Key Highlights from the 2025 Financial Reports• Record Financial Performance: Eaton delivered adjusted earnings per share (EPS) of 3.33forQ4∗∗,markingan∗∗18.Thecompanyachievedrecordquarterlyrevenueof∗∗7.1 billion with segment margins hitting a Q4 record of 24.9%.• Unprecedented Demand and Backlog: The total company backlog reached $19.6 billion, with a 31% year-over-year increase in the Electrical Americas segment alone. Orders in Electrical Americas accelerated 16% on a rolling 12-month basis, while Aerospace orders grew by 11%.• Data Center Explosion: Demand in the data center market is accelerating “faster than ever,” with orders up approximately 200% and sales increasing by 40% compared to Q4 2024.• Strategic Portfolio Transformation: Eaton announced its intent to spin off its Mobility business (comprising Vehicle and eMobility segments) into an independent, publicly traded company. This move is designed to allow Eaton to focus on the high-growth electrical and aerospace markets.• Aggressive Capital Investment: The company announced 13billionintotalinvestments∗∗for2025,includingtheacquisitionsof∗∗FiberBond,ResilientPowerSystems,UltraPCS∗∗,andthependingadditionof∗∗BoydThermal∗∗.Additionally,∗∗1.5 billion is being invested specifically to expand capacity in the Americas to meet “generational demand”.• 2026 Outlook: Eaton provided a confident outlook for 2026, projecting organic growth of 7% to 9% and adjusted EPS between $13.00 and $13.50.

Briefing Document: Eaton Corp Q4 2025 Performance and Mobility Spin-off Strategy

Executive Summary

Eaton Corp (ETN) concluded fiscal year 2025 with record financial results, characterized by a significant surge in demand across its electrical and aerospace segments. The company reported a 9% organic revenue growth in Q4, with adjusted earnings per share (EPS) rising 18% year-over-year. The defining strategic announcement of the period is the intent to spin off Eaton’s Mobility business (comprising the Vehicle and eMobility segments) into an independent, publicly traded company. This move is designed to sharpen Eaton’s focus on high-growth, high-margin electrical and aerospace markets.

A massive tailwind from data center demand, particularly driven by AI, has resulted in record backlogs. However, the company is currently navigating significant “ramp-up” costs associated with a $1.5 billion capacity expansion in the Electrical Americas segment. While these costs have caused temporary margin compression, management remains confident in achieving a 32% segment margin by 2030.

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Financial Performance Overview (Q4 2025)

The fourth quarter of 2025 was marked by record revenue and segment profit, despite headwinds in the automotive and truck sectors.

Key Financial Metrics

Performance by Segment

• Electrical Americas: 15% organic sales growth. Data center sales specifically grew 40%. Margin declined 180 basis points to 29.8% due to capacity expansion costs.
• Electrical Global: 6% organic growth with margins expanding 200 basis points to 19.7%.
• Aerospace: 20% organic growth, reaching record quarterly sales. Broad-based strength in commercial OEM and defense aftermarket.
• Vehicle & eMobility: Weakest performers; Vehicle declined 13% organically due to North American truck and light vehicle market softness, while eMobility declined 15%.

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Strategic Transformation: The Mobility Spin-off

Eaton has announced its intent to separate the Mobility business—which includes the Vehicle and eMobility segments—into a standalone public company with approximately $3 billion in annual revenue.

Strategic Rationale

• Portfolio Focus: The move allows Eaton to concentrate capital and resources on its fastest-growing, highest-margin segments: Electrical and Aerospace.
• Operational Agility: Both companies will have more tailored capital allocation strategies and faster decision-making processes.
• Value Creation: The transaction follows previous successful divestitures (Lighting in 2020 and Hydraulics in 2021) and is expected to be immediately accretive to Eaton’s organic growth rate and operating margin.

The New “Mobility” Entity

The spin-off will be a leading independent provider of engineered solutions for global vehicle, auto, and off-highway OEMs. It will focus on safety-critical components and systems for all types of propulsion systems.

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Data Centers and AI: A Generational Growth Driver

The data center market is described by management as a “market that will be stronger for longer,” driven by the unprecedented expansion of AI and cloud computing.

• Order Acceleration: In Q4, data center orders in the Americas accelerated by approximately 200%.
• Backlog Longevity: The U.S. data center construction backlog currently represents 11 years of build rates (at 2025 levels), totaling 206 gigawatts.
• The AI Content Shift: Management noted that AI loads increase Eaton’s “dollars per megawatt” content.
  • Current Portfolio: $2.9 million per megawatt.
  • Post-Boyd Acquisition: Projected to increase to $3.4 million per megawatt due to liquid cooling requirements.
• Order Mix: In 2025, the order mix for data centers shifted to a 50-50 split between traditional Cloud and AI.

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Capacity Expansion and Execution Challenges

To meet “unprecedented demand,” Eaton is investing $1.5 billion across approximately 24 projects to expand capacity in the Electrical Americas segment.

Operational Impacts

• Ramp-up Costs: These investments incurred a 100-basis-point margin headwind in 2025, which is expected to increase to 130 basis points in 2026.
• Tiger Teams: Eaton has deployed “Tiger teams” with specialized expertise to critical sites to accelerate operational focus and handle the complexity of the ramp-up.
• Cadence of Projects: Half of the capacity projects were completed by mid-2025 and are currently ramping. The remaining half will largely conclude construction in the first half of 2026, with full production impacts expected in 2027.

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2026 Guidance and Long-term Outlook

Eaton enters 2026 with high visibility due to its record backlog and positive secular trends.

2026 Financial Guidance

• Organic Growth: Total company 7%–9% (Electrical Americas midpoint at 10%).
• Adjusted EPS: 13.00–13.50 (10% growth over 2025).
• Segment Margins: 24.6%–25.0%.
• Cash Flow: 3.9 billion–4.3 billion (14% growth).
• Capital Allocation: Share buybacks are temporarily suspended in 2026 to prioritize the funding of the Boyd Thermal acquisition.

2030 Long-term Targets

Management reaffirmed its commitment to overachieving its 2030 targets, which include:

• 6%–9% top-line growth.
• 28% segment margins.
• EPS growth of 12% or higher.

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Notable Leadership Transitions

Olivier Leonetti, Executive Vice President and CFO, will depart the company on April 1, 2026. Management emphasized that a planned transition is underway to ensure continuity.

Conclusion

Eaton Corp is at a strategic inflection point. By shedding its more cyclical Mobility business and investing heavily in the electrical infrastructure required for AI and the energy transition, the company is positioning itself as a pure-play leader in power management. While the massive capacity expansion in the Americas presents a short-term margin drag, the scale of the backlog ($19.6 billion) suggests a durable, multi-year growth runway.

“Our strategy to lead, invest, and execute for growth is positioning us to capture generational demand and deliver lasting value for our shareholders.” — Paolo Ruiz, CEO