Boldly accelerating the future of Eaton and society

To our shareholders:

Welcome to the new Eaton – a growth company with expanding margins, a company that consistently does what it says, a company that delivers for all of its stakeholders.

While our journey began more than 100 years ago, the last eight years have been especially transformative. And it began by getting the mission of the company right: to improve the quality of life and the environment through the work we do as a power management company. It’s true what they say, employees want to work for a mission-driven company, and our mission has helped us recruit and retain an outstanding team.

But a great team isn’t enough. You must build a culture that allows your teams to do their best work. This has been an important part of how we’ve transformed the company, and it begins with high performance standards for everyone. An Eaton leader knows what good looks like and isn’t satisfied with the status quo. They also know and embrace what’s expected of them – they are ethical, passionate, accountable, transparent, efficient and learners.

This is a landmark moment for our company. Eaton is at the epicenter of society’s transition to renewable energy sources. We’re delivering the products and solutions the world needs to make our power grid safer and more resilient. We’re enabling the electrification of vehicles, airplanes and communities around the globe, and developing new digital solutions that help communities produce, store and manage power. Our vision of what Eaton can be ─ and the powerful role we can play in the world ─ has carried us to this point.

We’re proud of all we’ve achieved. But we’re not satisfied.

So, in recent months, we’ve been talking to our teams across the enterprise about how we intend to accelerate our momentum ─ how we’ll continue to differentiate Eaton from our peers while making good on our mission and our promises to our stakeholders. And this is what we concluded: now is the time to fully embrace the opportunities in front of us, to once again raise our expectations for what good looks like, to collaborate more, and to embrace operational excellence.

In many ways, we’ve laid the foundation for this next phase over the last few years. We’ve invested in our facilities to expand our manufacturing capacity, positioning Eaton to meet the world’s demand for sustainable power management solutions. We’ve made solid progress reducing our environmental footprint while helping our customers and governments around the world do the same. We’ve stayed focused on living our values-driven culture and building a team of highly engaged employees, while also doing our part to contribute to a more inclusive and equitable society. We’ve assembled an outstanding leadership team and a deep bench to guide our enterprise today, tomorrow and in the years to follow. We’ve continued to transform our operations to be in the right markets and to better serve our customers. And we’ve delivered outstanding financial results for our investors, including record earnings and industry-leading total shareholder returns.

The following recent highlights show the progress we’ve made and how we’re investing for the next phase of our transformation:

We’re accelerating our impact through our financial results.

For the full year, 2023 sales were a record $23.2 billion, up 12% from 2022 and driven entirely by organic sales growth.
Earnings per share for 2023 were a record $8.02. Excluding charges of $0.89 per share related to intangible amortization, $0.11 per share related to a multi-year restructuring program, and $0.10 per share related to acquisitions and divestitures, adjusted earnings per share were a record $9.12, up 20% over 2022.
Segment margins of 22.0% for 2023 were a record and at the high end of our latest guidance range.
Operating cash flow for 2023 was $3.6 billion and free cash flow was $2.9 billion, both records and up 43% and 48%, respectively, over the same period in 2022.¹

While we delivered strong financial performance and met our commitments, we will not grow complacent. We’re continuing to position Eaton for sustained growth and better efficiency, and we expect to deliver strong shareholder returns for years to come.

We’re accelerating our growth.

We invested in our operations, committing more than $1 billion in investments to expand our production capacity at sites across the enterprise. These capital investments will enable Eaton to meet surging global demand for electrical solutions that support the energy transition and the electrification of vehicles and buildings. These investments will also allow us to participate in the growing number of mega projects underway in North America.
We launched a program to transform supply chain planning across the enterprise, a new technology that will allow us to modernize how we manage our internal and external supply chain, respond to disruptions with agility and speed, optimize our inventory levels, reduce our spend on freight, and improve on-time delivery to our customers.
We established a clear strategy for leveraging AI in our functions and operations to strengthen our ability to compete in the rapidly evolving digital landscape and bring more value to our stakeholders.

We’re accelerating our work to build a sustainable society.

We made steady progress toward achieving our 2030 targets, certifying 12 Eaton sites zero-waste to landfill facilities in the year and bringing us to 79% of our 2030 goal. We saw 16% of our manufacturing facilities certified zero-water discharge sites, exceeding our 2030 target by 10% and seven years ahead of plan. We launched our new Energy Efficiency Certification program to reduce the carbon emissions generated at all our plants and granted the first certification to our facility in Riom, France.
We collaborated with governments to broaden their impact on the energy transition, working with U.S. state and federal officials to establish future-proof clean energy infrastructure programs, modernize the power grid, and enable the electrification of homes. In Europe, we were part of the effort to phase out use of one of the most harmful greenhouse gases, SF6, a move that will help the EU reach its emissions reduction target of at least 55% by 2030 and become climate neutral by 2050.

We’re accelerating our commitments to our people.

We welcomed Olivier Leonetti as our new EVP and Chief Financial Officer in early 2024, further strengthening our team of senior leaders who lead by our values and share our commitment to operational excellence.
We maintained our focus on keeping our teams safe, exceeding both our total recordable case rate and severe injury goals, delivering decreases of 7% and 12%, respectively, over 2022.
We continued to improve the employee experience at Eaton, as shown in the results of our global employee survey. We picked up a 7% increase in participation over 2021 and saw an increase in engagement across the company – now at 84%, exceeding our 2030 goal of 80% ─ and an increase in inclusion, now at 77% and reflecting solid progress toward our 2030 target of 80%.
We deepened our commitment to our ethical culture, launching our updated Code of Ethics, which we revamped to better respond to the shifting ethical concerns of our teams, and published our annual Ethics and Compliance Integrity Report.
We developed a new community impact and charitable giving strategy to enable Eaton to intensify the impact of our support around the world, and continued to support communities in crisis, including those devastated by the Turkey-Syria and Morocco earthquakes and the Maui wildfires.

We’re accelerating our path forward.

As we look to the future, we know we’re at the very beginning of what we expect will be a historic growth period for the company. The powerful megatrends of energy transition, electrification and digitalization, new regulations to protect the environment, infrastructure spending and reindustrialization will drive increasingly higher growth to our end markets.

Inside of Eaton, we’ll stay focused on improving the way we run our company to expand our margins, strengthening our operational execution and leveraging our scale to reduce costs. This will allow us to invest in our company like never before – in training and developing our people, in expanding our facilities, in new technology, and in new digital solutions to strengthen connectivity around the world. Our best days are still to come ─ and there has never been a better time to be an investor in Eaton.

In closing

At Eaton, our goal is to set ourselves apart from our peers. To be the best. And we know that being the best requires humility – understanding that “better” does exist, and it’s our job to find it, every day. This is how we’ll build the future of our company and ensure that Eaton remains one of your best investments. This is how we’ll power the world forward during one of the most significant transitions that society has known. And with your sustained confidence in our company and our people, we’ll continue to accelerate our impact on the world, and build a more electrified, sustainable society for all.

Craig Arnold, Chairman and Chief Executive Officer

¹In 2023, free cash flow of $2.9 billion was operating cash flow of $3.6 billion, less capital expenditures of $0.8 billion. In 2022, free cash flow of $1.9 billion was operating cash flow of $2.5 billion, less capital expenditures of $0.6 billion.

Eaton is an intelligent power management company dedicated to improving the quality of life and protecting the environment for people everywhere. We are guided by our commitment to do business right, to operate sustainably and to help our customers manage power ─ today and well into the future. By capitalizing on the global growth trends of electrification and digitalization, we’re accelerating the planet’s transition to renewable energy and helping to solve the world’s most urgent power management challenges.