Craig Arnold
Chairman and Chief Executive Officer at Eaton
Thanks, Yan. Hey, today, we're pleased to mark the end of the first quarter, with one of our strongest performances ever and a performance that strengthens our conviction about our long-term growth prospects. Our teams continue to deliver on our commitments, propelled by both strong markets and good execution.
We'll begin with some of the highlights of the quarter on Page 3. Well understood at this point megatrends, reindustrialization, infrastructure spending are continued to expand our markets, driving our revenue orders and backlogs. We posted another quarter of record financial performance with strong revenue, margins and earnings growth. And we executed well. And our first-half performance, along with our growing backlog, is what allows us to once again raise our full-year guidance. We're raising our 2023 guidance for organic growth, margins and adjusted EPS. Our EPS growth at the midpoint of our guidance is now up 16%. Tom will walk you through the details shortly. But from my perspective, the highlights of the quarter really are our growing backlogs, up 22% on Electrical and 26% in Aerospace, with a book-to-bill ratio of 1.2 for both Electrical and Aerospace.
We've also generated strong operating and free cash flow, $1.2 billion and $900 million, up more than 200% at 600% respectively. The free cash flow in the first-half of the year is almost $800 million above prior year. So, we're on-track to deliver our full-year guidance, despite the higher growth and higher receivable balances. Overall, we're pleased with the results and well-positioned for the second-half.
Moving to Slide 4. We wanted to provide a simple framework that summarizes how we think about key growth drivers across our businesses. The important megatrends are listed here on the left and Eaton markets and our segments are listed across the top of the page. At the intersection is where we see these trends having a material impact on our growth rate of our end-markets. And without getting into a lot of the detail, the important message is that this long list of mega projects is impacting many of Eaton's end-markets. What we intend to do during the course of our quarterly earnings call today and really into the future is really talk about these trends and how they impact our end-markets. Today, we'll spend a few minutes on infrastructure spending and the Inflation Reduction Act, reindustrialization and an update on mega projects, as well as look at Eaton's position in the utility and aerospace markets.
We're highlighting the Inflation Reduction Act since it's considerable upside to the initial estimates of future government spending and on mega projects, because they continue to grow dramatically. We pick the Utility segment since it's quickly becoming one of our largest markets. It was approximately 15% of Electrical Americas sales last year and is running well ahead of that rate this year. We received also some extensive questions from investors about our position in this market. Lastly, we'll highlight our Aerospace business trough the double-digit growth outlook, ramping defense and commercial platforms, including a substantial new win on the Bell V-280 Valor platform.
Moving to Slide 5, we're showing an updated look at expected spending tied to the Inflation Reduction Act. Most of the spending is focused on improving U.S. infrastructure. And as you can see, the estimates have increased significantly. At the time of passage, estimates on the cost impact, including credits and incentives, was $271 billion. The legislation was recently re-scored and government spending is now expected to be $663 billion, up nearly 2.5 times due to really what is an uncapped program. Importantly, these tax credits, because they're uncapped, are expected to continue to grow. These dollars are naturally a strong catalyst for infrastructure spending, much of it targeted at industries where Eaton will be a significant benefactor. The implementation of the IRA is in the very early stages, and we think will provide significant tailwinds over the next 10 years. Very little of this impact is currently in our order book and none of it has impacted revenue yet.
On Page 6, we have an updated chart showing the continued growth of mega projects in North America. We introduced this chart last quarter. And you'll recall that we included announced projects that are greater than $1 billion in this category. The value of announced mega projects has increased by $116 billion or 20% between March and June. So, the momentum continues and we'd expect the category to continue to grow at well above historical trends. We've seen recent announcements for EV, semiconductor plants, and new battery plants, so really across the board. And a few examples of some of the other major projects include $174 billion of downstream oil and gas or chemical; $33 billion of LNG export terminals; and $64 billion of power generation in renewable energy projects. Just another confirming data point, the Dodge data for U.S. industrial projects continues to expand at a record pace, with 12 month manufacturing and construction starts, up 72% on a 12-month basis -- on a rolling 12-month basis and up 84% if you include LNG activity. Now, as a reminder, only 25% of these mega projects have started. So, we're just at the beginning of this reindustrialization megatrend. Lastly, I'd remind you that we expect each of these mega projects to have between 3% and 5% electrical content.
Moving to Page 7, we highlight the Utility segment of the Americas business. As we reported, in 2022, this market accounted for approximately 15% of Electrical Americas revenue and represents an even bigger percent to date. We've historically viewed the Utility segment as a stable but slow growth business, generally in the low-single-digits. Over the next decade, utility distribution capex will account for 60% of the total utility capex globally, growing at a CAGR of 9%; over the '22 to '25 period, we would expect at a 11% CAGR. The impact of sustainability initiatives across the globe have significantly boosted this number. This includes grid modernization, renewable energy, electrification of everything, enhanced reliability and safety needs and government incentives, are all contributing to this growth outlook. And while the electrical needs of the world continue to increase, our utility customers are finding it challenging to maintain an increasingly aging grid infrastructure. As a point of reference, over 70% of U.S. transmission and distribution lines are over 25 years old. We're naturally making capital investments to address the growth here and have already committed to new capacity in our three major product families, transformers, voltage regulators and line installation products. It's worth highlighting that in this quarter, our Americas utility business backlog has increased 45%, organic revenues grew 30% in the Americas and 20% in our Global segment.
The graphics on Page 8 highlight Eaton's unique position in the North America utility market, where we're primarily focused on distribution. And given the significant changes taking place in this market, including the need to integrate renewables, undergrounding for increased resiliency, the increased demand for grid services, we could not be more pleased with what we have to offer in this segment. You can see from this slide that we have a broad position in the market. In fact, we have the industry's broadest portfolio of utility solutions. This includes grid planning software, design and engineering services, a complete offering of critical utility products, automation software as well as extensive project management expertise. We also offer a broad range of digitally-enabled hardware, grid edge controllers for overhead, underground and for substations. Lastly, our Brightlayer solution for utility includes distribution planning software, distribution and substation automation, as well as smart grid communication, sensors and demand management. So, overall, we're well-positioned, given our substantial portfolio of hardware, digitally-enabled software and solutions. And in the quarter, we secured a broad range of wins in the market, including hardware solutions for voltage regulators, power distribution, digital solutions for grid planning in our software we call CYME, and smart metering and also in utility services.
Moving to Page 9, we'd like to highlight another well-known trend, the growth in Aerospace markets. As you can see, we expect double-digit growth in each of the years between now and 2025, driven by the rebound in commercial OEM, commercial aftermarket and increased defense spending. The commercial market is expected to be very strong as Airbus and Boeing are both significantly increasing production volumes and are expected to materially increase production on their most important platforms. For example, Airbus is expected to increase production on the A320 from 45 to 50 per month currently the 75 per month by 2026, and Boeing is expected to increase production on the 737 from 31 per month currently to 50 per month in the '25 to '26 timeframe. And global passenger air travel is expected to return to 2019 levels by the end of this year and grow at 11% CAGR between now and 2025. We also expect to see increased defense spending driven by various global conflicts and governments allocating more dollars to our type of equipment to improve fleet readiness. Our Aerospace business is especially well-positioned on key defense platforms, both those targeted for modernization and on new platforms that are being ramped-up.
On Slide 10, in addition to the high volume single aisle growth that you hear so much about, the next group of key platforms driving the growth today and into the future are listed here. These platforms are a good representation of important platforms ramping in the near-term over the next five years and critical growth platforms for future decades. In all cases, we have more content than ever on each of these aircraft. In the future category, we're showing the win with the Bell on the V-28 program. The V-28 is a replacement for the Black Hawk helicopter and we have five times more content and are still bidding for more opportunities. We put the KC-46A and the F-35 in the next category, aircraft that will be ramping in the near-term and will contribute materially to our revenue growth beginning next year. As you can see, our content per aircraft here is two times to three times the legacy platform. And lastly, we're starting to see once again growth in the wide-body market. The long-haul market has been especially weak during the COVID and post-COVID period, and is now beginning to pick-up. The important message here is that these programs -- as these programs ramp-up, we'd expect to grow faster than our end-markets, given the increased content on each of these programs. So, between market recovery and increased content per platform, our Aerospace business is expected to see significant growth over the next five years or even longer.
Now, I will turn it over to Tom, who will take us through the financial slides.
