

• 2016 a critical year


• Intelligent technologies

• Products addressing regulations

• Aftermarket and adjacencies


Americas • N.A. class 8: 250K • N.A. retail LV: Mid 17Ms

South America

EMEA

APAC

Vehicle market outlook

•Class 8 market coming off peak levels; modest growth over the period

2016 outlook Americas • N.A. class 8 • N.A. retail LV

South America

EMEA

APAC Organic revenue:

(7%) – (9%)

2015 – 2020 outlook


Class 8 market outlook

We expect lower peak-to-trough volatility in this cycle

• Class 8 market cycle volatility has historically been driven by regulations or recessions • Regulations are not expected to be a driver in

this cycle • Leading indicators suggest market peaked in 2015

• Class 8 near-term market outlook • No major NAFTA near-term regulatory changes • Flat to modestly higher U.S. Industrial

markets anticipated • Peak-to-trough volatility is meaningfully lower in

non-regulatory driven markets 0

400

1998 2016

NAFTA Class 8 market

Recession

Regulatory change


Market dynamics in the Class 8 market

•Vertical integration transition is largely completed

† Manual to automated manual transmissions • Automated transmissions have ~55% share

vs 25% in 2012 – Vertical integration

• OEMs are largely complete † Increased presence in adjacent markets

• New product introductions – E.g., Procision in Medium-Duty market

Vehicle business has maintained revenue and improved margins through market transitions

2012 2015

Vertically integrated share in Class 8 market

VI non-VI

+

+


Actions completed: Implemented a multi-year repositioning strategy to increase flexibility through the cycles

Successfully reduced the margin volatility and enhanced productivity in Vehicle

•Continued focus on reducing margin volatility through the cycles

Consolidated 13 facilities & outsourced

16% Reduction

400bps Improvement

Footprint Fixed costs % sales SG&A expenses

2016 and 2017 announced additional restructuring plan • Focus on manufacturing footprint and outsourcing • Staffing level adjustments


Driving long-term growth with new technology and applications

$250M of additional annual revenue by 2020 from new products

$1.1B+ Torque control market; 6% CAGR • Improves trailer tow capability

• Leverages Electronic Stability Control sensors to optimize slip control

• Broadens vehicle capabilities from low-speed traction to all-speed dynamic control

Electronic limited slip differential Auxiliary braking system

$5B Valvetrain market; 4% CAGR • ~35%+ braking effectiveness

• 1% lower in fuel consumption

• Solving customers need to meet regulations

• Integrates engine design with valve actuation components


Expanding our Aftermarket presence $4B clutch and transmission market; 2% CAGR • Global installed base of 4.6M units; ~15% of 2015 revenue

• NAFTA initiatives changed mix by 400bps since 2012

• Initiatives focused on:

• Capturing secondary market opportunities

• Global distribution partners and authorized service centers

• Building strategic partnerships

2015 2020


3% CAGR





• Expanding platform content and booked business

• Diversifying product offering with new technology and expansion into adjacent segments


• Restructuring actions are driving margin stability

16.7%-17.3% 16.0%-19.0%

Vehicle business outlook

17.5%



Expanding long-term operating margins

•Significant margin enhancement through the cycle post restructuring

We have multiple levers to expand margins Productivity plans and restructuring • Footprint optimization • Reducing support costs Product line optimization and sales mix • Focusing on the outliers • Improved sales mix Operational excellence • Manufacturing and supply chain efficiencies • Program execution

Peak-to-trough operating margin targets

Vehicle Hydraulics Aerospace

16%-19% 16%-19%

13%-16%


We have transformed our Industrial Sector businesses by changing our mix

Actively managing the Industrial Sector businesses to drive growth and margin enhancement • Acquiring and investing where we have an

opportunity to be a market leader • Divesting where the value is greater to a

different owner • Acquired 32 businesses from 2000-15 • Divested 31 businesses from 2000-15

0%

10%

20%

$0

$5

$10

2000 2015Se

gmen

t Mar

gins

Sale

s ($

B)

Improved segment margins from 9.6% → 15.1%



Continuing to focus on improving margins in existing product lines

Profitability distribution

Focus area

Hydraulics

• Fixed: Certain China Ag market components

Aerospace

• Grew: Hydraulic components for key regional platform

Vehicle

• Grew: Hollow valves globally

Fixing Growing

Low High


Tangible results in North American vehicle

transmission facility

• Improved productivity 900bps • On-time delivery improved

to 98% from 90% • Estimated annualized cost

savings of $1.7M

High 5 Metrics World Class

Safety (TRCR) <0.5

Quality Cost <0.75%

OTD (Promise) >98.5%

Inventory (DOH) <50

Productivity (Cost Out) 5-9%

Operational excellence driving superior results

•Driving high 5 metrics to deliver world-class performance

Industrial Sector targets


Key themes for today • We have industry-leading businesses across the Industrial Sector

• Positions us to capitalize on macro trends and leverage shared end markets

• Challenging short-term market outlook • We expect market conditions to improve over the five-year period

• Global macro trends continue to support our long-term growth strategy

• Investing to support outgrowth and win with customers • Leveraging shared technology to drive growth and protecting our base business

• Aggressively managing cost structure • Continuing to reduce costs through restructuring actions to position us competitively for the future

• Focus on operational excellence to run the business better

Date post:	13-Feb-2017
Category:	Documents
Upload:	vukhanh
View:	223 times
Download:	3 times

Annual Investor Conference - Eaton

Documents