Eaton Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 31, 2025
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Operator

Good day, and thank you for standing-by. Welcome to the Eaton 4th-Quarter 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

I would now like to hand the conference over to your speaker today, Yan Jin, Senior Vice-President of Investor Relations.

Yan Jin
Senior Vice President, Investor Relations at Eaton

Hey, good morning. Thank you all for joining us for Eaton's 4th-quarter 2024 earnings call. With me today are Craig Arnold, our Chairman and CEO; Paulo Ruiz, President and Chief Operating Officer; and Olivier, Executive Vice-President and Chief Financial Officer. Our agenda today includes the opening remarks by Craig, then he will turn it over to Olivi, who will highlight our company's performance in the 4th-quarter. We will then turn it over to Paulo, who will provide the guidance for Q1 and 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 will go through today have been posted on our website. This presentation, including 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 as described in our earnings release and the presentation. With that, I will turn it over to Craig.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Okay. Thanks, Jen. And we're pleased to close-out the year with another strong quarterly result. I'm especially proud of how our team executed in the quarter. As you know, we needed 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 from 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. Paula 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 Paul 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 MOEM markets. In aerospace, markets grew nicely and in-line with plan, and this was despite the Boeing strike. And our vehicle markets was a bit of a mixed bag with better-than-planned performance in commercial vehicles, offsetting weakness in the light-vehicle market, which includes e-mobility. 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, a mega project is a project with 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 specific data. For projects that have started, we've won over $1.8 billion of 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 the 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 in 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 the 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 '23 and '24.

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.

Olivier Leonetti
Executive Vice President and Chief Financial Officer at Eaton

Thanks, Craig. I will start by providing a summary of our Q4 results, which again includes many new records. We posted 4th-quarter record sales of $6.2 billion, up 6% organically or 5%, including 1 point of FX headwind. Hurricane Helane 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 will 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 the -- 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 US announced data center project start are up 99% in 2024 and 173% year-over-year in Q4. US data center construction -- 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 close-out a record year for the business, which posted full-year revenue of $11.4 billion, organic growth of 13% and margins 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 else recall 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 indeed 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 relief 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 FX. 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 e-mobility 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, e-mobility posted 4% organic growth with negative 1% margins.

Moving to Page 13, we show our Eltrical 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 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, which supports our expectation for strong market and structurally higher organic -- 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 multi-year CAGR of 29%. The year-over-year increase was largely driven by data center, commercial and institutional -- and institutional and utility end-markets. Within the commercial and institutional end-markets, 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.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

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 adjusted EPS, all-time record margins of 24% and a 23% increase in free-cash flow, all above our initial guidance. A 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 as a way of delivering unexpected surprises. So we run the company in a 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. And we have the Eaten 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.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

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 electric 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 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 will also add that healthy end-markets combined once again with our large backlog continued 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 the 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 give 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, 11, 2025. We will be back-in New York City and we will 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 Jan and the operator for Q&A.

Yan Jin
Senior Vice President, Investor Relations at Eaton

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

Skip to Participants
Operator

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions thank you. And our first question comes from Chris Snyder with Morgan Stanley. You may proceed.

Christopher Snyder
Analyst at Morgan Stanley

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 '25? Thank you.

Olivier Leonetti
Executive Vice President and Chief Financial Officer at Eaton

Thank you for your question. Let me cover first the EPS guidance through the year and 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 well-balanced first-half second-half.

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, usually you saw a decline sequentially Q1 over Q4 of about 10%, 11%. This guide imply a decline of 4%. The decline is always expected because of merit increase. And also, we are very bullish about our business and going to invest in-demand generation and manufacturing. So that explains also the Q1 sequential decline on EPS. And maybe in revenue, Paolo?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah, just 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 of 9%. And I can give you more color on the segments. And 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 Logical Americas, the biggest segment. We also see that in the second-half, most probably the logical 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 will 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.

Christopher Snyder
Analyst at Morgan Stanley

I appreciate that. Really, really helpful. And then if I could follow-up with one, maybe for Craig. I really appreciate all the updates on the demand outlook. Certainly, a lot of good trends out there. But I wanted to ask about the supply-side. We've heard a lot about the product availability in the industry being incredibly tight in the 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.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah. No, I 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 eaten has as we put in lots of 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 mid-term outlook, we're certainly constraining our view of the world largely because we do think labor continues to be somewhat constrained. If you think about our industry's skilled trades, you know, you've seen a -- 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 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.

Christopher Snyder
Analyst at Morgan Stanley

Thank you, Craig. I appreciate that.

Operator

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

Andrew Obin
Analyst at Bank of America

Good morning.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Good morning, Andrew.

Andrew Obin
Analyst at Bank of America

Just maybe a question for Craig. You know 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 '24?

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah. I appreciate the question, Andrew. And one of the reasons why we started reporting mega projects a couple of years ago is that we saw this fundamental shift in our industry as the -- 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 -- 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 is 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 US for sure, but around the world and it's really showing up in these mega projects.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

And I would like to give some color. Just Andrew, just-for-you, in a look-forward 2025, just to reinforce what Craig just said, we looked at the Dodge data and in 2024, there were 56 projects that started and around $135 billion in total. And our 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 is almost double that the rate we saw in 2024. So I think the message from Craig, I think the key point is the longevity of the growth cycle ahead of us. I think that's a good way to think about it.

Andrew Obin
Analyst at Bank of America

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 US 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 the components that are bottlenecked, more critical components? Thanks so much.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Maybe just building on my commentary earlier, I think today, the nature of our conversations with suppliers is 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 multi-year agreements, which are backed-up by multiyear agreements that we also have with our customers.

And -- but I'd say by and large, you know, this notion that the US is sucking up capacity from the rest of the world, there's probably some truth to that because clearly, we're seeing much -- a much stronger economy and much more significant growth in the US compared to the rest of the world. That's actually a good balance for Eton. 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.

Andrew Obin
Analyst at Bank of America

Thanks so much.

Operator

Thank you. Our next question comes from Steve Tusa with J.P. Morgan. You may proceed.,

Steve Tusa
Analyst at J.P. Morgan

Good morning.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Thanks,

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Good morning.

Steve Tusa
Analyst at J.P. Morgan

It's almost noon, but anyway, the -- the pipeline you guys talk 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?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah, thanks, Steve. This is Paolo. 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 you're seeing. As Craig mentioned, with 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 is what we said in the past.

And since we started following those projects in '21, '22, it's to be expected that now we start to see the effect. And as Craig said, our sales doubled in '24 for mega projects versus '23. 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 megaparts we see and how the negotiation timelines are evolving?

Steve Tusa
Analyst at J.P. Morgan

Okay. And then on this lastly on this data center thing, you know the starts you say, you talked about nearly doubling in '24, I guess your orders up 75%. So I mean, are you -- are you like shipping to the starts or are you shipping to you know at to some point in the middle of the project as it gets -- 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?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah. So thanks for the question. Again, I think the way -- the best way to answer your question is, we have multiyear 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 given a forecast. In some cases, we have hard commitments 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, you know 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 switchgear and then the UPSs and what goes inside the server room comes later. So in different phases of the project, I would say.

Steve Tusa
Analyst at J.P. Morgan

Great.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Where that will start. So when stock. Yeah, when we talk about a start, it's when 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 says you can truly count on it as a project that's likely going to be completed.

Steve Tusa
Analyst at J.P. Morgan

Yeah. Okay, great. Thanks a lot guys.

Operator

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

Jeffrey Sprague
Analyst at Vertical Research

Yeah, thanks. Good morning, everyone. Maybe just one more on data centers from 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 got Amazon doing this $16 billion campus in Mississippi and other things. I just wonder if you could give us a sense of, you know, how much data center is now in the mega project number that you're sharing with us today, if you have visibility on that?

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah. 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.

Yan Jin
Senior Vice President, Investor Relations at Eaton

Yeah, we actually said on the slide is roughly 17%.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

17.

Yan Jin
Senior Vice President, Investor Relations at Eaton

17.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

So 17%. But the other thing I would just tell the 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 the segment as well.

Jeffrey Sprague
Analyst at Vertical Research

Great. And then just looking-forward to March, I 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?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Well, thanks for the question. So first of all, in March, we're going to be talking about our long-range commitments until 2030 for every segment. So you're going to have clarity not only 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 the 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're never get complacent. We always drive improvements. There's still a lot to be done there, but not only global, even electrical Americas, there's a lot for us to go do.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

And the only thing I would add to that, I think is absolutely right is that as you heard in Olivier's commentary, mix has been a bit of a headwind -- 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 has really hurt them that particular region from a profitability. And so as that market begins to normalize and recover, we should also see a natural improvement in profitability there as well.

Jeffrey Sprague
Analyst at Vertical Research

Great. Thank you. Thank you.

Operator

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

Deane Dray
Analyst at RBC Capital Markets

Thank you. Good morning, everyone.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Good morning.

Deane Dray
Analyst at RBC Capital Markets

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

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah, I can talk about that, Dean. So first of all, we are on-top of it. We are ready. We know potentially from -- depending on what's 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 it 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 in our commercial actions and we do. We fully compensate the commercial actions if necessary. Hopefully not necessary, but if they come to force, we're going to comply and we're going to compensate the commercial actions.

Deane Dray
Analyst at RBC Capital Markets

Great. That's helpful. We'll all be staying tuned there. And then Jeff was right, there was more data center questions. So I just -- first of all, that page six was really helpful. Appreciate all those specifics. And Craig, I also appreciated the confidence that you've expressed today about the long-term growth prospects in data center. 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 any changes 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 that 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 are important?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah. 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 through modular solutions that could accelerate their build. You heard what Craig said that the industry found ways to accelerate the build-out, which is great, but they are still sitting on seven years of backlog as of today. So there is more to be done there.

In terms of agreements, it's not exactly take or pay, but there are penalties for order cancellation 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 continued to invest, no distraction on the news this week and continue to build. And you see how our negotiation pipeline is development is developing and our backlog as well. So I think the way forward continues to be to accelerate the build-outs.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah. The only thing I would add to that and if Paul 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 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, 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.

Deane Dray
Analyst at RBC Capital Markets

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

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah.

Operator

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

Nigel Coe
Analyst at Wolfe Research

Thanks. Good morning, everyone, and thanks for the details. 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 4th-quarter and obviously the 3rd-quarter two. You are forecasting a deceleration to 7%, 9%, still very, very healthy. But given the moving pieces that we have here, just wonder if you maybe just give us some perspective on what you're baking in for OE versus aftermarket and perhaps commercial versus military.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Okay. Thanks for the question. So we -- as you -- as you pointed out, the market is really growing. I think it's important that we give you the breakdown. To be specific here, we see a low double-digit in OEM and we see single -- high-single-digit in aftermarket. And then in OE, we see low double-digit for both and commercial. And in terms of the build-outs, 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 get -- as soon as we get prepared for it internally, we also take some caution in what we forecast externally. We don't take the build-outs as per face value. So we are a little more cautious in our forecast. So -- and that was the -- 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.

Nigel Coe
Analyst at Wolfe Research

Sorry, did you conclude that aftermarket too?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

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

Nigel Coe
Analyst at Wolfe Research

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

Unidentified Speaker
at Eaton

That one. No.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Aftermarket will be high-single-digits.

Nigel Coe
Analyst at Wolfe Research

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've seen in your utility end-markets. And maybe just kind of thinking about that capacity expansion as that comes online, is there a potential for utility to reaccelerate as you can some of that backlog.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Okay. Well, thanks for the question again. I would say -- I would answer in two steps. The first one, I'm going to remind you and everyone what drives the industry in 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 is 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, the utilities 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 Ethan and where the effects about that in our company, you know that we are heavily weighted to the US 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 a little bit more clarity because I think it's important as you compare Ethan to other electrical players, we see within this high-single-digit market, we see a 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, rig closers, capacitors. 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 value-add of the chain, which is related to single-phase transformers, those pole transformers or line installation equipment, more the hardware piece that 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 distribution in China. And electricity -- electricity consumption is increasing 7% is very big for a country of that side. So we also expect strong growth coming from that side of the world as well.

In terms of capacity, you asked about capacity, we -- 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, could go into utilities. Some of the switchgear can use -- can be used in other end-markets. So we feel-good about our prospects and the investments we are making.

Nigel Coe
Analyst at Wolfe Research

Great. Thanks,. Super helpful. Thank you.

Operator

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

Nicole DeBlase
Analyst at Deutsche Bank Aktiengesellschaft

Yeah, thanks. Good morning, guys.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Good morning.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Good morning.

Nicole DeBlase
Analyst at Deutsche Bank Aktiengesellschaft

Maybe just starting with Americas margin expansion there really impressive yet again this quarter. I guess the 2025 guidance only embeds like 10 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-class levels?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah. Thanks, Nicole. So I would say there is 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 this segment. I will reiterate that. This is one. For 2025, most of the -- the growth will come from volume.

So if you compare 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 are adding capacity in two-dozen projects, we are dealing with inefficiencies of the start-ups and start-up costs. So that's what makes you know 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.

Nicole DeBlase
Analyst at Deutsche Bank Aktiengesellschaft

Thanks, Paolo. 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. Thank you.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Sure. We -- 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 are 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 moved over-time as well since we have bigger company and a bigger valuation, but it continues to be the focus of the team.

Nicole DeBlase
Analyst at Deutsche Bank Aktiengesellschaft

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

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Go-ahead.

Operator

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

Joe Ritchie
Analyst at The Goldman Sachs Group

Hey guys, good morning.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Hi.

Joe Ritchie
Analyst at The Goldman Sachs Group

So I'll focus both of my questions on Electrical Americas margins. And so -- and if you go back a year-ago, rewind 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 that -- I know the growth was slightly better, but what other -- what other levers really kind of drove that margin expansion this past year?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah. 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. And this is one thing. And we continue to drive outsourced supply-chain to better results. So overall, it's an operational performance improvement from the business that drove the extra margin and that's how we acquired for this year as well. We are dealing with those capacity ramp-ups, which again, they're going well. They are -- they've been developing very well. But the team is focused there and they would -- would -- they would be disappointed if they cannot beat their own numbers. So the spirit is still the same.

Joe Ritchie
Analyst at The Goldman Sachs Group

Got it. That's helpful, Paolo. 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 how the margins look like today in the backlog versus a year-ago?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

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

Joe Ritchie
Analyst at The Goldman Sachs Group

Okay. Okay, great. All right. Thank you guys.

Operator

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

Scott Davis
Analyst at Melius Research

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

Olivier Leonetti
Executive Vice President and Chief Financial Officer at Eaton

Largely the 900 is going to be growth 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%.

Scott Davis
Analyst at Melius Research

Okay, 80%. That sounds about right. It doesn't -- guys, it's completely different from the conversation today, but does it still make the same sense to have e-mobility as a standalone segment today as it did when you first did it, gosh, I can't remember when it was like six years ago or maybe seven years ago, but it seems -- is there still -- does it still make the most sense to have that as a standalone and operationally standalone.

Olivier Leonetti
Executive Vice President and Chief Financial Officer at Eaton

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.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

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 the 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 will be beneficial for all.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

And just keep in mind,

Scott Davis
Analyst at Melius Research

Thanks, guys.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

The technology synergy in many ways is more akin to our electrical business than it is to our vehicle business. And so 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.

Scott Davis
Analyst at Melius Research

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

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

You March.

Operator

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

Julian Mitchell
Analyst at Barclays

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?

Craig Arnold
Chairman and Chief Executive Officer at Eaton

No, I appreciate the question, Julian. I know sometimes it's tough to make all the math, but you know, the first thing, probably the point of clarification in terms of when we provide you data on segments. The data segment center numbers that we report as a percentage of the total company, it's not only data centers, 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 is that very much like we covered in my chart in my presentation where I talked about how these markets performed relative to our expectation, we saw good growth in commercial and institutional, we had like high single-digit numbers in utility. We -- high single, low double-digit numbers. We saw good growth in industrial, more mid-single, but then it was 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.

Julian Mitchell
Analyst at Barclays

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 guides, you know, is that assuming a sort of similar-ish, very strong growth rate in data center this year as well?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

True. Yes. The answer is yes.

Julian Mitchell
Analyst at Barclays

Perfect.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

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

Julian Mitchell
Analyst at Barclays

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?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Sure. Julian. I think the biggest driver here is operational performance. We are -- 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 same we did in-vehicle in aerospace with the biggest advantage than in 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 in aerospace, but also for Pete Dank, who led our vehicle business before to lead the industrial sector. That's their mandate.

Julian Mitchell
Analyst at Barclays

Great. Thank you. Thank you.

Operator

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

Chad Dillard
Analyst at Sanford C. Bernstein

Hey, good afternoon, guys. Thanks for taking the question. So as AI data centers shift from training to inferencing and look, I know we can debate the pace at which this happens. But how does the electrical content and intensity differ between like these two different use cases or maybe it doesn't -- does differ at all? I guess I'm trying to understand like what's your products do you sell more of or less of depending on these use cases and maybe even before you answer this question, how much of your data center sales are cloud versus AI?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

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

Chad Dillard
Analyst at Sanford C. Bernstein

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

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Okay. So now great. So for us, I would say -- I would comment on this as those breakthroughs like 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're probably suggesting, we're going to have more inference data centers than training data centers. But within the data center, we sell 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 gigawatt training centers, if you can accommodate a much smaller energy consuming inference centers, the builds could accelerate and that could be a very good thing for us as well.

But basically, it will be the same transformers, it will be the same switchgear, will be the same UP assets inside the server haul 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, you know, 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.

Chad Dillard
Analyst at Sanford C. Bernstein

Yeah. Got it. That's super helpful. And just like one quick one. I don't mean time has been talked a little bit today, but, but where are they for some of the core products like switchgear transformers? And once the capacity adds come online in the second-half of this year, where you'd expect that lead-time to go?

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah. So we -- 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 -- today, we look at lead times and 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.

Chad Dillard
Analyst at Sanford C. Bernstein

Thank you.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Welcome.

Operator

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

Andrew Kaplowitz
Analyst at Smith Barney Citigroup

Hey, good afternoon, guys.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Good afternoon,

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Everyone.

Andrew Kaplowitz
Analyst at Smith Barney Citigroup

I think last quarter you talked about machine builders in Europe and residential starting to bottom out, but obviously, you move residential to negative for '25 from your initial assumption of slight 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?

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah. I'd say that in terms of what happened at the end-of-the year, which has us incrementally less enthusiastic in resi, you know as the Fed cut interest rates, everyone expected that to translate to an improvement in the residential market in 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, and we've become less bullish on the resi recovery given the fact that interest rates have remained stubbornly high.

Andrew Kaplowitz
Analyst at Smith Barney Citigroup

That's helpful. And then backlog up 29% Electrical Americas is in 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 '25 versus '24. 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 was longer duration.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah. I would say for -- for the Q4, we had -- as Craig mentioned, we had some weaknesses in GRAZI 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% midpoint.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

And the other point I was just raise and was we mentioned it earlier is that, you know, historically, we were -- as 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 upper 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.

Andrew Kaplowitz
Analyst at Smith Barney Citigroup

Appreciate the color, guys.

Operator

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

David Raso
Analyst at Evercore ISI

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 '25 and then what the full-year impact should be in '26? And then to dovetail off the comment sort of normalize now on pricing, this is more of a volume story. When I think of 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 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, '25 as structurally something the company can do for multiple years?

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Yeah. We asked 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 a bit 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.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

And just to complement the -- as 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 the segments and how we see the world until 2030.

David Raso
Analyst at Evercore ISI

Okay. I appreciate it. Thank you so much.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Thanks, Dave.

Operator

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

Phil Buller
Analyst at Berenberg Bank

Hi, there. Thank you. Thank you for squeezing me in. And there's obviously been some parts 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 US side, but can you specifically talk to what you're seeing in Europe or non-US, 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.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Okay, so maybe just on the green shoot question and specifically as it relates to Europe, you're right, that market has been -- 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 number 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.

And 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 -- 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 too are benefiting from what's happening in the utility markets and they're seeing some of the same macro megatrends driving growth in their business that we're seeing in the US market and some of those are accelerating.

Phil Buller
Analyst at Berenberg Bank

Yeah. Thank you. Thank you.

Paulo Ruiz
President and Chief Operating Officer, Eaton at Eaton

Yeah, we're going to -- we're going to talk about the vehicle in mobility in our Investor Day. That was the second part of your question. We're going to talk about it in March.

Phil Buller
Analyst at Berenberg Bank

Okay, great. Thanks very much, guys.

Craig Arnold
Chairman and Chief Executive Officer at Eaton

Thank you.

Yan Jin
Senior Vice President, Investor Relations at Eaton

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

Operator

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

Corporate Executives
  • Yan Jin
    Senior Vice President, Investor Relations
  • Craig Arnold
    Chairman and Chief Executive Officer
  • Olivier Leonetti
    Executive Vice President and Chief Financial Officer
  • Paulo Ruiz
    President and Chief Operating Officer, Eaton
  • Unidentified Speaker
Analysts

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