Q4 2024 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Eaton Fourth Quarter 2024, Earnings Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Yan Jin, Senior Vice President of Investor Relations.

Hi. Good morning. Thank you all for joining us for Eaton's fourth quarter 2024 earnings call. With me today are Craig Arnold, our Chairman and CEO; Paulo Ruiz, President and Chief Operating Officer; and Olivier Leonetti, Executive Vice President and Chief Financial Officer.

Our agenda today includes the opening remarks by Craig, then he will turn it over to Olivier, who will highlight the company's performance in the fourth quarter. We will then turn it over to Paulo, who will provide the guidance for Q1 and the full year 2025. As we have done on our past calls, we will take questions at the end of our closed commentary. The press release and the presentation we'll go through today have been posted on our website. This presentation, including the adjusted earnings per share, adjusted free cash flow and other non-GAAP measures.

They are reconciled in the appendix. A webcast of this call is accessible on our website and will be available for replay. I would like to remind you that our commentary today will include the statements related to the expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projection due to a wide range of risks and uncertainties that are described in our earnings release and the presentation.

With that, I'll turn it over to, Craig.

Okay. Thanks, Yan. And we're pleased to close out the year with another, strong quarterly results. I'm especially proud of how our team executed in the quarter.

As you know, we have to overcome the impact of the strikes in the Aerospace industry and the lingering impact of the hurricane, which impacted our Electrical Americas business. For the quarter, we generated a Q4 record for adjusted EPS of $2.83, up 11% from prior year. We also delivered record segment margins of 24.7%, up 190 basis points than last year and above the high-end of our guidance. And we continue to see strong market activity.

On a rolling 12-month basis, Electrical orders were up 12%, led by Electrical Americas with orders up 16%, and orders were up 10% in Aerospace. This led to another quarter of growing and record backlogs with once again outstanding results in Electrical Americas, up 29% and in Aerospace, up 16% with book-to-bill ratios above one in both businesses. As you can see from the chart, we're set for another strong year in 2025. Paulo will walk you through our guidance, but we do expect another year of healthy end markets, strong organic growth, margin expansion, improving free cash flow and double-digit increases in adjusted EPS.

Turning to Page 4, we're once again providing an overview of megatrends and how they're driving growth in our end-markets. You're very familiar with this chart by now, but we did want to provide an overview of how these markets performed in 2024 versus our expectations. This is especially relevant in the context of our outlook for 2025, that Paulo will provide later today and at our investor meeting in March. In Electrical, our end markets performed better than expectations due to strength in data centers and in the Americas market.

Strong growth in these two areas more than offset some unplanned weakness in residential and OEM markets. In Aerospace, markets grew nicely and in line with plan, and this was despite the Boeing strike. And our vehicle market was a bit of a mixed bag with better-than-planned performance in commercial vehicles, offsetting weakness in the light vehicle market, which includes eMobility. Overall, we continue to see megatrends noted here as important drivers of secular growth in our markets and why you should expect Eaton to post attractive growth for years to come.

And this secular growth is perhaps most evidenced by the megatrend chart that you see on Slide 5 in the presentation. As a reminder, mega project is a project with an announced value of $1 billion or more, and our reference point begins in January of 2021. As you know, we've reported this data for a few quarters now, and our conclusion hasn't changed. Each quarter, we're seeing an increasing number of projects, higher dollar values and a growing backlog. Q4 was another record with 65 projects announced at a value of more than $150 billion.

Through Q4, we're now at 569 projects with a cumulative value of $1.7 trillion, and the backlog now stands at $1.9 trillion, up 33% from last year. Through Q4, approximately 15% of these projects have started, and we expect a record number of starts in 2025. Many of you have asked the question about cancellation rates, which we continue to monitor as well. To date, cancellations have actually been modest, around 11% and well below historical levels. A couple of pieces of Eaton-specific data.

For projects that have started, we've won over $1.8 billion orders with a win rate of almost 40%, and we're in active negotiations on another $3.1 billion of Electrical content. So as you can see from the math, most of these projects haven't reached a negotiation stage, and we expect our orders to continue to grow. Given the heightened discussions on data centers this week, I wanted to take a moment to highlight our data center business and why we have so much confidence in our outlook for continued growth. The information on Slide 6 summarizes our sales, negotiations, orders and backlog for our data center business.

It includes hyperscale, colos, on-prem data centers and the major categories of cloud, training and inference. And cloud is still, by a wide margin, the largest category. As you can see from the data, the rate of growth is continuing to accelerate with negotiations and orders well ahead of sales. I'll not read each of the numbers as they speak for themselves, but we'll ask that you note a few points.

Our backlog is rapidly increasing, up 50% over prior year, which was up 70% over 2022. And as you've all seen, customers continue to increase their forecast for capital investments. Hyperscale customers alone expect to spend almost $300 billion in CapEx in 2025, up 30% from 2024. And perhaps the most notable number on page is the reference to the seven years. At 2024 build rates, it would take seven years to consume the current backlog. And the data center construction build rate doubled between 2023 and 2024. So any notion that this market will slow down is simply not consistent with any of the data that we're seeing.

The industry will no doubt continue to see innovation and technology developments that reduce costs. And if judged by history, this will be good for the industry and an accelerator of growth. For 2025 and for years to come, we expect data centers to be our strongest market and stand by our previous forecast, which assumed strong double-digit growth. Now, I'll turn it over to Olivier to take us through the financial results for the quarter.

Thanks, Craig. I will start by providing a summary of our Q4 results, which again includes many new records. We posted fourth quarter record sales of $6.2 billion, up 6% organically or 5%, including 1 point of FX headwind. Hurricane Helene and labor strikes in the Aerospace industry negatively impacted Q4 sales by approximately $80 million or 130 basis points.

Operating profit grew 13%, and segment margin expanded 190 basis points to an all-time record 24.7%. Adjusted EPS of $2.83 increased by 11% over the prior year. This is a Q4 quarterly record and near the high-end of our guidance range. This performance resulted in an all-time record cash flow performance, including operating cash flow of $1.6 billion, up 23% on a year-over-year basis and free cash flow of $1.3 billion, up 27% versus prior year.

I will now review the segment's quarterly results followed by a recap of the year. On Slide 8, we detail our Americas results. The business continues to execute very well and delivered another record quarter. We set new records for operating profit and margins and posted a Q4 quarterly record sales.

Organic sales growth of 9% was driven primarily by strength in data center, along with solid growth in commercial and institutional markets. Without the impacts of the hurricane disruptions to the business, organic growth would have been in the double-digits. Operating margin of 31.6% was up 310 basis points versus prior year, benefiting from higher sales. On a rolling 12-month basis, orders remain at a high level of 16%, demonstrating continued tailwinds from the various megatrends.

We had particular strength in the data center market, where activity remains very robust. For example, Dodge data shows U.S. announced data center project starts are up 99% in 2024 and 173% year-over-year in Q4. U.S. data center construction backlog is now estimated to extend out about seven years based on 2024 build rates. Electrical Americas backlog increased 29% year-over-year with a book-to-bill ratio of 1.2 on a rolling 12-month basis. These results closed out a record year for the business, which posted full year revenue of $11.4 billion, organic growth of 13% and margin of 30.2%, up 370 basis points over prior year.

With the tailwinds from secular trends, incremental capacity coming online, strong execution and robust backlog, Electrical Americas remains well-positioned as we enter 2025. The next chart summarizes the results of our Electrical Global segment. Total revenue growth of 4% included organic growth of 5.5% and FX tailwind of 1.5%. We had strength in data center and utility markets. Regionally, we saw continued strength in APAC with double-digit organic growth and high single-digit organic growth in EMEA.

Operating margin of 17.7% was down 110 basis points versus prior year primarily driven by mix. Orders were up 4% on a rolling 12-month basis. Similar to sales growth, the strength was driven by the data center and utility markets. Backlog increased 16% over prior year and book-to-bill continues to remain strong.

Q4 was 1.1 on a rolling 12-month basis. For the full year, Electrical Global posted 4% organic growth with 18.4 margins. Before moving to our industrial businesses, I'd like to briefly recap the combined Electrical segments. For Q4, we posted organic growth of 8% and segment margin of 26.7%, which was up 170 basis points over prior year.

For the full year, we posted organic growth of 10% and segment margins of 26%, up 220 basis points over 2023. On a rolling 12-month basis, orders were up 12%, and our book-to-bill ratio for our Electrical sector remains very strong at 1.1. We remain confident in our positioning for continued growth with strong margins in our overall Electrical business. Page 10 highlights our Aerospace segment. We posted all-time record sales and Q4 record operating profit. Organic and total growth was 9% for the quarter driven with growth in all end markets with - commercial aftermarket.

Without the impacts of the Aerospace industry strikes, organic growth will have been in the double-digits. Operating margin was strong at 22.9%, up 50 basis points year-over-year, mostly from higher sales. On a rolling 12-month basis, orders increased 10% up from 6% in the prior quarter with particular strength in military OEM, commercial OEM and commercial aftermarket. Year-over-year backlog increased 16% and was up 2% sequentially.

On a rolling 12-month basis, our book-to-bill for our Aerospace segment remains strong at 1.1. On the full year basis, Aerospace posted 10% organic growth with 23% margins. Moving on to our Vehicle segment on Page 11, in the quarter, total revenue was down 10%, including a 7% organic decline primarily driven by weaknesses in the North America, EMEA and APAC light vehicle markets and three points of unfavorable effects. Despite the top line weaknesses, the team executed well from a margin perspective. Operating margin came in at 18.8%, 90 basis points over prior year from improved operating efficiencies.

On a full year basis, Vehicle recorded organic revenue down 5% with 18% margins. On Page 12, we show results of our eMobility business. Total revenue was down 11%, including a 10% organic decline, primarily driven by our customers' program launch and production ramp-up delays and 1% unfavorable FX. Operating profit was $3 million, resulting in operating margin of 1.8% for the quarter.

On a full year basis, eMobility posted 4% organic growth with negative 1% margin. Moving to Page 13, we show our Electrical and Aerospace backlog updated through Q4. Backlog continues to be very strong with Electrical at $11.8 billion and Aerospace, at $3.7 billion for a total backlog of $15.5 billion. Versus prior year, our backlogs have grown by 27% in Electrical and 16% in Aerospace. They are also increasing sequentially.

As noted earlier, book-to-bill ratios for Electrical and Aerospace are 1.1 and 1.1, respectively. The continued growth in our backlog underscores our high-level of confidence in future demand. In addition to our strong backlog growth in 2024, the next page shows the continued strength in our negotiations pipeline supports, our expectation for strong markets and structurally higher organic growth rates. In Electrical Americas, the pipeline has increased nearly four times, since 2019. In fact, the pipeline grew 40% year-over-year, showing acceleration versus our multiyear CAGR of 29%.

The year-over-year increase was largely driven by data center, commercial and institutional and utility end markets. Within the commercial institutional end market, growth was driven by education, government and transportation. This is even stronger than the 13% organic growth in our Electrical Americas business, which suggests continued strength going forward. Now I will pass it over to Craig to summarize our 2024 performance.

Thanks, Olivier. On Page 15, we summarize our 2024 financial results compared to our original guidance. You may recall that our practice is to set stretch goals for our businesses that are above our external guidance. If we execute well and markets perform as expected, it should put us in a position to exceed our guidance.

This occurred again in 2024. Throughout the year, we demonstrated the ability to exceed our commitments and raise guidance on all key metrics. We delivered 8% organic growth, an 18% increase in increase in adjusted EPS, all-time record margins of 24% and a 23% free cash flow, all above our initial guidance. Of particular note, segment margins were up 140 basis points versus the original guidance midpoint and 200 basis points from prior year. And adjusted EPS of $10.80 was 6% above the $10.15 midpoint of our original guide.

And as you know, every business deals with a number of market uncertainties, and life has a way of delivering unexpected surprises. So we run the company the way that allows us to absorb these unknown headwinds and still deliver our commitments and hopefully more. So with a brief summary of 2024 on Page 16, and I'd say that we're once again proud of our team's execution in the year. We delivered another record year of financial results while reinvesting in the business like never before.

But while we're proud of our progress, we're not satisfied because we can do so much better. We're in the right markets, and the identified megatrends are creating some of the biggest opportunities that we'll see in our lifetime. The growth opportunities are everywhere. Our negotiations pipeline, record orders and strong backlogs are evidence of our ability to convert on the opportunities.

And we now have the capacity in place or coming soon to support even faster growth. We have Eaton Business System, we call it EBS, that keeps everyone focused on getting better, running better functions, better factories and better businesses. It's how we improve our efficiency and expand margins. So now is our time, and I couldn't be more pleased with the team leading the next stage of Eaton's transformation.

And on that note, I'll pass it over to Paulo, who will walk us through our key assumptions and financial guidance for the year.

Thanks, Craig. Shifting our attention to 2025 on Page 17. We provide our view on end market growth expectations for the next year. As you can see, we continue to anticipate attractive growth markets in nearly all of end markets. We're expecting double-digit growth in data center and distributed IT, commercial aerospace and electrical vehicles.

For data centers, we remain constructive in our future outlook, given the strength and breadth of our secular trends. We continue to see strong demand in data center market with the adoption of cloud computing and acceleration of AI technologies, including inference and training. So as more AI technology emerge, acceleration in AI usage could drive higher consumption of our AI hardware, including our electrical equipment. We also expect solid growth in utility and modest growth across many of our other end markets.

So we anticipate weaknesses in commercial vehicle and resi markets. But the change in resi outlook from last quarter is offset with strength in other end markets. And we do not see a change in our overall market growth between 6% and 8%. Overall, 2025 should be another year of significant growth with more than 85% of our end markets seeing growth.

Our growth outlook is supported also by a strong order book, a strong record backlog and favorable secular trends. So we remain well positioned to deliver differentiated growth in 2025. Now moving to Page 18, we summarize our 2025 revenue and margin guidance. Organic growth for 2025 is expected to be between 7% and 9% with particular strength in Electrical Americas at 11.5% at the midpoint. And I'll also add that healthy end markets combined once again with our large backlog continue to provide premium visibility to support our 2025 outlook.

For segment margins, our guidance range is, between 24.4% and 24.8%, is an improvement of 60 basis points at midpoint from our 2024 all-time record margins of 24%. Now on the next page, we have the balance of our guidance for 2025 and Q1. So for 2025, our EPS is expected to be between $11.80 and $12.20, a $12 at the midpoint and up 11% from 2024. And our free cash flow, our guidance is between $3.7 billion to $4.1 billion, up 11% at the midpoint. We also expect to repurchase between $2 billion and $2.4 billion of our shares outstanding. And given our strong cash position at the end of the year and our strong cash generation this year, we will leave plenty of room for strategic M&A.

We have also provided guidance on this page for Q1, as you can see. Turning to Slide 20. We wanted to take a minute to highlight our upcoming Annual Investor Conference on March 11, 2025. We'll be back in New York City, and we'll stream the presentation live on eaton.com. Along with myself, you will also have presentations from other senior leaders that are shown here on this page. So we are really excited to talk about the future of the company, including outlining our 2030 targets.

With that, I'll hand it back to Yan and the operator for Q&A.

Thanks, Paulo. For the Q&A today, please limit your opportunity to one question and a follow-up. Thanks in advance for your cooperation. With that, I will turn it over to the operator to give you guys the instruction.

Thank you. [Operator Instructions] And our first question comes from Chris Snyder with Morgan Stanley. You may proceed.

Thank you. Maybe starting off with one for Olivier. So the guide calls for, I guess, at the midpoint, about 6.5% organic in Q1 and then 8.5% the rest of the year. Can you talk about the drivers of that pickup in growth? And then what should we expect for the cadence of adjusted EPS throughout the remainder of 2025? Thank you.

Thank you for your question. Let me cover first the EPS guidance through the year, and Paulo and I will tag team on the revenue section. If you look at the EPS, we are planning today to have the first half to directionally represent 48% of the full EPS guide for the year and the second half as a result, 52%. If you look at the recent past, we used to have a mix between first half and second half of 46% and 54%.

So we're well balanced first half, second half. I wanted also to talk about the Q1 EPS guide. Again, similarly to the first half, second half, the Q1 sequential decline is actually better than what we have experienced in our recent past. Usually, you saw a decline sequentially Q1 over Q4 of about 10%, 11%.

This guide implied a decline of 4%. The decline is always expected because of merit increases. And also, we are very bullish about our business, and we invest in demand generation and manufacturing. So that explains also the Q1 sequential decline on EPS.

And maybe in revenue, Paulo?

Yes, just to add - thanks for the question, Chris. So to think about the revenue split for modeling purposes, I think it's fair to assume the first half being at 7 and the second half at 9. And I can give you more color on the segments. Electrical Americas will accelerate a bit in the second half because of the extra additional capacity we are adding. I want to say that we track those projects one by one.

So far, so good. They are coming as we planned. So that's the Electrical Americas, the biggest segment. We also see that in the second half, most probably the Electrical Global business will pick up again with some recovery in the European markets.

Aerospace is flattish over the year, well distributed. And then the Vehicle markets would tend to be higher in the second half, given the very easy comps of the end of the year. So that's the way to think about it.

Appreciate that. Really, really helpful. And then if I could follow up with one, maybe for Craig. Really appreciate all the updates on demand outlook.

Certainly, a lot of good trends out there. But I wanted to ask about the about the supply side. We've heard a lot the product availability in the industry being incredibly tight last few years now, I guess, switch gears, obviously, a lot of transformers. Are these lead times starting to come down?

And when you look at the industry-wide capacity adds, do you think that's enough to meet demand? Or do you think that this industry could still be short product beyond just the near-term? Thank you.

Yes. Appreciate the question. It's actually a question that we've not gotten in a while. And quite frankly, it's not been a conversation that we've had internally in a while, and that's a good thing.

I mean we - coming out of the COVID kind of period when supply chains just got massively disrupted, we were spending weekly calls and daily calls with our suppliers on dealing with supply constraints. And so I'd say for the most part, we're back to where we were pre-COVID when you think about our internal supply chains. And a lot of those constraints have been, for the most part, resolved. We've gotten out in front of it.

We have Eaton have as we put in lots new capacity in place as well as our suppliers. And so I think from that piece of it, I think we have fairly good visibility and transparency in terms of the outlook for these markets, and our suppliers have responded. Now, as we think about our longer-term or midterm outlook, we're certainly constraining our view of the world largely, because we do think the labor continues to be somewhat constrained. If you think about our industries, skilled trades, you've seen an industry mix shift.

And those industries have been growing labor, at a faster rate than the overall economy. But we still think that is potentially the bottleneck for the industry. And it's why we've, quite frankly, constrained our own view of the rate of growth that we think this market is going to see. It could be better, if some of these labor constraints don't materialize.

Thank you, Craig, appreciate that.

Thank you. Our next question comes from Andrew Obin with Bank of America. You may proceed.

Hi. Yes. Good morning.

Morning, Andrew.

Hi, good morning.

Yes. Just maybe a question for, Craig, you talked about Electrical Americas and mega project impact. So can you quantify or can you just talk about how much did mega projects actually have an impact on your business in 2024?

Yes. Appreciate the question, Andrew. And one of the reasons why we started reporting mega projects a couple of years ago that we saw this fundamental shift in our industry as the world was going through this massive CapEx rebuild cycle, and the size of the projects just have been much larger than what we've seen historically. And so we thought it was great to take this data and share it externally, as a way of giving you an indication of what we're seeing in our business.

And the numbers are growing dramatically, as we reflected in the PowerPoint presentation. But to your point specifically around 2024, our business doubled in mega projects in 2024 to over $600 million. Our negotiation pipeline up some 60%, and if you recall, for the overall business, it's up 41%. So we continue to see an increasing number of projects.

And the good news, as we've said many times, is that most of the benefit associated with these mega projects is still out in front of us. And as you saw in the data, the number of projects and the size of the projects continue to grow. And it just - we're really going through a fairly significant CapEx expansion cycle in the U.S. for sure, but around the world. And it's really showing up in these mega projects.

Thank you.

And I'll add some color. …

Yes.

Just, Andrew, just for you in a look forward 2025, just to reinforce what Craig just said, we look at the Dodge data. And in 2024, there were 56 projects that started and around $135 billion in total. And their forecast for this year, for 2025 is actually that we're going to reach over $300 billion in 114 projects. So even if we don't - we tend to haircut the starts, we don't believe in all starts, it's almost doubled at the rate we saw in 2024. So I think that the message from Craig, I think the key point is the longevity of growth cycle ahead of us.

I think that's a good way to think about it.

Thanks so much. And just a question on sort of supply chain, the state of supply chain and I appreciate that you guys are watching, but we recently heard a comment that effectively U.S. market is sucking up capacity, supply chain capacity on the electrical side from all over the world. And the constraint is that while the industry leaders are certainly adding capacity, you still need to incentivize the supply chain, maybe it was better pricing, better margin for them to add capacity. Could you just maybe unpack to us what it is you're saying, how are you incentivizing your supply chain to have capacity in particular at the components at a bottleneck, more critical components?

Thanks so much.

Maybe just building on my commentary earlier, I think today, the nature of our conversations with suppliers is that really providing them the visibility and the certainty that they need to make the investments to support the growth that we're forecasting. And so we're not particularly providing any specific financial incentives, but we are working much more closely with our suppliers in terms of visibility and working through multiyear agreements, which are backed up by multiyear agreements that we also have with our customers. And - but I'd say, by and large, this notion that the U.S. is sucking up capacity from the rest of the world, there's probably some truth to that because clearly, we're seeing a much stronger economy and much more significant growth in the U.S. compared to the rest of the world.

That's actually a good balance for Eaton. That's a good thing for us. But - so that comment doesn't surprise me, but this capacity is simply flowing to where the real demand is.

Thanks so much.

Thank you. Our next question comes from Steve Tusa with JPMorgan. You may proceed.

Hi. Good morning.

Hi, Steve.

Its almost noon, but anyway, the pipeline you guys talked about in these mega projects, what does that mean for orders as you look forward over the course of this year? I mean is this - obviously, this pipeline keeps growing, and it's massive. The backlog is flattish here. You've been book-to-billing a bit above one, but like what is the visibility on these mega projects and things like that actually like converting into another reacceleration in orders?

Thanks, Steve. This is Paulo. I would say that it's very difficult to forecast orders for mega projects. It will be a bit speculative.

But I can give you a sense on what we're seeing. As Craig mentioned, with the negotiation pipeline growing 60%, that's what gives us confidence. Those are large projects. It takes time between announcement and revenues between three and five years, what we said in the past.

And since we started following those projects in 2021, 2022, it's to be expected that now we start to see the effect. And as Craig said, our sales doubled in 2024 for mega projects versus 2023. Now to make - to pinpoint the order entry for that would be very difficult, and I don't want to speculate on it. So the best way for us to help you understand this longevity of the cycle is to continue to tell you the mega projects that we see and how the negotiation pipelines are evolving.

Okay. And then on this - lastly, on this data center thing, the starts you say - you talked about nearly doubling in 2024, I guess, your order is up 75%. So I mean are you like shipping to the starts? Or are you shipping to add to some point in the middle of the project as it gets built?

Or are you shipping, like, blanket orders from the hyperscalers where they order a big number and then they distribute as they go? Like, how much visibility do you have as to when you're actually shipping to these guys?

Yes. So thanks for the question again. I think the best way to answer your question is we have multi-year visibility on the forecast. Craig was talking about the forecast we give to our suppliers.

We, also, as a supplier to the big data center operators, we were giving a forecast. In some case, we have hard commitment from them. So that's the visibility we have. In terms of sending the product, we're going to send the product as the project requires.

We don't ship if the site is not ready, and we follow the construction of the data center. And by saying that, some of our products could come earlier, like the transformers, the switch gear, and then the UPS and what goes inside the server room comes later. So in different phases of the project, I would say.

Great. All right. Thanks for that.

So when - that start, yes. When we talk about a start, it's when a shovel goes in the ground. And so we're not shipping anything at that point. But that's when a project becomes real and when a project as you can truly count on it as a project that's likely going to be completed.

Yes. Okay. Great. Thanks a lot, guys.

Thank you.

Thank you. Our next question comes from Jeffrey Sprague with Vertical Research. You may proceed.

Yes. Thanks. Good morning everyone. Maybe just one more on data centers for me, maybe there's others coming in the pipeline.

But also, just historically, right, when we were talking about mega projects, it did not include data centers because of that $1 billion threshold. But now, for example, we've got Amazon doing this $16 billion campus in Mississippi and other things. Just wonder if you could give us a sense of how much data center is now in the mega project number that you're sharing with us today, if you have visibility on that?

Yes. The exact number, I don't - first of all, your thesis is absolutely correct, Jeff, that as these data center projects have become bigger, some of them are now falling into the category of mega projects. And so clearly, we're seeing data centers show up in that category as well. I don't have the exact percentage handy.

Yes, I got. We actually said it on the slide. It's roughly 17%.

17%. Okay.

Yes. 17%, 1-7.

So 17%. But the other thing I would just group and we shared this slide in one of the earlier earnings calls that, we track mega projects $1 billion above, but we also track the balance of projects, which is from $25 million to $1 billion. And we're seeing the same trend in that segment of the market. We're seeing tremendous growth as well in projects in these other categories.

And so, clearly, we're seeing more significant growth in mega projects, but we are, in fact, seeing very strong growth in the balance of segment as well.

Great. And then just looking forward to March. Obviously, you want to save most of it for us. But Paulo, just thinking about Electrical Global specifically.

I know you have an aspiration to improve the margins there over time. Obviously, there's just scale and economic advantages to Americas that maybe can't ever be replicated in the global franchise. But what could you share with us about your view of what can be done to kind of improve the margins in Electrical Global and maybe at least narrow the gap versus the Big Brother in the Americas?

Thanks for the question. So first of all, in March, we're going to be talking about our long-range commitments into 2030 for every segment. So you're going to have clarity not only on Electrical Global, but every segment we report. To your question on working on the margins, starting in 2025, we already see an improvement, and this is based on two biggest group of actions.

One is the benefits of the restructuring that start to hit the P&L and help us. And other part is as we start shipping those large orders that we have on the data center side specifically, we're also going to have more productivity gains from the volume coming up. There are many other things we can and we will do. One thing is to continue to complete our portfolio and step-by-step, build the same strength we have in North America, but also continue to drive operations.

As Craig said, we are never satisfied. We never get complacent. We always drive improvements. There's still a lot to be done there, but not only in global, even Electrical Americas, there's a lot for us to go do.

And the only thing I would add to that, I think Paulo's absolutely right, is that as you heard in Olivier's commentary, mix has been a bit of a headwind as well for our business there. When you see, obviously, some of the data around the MOEM segment, the manufacturing segment, which tends to be a much higher percentage of our business in Europe, and those markets being down to the extent that they have, that really hurt in that particular region from a profitability. So as that market begins to normalize and recover, we should also see a natural improvement in profitability there as well.

Right. Thank you.

Thank you.

Thank you. Our next question comes from Deane Dray with RBC. You may proceed.

Thank you. Good morning, everyone.

Good morning.

Good morning.

I realize this is a realtime story here, and it's a moving target. But just can you talk about tariffs, potential impact, vulnerabilities, preparation you've gone through already?

Yes, I can talk about that, Deane. So first of all, we are on top of it. We are ready. We know potentially from - depending on what is announced, we know exactly what to trigger.

We have - more importantly than that, I think we have a philosophy over time. We moved our production much closer to the consumption side. So that decreases the impact of the tariffs. But we have a playbook.

We've done that before. We are ready. We know exactly where the - where to apply commercial actions, and we'll do. We'll fully compensate with commercial actions if necessary.

Hopefully not necessary. But if they come to force, we're going to comply, and we're going to compensate with commercial actions.

Great. That's helpful. We'll all be staying tuned there. And then Jeff is right, there was more data center questions.

So I just - first of all, that Page 6 was really helpful. Appreciate all those specifics. And Craig, I also appreciated the confidence that you've expressed today about long-term growth prospects in data center. I would have loved to have heard that on Monday as well.

But - so we got it today. Just kind of share for us what the team is watching for, for any change at the margin in terms of build-out expectations. I mean, we're watching hyperscale CapEx growth, and you can check the box. Those have been fine in the past couple of weeks.

But how about your customers have been asking you for five-year supply agreements, just remind us, those are not take-or-pay, just how are those set up? And whether there's been anything - how you're watching those play-out or any other indicators you think of reporting?

Yes. Thanks for the question, Deane. I would say that the order that comes from our customers to accelerate. And whatever we can do also in terms of technology to model our solutions that could accelerate our build.

You heard what Craig said that the industry found ways to accelerate build out, which is great, but they are still sitting on seven years of backlog as of today. So there's more to be done there. In terms of the agreements, it's not exactly take or pay, but there are penalties for order cancellations that are pretty sizable. And I would say, as we look back the last years, we haven't seen a single cancellation here.

So most of the discussions we have, including after the news this week, is about continuing to invest, no distraction on the news this week and continue to build. And you see how our negotiation pipeline development is developing in our backlog as well. So I think the way forward continues to be to accelerate the build-outs.

Yes. The only thing I'd add to that, Paulo is absolutely right. The things that we were concerned about prior to Monday, we're still concerned about today. And the constraints around whether that's power availability, whether that's site availability, whether that's labor availability or where there will be constraints in supply chain.

And as I mentioned, we do believe this market could grow much faster than what we're anticipating. And quite frankly, the numbers that …

Yes.

…we're getting from our customers are much higher than the numbers that we're baking into our forecast. But we do believe there will be constraints along the way. And those were the things that we were worried about prior to Monday. Those are things that we're still worried about.

I think what happened on Monday with DeepSeek, I think it's way too early to know how that will influence the evolution of this market. But as I said in my commentary, if history repeats itself, it should mean faster growth, faster adoption, and it could be a good thing.

That's really helpful. Appreciate it. See you in March.

Yes.

Thank you. Our next question comes from Nigel Coe with Wolfe Research. You may proceed.

Thanks. Good morning, everyone, and thanks for all the details. So I really appreciate all these end market perspectives. Just maybe switching gears to Aerospace.

So you called out the impact of the Boeing strike in the fourth quarter and obviously the third quarter, too. You are forecasting a deceleration to 79%, still very, very healthy. But given the moving pieces that we have here, I just wondered, if you can maybe just give us some perspective on what you're baking in for OE versus aftermarket and perhaps Commercial versus Military?

Okay. Thanks for the question. So we - as you pointed out, the market is really growing. I think it's important that we give the breakdown.

To be specific here, we see a low-double digit in OEM. And we see we see single – high-single digit in aftermarket. And then in OE, low-double digits for both Military and Commercial. And in terms of the build-out, we watch what our customers are doing.

We are ready for the ramp, including Boeing's ramp and also Airbus' ramp. But as Craig said, we also - we got – as soon as we got prepared for it internally. We also take some caution in what we forecast externally. We don't take their build-outs as per face value.

So we are a little more cautious in our forecast. So in that, that was the reason that in 2024 with all the difficulties in the industry in the year and strikes, we still met our commitments for growth for the full year.

I'm sorry, did you conclude that aftermarket, too?

Can you repeat your question? I couldn't hear.

Did you - sorry, I heard the OE comments, but what about the aftermarket comments?

Aftermarket will be high single digits.

Okay. That's helpful. And then just my follow-on is around utility. It seems like it's normalizing down to like a high single-digit range for 2025. It's been running double digits for a long time.

Just wondering, maybe just a bit more perspective on what you're seeing in your utility end markets. And maybe just kind of thinking about that capacity expansion as that comes online, is there potential for utility to reaccelerate as you convert some of that backlog?

Okay. Well, thanks for the question again. I'd say I would answer in two steps. The first one, I'm going to remind you and everyone what drives the industry utilities, and then I'm going to talk about the effects at Eaton.

So in the first part, I would say what drives growth in utility distribution where we play, there's a big portion of replacement of aging infrastructure that you probably heard about. The second thing that drives the growth is also the hardening of the resilience part. So think about all the natural events, fires, floods, hurricanes, et cetera, duties [ph] that are getting ready to be more resilient to face those issues. The third piece is about the increased energy consumption.

Right. And also, that part of that increase also is a data center story, but there's more to it. So that's how the industry plays. If you move that to Eaton and the effects of that in our company, you know that we are heavily weighted to the U.S. distribution network.

So we expect this CapEx to be in the high single digits, and it's consistent with a third-party forecast like S&P or EEI, et cetera. And we think this high single digit, I want to give even more clarity because I think it's important as you compare Eaton to other electrical players, we see - within this high single-digit market, we see strong double-digit growth in many of the high end of the offers, which is most of what we do. So think about switchgear, regulators, recloser, capacitor. So that part of the market will continue to grow strongly double digits.

And there is an offset on the - more on the lower value add of the chain, which is related to single-phase transformers, those poll transformers or line installation equipment, more the hardware piece than some of our competitors are pretty focused on. So it's a high single-digit growth for us. But there's a double-digit side that we like the most, and the other part of the market is growing not so fastly. If you go outside North America, if you look at global, I would say China continues to invest very heavily in utility, right, both in generation, in renewables and also in transmission and distribution in China.

And electricity, electricity consumption is increasing 7%. It's very big for a country of that size. So we also expect a strong growth coming from that side of the world as well. In terms of capacity, we talked about capacity.

As part of our investments, we are also adding capacity to utility. And we do that in a modular fashion. We do that in a way that can also serve other markets like a transformer could go into data center, it could go into utilities. Some of the switchgear can be used in other end markets, so we feel good about our prospects and the investments we are making.

Great. Thanks, Paulo. Super helpful. Thank you.

Thank you. Our next question comes from Nicole DeBlase with Deutsche Bank. You may proceed.

Yes, thanks. Good morning, guys.

Good morning.

Good morning.

Good morning.

Maybe just starting with Americas, margin expansion there really impressive yet again this quarter. I guess the 2025 guidance only embeds like 10 bps to 40 bps of year-on-year expansion. Could you talk a little bit about what's going on there? Is there maybe some conservatism embedded?

Or are margins just getting to a point where it's going to be tougher to expand them from these best-in-cost levels?

Thanks, Nicole. So I would say there's always space for us to improve margins, and it's also valid for Electrical Americas. Just think about all the manufacturing efficiencies we can generate on existing facilities, but also the other facilities we are adding to the business, there is still more for us to go do there. So I don't think this is the top margin for the segment.

I will reiterate that. This is one. For 2025, most of the growth will come from volume. So if you compared to prior year, starting last year we already had more volume than pricing in our composition for growth.

This year, the vast majority will be volume in our breakdown, which is something for you to consider. As pricing normalizes, it’s to be expected. And this year, as we're adding capacity in two dozen projects, we are dealing with inefficiencies of the start-ups and start-up costs. So that's what makes the comparable basis not so strong year-over-year.

But as Craig said before, we always drive ourselves to a higher number, and this is not different for Electrical Americas internally.

Thanks, Paulo. That makes sense. And then you mentioned appetite for M&A in the prepared remarks. Could you talk a little bit about the current pipeline and areas of greatest interest?

Sure. I would say our major areas of interest continue to be data centers, utilities and Aerospace, so Electrical and Aerospace. And in terms of the size of the acquisitions, what we're interested in doing in the short and mid-term is to look at bolt-on acquisitions that can accelerate our organic strategy. So Electrical and Aerospace would be the answer.

And the size will be more like a bolt-on. And to make a point, bolt-on definition for Eaton moved over time as well since we have a bigger company and a bigger evaluation, but it continues to be the focus of the team.

Thank you, Paulo. I'll pass it on.

Yes. Go ahead.

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. You may proceed.

Hi, guys. Good morning. So I'll focus both of my questions on Electrical Americas margins. And so - and if you go back a year ago, we wind the clock, you were expecting margins to be about 300 basis points lower than where we ended up in 2024. So I'm just curious, I know the growth was slightly better, but what other levers really kind of drove that margin expansion this past year?

Yes. First of all, I would say I'm very proud of that team. They're really executing super well. I think that's the first thing I want to say.

And they're executing well on the top line. They're also executing well in their operations. So they run the business better than what we expected, right, in the operations. This is one thing.

And we continue to drive also our supply chain to better results. So overall, it's an operational performance improvement for the business that drove the extra margin. And that's how we are wired for this year as well. We are dealing with those capacity ramp-ups, which again, they're going well.

They've been developing very well. But the team is focused there, and they would be disappointed if they cannot beat their own numbers. So the spirit is still the same.

Got it. That's helpful, Paulo. And then I guess just one follow-up. So the backlog is up 29% year-over-year. I mean it's hard to imagine that the margins in the backlog today are lower than the margins in the backlog 12 months ago, but I don't want to put words in your mouth. So is there any color you can kind of give us on what - how the margins look like today in the backlog versus a year ago?

No, they are in line. They are in line with what we are printing today, largely in line.

Okay. Great. All right. Thank you guys.

Thank you. Our next question comes from Scott Davis with Melius Research. You may proceed.

Hi, Guys. I guess, its officially afternoon. So good afternoon. Guys, I just - can you give us a sense - a couple of cleanup items here, but the $900 million in CapEx, how much of that is growth versus maintenance? Is it at a 700, 600 growth, the rest maintenance? Is that a way to think about it? I don't think we've carved that up in the past.

Largely, the 900 is going to be gross CapEx. The large proportion of that is going to be growth. The team is doing a good job actually rationalizing our CapEx investments. We have managed the tail that has been a principle that Craig has implemented for a number of years. So most of the CapEx would be growth. I would say 80%.

Okay, 80%. That sounds about right. Does - guys, it's completely different from the conversation today, but does it still make the same sense to have eMobility as a standalone segment today as it did when your first data - gosh, I can't remember when it was like, 6 years ago or maybe 7 years ago. But it seems - is there still - does it still make the most sense to have that as a standalone and operationally standalone?

So there are two questions. The first one is how do we run that. That's a separate question. From a reporting standpoint, the dynamic of those two businesses is very different. And we want to show to our investors how those two businesses are evolving. Again, they have the same - different margin profile, different growth profile. So externally, we will keep doing what we do today.

But internally, to your point, we are maximizing the way we run it for synergies, for SG&A savings. And we also use the Electrical and Vehicle businesses, one hedging, one another. We experienced lower demand on EVs. And then our Internal Combustion Engine business could benefit on the programs in the long run.

But we believe we continue to give you the transparency we started giving you years ago. I think it will be beneficial for all.

And just keep in mind …

Okay. Thanks guys.

The technology synergy in many ways is more akin to our Electrical business than it is to our Vehicle business. And so …

Yes.

There is the customer piece, obviously, much greater affinity with legacy Vehicle, but from a technology and a product standpoint, much greater connectivity to the Electrical business.

Okay. That makes sense. We'll see you guys in March. Thank you very much.

Thank you, Scott.

Thank you. Our next question comes from Julian Mitchell with Barclays. You may proceed.

Hi. Good afternoon. I know it's been an hour, so I'll keep these questions short. First one just on Slide 6 again, I just wanted to double check the 45% data center sales growth number on the left-hand side.

Just wanted to check what the sort of base revenue figure for 2023 that applied to? Because I know you've given a sort of $3.3 billion number before. But 45% growth on that would imply all the Electrical sales growth was from data center, which I think it was broader based than that. So any sort of help around that, please?

Hi. No, appreciate the question, Julian. Sometimes it's tough to make all, the math, but the first thing, probably the point of clarification in terms of when we provide you data on segments. The data segment numbers that we report, as a percentage of the total company, it's not only centers, but it includes the IT channel.

So you can't take that number and extrapolate what happens in the balance of the businesses, because that data center number is not only the data center segment. But the way to think about it, I think what you're trying to get to is that, what was the growth in the balance of the businesses when you strip out data centers. And what I would tell you that, very much like we covered in my chart in my presentation where I talked about how these markets performed relative to our expectations, we saw good growth in Commercial and Institutional. We had like high single-digit numbers in utility.

We have high-single, low double-digit numbers. We saw good growth in Industrial, more mid-single, but that's offset by some declines in the legacy Vehicle business. It was offset by declines in residential. It was offset by declines in MOEM.

And so it really is, once again, very much consistent with what I laid out on Slide 4 in the deck, our business has performed largely in line with those market numbers. But we do appreciate the question, because we know sometimes it's difficult to make the math foot.

That's very helpful. And based on the sort of capacity expansions you talked about and the orders' strength in data center, when we're thinking about sort of the 2025 Electrical revenue growth guide, is that assuming a sort of similar-ish, very strong growth rate in data center this year as well?

True. Yes. The answer is yes.

Perfect.

We may not be counting on the same rate of growth as we experienced this year, but still very, very strong growth.

Got it. And then one last fiddly one. Aerospace, flat margins for three years, guided to expand this year. Any color on the drivers, please?

Sure. Julian, I think the biggest driver here is operational performance. We were not satisfied with our - the way we run our facilities. The whole industry also went through difficulties in the last year.

So there's still inefficiencies for us to go deal with. But if you look at what we did in Vehicle over time in even more difficult environment, we managed to move margins up. So that's the mandate of the new management team to do the exactly the same we did in Vehicle in Aerospace with the biggest advantage than Aerospace, we count on much more predictable orders. We have a very large backlog, and we can drive our own destiny here.

So I think most of the margin improvement moving forward will be our homework that we need to do. And that's the reason why we appointed the leaders we appointed in John Sapp in Aerospace, but also for Pete Denk, who led our Vehicle business before to lead the industrial sector. That's their mandate.

Great. Thank you.

Thank you .Our next question comes from Chad Dillard with Bernstein. You may proceed.

Hi, good afternoon, guys. Thanks for taking the question. So as AI data center shift from training to inferencing, and look, I know we can debate the pace at which it happens, but how does the Electrical content and intensity differ between like these two different use cases? Or maybe does doesn't even differ at all?

I guess I'm trying to understand like what your products would you sell more of or less of depending on the use cases. And maybe before you answer this question, how much of your data center sales are cloud versus AI?

Okay. So let me clarify the question. You asked us before whether changes like DeepSeek would change what we sell. Is that the first part of the question versus the second part?

Yes. It's the shift from like training to inferencing. Just trying to understand like the difference in Electrical content intensity products.

Okay. So great. So for us, I would say - I would comment on this as those breakthroughs like DeepSeek are to be expected. That's the first thing I would say.

We'll see more of that coming up. And we believe when there is more adoption, as you probably are suggesting, we're going to have more inference data centers than training data centers. But within the data center, we saw the exact same portfolio, right, exact same portfolio. And what could be interesting - I'm not making an industry forecast here because it's too early.

But if you have higher adoption and the data centers are built faster, the inference data centers, most of the bottlenecks that actually create the biggest headache for data center operators will vastly go away. Instead of trying to accommodate gigawatts training centers, if you can accommodate much smaller energy consuming inference centers, the build could accelerate, and that could be a very good thing for us as well. But basically, it will be the same transformers, it would be the same switch gear. It will be the same UPS inside the server hall and the software, et cetera.

It's the same portfolio, no disruption there. Having said that, where we are actually working really closely with our hyperscale and multi-tenant data centers is how do we help them building faster, growing their builds and be able to develop this large backlog of seven years in a nice way. That's the focus. But we got calls with our key customers after Monday.

The sentiment is still the same. Nothing changed. We keep pushing forward.

Got it. That's super helpful. And just like one quick one. I know lead time has been talked a little bit today, but where are they for some of like the core products like switchgear transformers? And once the capacity adds come online in the second half of this year, where you expect that lead time to go?

Yes. So, as we commented before, we have two dozen projects. Some are expansion of our plants. Some are new plants that we are building. And although there is no cliff event of a large one single facility that will move the needle, we see more of that capacity coming online in the second half. I think that's the best answer I can give you. And yes, we…

Thank you.

We today we look at lead times. We continue to work on them. I think we are competitive, but they remain higher than historical levels, and we want to drive them down.

Thank you.

Welcome.

Thank you. Our next question comes from Andy Kaplowitz with Citi. You may proceed.

Hi. Good afternoon, guys.

Good afternoon.

I think last quarter you talked about machine builders in Europe and residential starting to bottom out. But obviously, you moved residential to negative for 2025 from your initial assumptions like growth. So did those markets get worse again through Q4? Are they just not recovering yet?

And then alternatively, it looks like China continues to hold up for you. I think you mentioned utilities. Maybe anything else that you're seeing over there?

Yes. I'd say that in terms of what happened at the end of the year, which has us incrementally less enthusiastic in resi, as the Fed cut interest rates, everyone expected that to translate to an improvement in the residential market and borrowing costs for consumers. And that, quite frankly, hasn't happened as we all know. And so I'd say on the margin, resi got a bit weaker during Q4. And I'd say on the MOEM segment, more or less a bottoming out, we think.

And maybe there are some green shoots in MOEM. But specifically in resi, we've become less bullish on the resi recovery, given the fact that interest rates have remained stubbornly high.

That's helpful. And then backlog up 29% Electrical Americas as the end of this year. I think it was up 18% last year at this time, yet you're forecasting slightly slower organic growth in 2025 versus 2024. I know you had some hurricane disruption in Q4 slowing revenue a bit. But was there anything else that slowed revenue in the quarter?

And then is the modestly lower forecast just a reflection of conservatism or maybe larger projects with longer duration?

Yes. I would say for the Q4, as Craig mentioned, we had some weaknesses in resi in the low cycle business. And as we look forward, we continue to count on most of our markets growing nicely. We have a very strong backlog.

I would reiterate that. And with the capacity, our plants running better, the ones we have and the expansions, we are confident in the outlook we are putting out for the 11.5% at midpoint.

And the other point I'll just raise and we mentioned it earlier is that historically, we were living in an inflationary environment. We were getting more price, and we've simply anniversaried a number of those price increases from prior years. And quite frankly, our volumes are actually, as we look forward, as Olivier mentioned in his commentary, contributing more to our growth and most of our growth going forward. So a big difference is also the relative amount of price that we're experiencing in the business because we simply don't have as much inflation as we've had historically.

Appreciate the color, guys.

Thank you. Our next question comes from David Raso with Evercore ISI. You may proceed.

Hi. I'll be quick. I know it's late, sorry. The amount of capacity being added, can you quantify to any degree across Electrical?

I don't think you've ever actually heard what percent capacity do we think is coming on across Electrical second half of 2025 and then what the full year impact should be in 2026. And then to dovetail off the comment sort of normalized now on pricing, this is more of a volume story. When I think what you're describing in the next couple of years on the Electrical businesses, your willingness to add capacity and you're already hinting at we'll see if - how it plays out some cyclical recovery in your other businesses. Is there any reason to be thinking that you don't see this organic sales growth rate, for say, 2025 as structurally something the company can do for multiple years?

Yes. We had this question last quarter as well, Dave. So I appreciate the question around capacity additions. And you're right, we've not expressed it in terms of a percentage of capacity increase on the base of our total capacity.

It's just - I think those numbers become meaningless when you look at it in the context of our total manufacturing capacity and some 200 facilities or more facilities around the world. But what we said is that where we have capacity constraints, we have made investments that are multiyear investments that more than provide for the capacity to cover our growth forecast in those industries. And so where we're tight in markets like data center and products like transformers, we've made sizable commitments to investments that allow us to cover where we are today and a multiyear view of the capacity that we're going to need.

And so the company, as we committed last time, we're in good shape. We will not be the bottleneck in the industry. We're making these capacity investments. We talked about $1.5 billion of incremental growth capacity that we're putting into the businesses.

And that will cover our forecast and provide upside if markets tend to be a bit stronger than what we're forecasting.

And just to complement the - Craig explained really well and the look forward that you're trying to imply, we're going to talk about that in March in our Investor Day. We're going to give you the breakdown of segments, how we see the world until 2030.

Okay. I appreciate it. Thank you so much.

Thanks, David.

Thank you. And our last question comes from Phil Buller with Berenberg. You may proceed.

Thank you. Thank you for squeezing me in. There's obviously been some part of the business which have been soft, if not very soft for some time. So from what you're seeing on the ground, have there been any green shoots this quarter or market share gains perhaps that you can talk to in European Electrical, European machine OEMs, resi or autos?

I think Craig, you talked to Andy's question on some of that, but perhaps more to the U.S. side, but can you specifically talk to what you're seeing in Europe or non-U.S. please? And just as a follow-up, I appreciate this isn't a strategy call, but it was discussed that M&A was going to be focused on Electrical and Aero. So I guess I'm wondering on - if the strategic importance of the automotive exposure is something that you're going to be looking to talk to at the Investor Day in March. Thanks.

Hi. So maybe just on the green shoot question and specifically as it relates to Europe, you're right, that market has been soft for some time. Most of the industrial data coming out of Europe and Germany specifically continues to be quite weak. Although having said that, as you saw in our own numbers and you see in our outlook in terms of our forecast, we do expect that market to be incrementally better in 2025 than it was in 2024. And we are seeing a little bit of recovery in the machinery OEM market.

We are seeing a little bit of recovery in some of the residential pieces of the European business, but still not growth there. But - so I think at this point, we'll have to wait and see. And we remain cautious specifically on Europe, given the macroeconomic environment there where we are forecasting growth. It's largely because they, too are benefiting from data centers.

They, what's happening in the utility market. And they're seeing some of the same macro megatrends driving growth in their business that we're seeing in the U.S. market and some of those are accelerating.

Thank you.

Yes. We're going to talk about the Vehicle, eMobility in our Investor Day. That was the second part of your question. I'll talk about it in March.

Okay. Great. Thanks very much guys.

Thank you.

Thank you.

Hi. Thanks, guys. We do appreciate everybody's questions. As always, the IR team will be available to address your follow-up questions. Thanks for joining us. Have a good day.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.