filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution). Columns and rows may not add and the sum of components may not equal total amounts reported due to rounding.
COMPANY OVERVIEW
Eaton Corporation plc (Eaton or the Company) is an intelligent power management company dedicated to protecting the environment and improving the quality of life for people everywhere. We make products for the data center, utility, industrial, commercial, machine building, residential, aerospace and mobility markets. We are capitalizing on the megatrends of the energy transition, electrification, and digitalization. The reindustrialization of and growth of megaprojects in North America and increased global infrastructure spending focused on clean energy programs are expanding our end markets and positioning Eaton for growth for years to come. We are strengthening our participation across the entire electrical power value chain and benefiting from momentum in the data center and utility end markets as well as a growth cycle in the commercial aerospace and defense markets. We are guided by our commitment to operate sustainably and with the highest ethical standards. Our work is accelerating the planet’s transition to renewable energy sources, helping to solve the world’s most urgent power management challenges, and building a more sustainable society for people today and for future generations.
Founded in 1911, Eaton has continuously evolved to meet the changing and expanding needs of our stakeholders. With revenues of nearly $25 billion in 2024, the Company serves customers in more than 160 countries.
Portfolio Changes
The Company continues to actively manage its portfolio of businesses to deliver on its strategic objectives. The Company is focused on deploying its capital toward businesses that provide opportunities for above-market growth, strong returns, and align with secular trends and its power management strategies. During 2024 and 2025, Eaton continued to selectively add businesses to strengthen its portfolio.
| Acquisitions of businesses and investments in associate companies | Date of acquisition | Business segment | ||||||||||||
| Exertherm | May 20, 2024 | Electrical Americas | ||||||||||||
| A U.K. based provider of thermal monitoring solutions for electrical equipment. | ||||||||||||||
| NordicEPOD AS | May 31, 2024 | Electrical Global | ||||||||||||
| A 49 percent stake in NordicEPOD AS, which designs and assembles standardized power modules for data centers in the Nordic region. | ||||||||||||||
| Fibrebond Corporation | April 1, 2025 | Electrical Americas | ||||||||||||
| A U.S. based designer and builder of pre-integrated modular power enclosures for data center, industrial, utility and communications customers. |
On June 16, 2025, Eaton signed an agreement to acquire Ultra PCS Limited (Ultra PCS), which is headquartered in the United Kingdom with operations in the U.K. and the United States. Ultra PCS produces electronic controls, sensing, stores ejection and data processing solutions, enabling mission success for global aerospace customers in the air and on the ground. Ultra PCS will be reported within the Aerospace business segment.
On July 11, 2025, Eaton signed an agreement to acquire Resilient Power Systems Inc., a leading North American developer and manufacturer of innovative energy solutions, including solid-state transformer-based technology. Resilient Power Systems Inc. will be reported within the Electrical Americas business segment.
Additional information related to acquisitions of businesses is presented in Note 2.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
The following discussion of Consolidated Financial Results includes certain non-GAAP financial measures. These financial measures include adjusted earnings and adjusted earnings per ordinary share, each of which differs from the most directly comparable measure calculated in accordance with generally accepted accounting principles (GAAP). A reconciliation of adjusted earnings and adjusted earnings per ordinary share to the most directly comparable GAAP measure is included in the Consolidated Financial Results table below. Management believes that these financial measures are useful to investors because they provide additional meaningful financial information that should be considered when assessing our business performance and trends, and they allow investors to more easily compare Eaton’s financial performance period to period. Management uses this information in monitoring and evaluating the on-going performance of Eaton.
Acquisition and Divestiture Charges
Eaton incurs integration charges and transaction costs to acquire and integrate businesses, and transaction, separation and other costs to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items is as follows:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||
| (In millions except for per share data) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||
| Acquisition integration, divestiture charges and transaction costs | $ | 70 | $ | 10 | $ | 80 | $ | 27 | |||||||||||||||||||||
| Income tax benefit | 16 | 3 | 19 | 7 | |||||||||||||||||||||||||
| Total after income taxes | $ | 54 | $ | 8 | $ | 61 | $ | 20 | |||||||||||||||||||||
| Per ordinary share - diluted | $ | 0.14 | $ | 0.02 | $ | 0.16 | $ | 0.05 |
Acquisition integration, divestiture charges and transaction costs in 2025 are primarily related to the acquisitions of Fibrebond and Exertherm, transactions completed prior to 2023, and other charges to acquire and exit businesses. Costs in 2025 include $47 million of employee transaction and retention award compensation expense related to the acquisition of Fibrebond. Acquisition integration, divestiture charges and transaction costs in 2024 are primarily related to acquisitions completed prior to 2023, and include other charges and income to acquire and exit businesses. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other income - net. In Business Segment Information in Note 16, the charges were included in Other expense - net.
Restructuring Programs
During the first quarter of 2024, Eaton implemented a multi-year restructuring program to accelerate opportunities to optimize its operations and global support structure. These actions will better align the Company's functions to support anticipated growth and drive greater effectiveness throughout the Company. Since the inception of the program, the Company has incurred charges of $244 million. This restructuring program is expected to be completed in 2026 and is expected to incur additional expenses related to workforce reductions of $164 million and plant closing and other costs of $67 million, resulting in total estimated charges of $475 million for the entire program. The Company expects mature year benefits of $375 million when the multi-year program is fully implemented.
Additional information related to these restructuring programs is presented in Note 15.
Intangible Asset Amortization Expense
Intangible asset amortization expense is as follows:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||
| (In millions except for per share data) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||
| Intangible asset amortization expense | $ | 129 | $ | 106 | $ | 235 | $ | 212 | |||||||||||||||||||||
| Income tax benefit | 28 | 23 | 50 | 45 | |||||||||||||||||||||||||
| Total after income taxes | $ | 101 | $ | 83 | $ | 185 | $ | 167 | |||||||||||||||||||||
| Per ordinary share - diluted | $ | 0.25 | $ | 0.20 | $ | 0.47 | $ | 0.42 |
Consolidated Financial Results
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| (In millions except for per share data) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Net sales | $ | 7,028 | $ | 6,350 | 11 | % | $ | 13,404 | $ | 12,293 | 9 | % | |||||||||||||||||||||||
| Gross profit | 2,597 | 2,410 | 8 | % | 5,043 | 4,628 | 9 | % | |||||||||||||||||||||||||||
| Percent of net sales | 37.0 | % | 38.0 | % | 37.6 | % | 37.6 | % | |||||||||||||||||||||||||||
| Income before income taxes | 1,186 | 1,195 | (1) | % | 2,363 | 2,195 | 8 | % | |||||||||||||||||||||||||||
| Net income | 982 | 994 | (1) | % | 1,947 | 1,816 | 7 | % | |||||||||||||||||||||||||||
| Less net income for noncontrolling interests | (1) | (1) | (2) | (2) | |||||||||||||||||||||||||||||||
| Net income attributable to Eaton ordinary shareholders | 982 | 993 | (1) | % | 1,945 | 1,814 | 7 | % | |||||||||||||||||||||||||||
| Excluding acquisition and divestiture charges, after-tax | 54 | 8 | 61 | 20 | |||||||||||||||||||||||||||||||
| Excluding restructuring program charges, after-tax | 18 | 12 | 33 | 61 | |||||||||||||||||||||||||||||||
| Excluding intangible asset amortization expense, after-tax | 101 | 83 | 185 | 167 | |||||||||||||||||||||||||||||||
| Adjusted earnings | $ | 1,155 | $ | 1,096 | 5 | % | $ | 2,225 | $ | 2,062 | 8 | % | |||||||||||||||||||||||
| Net income per share attributable to Eaton ordinary shareholders - diluted | $ | 2.51 | $ | 2.48 | 1 | % | $ | 4.96 | $ | 4.52 | 10 | % | |||||||||||||||||||||||
| Excluding per share impact of acquisition and divestiture charges, after-tax | 0.14 | 0.02 | 0.16 | 0.05 | |||||||||||||||||||||||||||||||
| Excluding per share impact of restructuring program charges, after-tax | 0.05 | 0.03 | 0.08 | 0.15 | |||||||||||||||||||||||||||||||
| Excluding per share impact of intangible asset amortization expense, after-tax | 0.25 | 0.20 | 0.47 | 0.42 | |||||||||||||||||||||||||||||||
| Adjusted earnings per ordinary share | $ | 2.95 | $ | 2.73 | 8 | % | $ | 5.67 | $ | 5.14 | 10 | % |
Net Sales
| Changes in Net sales: | Three months ended June 30, 2025 | Six months ended June 30, 2025 | |||||||||
| Organic growth | 8 | % | 8 | % | |||||||
| Acquisitions of businesses | 2 | % | 1 | % | |||||||
| Foreign currency | 1 | % | — | % | |||||||
| Total increase in Net sales | 11 | % | 9 | % |
The increase in organic sales in the second quarter of 2025 was due to strength in data center end-markets in the Electrical Americas and Electrical Global business segments, strength in commercial & institutional end-markets in the Electrical Americas business segment, strength in machine OEM and residential end-markets in the Electrical Global business segment, and strength in commercial aftermarket and military aftermarket in the Aerospace business segment, partially offset by weakness in industrial end-markets in the Electrical Americas and Electrical Global business segments, weakness in the North American truck market in the Vehicle business segment, and weakness in the North American region in the eMobility business segment.
The increase in organic sales in the first six months of 2025 was due to strength in data center end-markets in the Electrical Americas and Electrical Global business segments, strength in utility end-markets in the Electrical Americas business segment, strength in machine OEM end-markets in the Electrical Global business segment, and strength in commercial aftermarket and military aftermarket in the Aerospace business segment, partially offset by weakness in industrial end-markets in the Electrical Americas and Electrical Global business segments, weakness in the North American truck market in the Vehicle business segment, and weakness in the North American region in the eMobility business segment.
Gross Profit
Gross profit margin decreased from 38.0% in the second quarter of 2024 to 37.0% in the second quarter of 2025. Material factors affecting this decrease were a 240 basis point decline from commodity and wage inflation, a 70 basis point decline from unfavorable product mix, a 50 basis point decline from higher acquisition and divestiture charges, and a 30 basis point decline from higher intangible asset amortization expense, partially offset by a 250 basis point increase from higher sales and a 100 basis point increase from operating efficiencies.
Gross profit margin was flat at 37.6% in both the first six months of 2024 and 2025. Material factors affecting the gross profit margin were a 220 basis point increase from higher sales and a 110 basis point increase from operating efficiencies, partially offset by a 210 basis point decline from higher wage and commodity inflation, a 70 basis point decline from unfavorable product mix, and a 20 basis point decline from higher acquisition and divestiture charges.
Income Taxes
The effective income tax rate for the second quarter of 2025 was expense of 17.2% compared to expense of 16.8% for the second quarter of 2024. The effective income tax rate for the first six months of 2025 was expense of 17.6% compared to expense of 17.3% for the first six months of 2024. The increase in the effective tax rate in the second quarter and first six months of 2025 was primarily due to greater levels of income in higher tax jurisdictions.
Net Income
Changes in Net income attributable to Eaton ordinary shareholders and Net income per share attributable to Eaton ordinary shareholders - diluted are summarized as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||
| (In millions except for per share data) | Dollars | Per share | Dollars | Per share | |||||||||||||||||||
| June 30, 2024 | $ | 993 | $ | 2.48 | $ | 1,814 | $ | 4.52 | |||||||||||||||
| Business segment results of operations | |||||||||||||||||||||||
| Operational performance | 135 | 0.35 | 255 | 0.65 | |||||||||||||||||||
| Foreign currency | 14 | 0.03 | 17 | 0.04 | |||||||||||||||||||
| Corporate | |||||||||||||||||||||||
| Intangible asset amortization expense | (18) | (0.05) | (18) | (0.05) | |||||||||||||||||||
| Restructuring program charges | (6) | (0.02) | 28 | 0.07 | |||||||||||||||||||
| Acquisition and divestiture charges | (46) | (0.12) | (41) | (0.11) | |||||||||||||||||||
| Other corporate items | (81) | (0.20) | (102) | (0.25) | |||||||||||||||||||
| Tax rate impact | (10) | (0.02) | (8) | (0.02) | |||||||||||||||||||
| Impact of shares | — | 0.06 | — | 0.11 | |||||||||||||||||||
| June 30, 2025 | $ | 982 | $ | 2.51 | $ | 1,945 | $ | 4.96 |
Business Segment Results of Operations
The following is a discussion of Net sales, operating profit (loss) and operating margin by business segment. Additionally, the Company uses the following metrics as indicators of customer demand and future revenue expectations in the Electrical Americas, Electrical Global, and Aerospace business segments. The Company believes these metrics are useful to investors for the same reasons.
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Backlog: Includes orders to which customers are firmly committed
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Organic change in backlog: Percentage change in backlog, excluding (1) the impact of foreign currency, (2) divestitures, and (3) firm orders in place prior to closing of business acquisitions
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Organic change in customer orders: Percentage change in firm customer orders on a trailing twelve month basis, excluding (1) the impact of foreign currency, (2) divestitures, and (3) firm orders in place prior to closing of business acquisitions
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Book-to-bill: Average of the ratio of firm customer orders to Net sales for the last four quarters
Electrical Americas
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Net sales | $ | 3,350 | $ | 2,877 | 16 | % | $ | 6,360 | $ | 5,567 | 14 | % | |||||||||||||||||||||||
| Operating profit | $ | 987 | $ | 859 | 15 | % | $ | 1,891 | $ | 1,644 | 15 | % | |||||||||||||||||||||||
| Operating margin | 29.5 | % | 29.9 | % | 29.7 | % | 29.5 | % | |||||||||||||||||||||||||||
| Changes in Net sales: | |||||||||||||||||||||||||||||||||||
| Organic growth | 12 | % | 12 | % | |||||||||||||||||||||||||||||||
| Acquisitions of businesses | 5 | % | 3 | % | |||||||||||||||||||||||||||||||
| Foreign currency | (1) | % | (1) | % | |||||||||||||||||||||||||||||||
| Total increase in Net sales | 16 | % | 14 | % | |||||||||||||||||||||||||||||||
| Change from June 30 | |||||||||||||||||||||||||||||||||||||||||
| Performance metrics: | June 30, 2025 | June 30, 2024 | 2025 vs. 2024 | 2024 vs. 2023 | |||||||||||||||||||||||||||||||||||||
| Backlog | $ | 11,377 | $ | 9,698 | 17 | % | 28 | % | |||||||||||||||||||||||||||||||||
| Organic change in backlog | 6 | % | 29 | % | |||||||||||||||||||||||||||||||||||||
| Organic change in customer orders | 2 | % | 11 | % | |||||||||||||||||||||||||||||||||||||
| Book-to-bill | 1.1 | 1.2 |
The increase in organic sales in the second quarter of 2025 was due to strength in data center and commercial & institutional end-markets, partially offset by weakness in industrial end-markets. The increase in organic sales in the first six months of 2025 was due to strength in data center and utility end-markets, partially offset by weakness in industrial end-markets.
The operating margin decreased from 29.9% in the second quarter of 2024 to 29.5% in the second quarter of 2025. Material factors affecting this decrease were a 380 basis point decline from higher commodity and wage inflation and a 120 basis point decline from higher costs to support growth initiatives, partially offset by a 340 basis point increase from higher sales and a 100 basis point increase from operating efficiencies. The operating margin increased from 29.5% in the first six months of 2024 to 29.7% in the first six months of 2025. Material factors affecting this increase were a 350 basis point increase from higher sales and a 100 basis point increase from operating efficiencies, partially offset by a 290 basis point decline from higher commodity and wage inflation and a 90 basis point decline from higher costs to support growth initiatives.
Strong demand signals continue to underpin our data center market outlook. One hyperscaler customer has paused or slowed some early-stage data center projects, while also making significant investments.
Electrical Global
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Net sales | $ | 1,753 | $ | 1,606 | 9 | % | $ | 3,362 | $ | 3,105 | 8 | % | |||||||||||||||||||||||
| Operating profit | $ | 353 | $ | 305 | 16 | % | $ | 653 | $ | 578 | 13 | % | |||||||||||||||||||||||
| Operating margin | 20.1 | % | 19.0 | % | 19.4 | % | 18.6 | % | |||||||||||||||||||||||||||
| Changes in Net sales: | |||||||||||||||||||||||||||||||||||
| Organic growth | 7 | % | 8 | % | |||||||||||||||||||||||||||||||
| Foreign currency | 2 | % | — | % | |||||||||||||||||||||||||||||||
| Total increase in Net sales | 9 | % | 8 | % | |||||||||||||||||||||||||||||||
| Change from June 30 | |||||||||||||||||||||||
| Performance metrics: | June 30, 2025 | June 30, 2024 | 2025 vs. 2024 | 2024 vs. 2023 | |||||||||||||||||||
| Backlog | $ | 1,771 | $ | 1,751 | 1 | % | 15 | % | |||||||||||||||
| Organic change in backlog | (3) | % | 16 | % | |||||||||||||||||||
| Organic change in customer orders | (1) | % | 7 | % | |||||||||||||||||||
| Book-to-bill | 1.0 | 1.1 |
The increase in organic sales in the second quarter of 2025 was due to strength in data center, machine OEM, and residential end-markets, partially offset by weakness in industrial end markets. The increase in organic sales in the first six months of 2025 was due to strength in data center and machine OEM end-markets, partially offset by weakness in industrial end markets. Additionally, the increase in organic sales in the second quarter and first six months of 2025 was due to strength in the European and Asia Pacific regions.
The operating margin increased from 19.0% in the second quarter of 2024 to 20.1% in the second quarter of 2025. Material factors affecting this increase were a 230 basis point increase from higher sales and a 210 basis point increase from operating efficiencies, partially offset by a 170 basis point decline from unfavorable product mix and a 160 basis point decline from higher commodity and wage inflation. The operating margin increased from 18.6% in the first six months of 2024 to 19.4% in the first six months of 2025. Material factors affecting this increase were a 210 basis point increase from higher sales and a 190 basis point increase from operating efficiencies, partially offset by a 190 basis point decline from higher commodity and wage inflation and a 130 basis point decline from unfavorable product mix.
Strong demand signals continue to underpin our data center market outlook. One hyperscaler customer has paused or slowed some early-stage data center projects, while also making significant investments.
Aerospace
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Net sales | $ | 1,080 | $ | 955 | 13 | % | $ | 2,059 | $ | 1,826 | 13 | % | |||||||||||||||||||||||
| Operating profit | $ | 240 | $ | 206 | 17 | % | $ | 466 | $ | 407 | 14 | % | |||||||||||||||||||||||
| Operating margin | 22.2 | % | 21.5 | % | 22.6 | % | 22.3 | % | |||||||||||||||||||||||||||
| Changes in Net sales: | |||||||||||||||||||||||||||||||||||
| Organic growth | 11 | % | 12 | % | |||||||||||||||||||||||||||||||
| Foreign currency | 2 | % | 1 | % | |||||||||||||||||||||||||||||||
| Total increase in Net sales | 13 | % | 13 | % | |||||||||||||||||||||||||||||||
| Change from June 30 | ||||||||||||||||||||||||||
| Performance metrics: | June 30, 2025 | June 30, 2024 | 2025 vs. 2024 | 2024 vs. 2023 | ||||||||||||||||||||||
| Backlog | $ | 4,025 | $ | 3,463 | 16 | % | 14 | % | ||||||||||||||||||
| Organic change in backlog | 14 | % | 14 | % | ||||||||||||||||||||||
| Organic change in customer orders | 10 | % | 4 | % | ||||||||||||||||||||||
| Book-to-bill | 1.1 | 1.1 |
The increase in organic sales in the second quarter and first six months of 2025 was due to broad-based strength across all markets, with particular strength in commercial aftermarket and military aftermarket.
The operating margin increased from 21.5% in second quarter of 2024 to 22.2% in second quarter of 2025. Material factors affecting this increase were a 500 basis point increase from higher sales, partially offset by a 240 basis point decline from higher commodity and wage inflation, a 110 basis point decline from unfavorable product mix, and a 60 basis point decline from higher costs to support growth initiatives. The operating margin increased from 22.3% in the first six months of 2024 to 22.6% in the first six months of 2025. Material factors affecting this increase were a 480 basis point increase from higher sales, partially offset by a 220 basis point decline from higher commodity and wage inflation, a 120 basis point decline due to the sale of a production facility in the first quarter of 2024, and a 80 basis point decline from higher costs to support growth initiatives.
Vehicle
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Net sales | $ | 663 | $ | 723 | (8) | % | $ | 1,280 | $ | 1,447 | (12) | % | |||||||||||||||||||||||
| Operating profit | $ | 113 | $ | 130 | (13) | % | $ | 209 | $ | 246 | (15) | % | |||||||||||||||||||||||
| Operating margin | 17.0 | % | 18.0 | % | 16.3 | % | 17.0 | % | |||||||||||||||||||||||||||
| Changes in Net sales: | |||||||||||||||||||||||||||||||||||
| Organic growth | (8) | % | (10) | % | |||||||||||||||||||||||||||||||
| Foreign currency | — | % | (2) | % | |||||||||||||||||||||||||||||||
| Total decrease in Net sales | (8) | % | (12) | % |
The decrease in organic sales in the second quarter and first six months of 2025 was due to weakness in the North American truck market.
The operating margin decreased from 18.0% in the second quarter of 2024 to 17.0% in the second quarter of 2025. Material factors affecting this decrease were a 260 basis point decline due to the sale of a non-production facility in the second quarter of 2024 and a 120 basis point decline from higher commodity and wage inflation, partially offset by a 240 basis point increase from operating efficiencies. The operating margin decreased from 17.0% in the first six months of 2024 to 16.3% in the first six months of 2025. Material factors affecting this decrease were a 170 basis point decline from higher commodity and wage inflation, a 130 basis point decline due to the sale of a non-production facility in the second quarter of 2024 and a 60 basis point decline from lower sales, partially offset by a 280 basis point increase from operating efficiencies.
eMobility
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Net sales | $ | 182 | $ | 189 | (4) | % | $ | 343 | $ | 348 | (1) | % | |||||||||||||||||||||||
| Operating profit (loss) | $ | (10) | $ | 2 | (600) | % | $ | (15) | $ | (2) | (650) | % | |||||||||||||||||||||||
| Operating margin | (5.8) | % | 1.3 | % | (4.3) | % | (0.6) | % | |||||||||||||||||||||||||||
| Changes in Net sales: | |||||||||||||||||||||||||||||||||||
| Organic growth | (7) | % | (2) | % | |||||||||||||||||||||||||||||||
| Foreign currency | 3 | % | 1 | % | |||||||||||||||||||||||||||||||
| Total increase in Net sales | (4) | % | (1) | % | |||||||||||||||||||||||||||||||
The decrease in organic sales in the in the second quarter and first six months of 2025 was due to weakness in the North American region, partially offset by strength in the European region.
The operating margin decreased from 1.3% in the second quarter of 2024 to negative 5.8% in the second quarter of 2025. Material factors affecting this decrease were a 500 basis point decline from the sale of non-production facilities in the second quarter of 2024, a 440 basis point decline from higher commodity inflation, and a 320 basis point decline from operating inefficiencies, partially offset by a 520 basis point increase from favorable product mix. The operating margin decreased from negative 0.6% in the first six months of 2024 to negative 4.3% in the first six months of 2025. Material factors affecting this decrease were a 440 basis point decline from higher commodity inflation and a 420 basis point decline from the sale of non-production facilities in the second quarter of 2024, partially offset by a 370 basis point increase from favorable product mix.
Corporate Expense
| Three months ended June 30 | Increase (decrease) | Six months ended June 30 | Increase (decrease) | ||||||||||||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Intangible asset amortization expense | $ | 129 | $ | 106 | 22 | % | $ | 235 | $ | 212 | 11 | % | |||||||||||||||||||||||
| Interest expense - net | 71 | 29 | 145 | % | 103 | 59 | 75 | % | |||||||||||||||||||||||||||
| Pension and other postretirement benefits income | (5) | (9) | (44) | % | (10) | (20) | (50) | % | |||||||||||||||||||||||||||
| Restructuring program charges | 24 | 15 | 60 | % | 42 | 78 | (46) | % | |||||||||||||||||||||||||||
| Other expense - net | 277 | 166 | 67 | % | 471 | 349 | 35 | % | |||||||||||||||||||||||||||
| Total corporate expense | $ | 496 | $ | 307 | 62 | % | $ | 841 | $ | 678 | 24 | % |
Total corporate expense increased from $307 million in the second quarter of 2024 to $496 million in the second quarter of 2025. Material factors affecting this increase were higher Other expense - net, Interest expense - net, and Intangible asset amortization expense. The increase in Other expense - net is primarily due to higher acquisition and divestiture costs. Total corporate expense increased from $678 million in the first six months of 2024 to $841 million in the first six months of 2025. Material factors affecting this increase were higher Other expense - net and Interest expense - net. The increase in Other expense - net is primarily due to higher acquisition and divestiture costs.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Liquidity and Financial Condition
Eaton’s objective is to finance its business through operating cash flow and an appropriate mix of equity and long-term and short-term debt. By diversifying its debt maturity structure, Eaton reduces liquidity risk.
On May 9, 2025, a subsidiary of Eaton issued Euro denominated notes (2025 Euro Notes) with a face amount of €500 million ($564 million). The 2025 Euro Notes mature in 2035 with interest payable annually at a rate of 3.625% per annum. The issuer received proceeds totaling €494 million ($558 million) from the 2025 Euro Notes issuance, net of financing costs and discounts. The 2025 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2025 Euro Notes contain customary optional redemption and par call provisions. The 2025 Euro Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2025 Euro Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense - net over the term of the 2025 Euro Notes. The 2025 Euro Notes are subject to customary non-financial covenants.
Also on May 9, 2025, the same subsidiary of Eaton issued senior notes (2025 Notes) with a face amount of $500 million. The 2025 Notes mature in 2030 with interest payable semi-annually at a rate of 4.45% per annum. The issuer received proceeds totaling $495 million from the 2025 Notes issuance, net of financing costs and discounts. The 2025 Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2025 Notes contain customary optional redemption and par call provisions. The 2025 Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2025 Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense - net over the term of the 2025 Notes. The 2025 Notes are subject to customary non-financial covenants.
The Company maintains revolving credit facilities consisting of a $500 million 364-day revolving credit facility that will expire on September 29, 2025 and a $2,500 million five-year revolving credit facility that will expire on October 1, 2027. The revolving credit facilities totaling $3,000 million are used to support commercial paper borrowings and are fully and unconditionally guaranteed by Eaton and certain of its direct and indirect subsidiaries on an unsubordinated, unsecured basis. There were no borrowings outstanding under Eaton’s revolving credit facilities at June 30, 2025. The Company maintains access to the commercial paper markets through its $3,000 million commercial paper program, of which $1,110 million was outstanding on June 30, 2025, used primarily to manage fluctuations in working capital.
Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of June 30, 2025 and December 31, 2024, Eaton had cash of $398 million and $555 million, short-term investments of $186 million and $1,525 million, respectively, with $1,111 million short-term debt as of June 30, 2025 and no short-term debt as of December 31, 2024. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term debt.
On April 1, 2025, the Company paid $1.45 billion, net of cash acquired, to acquire Fibrebond Corporation.
Eaton was in compliance with each of its debt covenants for all periods presented.
Cash Flows
A summary of cash flows is as follows:
| Six months ended June 30 | Change from 2024 | ||||||||||||||||||||||||||||
| (In millions) | 2025 | 2024 | |||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 1,156 | $ | 1,421 | $ | (265) | |||||||||||||||||||||||
| Net cash used in investing activities | (490) | (511) | 21 | ||||||||||||||||||||||||||
| Net cash used in financing activities | (697) | (839) | 142 | ||||||||||||||||||||||||||
| Effect of currency on cash | (126) | (20) | (106) | ||||||||||||||||||||||||||
| Total increase (decrease) in cash | $ | (157) | $ | 52 |
Operating Cash Flow
Net cash provided by operating activities decreased by $265 million in the first six months of 2025 compared to 2024. Material factors affecting this decrease were higher working capital balances of $613 million, partially offset by higher net income of $131 million.
Investing Cash Flow
Net cash used in investing activities decreased by $21 million in the first six months of 2025 compared to 2024. Material factors affecting this decrease were sales of short-term investments of $1,343 million in 2025 compared to purchases of short-term investments of $126 million in 2024, partially offset by cash paid for business acquisitions of $1,450 million in 2025 compared to $51 million in 2024.
Financing Cash Flow
Net cash used in financing activities decreased by $142 million in the first six months of 2025 compared to 2024. Material factors affecting this decrease were net proceeds of short-term debt of $1,111 million in 2025 compared to net payments of short-term debt of $4 million in 2024, partially offset by an increase in repurchase of shares to $1,307 million in 2025 from $738 million in 2024 and an increase in payments on borrowings to $713 million in 2025 from $399 million in 2024.
Uses of Cash
Capital Expenditures
Capital expenditures were $349 million and $370 million in the first six months of 2025 and 2024, respectively. The Company plans to increase capital expenditures over the next several years to expand production capacity across various markets to support anticipated growth. As a result, Eaton expects approximately $900 million in capital expenditures in 2025.
Dividends
Cash dividend payments were $818 million and $756 million in the first six months of 2025 and 2024, respectively. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating cash flows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to continue to pay quarterly dividends in 2025.
Share Repurchases
On February 23, 2022, the Board of Directors adopted a share repurchase program for repurchases of ordinary shares up to $5.0 billion to be made during the three-year period commencing on that date (2022 Program). On February 27, 2025, the Board of Directors renewed the 2022 Program by providing authority for up to $9.0 billion in repurchases to be made during the three-year period commencing on that date (2025 Program). Under the 2025 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. During the three and six months ended June 30, 2025, 2.3 million and 4.2 million ordinary shares, respectively, were repurchased under the 2025 or 2022 Programs in the open market at a total cost of $698 million and $1,306 million, respectively. During the three and six months ended June 30, 2024, 1.9 million and 2.3 million ordinary shares, respectively, were repurchased under the 2022 program in the open market at a total cost of $600 million and $738 million, respectively.
Acquisition of Businesses and Investments in Associate Companies
The Company paid cash of $1,450 million and $51 million to acquire businesses in the first six months of 2025 and 2024, respectively. The Company paid cash of $16 million and $68 million for investments in associate companies in the first six months of 2025 and 2024, respectively. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for higher growth and strong returns, and align with secular trends and its power management strategies.
Debt
The Company manages a number of short-term and long-term debt instruments, including commercial paper. At June 30, 2025, the Company had Short-term debt of $1,111 million, Current portion of long-term debt of $1,134 million, and Long-term debt of $8,751 million. The Company believes it has the operating flexibility, cash flow, and access to capital markets to meet scheduled payments of long-term debt.
Supply Chain Finance Program
A third-party financial institution offers a voluntary supply chain finance (SCF) program that enables certain of the Company’s suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institution on terms directly negotiated with the financial institution. The SCF program does not have a significant impact on the Company’s liquidity as payments by the Company to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether an individual invoice is sold by the supplier to the financial institution. For additional information on the SCF program, see Note 7.
Guaranteed Debt
Issuers, Guarantors and Guarantor Structure
Eaton Corporation has issued senior notes pursuant to indentures dated April 1, 1994 (the 1994 Indenture), November 20, 2012 (the 2012 Indenture), September 15, 2017 (the 2017 Indenture), and August 23, 2022 (as supplemented by the First and Second Supplemental Indentures of the same date and the Third Supplemental Indenture dated May 18, 2023, the 2022 Indenture). Eaton Capital Unlimited Company, a subsidiary of Eaton, is the issuer of four outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds) and Registered Senior Notes (as defined below) issued under an indenture dated May 9, 2025 (as supplemented by the First and Second Supplemental Indentures of the same date, the 2025 Indenture). The senior notes issued under the 1994, 2012, 2017, 2022, and 2025 Indentures are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). The Eurobonds and the Registered Senior Notes (together, the Senior Notes) comprise substantially all of Eaton’s long-term indebtedness.
Substantially all of the Senior Notes (with limited exceptions), together with the credit facilities described above under Liquidity and Financial Condition (the Credit Facilities), are guaranteed by Eaton and 17 of its subsidiaries. Accordingly, they rank equally with each other. However, because these obligations are not secured, they would be effectively subordinated to any existing or future secured indebtedness of Eaton and its subsidiaries. As of June 30, 2025, Eaton has no material, long-term secured debt. The guaranteed Registered Senior Notes are also structurally subordinated to the liabilities of Eaton's subsidiaries that are not guarantors. Except as described below under Future Guarantors, Eaton is not obligated to cause its subsidiaries to guarantee the Registered Senior Notes.
The table set forth in Exhibit 22 filed with this Form 10-Q details the primary obligors and guarantors with respect to the guaranteed Registered Senior Notes.
Terms of Guarantees of Registered Securities
Payment of principal and interest on the Registered Senior Notes is guaranteed, on an unsecured, unsubordinated basis by the subsidiaries of Eaton set forth in the table referenced in the 10-K Exhibit 22. Each guarantee is full and unconditional, and joint and several. Each guarantor’s guarantee is an unsecured obligation that ranks equally with all its other unsecured and unsubordinated indebtedness. The obligations of each guarantor under its guarantee of the Registered Senior Notes are subject to a customary savings clause or similar provision designed to prevent such guarantee from constituting a fraudulent conveyance or otherwise legally impermissible or voidable obligation.
Though the terms of the indentures vary slightly, generally, each guarantee of the Registered Senior Notes by a guarantor that is a subsidiary of Eaton Corporation provides that it will be automatically and unconditionally released and discharged under certain circumstances, including, but not limited to:
(a)the consummation of certain types of transactions permitted under the applicable indenture, including one that results in such guarantor ceasing to be a subsidiary; and
(b)for Registered Senior Notes issued under the 2022 and 2025 Indentures, when such guarantor is a guarantor or issuer of indebtedness in an aggregate outstanding principal amount of less than 25% of our total outstanding indebtedness.
Further, each guarantee by a direct or indirect parent of Eaton Corporation (other than Eaton) provides that it will also be released if:
(c)such guarantee (so long as the guarantor is not obligated under any other U.S. debt obligations), becomes prohibited by any applicable law, rule or regulation or by any contractual obligation; or
(d)such guarantee results in material adverse tax consequences to Eaton or any of its subsidiaries (so long as the applicable guarantor is not obligated under any other U.S. debt obligation).
The guarantee of Eaton does not contain any release provisions.
Future Guarantors
The 2012 and 2017 Indentures generally provide that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under any series of debt securities or a syndicated credit facility. Further, the 2012 and 2017 Indentures provide that any entity that becomes a direct or indirect parent entity of Eaton Corporation and holds any material assets, with certain limited exceptions, or owes any material liabilities must become a guarantor. The 2022 and 2025 Indentures provide only that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under indebtedness with an aggregate outstanding principal amount in excess of 25% of the Parent and its Subsidiaries’ then-outstanding indebtedness.
The 1994 Indenture does not contain provisions with respect to future guarantors.
Summarized Financial Information of Guarantors and Issuers
| (In millions) | June 30, 2025 | December 31, 2024 | |||||||||
| Current assets | $ | 3,942 | $ | 5,027 | |||||||
| Noncurrent assets | 13,222 | 13,225 | |||||||||
| Current liabilities | 5,198 | 3,738 | |||||||||
| Noncurrent liabilities | 10,714 | 10,564 | |||||||||
| Amounts due to subsidiaries that are non-issuers and non-guarantors - net | 9,358 | 10,334 | |||||||||
| (In millions) | Six months ended June 30, 2025 | ||||||||||
| Net sales | $ | 7,949 | |||||||||
| Sales to subsidiaries that are non-issuers and non-guarantors | 489 | ||||||||||
| Cost of products sold | 5,629 | ||||||||||
| Expense from subsidiaries that are non-issuers and non-guarantors - net | 370 | ||||||||||
| Net income | 594 |
The financial information presented is that of the issuers and the guarantors, which includes Eaton Corporation plc, on a combined basis and the financial information of non-issuer and non-guarantor subsidiaries has been excluded. Intercompany balances and transactions between the issuers and guarantors have been eliminated, and amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately.
FORWARD-LOOKING STATEMENTS
This Form 10-Q Report contains forward-looking statements concerning litigation, expected capital expenditures, future dividend payments, anticipated share repurchases, liquidity, the anticipated closing of acquisitions, anticipated capital deployment, data center market demand, and expected restructuring program charges and benefits. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to Eaton, based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside Eaton’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: global pandemics; unanticipated changes in the markets for the Company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; the availability of credit to customers and suppliers; supply chain disruptions, competitive pressures on sales and pricing; unanticipated changes in the cost of material, labor and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of disruptive or competing technologies; unexpected technical or marketing difficulties; unexpected or adverse determinations with respect to claims, charges, audits, investigations, court or administrative proceedings, litigation, arbitrations, judgements, or dispute resolutions; strikes or other labor unrest at Eaton or at our customers or suppliers; the impact of acquisitions and divestitures unanticipated difficulties integrating acquisitions; the effect, interpretation, or application of new or existing laws, regulations, legal proceedings or accounting pronouncements, tariffs and governmental regulations; interest rate changes; tax rate changes or exposure to additional income tax liability; stock market and currency fluctuations; war, geopolitical tensions, natural disasters, civil or political unrest or terrorism; and unanticipated deterioration of economic and financial conditions in the United States and around the world. Eaton does not assume any obligation to update these forward-looking statements.
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