Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question, please press one then zero. Should you require assistance during the call, please press star then zero, and an operator will assist you offline. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Yan Jin, Senior Vice President of Investor Relations. Please go ahead. Hey, good morning, I'm Yan Jin. Thank you for joining us for Eaton's second quarter 2022 earnings call. With me today, Craig Arnold, our Chairman and CEO, and Tom Okray, Executive Vice President and Chief Financial Officer. Our agenda today includes opening remarks by Craig, highlighting the company's performance in the second quarter. As we have done on our past calls, we'll be taking questions at the end of Craig's comments. The press release and the presentation we'll go through today have been posted on our website. This presentation includes adjusted earnings per share, adjusted free cash flow, and other non-GAAP measures. They're reconciled in the appendix. A webcast of this call is accessible on our website, and it will be available for replay. I would like to remind you that our comments today will include statements related to expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projections due to the wide range of risks and uncertainties that are described in our current earnings release and the presentation. With that, I will turn it over to Craig. Okay. Thanks, Yan. Appreciate it. We'll start with a summary of the quarter on page three, and I'll begin by noting that we had a strong quarter. We posted a number of all-time records led by 11% organic growth. Our performance was particularly strong in our electrical businesses, both in the Americas and global. As you can see, orders remain strong, and we continue to build record backlogs, supporting the outlook for the year, and really, in many cases, I'd say into next year. You know, I'd emphasize that nearly all of our end markets remain strong, but we're seeing significant strength in commercial and industrial and data centers and residential markets in our electrical businesses. In our aerospace business, we saw strong growth in the commercial business, both in aftermarket and in OEM. Now this strength, I'd say, is reflected in order growth in electrical, which was up 25%, and the aerospace business, which was up 19% on a rolling twelve-month basis. Our backlog was up some 74% in electrical and 12% in aerospace. As reported, we also delivered adjusted EPS of $1.87, a 9% increase over prior year and an all-time record, more than offsetting a $0.12 headwind from the impact of acquisitions and divestitures. You'll recall that we owned the hydraulics business in all of Q2 last year. The $1.87 a share was close to the high end of our guidance range as well. We also posted an all-time record segment margins of 20.1%, up 150 basis points over prior year and above the high end of our guidance. In addition to strong growth, our teams have done a really effective job of managing price to offset inflation. Lastly, we're raising our full-year guidance as well. We're increasing our organic growth forecast from a range of up 9%-11% to up 11%-13%. We're increasing our full-year adjusted EPS to $7.56 at the midpoint, 14% year-over-year growth and despite additional headwinds from FX, from higher interest expense and lower pension income. Moving to page four, we show the financial results for the quarter, and I'll just note a few items here. First, our revenues were flat year-over-year with 11% organic growth, offset by the net impact of acquisitions and divestitures of some 9% and 2% from negative FX. We're certainly very pleased with this level of organic growth, but I would also note that growth could have been much better, but for persistent shortages of electronic components and COVID-related lockdowns in China. Second, currency headwinds were worse than we expected in our guidance and almost $150 million impact versus prior year. As you'll see in our forward guidance, we expect this number to get worse in the second half. The FX headwinds will also reduce our adjusted EPS by approximately $0.05 in the quarter. Lastly, I'd like to emphasize that we really did achieve a number of all-time records in the quarter, including segment operating profits, segment operating margins, and adjusted EPS. Next on page five, we have the results of our Electrical Americas business and really just a strong quarter across the board here. As you can see, organic growth up 16% and record segment margins of 23.2%. We delivered strong growth across all end markets with particular strength in commercial, residential, and industrial markets. Organic growth actually accelerated from Q1 up some 10% with sequential acceleration in nearly all of our markets, with the biggest increases coming from utility, data centers, and commercial markets. We did manage to get through a number of fairly significant supply chain constraints, but did see improvements in metals and resins and logistics, but we continue to see challenges in electronic components. Orders on a rolling twelve-month basis were up 29%, with strength across all end markets with a range of anywhere from up 18% to up 39%. We continue to be pleased with, you know, strong demand that we're seeing in our end markets, and with our backlog, which increased some 89% to a new record level. On a sequential basis, our backlog growth was up almost 20% from Q1. We also delivered record operating margins of 23.2%, up 190 points, driven largely by better than expected volumes. And of note, we were successful in offsetting inflation with price and expect this to continue to be on the plus side in the second half. Turning to page six, we show the results of our Electrical Global segment, which produced another very strong quarter, including all-time record sales. In fact, this is our fifth quarter in a row with double-digit organic revenue growth. Organic growth was 12%, with 7% headwind from currency. We saw growth in all regions with particular strength in data centers, commercial and industrial markets. Orders on a rolling twelve-month basis were up some 19%, while our backlog grew 38% to a new record level. We also delivered record Q2 operating profits and operating margins. At 18.9%, operating margins were up some 60 basis points from prior year. Lastly, we recently closed a new joint venture in China by acquiring 50% of Jiangsu Huineng Electric, which manufactures and markets low voltage circuit breakers in China for the renewable energy market. I'd say here, you know, this is our third electrical JV in China in the last eight months, which allows us to expand our market participation by offering, you know, what we'd say is a multi-tiered portfolio of products serving this very high growth market, both inside and outside of China. On a combined basis, these three JVs increase our addressable market to about by about $17 billion. Really important part of our future growth strategy, coming out of these JVs. You know, before we move to our industrial businesses, here's where I'd summarize the performance of our combined electrical business. Overall, our electrical sector posted a strong Q2, with 14% organic growth and 150 basis points improvement in margins. Of note, we really have not seen a slowdown in any of our markets. We continue to see strong growth in orders, and backlogs are at record levels. I'd say that the secular growth trends that we've discussed in the past, including energy transition, are clearly showing up in our order book. Moving to page seven, we have a recap of our aerospace segment. Revenues increased 19%, including 10% organic growth, 12% growth coming from Mission Systems acquisition, and 3% currency headwind. Organic growth in the quarter was particularly strong in our commercial aftermarket and commercial OEM businesses. On a rolling 12-month basis, orders increased 19%, while backlog was up 12%. In the commercial market, as many of you read, you know, travel continues to show positive improvements in both domestic and international markets. Certainly a positive indicator for future growth and is consistent with what we saw in the quarter. I would add that while strong, our commercial aftermarket bookings are only at 85%-90% of their pre-pandemic levels, so we still have ample room for additional growth in this particular segment. Commercial OEM activities, as you've read, also continue to recover. For military markets, we expect to see increased tailwinds in defense spending, including an uptick in U.S. defense budgets. We've already seen renewed commitments from the European NATO members and expect this to lead to increased defense spending over the next several years. We're also pleased with the profitability of this segment as operating margins stepped up 90 basis points to 21.9%. You'll recall that the peak margins for our aerospace business was 25%, so we expect this number to continue to move up over the next few years. Next, on page eight, we summarize the performance of our vehicle segment. Revenues were up 5%, which includes 7% organic growth and 2% negative currency. We had particular strength in the North America light vehicle markets and in our South America business, which was partially offset by flat performance in Europe and weakness in China, largely due to the COVID lockdowns. Operating margins were down some 260 basis points, driven primarily by margin compression from inflationary costs and the normal lag in our ability to recover price in the marketplace. We do expect that the price inflation equation will improve in the second half, and it's reflected in our outlook for the year. Turning to page nine, we show the results of our eMobility business. Revenues increased 55%, which includes 11% organic growth, 46% from the acquisition of Royal Power, and a -2% currency impact. During the quarter, we also delivered more than $70 million of material wins, including a number of wins that leverage our core competency as a company in power distribution and power protection. While still slightly negative, we narrowed the operating losses by some 530 basis points. This improvement was generated by higher volumes and certainly by the acquisition of Royal Power. You know, I'd also note that at the six-month point, our integration of Royal Power remains on track, and the expected synergies allowing Eaton to sell a broader solution to the marketplace is playing out just as we'd hoped. Overall, we continue to make steady progress towards our 2030 goal, which is to create a $2 billion-$4 billion business with attractive 15% segment margins. As we noted at our investor meeting earlier this year, we expect the segment to deliver $1.2 billion of revenues and 11% margins by 2025. Next, on slide 10, we have the updated guidance for 2022. As you can see, for the second time this year, we're increasing our organic growth guidance to all but one of our segments, really based upon continued strength in all of our end markets. We're raising our overall organic growth from 9%-11% to 11%-13%, on the back really of strength in our Electrical segment, where we've increased growth by 300 basis points in the Americas and 150 basis points in Global. For margins, we're raising our full-year guidance for Eaton to be in the range of 20%-20.4%, which represents, at the midpoint, 130 basis point improvement over 2021. The two changes in the segment include increasing margin guidance for Electrical Americas by 70 basis points to 22.2% at the midpoint, and lowering our margin targets for Vehicle by 120 basis points to 15%-16.5% at the midpoint. As we talked about, the vehicle reduction really reflects the timing, and margin compression associated with inflation versus price realization that we discussed earlier. Overall, I'd say, strong first half, including robust demand and orders, record levels of backlog, and we're very well positioned for the year. Moving to page 11, we show the balance of our guidance for the year. For the second time this year, we're raising our 2022 guidance for adjusted EPS, which is now, forecasted to be between $7.36 and $7.76 a share. As I covered on prior pages, we're increasing our organic growth outlook to 11%-13%. You know, I would note that this is partially offset by $450 million of negative currency, which compares to our previous guidance of - $250 million. The stronger dollar requires us to, in this case, offset some additional $0.08 of earnings versus our prior guidance, which we are clearly doing and is reflected in our outlook. We also expect that our corporate expenses will now be $20 million-$40 million above 2021 levels, or between $580 million and $600 million, so another $0.04-$0.08 headwinds that we are offsetting in our adjusted EPS guidance for the year. This is primarily due to higher interest expense and lower pension income. To recap, we're raising our adjusted EPS guidance by 4%, by $0.04, despite between $0.12-$0.16 of incremental headwinds from FX, interest, and pension. The remainder of our full year guidance remains unchanged. Now just a few highlights on our Q3 guidance. We expect adjusted EPS to be between $1.95-$2.05 a share, organic growth to be between 13%-15%, and segment margins to be between 20.6%-21%. At the midpoint of our guidance, margins are expected to be up some 70 basis points from Q2. At the EPS midpoint of $2 a share, our Q3 guidance represents 14% growth versus prior year. Just wrapping up on page 12, just to recap a few points. First, I'd say that we continue to realize the benefits of our active portfolio management, which is certainly showing up in our record levels of financial performance. Second, we're seeing secular trends that are enhancing our end market growth rate now, and we fully expect this to continue into the future. We've discussed growth in electrification and energy transition and digitalization for some time now, and these trends really, I'd say, have only accelerated. Despite all the talk about a potential slowdown and downturn in the market, you know, and we'll be ready if we have one, we're focused on investing to capitalize on what we see as this super growth cycle driven by favorable trends and the recovery in some of our other end markets. Every time you hear sustainability, climate change, and resiliency, you're really hearing about growth opportunities, for our company that we're capitalizing on today and will be for the foreseeable future. This is certainly showing up in our sales results, our orders, and our backlog, which are all at record levels. You know, these factors obviously contribute to our confidence and our ability to raise guidance for the year. More importantly, I'd say they really give us confidence in the long-term outlook for the company. In the short term, we're working through supply chain disruptions, focusing on controlling the things that we can control, building more resiliency in our operations, and delivering our commitments. With that, I'll turn it back to Yan, and we'll open it up for Q&A. Okay, good. Thanks, Craig. For the Q&A section today, please limit your question to one question and one follow-up. Thanks in advance for your cooperation. With that, I will turn it to the operator to give you guys the instruction. Thank you. Ladies and gentlemen, if you wish to ask a question, please press one then zero on your touch tone phone. You will hear an acknowledgment tone that you've been placed into queue, and you may remove yourself from queue at any time by repeating the one-zero command. If you're on a speakerphone, please pick up your handset before pressing the number. Once again, if you have a question, please press one then zero at this time. Our first question will come from the line of Andrew Obin from Bank of America. Please go ahead. Yes, good morning. Can you hear me? Yeah, Andrew, we can hear you fine. Good morning. Excellent. Good morning. Yeah, a question for Craig. You know, the view among investors, right or wrong, is that we will see an economic downturn soon. How would Eaton's electrical incremental margins perform in an environment where the majority of revenue growth is from pricing versus sort of more normal periods with balance of volume and price contribution? You know, appreciate the question, Andrew. I'd say that, you know, first of all, I mean, in general terms, in our company, we've always performed well in an economic downturn. We, you know, we know how to do a few things well, and certainly one of those is we know how to flex the company in the event of an economic downturn, and we typically perform much better from a decremental basis than we do certainly on an incremental basis. In a typical recession, we would see some 20%-25% decremental performance in our business. I don't think that our electrical business will be largely different than that. I think that, at this point, as I mentioned, we're not anticipating a reduction in growth in our business. Even in the event of a typical mild recession, we think our company, and certainly our electrical business, will continue to grow. You saw some of those order numbers, the backlog numbers that we talked about. Our negotiation pipeline has never been stronger. We think that the company overall, as a result of a lot of the portfolio-related changes that we've made as a result of these secular growth trends, performs well, even in the event of an economic downturn. If there is one, you know, we have a playbook. We understand what we need to do in the event of an economic slowdown that impacts our revenue. We have projects identified, ready to go if we end up in that scenario, but that is certainly not our base case. I'd say you could think about 20%-25% decrementals in the event of a material slowdown. Great. I appreciate it. Then just a follow-up, maybe just speak to why you're confident, but can we just get the initial view on Senator Manchin news and potential additional $370 billion in spending on energy security? Like, how meaningful could this be for Eaton's end market? More broadly, have you started to see orders tied to U.S. and EU stimulus bills, which both have sizable energy infrastructure spending levels? Thanks. Yeah, I mean, I'd say, you know, the compromise, you know, that Manchin and the other members of the, you know, certainly, House have come up with at this point would be certainly positive for our company. If you think about where those dollars are gonna go in, you know, whether it's energy transition, whether it's related to EVs, whether it's related to building out some of our critical infrastructure, water, wastewater, airports. I mean, it is certainly a net positive for our company overall. I'd say that at this juncture, we've not factored obviously any of that in. That becomes naturally an additional tailwind for the company. All of these you know spending bills obviously need to go through the you know the final approvals and ultimately be signed off on by the President. I'd say from a timing standpoint, that really becomes largely a 2023, 2024 kind of tailwind for the company overall, as are most of these stimulus-related you know projects. Very seldom do you have a stimulus bill approved that results in any near-term impact on revenue, but it's certainly all very positive for the long-term growth outlook, especially in our electrical business, where we'll see most of these benefits. Any impact from what's been passed already? Are Are you starting to see it in the numbers, or it's just robust numbers reflect a lot of it already? Yeah, no, I'd say, you know, at this juncture, on the margin, there have been some minor projects, I'd say, Andrew, that we've seen some benefit from. Most of this stuff, I'd say maybe you get something, you know, in the fourth quarter, minor. You don't really get to any material impact from most of these stimulus measures until you really get into 2023, and some of them will actually extend out into 2024, depending upon the type of project and the lead time. Really appreciate- All positive, all net positive for the company. Thanks a lot, Craig. Congrats. Thank you. Thank you. The next question is from Nigel Coe from Wolfe Research. Please go ahead. Morning, this is Ryan Cooke on for Nigel. Can you hear me all right? Yeah, Ryan, we can hear you fine. Great. Just expanding more on the Electrical Americas segment, could you just talk a little bit about what might have changed during the quarter? Have you seen improvements in supply chain bottlenecks or factory labor productivity? Yeah. I'd say that, you know, really strong quarter, as we talked about in our Electrical Americas segment. You know, and I'd say that with respect to supply chain, you know, we had been very constrained really across the board. During the course of the quarter, you know, certainly some of the important commodities for us, whether it's copper or steel, aluminum, some of the logistics and supply chain related issues that we've been dealing with during the course of the year have gotten materially better. We still have pretty significant issues when it comes to electronic components and anything that's semiconductor based, and so we're certainly not out of the woods there. We do expect to see some modest improvement in the second half of the year, but really likely gonna be sometime into the latter part of 2023 before most of those issues resolve themselves. I'd say that in the Americas business, the big message here is that our end markets are very strong across the board. It's the growth in our end markets that it's allowing, you know, our business to perform as well as it is. Okay, that's great. Just shifting gears for my follow-up on the Aerospace segment. Could you just dig into a little more, looking at the growth in commercial versus military and OEM versus aftermarket? I know that you mentioned an uptick in defense spending over the next few years, so I guess just touching on that and any other supply constraints that we should be thinking of in the back end of the year. You know, first of all, I'd say that just as you think about our aerospace business with the acquisition of Cobham, we're now balanced about 50/50 between commercial and defense. As we talked about in some of my opening commentary, we're seeing a very strong recovery on the commercial side of the business, both in the aftermarket as well as in the OEM side. Still, as I mentioned, well below, you know, pre-COVID levels that we experienced back in 2019. We still have a long way to go on the commercial side, but those businesses and those markets are performing well, and we expect to see them continue to recover over the next few years or so. On the defense side, you know, we'd really come into the year with an expectation of those markets being, you know, flat to up slightly. Quite frankly, with some of the, you know, conflicts that are happening around the world, we've already seen certainly the Europeans commit to increasing their defense spending. We saw a defense budget in the U.S. come in higher than what was originally anticipated. We do believe that even on the defense side of the equation, that we think that the defense markets will grow more favorably over the next few years than we were thinking, certainly coming into the year. I think aerospace is another one of these businesses that's really poised for, let's say, cyclical, you know, growth on the commercial side. Given some of the geopolitical challenges in the world, defense spending is likely to go up around the world. We're feeling very good about the way we're positioned in aerospace, and I think that's gonna be an attractive market for us for some years to come. That's very helpful. Thank you. Thank you. Our next question is from the line of Scott Davis from Melius Research. Please go ahead. Good morning, Craig and Tom. Morning, Scott. Morning. It all sounds super positive. In fact, almost too positive. I have to ask the question, do you have a sense of where inventories are at in each of your key end markets, and if there's a little bit of a, you know, buildup going on there? Yeah, I mean, I can certainly appreciate kind of the, you know, the thought, Scott, that it all feels positive and in some cases too positive. We wanna pinch ourselves sometimes as well because, I mean, but the facts and the data would suggest that things are good right now. I mean, as you heard, as I talked about the strength in our orders across the board in our electrical business, and then you know, factor on top of that a cyclical recovery in aerospace, higher defense spending given the geopolitical events. Quite frankly, even in the vehicle market, given the level of inventory, you mentioned a question around inventory. Inventory levels, you know, in the passenger car market around the world are at historically low levels. Even in the event of an economic slowdown, you know, you have to rebuild inventories in the channel. Certainly there's a lot of rebuilding that needs to take place in global vehicle markets around the world. Then you have eMobility, which is a real growth vector for the company that's just starting to become a more material part of the organization. We have a lot of really positive things going for the organization. To the specific question on inventory in the channel, that's probably likely an electrical question. I'd say there, you know, we test for that as well because we're obviously concerned about, you know, is there inventory being built up in the channel? Is there double ordering taking place? Every time we test for it, the answer comes back the same, not at all the case. In fact, the channel today doesn't have as much inventory as they'd like, especially in products like circuit breakers. You know, you know, we'll oftentimes answer this question around, you know, double ordering. You know, keep in mind that in our electrical business that, you know, 75% of what we do in electrical is project-based. I mean, it's, nobody goes out and replaces their electrical circuit breakers or their panel boards, you know, because, you know, there's a new color coming out, right? It's all tied to, you know, a project that, you know, our distributors and customers are ordering products for. We have a lot of confidence that, you know, the backlog, you know, up some 89% in the Americas is solid. We would expect a slowdown. I mean, you can't continue to grow at these levels for, you know, an indefinite period. The base effect, obviously, you can be comping some much bigger numbers as we move forward and into next year. The markets are actually quite good right now. Yeah. Scott, just to add a little bit more color to that pinch me story. I mean, if you look in the electrical business in both sales as well as orders, every single one of our end markets was up significantly. Within those end markets, some of them growing significantly, you know, more so. It's really strength across the board. Okay, I'm gonna stick to one question as directed, and I wish you all the best of luck. Thank you. Thanks, Scott. Appreciate it. Thank you. The next question is from the line of Josh Pokrzywinski from Morgan Stanley. Please go ahead. Hi, good morning, guys. Morning. Morning. Craig, just wanted to ask about Electrical Americas margins. They're pretty impressive here, and I would presume still, you know, kind of primed for help from metals deflation maybe later this year or in the next year. Where should we think about as sort of the ceiling on those, you know, maybe over the next, you know, kind of 12, 18 months? Or maybe said differently, how high are you willing to let those go before you start, you know, kind of really putting the pedal to the floor on reinvestment? Yeah, no, I'd say that, you know, we are reinvesting, Tim, maybe take the second of that question first, and we are absolutely reinvesting in the business and reinvesting at a rate that's higher than we've ever invested. Our R&D spending was up in the quarter, you know, quite materially, and we'll continue to invest. We are not in any way holding back on investments. As you think about, you know, we talk about these, you know, really important secular growth trends that we're looking in the face of, energy transition, digitalization, electrification, every one of these initiatives requires R&D. We're investing and capitalizing and building new factories to support this growth outlook that we have. We're clearly investing in the business. Now to the point on margins and how high can they go and when do we become concerned, you know, I'd say that, you know, we've set long-term margin targets for the business. What we've done historically, our practice is, you know, you deliver those targets and then you think about the next raise. I'd say at this point, you know, once we get to that plateau and consistently deliver, you know, these longer-term targets, which I believe we said were 22% for the Electrical Americas business, I mean, you know, we'll then, we do every year, as we think about it in our investor meeting, we'll take a look at whether or not it's appropriate to raise those numbers. I would say that this, you know, if you think about even, you know, our execution performance today, we have a lot of inefficiencies that we're absorbing today in the business. As you can imagine, some of these supply chain issues have created fairly significant disruptions in our plants and our facilities. We're not operating today anywhere close to our peak efficiency. There is room to raise margins by just improving our execution, working through some of these supply chain issues and getting some of the inefficiencies out. I'd say that we're not near the top in terms of controlling our own destiny, you know, independent of what happens in the marketplace. Yeah, just one nuance on investment. We're also, in addition to R&D, we're investing in selling resources as well. To the doing better, I mean, if you look at our distribution, our freight, we're doing a lot less in truckload because of our supply disruption, so definitely can get a lot better. Got it. That's helpful. Hard not to notice that on the orders front, you guys have sort of comped the comp at this point, in terms of that big step up, you know, in the order comps, you know, kind of post pandemic. You know, attributable to any specific end markets, you know, you kind of mentioned, you know, pretty broad-based growth, but trying to tease out if there's any specific market that kind of drove that, you know, that performance versus the comp or if price played kind of an unusual role. You know, I'd say that, you know, on the order side, these big numbers that we're talking about, and we'd love to think that we're getting 25%-30% price, but trust me, it's nowhere close to those numbers. This is just real economic activity. It's real volume in the order growth. As we talked about, really strong order growth in data centers, really strong order growth in the utility markets, you know, really strong order growth in many cases, even in commercial, which is, you know, a segment that people were concerned about. Residential as well. Yeah. Even resi. I mean, resi at some point will turn, but, you know, despite, you know, all of the gloom and doom that's been forecasted in resi, we had very strong orders and very strong sales growth in the quarter in resi as well. Appreciate the color. Best of luck, guys. Yeah. Yeah. Thank you. The next question is from John Walsh from Credit Suisse. Please go ahead. Hi. Good morning. Good morning. Morning. Wanted to build on that Electrical Americas line of questioning, just trying to conceptualize what backlog up 89% year- over -year really means, kind of how much of that, you know, it gives you visibility already into next year. I've always thought of that as kinda shorter cycle. Then maybe just anything around what the price looks like in that backlog, 'cause I would assume, you know, that's gonna be a margin tailwind as you deliver it. Thank you. No, I appreciate the question. I mean, it's you know, 89% increase in the backlog, we think is a reflection, you know, as we talked about, clearly of strong markets. The other thing that we believe, and we've seen evidence that's taken place, is that we're probably not getting orders that we would not have gotten otherwise, but we're probably getting orders today a little earlier in the project than we would historically have received them. I do believe some of this backlog is a function of the fact that, hey, you were gonna get that order, you know, in October, that order maybe you're getting now in September. The orders are coming in a little earlier than they would've. It is good news in terms of visibility. I mean, it certainly gives us, it's certainly visibility into, you know, projects and gives us a lot more confidence as we think about, you know, 2023. To your point, a lot of these projects, you know, will be delivered in 2023. Even if we wanted to deliver them this year, you know, we don't have the capacity, you know, in our operations to do it. We do have perhaps better visibility than we've ever had, going into 2023 at this point in the year. To the question on price, you know, I don't expect, you know, the price in the backlog to have a material impact on margins. I think reflecting in our margin guidance is very much consistent with the underlying margin performance that we're seeing in the business today. You certainly posted a very strong number in the second quarter of 2023 23+% in the Americas segment. I would not expect this backlog to be delivering accretive margins to kind of the underlying assumptions that we have, even in the implied number, you know, 22.7, 22.8% in the second half of the year. In many cases, we have had to go out and reprice the backlog. That's part of, you know, one of the things that we're certainly seeing the benefit of today or certainly not seeing a drag on margins as a result of, you know, commodity versus price. Great. I will pass it along. Appreciate it. Thanks, John. Thank you. The next question is from Joe Ritchie from Goldman Sachs. Please go ahead. Thank you. Good morning, everyone. Good morning, Joe. Yeah. Maybe just parsing out those price volume comments a little bit. How much of the organic growth this quarter was price? Craig, as you kind of think about the second half of the year and the impact that price cost has to the business, like how what kind of like positive impact are you expecting to see either on a dollar basis or from a margin perspective versus the first half? You know, I appreciate the question, and we've been asked this one before in terms of really separating price versus volume. Joe, one of the things we said is that because we're in so many different businesses and so many of our different businesses have really different makeups, that we've not given out a number, and we're not gonna do that today either, in terms of price versus volume. I will tell you that we are getting significant contributions from both, certainly in our results as well as in our order outlook. You know, I'd say in terms of price versus cost, I'd say today, if you think about it on an all-in basis, you know, we are now as a company on the plus side, which I'd mentioned in my commentary. In some of our businesses, we still have some work to do to catch up, as we mentioned in the vehicle business, where today we are recovering inflation, for the most part, we're not getting margin on inflation, and as a result, it's compressing our return on sales. I'd say as we look forward, we would not expect price versus commodities to basically have a positive impact on our overall segment margins. Okay. Helpful, Craig. Just my quick follow-on question, since no one's asked it, like the demand trends have all sounded really good. Clearly, there's a lot of concern around Europe. I'm just wondering, just on the margin, can you maybe provide some additional color on what you're seeing specifically across your end markets in Europe? Yeah. I appreciate the question, and I can say we're certainly watching all of the same macro issues. We're watching obviously the impact that the war in Ukraine is having and concerned about what that could potentially do to demand. You know, having said that, you know, we had a good quarter in Europe, both in our sales as well as in our orders, which continued to be, you know, quite strong through Q2. You know, every place, I'd say in markets other than perhaps in our vehicle business, which is where I mentioned that our sales were essentially flat. Outside of, you know, the vehicle business, you know, Europe for us continues to perform well and hold up better than, you know, what you would expect given all of the issues that they're dealing with. We remain, you know, quite frankly optimistic about Europe as we look forward. We're gonna be prepared like we always are in the event that things turn down. So far, orders continue to hang in there. As I mentioned, the strength in the electrical markets, and we're seeing strength every place in these end markets. It's not just in the Americas. We're seeing the same types of strength in Europe as well, in data centers, in commercial markets. You know, these markets are strong there as well. It's good to hear. Thank you. Thank you. Thank you. The next question is from Stephen Volkmann from Jefferies. Please go ahead. Oh, hi. Good morning, guys. Thanks for taking the question. Just a couple of end market questions, from me as well. Can you just give us a little color on what you're seeing in sort of the real heavy industrial Crouse-Hinds kind of harsh and hazardous type end markets? Yeah. I mean, those markets are doing well. We talk about, you know, what's happening in our, in our global business, and that's where we report Crouse-Hinds and, you know, oil and gas, industrial. Crouse-Hinds business is performing very well. I mean, I would tell you that, we're still well below the peak in that business. If you think back to what took place, you know, back in the, you know, the 2008, 2009 timeframe, and so those markets, I'd say, are still below those levels. We're certainly seeing strong double-digit growth in that side of the business as well. We would expect to see that continue, you know, for some time to come, given, you know, the broader issues that we're dealing with, you know, the macro issues and the availability of, you know, reliable sources of energy, whether that, you know, comes from some of the renewables or whether that more traditional sources. I think the reality is, as we think about the implications of what's happening today in Europe, we're gonna see more investment on both sides. We're gonna see more investment in renewables. We're gonna see more investment in more traditional sources of energy. And both of those are a good thing for the growth outlook for our industrial businesses and specifically for our Crouse-Hinds business. Yeah, Crouse-Hinds is another one of our businesses that it's just broad across the board as well. If you look at all of our end markets, up significantly in sales this quarter. Super. Thanks. Then on data centers, I assume that's one where you have a little bit more lead time visibility as well. Anything to call out there relative to sort of, you know, size of the data centers or locations or just anything to call out? No, no. Other than to say that data center markets continue to be very strong. I'd say if we take a look at our order growth, specifically, our order growth on a rolling 12-month basis in data centers was up some 25% in the quarter. We're really seeing strength everywhere around the world in data centers. I mean, it's one of these markets that we think is gonna be, you know, really positive for the company. I think on a current basis, it's maybe some 18, 19% of the business in our electrical business comes from data centers, and so it's a, it's an important segment for us overall, and it's one that just continues to grow. I personally believe, you know, as the world just continues to consume increasing amounts of data, as there's more edge computing and autonomous vehicles, I think the data centers is one of these markets that's gonna be a very attractive market for some time to come. Super. I'll pass it on. Appreciate it. Thank you. Our next question is from Julian Mitchell from Barclays. Please go ahead. Hi, good morning. Maybe just a first question perhaps for Tom, just to try and understand the free cash flow here. Because I think the guidance at the midpoint implies a sort of 70%-80% increase year-over-year in the second half to hit the free cash flow guide. Maybe just help us sort of bridge that, you know, how much you're attributing to sort of earnings versus, you know, underlying earnings versus working capital, you know, versus any sort of one-timer repeats or non-repeats, just to try and bridge that big increase. Sure. Thanks for the question, Julian. First of all, let me take a step back and look at our cash conversion cycle. DSO was slightly favorable. DPO was favorable. Where we've really made an investment is in our inventory, our days on hand. This is an intentional choice to make sure that we are protecting the significant growth that we've been talking about on the call, as well as being prepared for our customers with the choppiness as it relates to the supply disruption. As it relates to the second half versus the first half, historically, we generate significantly more free cash flow in the second half of the year than we do in the first half. We think the second half is going to get better, and you know, we feel comfortable with our guide right now. Is the view that, you know, there'll be a very substantial inventory kind of liquidation in the back half, is that the sort of the biggest lever behind earnings driving that cash flow up? Well, don't wanna talk about that hypothetically right now. We're gonna balance that obviously with order flow and what's happening with supply chain. You know, potentially we will be liquidating some working capital in the back half of the year. Yeah. If you think about it, Julian, I'd say that, you know, today, as I mentioned in some of my commentary, we just have an enormous number of inefficiencies that we're dealing with right now in our operations because of supply chain disruptions. As you can imagine, it only takes one component, you know, could be a very inexpensive component that prevents you from shipping, you know, a very large piece of electrical, an expensive piece of electrical switchgear. We're clearly in some cases, as Tom talked about, consciously putting some inventory in to protect customers to deal with the forward demand when you look at these orders increase, when you look at our backlog. But some of this is also just inefficiencies as a result of all of the supply chain disruptions that we've been living with. Yeah. We clearly, and I would be disappointed, you know, and I know my team's listening on the call, if we don't do a much better job in DOH in the second half of the year. Absolutely. I mean, just an anecdotal related to the supply disruption, we've got a lot of work in process inventory in our factories. You know, we're waiting for those one or two components to come in so we can ship the product. That also creates disruption in terms of the labor and the manufacturing. So yeah, there's a lot of improvement that we can do in the second half of the year, you know, and we're on it. That's helpful. Thank you. Just a quick follow-up. The vehicle segment, so I think the sales are guided there to be up, you know, high teens or something in the back half year year-on-year, organically. Maybe just help us understand sort of, you know, how much is that sustained growth in truck, if you like, versus a big turnaround in light vehicle. Any kind of color on the different growth outlook between those two? Yeah, I appreciate the question, Julian. I'd say what we've actually done in terms of the commercial truck market, we've actually taken our outlook down. We had anticipated that North America, you know, truck market, you know, would be roughly 305,000 units in our prior guidance. We now think it's gonna be closer to 294. So we've actually taken the truck piece down. But certainly, a lot of the growth is really a return, first of all, in China. I mean, China, as you know, was essentially shut down. For much of Q2, and we have a very, you know, sizable business in our vehicle business in China. And then you have a lot of these supply chain disruptions that have been especially difficult in the light vehicle market, and many of those are starting to abate. We're anticipating that the light vehicle market will see a much better performance in the second half than in the first half. That's great. Thank you. All right. Thank you. Thank you. The next question is from Nicole DeBlase from Deutsche Bank. Please go ahead. Yeah, thanks. Good morning, guys. Good morning, Nicole. Just maybe circling back to the electrical order activity, can you just comment, Craig, on what you guys have been seeing with respect to large projects versus the shorter cycle component of orders? Yeah, I'd say that, you know, quite frankly, I don't have that piece of data at my fingertips, Nicole. In general around, you know, kind of stratifying the various project sizes, and we'll get back to you or at the end, and the team get back to you more specifically on the project side. I would say, you know, just to kind of restate a point that we're making, we're seeing the same broad-based strength every place, across the board, you know, in our electrical business. As I mentioned, even on our negotiations, which obviously comes before an order, our negotiations are up some 50%, you know, versus last year and some 20% versus Q1. We're really just seeing broad-based strength in the electrical business. We'll have to wait and see what the exact data says, but tough to imagine that, you know, we're not seeing it in large, medium, and small projects. We'll get you the data. Yeah. On those negotiations, we're seeing growth in both commercial and industrial, both very strong versus last year and the previous quarter. That's great to hear. Just as a quick follow-up, I guess, you know, market volatility has obviously picked up. How are you guys feeling about the M&A pipeline and maybe the potential for continued bolt-ons in this sort of a macro environment? Yeah, no, it's as we said, and it's, you know, certainly reflected in our guidance this year with respect to, you know, relatively modest share buyback that, you know, it was our intention to really to prioritize M&A, you know, this year. As we look forward, as we looked at the pipeline of opportunities that the teams are looking at, and we still believe that that's the right call. Valuations, in some cases have still held up, you know, despite the fact that the market has retreated. As you know, it always takes a little time between, you know, market retrenchment and rising interest rates and what that does to future earnings before sellers internalize that. I'd say we're still working, you know, for some opportunities that we think could be interesting, but obviously no announcements to make today, but it's certainly still a key priority for the company. Thanks, Craig. I'll pass it on. All right. Thanks, Nicole. Thank you. The next question is from Brett Linzey from Mizuho. Please go ahead. Hi. Good morning, all. Morning. Morning. Hey, I just wanted to come back to pricing and specifically stickiness. Just, you know, in terms of the compounding price we've seen, you know, in the industry for the last several quarters, are you getting any, you know, pushback at all from distribution? I guess, you know, would it be a fair assessment that some of the, you know, larger investments around solutions that have a payback, you tend to hold price historically better? I'm just curious how you see that playing out in a deflationary environment. Yeah. No, the first thing I would acknowledge is that this inflationary environment is not like any that we've ever seen in our lifetimes. We'll have to wait and see how it all plays through. Having said that, and to the point that you raised, historically speaking, price has been very sticky in our business. As you know, because we go to market through distribution, distributors like price, it gives them an opportunity to revalue inventories. You know, as long as the world continues to hang in there, it's, it tends to be a good thing for our distributors as well. Today, I don't know, what is it? Some 70% of our business goes through distribution. I'd say that, you know, what we would generally expect in our business is that price to be very sticky. You know, we're obviously seeing a little bit of retrenchment in commodity costs on the material side. Having said that, labor costs are up, logistics costs are up, you know, energy costs are up. We're just seeing a lot of inflation in almost every aspect of the economy that I would say that, you know, even if commodity costs come off a little bit, these other factors are gonna keep prices and inflation at, you know, probably, you know, higher levels than you would probably imagine at first blush. I'd say, you know, long story short, we think it's gonna be fairly sticky, which is consistent with the way it's behaved historically. No, I appreciate that. Just to follow up, you talked about some of the R&D and sales force additions you've made, but could you just talk about capital investment and, you know, enhancing capacity to capture some of these secular trends? You know, are you selectively, you know, investing in kind of brick-and-mortar and you know new capacity? Where is the current plant utilization for your electrical business? Yeah. I'd say that the short answer to the question is absolutely yes. We are in fact making investments in brick and mortar to deal with, you know, this, the secular growth trends that we see coming. To deal with this strong order growth that we have already, as well as, you know, our outlook for future years. We are having to make capital investments principally, to your point, in our electrical business. So we're making those investments today. We'll continue to make them in the future. I think it's a reflection of, you know, the confidence that we have that these markets are gonna play out as we expect it. Both in R&D, which I talked about originally, to come up with products and solutions, to come up with digital offerings and solutions that we're selling into these markets to deal with some of the new technology that we're investing in, to be ready for energy transition and building out the electrical charging infrastructure across, you know, the U.S. and the rest of the world. We're definitely in an investment cycle and putting more capital in the business today than we probably have in many years. You know, I'd say the story- Very encouraging, that's what. The aerospace and vehicle is largely different. We really have the investments we need there because we're still well below peak volume levels. In the electrical business, without a doubt, we're making big investments in capacity expansion. Thanks for the color. Thank you. Thank you. The next question is from Deane Dray from RBC Capital Markets. Please go ahead. Good morning, everyone. Morning, Deane. Morning, Deane. Hey, just covered a lot of ground here, but I was interested in having you expand on the point about circuit breaker scarcity, because that's one of your core businesses. My guess is it's directly related to semiconductor shortages. We have heard from a number of companies this quarter talking about kind of gradual improvement in semiconductor availability. You know, how has that broadly impacted you all on the electrical side and then specifically in circuit breakers? You know, you're absolutely right, Deane. The places where we're having the biggest challenges right now is on anything that takes a microprocessor. Increasingly, what we're finding, you know, in the world of circuit protection, whether that's, you know, in a residential home or whether that's in a commercial and industrial building, you know, the intelligent, you know, circuit breakers are in demand. They're growing at a faster rate, and that's where we have been challenged, certainly up until this point this year. I say, as we look forward, things have gotten better. We have basically, you know, crawled and circled the Earth trying to find every available, you know, circuit breaker, electrical component that we can find. In many cases, buying stuff, you know, from distributor markets at very high prices, by the way. Things have definitely improved, but I would say by no means are we out of the woods when it comes to shortness of supply, when it comes to anything that, you know, has an electronic component. Lead times have gone out pretty dramatically, and we continue to have shortages. It's one of the reasons why our backlog is growing at the rate that it's growing, is that we just don't have the ability to serve all the demand that we're seeing. On the one hand, you have demand that's as good as it's ever been. On the other hand, you have, you know, an industry that, you know, probably underinvested, and as a result. You have all these other, you know, supply chain disruptions that we've been dealing with around China and you know, and now parts of Europe due to the war as well that are exacerbating things. I'd say, you know, in short, it's getting better, but by no means are we out of the woods. Understood. I see we're at the top of the hour. I'll keep it to one question. Thank you. Thanks, Deane. Appreciate it. Okay, thanks, guys. We have reached the end of the call, and we do appreciate everybody dialing in to ask questions. As always, Chip and I will be available to address you guys' follow-up questions. Thank you. Have a good day. Thank you. That does conclude our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.