# Eaton (ETN) Financial Model Free Excel 3-statement financial model and company analysis for Eaton. - Canonical: https://finamodel.com/companies/eaton - Industry: Energy Equipment - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/ETN.xlsx ## Model Purpose This model evaluates Eaton Corporation's sum-of-the-parts valuation and consolidated earnings power, specifically focusing on the impact of the planned Q1 2027 Mobility spin-off and the explosive growth in data centre electrical demand. ## Company Overview Eaton Corporation plc is an intelligent power management company that manufactures engineered products for the industrial, vehicle, commercial, and aerospace markets. The company is currently capitalising on secular megatrends including electrification, energy transition, and digitalisation, which have driven unprecedented demand in its electrical businesses. Eaton operates through five reportable segments: * **Electrical Americas** (approx. 48% of revenue): Power distribution, power quality, and industrial components, heavily driven by US data centre and utility demand. * **Electrical Global** (approx. 25% of revenue): Similar electrical products sold outside the Americas. * **Aerospace** (approx. 15% of revenue): Fuel, hydraulics, and pneumatic systems for commercial and military aircraft. * **Vehicle** (approx. 10% of revenue): Drivetrain and powertrain systems for commercial and light vehicles. * **eMobility** (approx. 2% of revenue): Electrical components for on-road and off-road electric vehicles. The business model is a mix of asset-heavy manufacturing and high-margin engineered solutions, supplemented by aftermarket services. Eaton holds a strong competitive position, often ranking #1 or #2 in its core electrical and aerospace markets. Recent major events include the February 2026 announcement to spin off its Mobility business (Vehicle and eMobility segments) into a standalone public company by the end of Q1 2027, as well as the acquisitions of Fibrebond, Resilient Power Systems, and Ultra PCS. ## Revenue Deep Dive ### Electrical Americas * **Segment name:** Electrical Americas * **Revenue driver formula:** (Prior Year Revenue) x (1 + Organic Growth + Acquisition Growth + FX Translation) * **Historical growth rate:** 15% to 21% YoY recently (Q4 2025 organic growth was 15%). * **Key growth levers and headwinds:** Explosive data centre demand (orders up approx. 200% in Q4 2025), utility grid modernisation, and reindustrialisation. * **Pricing dynamics:** Strong pricing power due to constrained industry capacity and massive backlogs. * **Seasonality:** Generally stronger in the second half of the calendar year due to construction and capital budget cycles. ### Electrical Global * **Segment name:** Electrical Global * **Revenue driver formula:** (Prior Year Revenue) x (1 + Organic Growth + Acquisition Growth + FX Translation) * **Historical growth rate:** 5% to 10% YoY (Q4 2025 organic growth was 6%). * **Key growth levers and headwinds:** European energy transition and Asian industrial automation, offset by regional macroeconomic softness. * **Pricing dynamics:** Competitive, with pricing adjusted for local inflation and currency fluctuations. * **Seasonality:** Q4 is typically the strongest quarter. ### Aerospace * **Segment name:** Aerospace * **Revenue driver formula:** (Commercial OEM Build Rates x Shipset Value) + (Aftermarket Flight Hours x Spares Capture Rate) + Defense Spending * **Historical growth rate:** 10% to 14% YoY. * **Key growth levers and headwinds:** Commercial aerospace recovery, elevated defense budgets, and the integration of the Ultra PCS acquisition. * **Pricing dynamics:** Long-term contractual agreements with OEMs; higher margin spot pricing in the aftermarket. * **Seasonality:** Relatively smooth, with slight upticks in Q4 aligned with defense budget deployment. ### Vehicle * **Segment name:** Vehicle * **Revenue driver formula:** Global Commercial Vehicle Build Rates x Content Per Vehicle * **Historical growth rate:** Declining (down 9% YoY in Q4 2025). * **Key growth levers and headwinds:** Cyclical downturn in heavy-duty truck builds and the transition to electric vehicles. * **Pricing dynamics:** Highly competitive OEM pricing environment. * **Seasonality:** Tracks global auto and truck manufacturing schedules (summer shutdowns in Q3). ### eMobility * **Segment name:** eMobility * **Revenue driver formula:** EV Platform Wins x Content Per Vehicle x EV Production Volumes * **Historical growth rate:** Volatile, recently declining (down 15% YoY in Q4 2025). * **Key growth levers and headwinds:** Slower-than-expected global EV adoption rates delaying platform ramps. * **Pricing dynamics:** Upfront engineering investments with contractual volume pricing. * **Seasonality:** Tied to broader automotive production cycles. ## Cost Structure ### Variable Costs / COGS * **Line-by-line breakdown:** Raw materials (copper, steel, aluminium, plastics), direct manufacturing labour, inbound freight, and factory overhead. * **Gross margin range:** 33% to 37% (implied Q4 2025 gross margin was 36.8%). * **Key input costs:** Copper is a massive input for the electrical segments; the company uses hedging to smooth volatility. * **Scaling:** High operating leverage. As volume increases through existing manufacturing footprints, gross margins expand significantly. ### Operating Expenses * **R&D:** Typically 3% to 4% of sales, focused on energy transition, digitalisation, and aerospace technologies. * **SG&A:** Selling and administrative expenses run at approximately 15% to 17% of sales, heavily driven by headcount, marketing, and IT investments. * **Depreciation & Amortisation:** Significant intangible amortisation due to historical M&A (e.g., Cooper Industries, Cobham, Tripp Lite). Eaton explicitly excludes intangible amortisation from its "Adjusted EPS" metric. * **Restructuring / one-time charges:** Frequent multi-year restructuring programmes and acquisition integration charges (e.g., $0.26 per share in 2025). ### Margin Profile * **Segment Margins:** Reached a record 24.5% for the full year 2025. * **Electrical Americas Margin:** Exceptionally high, running at 29.8% to 30.2%. * **Aerospace Margin:** Strong, running at 23.9% to 24.3%. * **Mobility Margins:** Lower, blending to approximately 13% for the combined Vehicle and eMobility businesses. * **Margin trend:** Expanding rapidly due to volume leverage in Electrical Americas and favourable mix shift away from lower-margin Vehicle products. ## Balance Sheet Structure * **Total assets:** Approximately $35 billion to $40 billion. * **Key asset categories:** High concentration in Goodwill and Intangible Assets due to a long history of serial acquisitions. * **Goodwill & intangibles:** Typically represent over 40% of total assets. * **Working capital profile:** * **Days Sales Outstanding (DSO):** 55 to 65 days. * **Days Inventory Outstanding (DIO):** 60 to 75 days (inventory is elevated to protect against supply chain shocks). * **Days Payable Outstanding (DPO):** 50 to 60 days. * **Net working capital:** Positive and a use of cash during high-growth periods due to inventory and receivables build. * **PP&E:** Global manufacturing facilities, testing labs, and distribution centres. * **Right-of-use assets:** Material but standard for a global manufacturing footprint. ## Capital Expenditure & Investment * **Capex as % of revenue:** 3.0% to 4.0% (approximately $0.8 billion to $1.0 billion annually). * **Maintenance vs. growth:** Skewed towards growth capex currently, with significant investments in new capacity for data centre and utility products. * **M&A pattern:** Serial acquirer. Recent focus is on bolt-on and mid-sized acquisitions in high-growth electrical and aerospace niches (e.g., $1.55 billion for Ultra PCS, $55 million for Resilient Power Systems). ## Debt & Capital Structure * **Total debt:** Typically ranges between $8 billion and $10 billion, consisting of senior notes and commercial paper. * **Debt/EBITDA ratio:** Managed conservatively, usually between 1.5x and 2.0x. * **Credit rating:** Investment grade (typically A- / Baa1 range). * **Interest rate profile:** Predominantly fixed-rate senior notes with staggered maturities. * **Share repurchase programme:** Active, used to offset dilution and return excess free cash flow to shareholders. * **Dividend policy:** Eaton has paid dividends every year since 1923. The quarterly dividend was increased to $1.10 per share in early 2026. ## Cash Flow Characteristics * **Operating cash flow conversion:** Very strong. OCF was $4.5 billion in 2025 on net income of approximately $3.5 billion. * **Free cash flow margin:** FCF was $3.6 billion in 2025, representing a margin of approximately 13.1% on $27.4 billion in sales. * **Major non-cash items:** High depreciation and intangible amortisation, plus stock-based compensation. * **Working capital cash flow impact:** Growth in the backlog (up 31% in Electrical Global in Q4 2025) requires working capital investment, acting as a moderate drag on OCF. * **Cash tax rate:** Eaton is domiciled in Dublin, Ireland, which provides a structural tax advantage resulting in an effective tax rate typically between 14% and 17%. ## Sheet Structure 1. **Assumptions:** Hardcoded drivers for macroeconomic inputs, segment growth rates, margin targets, tax rates, and capital allocation. 2. **Segment Build:** Revenue and operating profit projections broken out strictly by the five reported segments (Electrical Americas, Electrical Global, Aerospace, Vehicle, eMobility). Must include a toggle for the Q1 2027 Mobility spin-off. 3. **Income Statement:** Consolidated GAAP view bridging from Net Sales down to Net Income, followed by a reconciliation to Adjusted Earnings (excluding intangible amortisation and restructuring). 4. **Balance Sheet:** Standard assets, liabilities, and equity. Must break out Goodwill and Intangible Assets separately. 5. **Cash Flow Statement:** Operating, Investing, and Financing cash flows, explicitly calculating Free Cash Flow as defined by management (OCF less Capex). 6. **Debt Schedule:** Tranches of senior notes, commercial paper, interest expense calculations, and debt paydown logic. 7. **Working Capital & Capex:** Schedules for receivables, inventory, payables, and capital expenditure depreciation waterfalls. 8. **SOTP Valuation:** Sum-of-the-parts valuation applying different EV/EBITDA multiples to the Electrical/Aerospace "RemainCo" versus the Mobility "SpinCo". ## Key Financial Relationships 1. `Electrical Americas Revenue = Prior Year Electrical Americas Revenue * (1 + Organic Growth + M&A Growth + FX Impact)` 2. `Segment Operating Profit = Segment Revenue * Segment Operating Margin` 3. `Total Segment Operating Profit = Sum of Operating Profits for all 5 Segments` 4. `Consolidated Net Sales = Sum of Revenues for all 5 Segments` 5. `Corporate Expense = Consolidated Net Sales * Corporate Expense %` 6. `EBITA = Total Segment Operating Profit - Corporate Expense - Amortisation of Intangibles - Restructuring Charges` 7. `Interest Expense = Average Total Debt * Weighted Average Interest Rate` 8. `Net Income = (EBITA - Interest Expense) * (1 - Effective Tax Rate)` 9. `Adjusted Net Income = Net Income + (Amortisation of Intangibles * (1 - Tax Rate)) + (Restructuring Charges * (1 - Tax Rate))` 10. `Adjusted EPS = Adjusted Net Income / Diluted Shares Outstanding` 11. `Free Cash Flow = Operating Cash Flow - Capital Expenditures` 12. `RemainCo Value = (Electrical Americas EBITDA * Multiple) + (Electrical Global EBITDA * Multiple) + (Aerospace EBITDA * Multiple)` ## Cross-Sheet Dependencies * The **Assumptions** sheet dictates the growth and margin inputs for the **Segment Build**. * The **Segment Build** aggregates into the top line and operating profit lines of the **Income Statement**. * The **Income Statement** generates Net Income, which is the starting point for the **Cash Flow Statement**. * The **Cash Flow Statement** calculates the change in cash and debt, which feeds the **Balance Sheet** and the **Debt Schedule**. * The **Debt Schedule** calculates interest expense, which creates a circular reference back to the **Income Statement** (requires an iterative calculation or a toggle switch). * The **SOTP Valuation** pulls segment-level EBITDA directly from the **Segment Build** and net debt from the **Balance Sheet**. ## Sign Convention * **Revenue and Assets:** Entered and displayed as positive numbers. * **Expenses (COGS, SG&A, Interest):** Entered as positive numbers in their specific build schedules, but subtracted in aggregation formulas (e.g., Gross Profit = Revenue - COGS). * **Liabilities and Equity:** Entered as positive numbers. * **Cash Flow Statement:** Cash inflows are positive; cash outflows (Capex, dividends, debt repayment) are negative. ## Things Most Likely to Go Wrong * **The Mobility Spin-Off:** The model must account for the removal of the Vehicle and eMobility segments by the end of Q1 2027. Failing to adjust the consolidated financials and share count for this spin-off will result in massive forecasting errors. * **Adjusted vs. GAAP EPS:** Eaton's headline EPS guidance ($13.00 to $13.50 for 2026) is an *Adjusted* figure. The model must explicitly add back intangible amortisation and restructuring charges to reconcile GAAP Net Income to Adjusted EPS. * **Data Centre Extrapolation:** Electrical Americas grew 21% in Q4 2025 due to a 200% surge in data centre orders. Extrapolating this growth rate linearly will overstate long-term revenue; growth should normalise to the 9-11% guidance range. * **Corporate Allocations:** Segment operating margins do not include unallocated corporate expenses. The model must include a separate line item for corporate overhead before calculating consolidated EBIT. * **FX Translation:** Eaton generates significant revenue outside the US. The model should separate organic growth from FX impacts, as currency swings can alter reported revenue by 2-4% annually. * **Acquisition Integration Costs:** Eaton frequently acquires companies (e.g., Ultra PCS). The model must account for the cash drag of integration costs, which are excluded from adjusted earnings but impact free cash flow. * **Tax Rate Advantage:** Applying a standard US statutory tax rate (21%) will severely understate earnings. Eaton is Irish-domiciled and benefits from a lower effective tax rate (typically 14-17%). ## Validation Checks * "Consolidated 2025 Revenue must equal exactly $27.4 billion." * "Total Segment Operating Margin should blend to 24.5% for 2025 and 24.6-25.0% for 2026; flag if outside this band." * "Electrical Americas Operating Margin must be in the 29.8-30.2% range based on 2026 guidance." * "Free Cash Flow for 2025 must equal $3.6 billion." * "Adjusted EPS for 2026 should land between $13.00 and $13.50 based on management guidance." * "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period." * "Capex as a percentage of sales should remain between 3.0% and 4.0%." * "Post-Q1 2027, Vehicle and eMobility segment revenues must drop to zero in the consolidated view due to the spin-off." ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | Electrical Americas Organic Growth (2026) | 10.0 | % | Midpoint of 2026 guidance (9-11%) | | Electrical Global Organic Growth (2026) | 4.5 | % | Midpoint of 2026 guidance (3.5-5.5%) | | Aerospace Organic Growth (2026) | 8.0 | % | Midpoint of 2026 guidance (7-9%) | | Mobility (Vehicle + eMobility) Organic Growth (2026) | 6.0 | % | Midpoint of 2026 guidance (5-7%) | | Electrical Americas Segment Margin | 30.0 | % | Midpoint of 2026 guidance (29.8-30.2%) | | Aerospace Segment Margin | 24.1 | % | Midpoint of 2026 guidance (23.9-24.3%) | | Consolidated Segment Margin Target | 24.8 | % | Midpoint of 2026 guidance (24.6-25.0%) | | Effective Tax Rate | 15.5 | % | Historical average reflecting Irish domicile advantage | | Capex as % of Revenue | 3.5 | % | Historical average and management commentary | | Dividend per Share (Annualised) | 4.40 | $ | Based on Q1 2026 increase to $1.10 per quarter | | Diluted Share Count | 395.0 | Millions | Approximate outstanding shares including dilution | | WACC | 8.5 | % | Standard industrial cost of capital | | Terminal Growth Rate | 2.5 | % | Aligns with long-term GDP and electrification tailwinds | ## Data Sources & Benchmarks * **Filings:** SEC EDGAR (Form 10-K, 10-Q, 8-K) and Eaton Investor Relations website (investor.eaton.com). * **Key Peers:** Hubbell (HUBB), Emerson Electric (EMR), Rockwell Automation (ROK), Parker-Hannifin (PH), Schneider Electric (SU.PA). * **Industry Data:** Dodge Construction Network (for non-residential construction starts), datacenterHawk (for data centre pipeline data), and IATA (for commercial aerospace flight hours). * **Consensus Estimates:** FactSet or Bloomberg for validation of revenue and EPS estimates. ## Sources * Eaton Q4 2025 Earnings Release and Presentation (February 3, 2026) * Eaton 2024 Annual Report and Form 10-K * Eaton Investor Relations Dividend Announcements * Industrial Supply Trends: "Eaton Q4 2025 Earnings: What Distributors Should Know" --- ## Frequently asked questions ### What does Eaton Corporation do? Eaton Corporation plc is an intelligent power management company that manufactures engineered products for industrial, vehicle, commercial, and aerospace markets. The company is currently capitalizing on secular megatrends including electrification, energy transition, and digitalization. ### What are the primary revenue drivers for Eaton Corporation? Eaton's revenue is heavily driven by demand in its Electrical Americas segment, particularly from US data center and utility customers, and its Electrical Global segment. The company also benefits from secular megatrends like electrification, energy transition, and digitalization across its businesses. ### What is Eaton's typical capital expenditure as a percentage of revenue? Eaton's capital expenditure typically ranges from 3.0% to 4.0% of revenue, which translates to approximately $0.8 billion to $1.0 billion annually. This capex is currently skewed towards growth investments, specifically in new capacity for data center and utility products. ### How does Eaton Corporation's net working capital impact its cash flow? Eaton's net working capital is positive and acts as a use of cash during periods of high growth. This is primarily due to the build-up of inventory to protect against supply chain shocks and an increase in receivables. ### What specific events does the Eaton financial model evaluate? The financial model for Eaton Corporation evaluates its sum-of-the-parts valuation and consolidated earnings power. It specifically focuses on the impact of the planned Q1 2027 Mobility spin-off and the explosive growth in data center electrical demand. ### Can I download an Excel financial model for Eaton Corporation? Yes, a downloadable Excel financial model is available for Eaton Corporation (ETN). This model provides a forecast horizon from FY2026 to FY2030 and is part of the general corporate model family. [Interactive forecast calculator](https://finamodel.com/companies/eaton/forecast)