Eaton Corporation plc (ETN) Earnings Call Transcript & Summary

Okay. Thank you so much. We are at the end of day 1. And as I was telling Craig, that we have sort of saved the big guns for last. So we have Craig Arnold, Chairman and CEO of Eaton. And Eaton recently had their Analyst Day and really did a fantastic job outlining the transformation story. There's a lot of very, very interesting things happening in the company. And if you're not familiar, the company is exposed to all the right trends, specifically electrification grid, whatever you want, they have it. So we're very happy buyers of the stock, and we have -- as I said, we have Craig Arnold and we have Yan Jin, the company's IR. And I'm just going to go sit. You don't have slides, right? So we'll just sit and we'll go straight to our fireside chat. And if you have questions, feel free to answer them. And you can also ask questions online as well. Thank you.

So Craig, thanks so much for being in London. It's an absolute pleasure to have you here. So maybe we'll just get sort of perfunctory stuff out of the way. Maybe we can start with your exposure to Russia, Ukraine, anything you could share as to what Eaton's exposure is?

Great. First of all, it's great to be with everyone. I'm sure we had an opportunity to meet with a number of you during the course of the day, but it's great to be with people in person again and actually see a reaction to the comments that you make and get some energy from the audience. So great to be here with you today. I'd tell you that at this point, probably consistent with what you've heard maybe all day, it's really just early in general to get a sense for how the war in the Ukraine is going to impact the company. First of all, we have stopped selling into Russia. We have stopped taking orders at this point. As we look at our own company, we don't have a material part of our revenue that comes out of Russia or the Ukraine, and so we don't anticipate a big impact there. And quite frankly, when you look at our Tier 1 suppliers, we don't really have a big impact there. What we're concerned about and naturally watching is Tier 2, Tier 3s and the downstream implications of that. And obviously, there's a number of sanctions that have been -- are being applied across many -- certain countries, and we're obviously going to comply with the sanctions and trying to figure out what those implications are. But at this point, I'd say it's early. I would probably add my sentiment to probably the one that's been echoed early, it's probably the last thing anyone needed at this point in time as we're dealing with lots of challenges in and around the world. And the last thing anyone needed was another complexity that we're dealing with. And certainly, our hearts go out to the people of the Ukraine and quite frankly, all the people, including Russian citizens who are being negatively impacted by what's taking place and let's just hope and pray that we get through this very quickly.

Thank you, Craig. So look, as I said, you just had a very, very exciting Analyst Day. So maybe we can sort of focus on a couple of questions from the Analyst Day. So you raised your medium-term targets. Maybe you can sort of talk about what are the drivers of your higher targets? And what's the margin of safety in your forecast?

Yes. It's -- certainly, we took our midterm targets up of growth in 5% to 8%. And that 5% to 8%, quite frankly, is below the targets that each of our business units are chasing. They're chasing targets that are pretty considerably higher, about 150 basis points higher than what we set at the corporate level. But the reason we felt confident in increasing our guidance is largely because, first of all, the secular growth trends, Andrew, that we talked about for some time around electrification, digitalization and energy transition are just simply growing at a faster rate than even we imagined. And so the secular growth trends continue to buoy our business to give us confidence in the outlook for the future. We certainly -- I mean, during the course of last number of months, we certainly have been in more of an inflationary environment than we have for some time. So there's certainly a little bit of price in that number as well. But then the other big one is really the portfolio changes that we did. We've done a lot of work over the last 12 months or so to build an even stronger portfolio of businesses with the acquisition of Tripp Lite and the acquisition of Cobham, the acquisition of Green Motion here in Europe and a number of the joint ventures that we formed in China to participate in emerging markets. And so we've also strengthened the portfolio over the last 12 months. And so we feel pretty good about the revenue growth. And once again, if our businesses can deliver what they're running towards, what they're going to be measured against, there's certainly upside in that. And the same thing would be true in the margins that we've said. Obviously, we've hedged back those numbers as well, likely hedged back revenue. We've also hedged back a bit the earnings numbers as well. And so for our businesses deliver what they're running towards, we certainly will have an opportunity to outperform the numbers that we've laid out, but very much consistent with the company's kind of history. We like to make a commitment and do what we say. And once we do what we say, then we'll take the numbers up from thereon.

So your annual adjusted -- just following up on that, your annual adjusted EPS growth rate of 12% to 14% from '21 to '25 does not include the benefit significant capital allocation from the estimated $10 billion of cash optionality through '25. So a, is my math correct? And second, as we think about the capital allocation, are you leaning towards more M&A or share repurchases over the next several years?

Yes. I mean, first of all, you're absolutely correct. And we have about $10 billion of cash optionality as we look out over the next few years. And that's not in that 12% to 14% EPS growth number that we laid out. And so clearly, there would be upside as we think about how we redeploy that capital, whether it's in share buybacks or in M&A. And the other piece, quite frankly, that's not included in that once again is that if our businesses deliver the numbers that they're being running after, it would be upside to that number as well. From a priority standpoint, we did make a pivot. We made a pivot really, I'd say, over the last few years towards M&A. We think we've been able to identify a number of targets and the M&A market has certainly been much more receptive over the last couple of years coming out of the COVID pandemic-driven downturn for sure. And so our priority is clearly M&A at this point. We think strategically, there's a lot of interesting assets out there that we are evaluating. We have, I think, I'd say, a pricing discipline about what we pay for these assets. If you take a look at what we paid for a Tripp Lite, 11x EBITDA; what we paid for a Cobham, 13x. So we're buying businesses that are strategically important, that grow faster than Eaton and quite frankly, were paying very attractive multiples well.

And just to follow up on that. And the multiples you paid seem to be quite a bit lower than what your competition is paying for. So what is it about your approach to M&A that sort of allows you to sort of make this more sort of "value buys" in actually fairly hot sectors?

Yes. I think the first thing you have to do is you got to have an active portfolio, you've got to take a lot of shots on goal, right? There's a number of transactions that we passed on, quite frankly, because the multiples that we've had to pay for these companies is well above what we think makes good economic sense. We understand what our cost of capital is, and we said that we want from an M&A standpoint to deliver 200 to 300 basis points over the cost of capital. And so I think the key is you got to have a lot of shots on goal and an active M&A pipeline to ensure that you're looking at enough transactions to ultimately bed down the ones that you think make the most sense. And that's really what we've done. I mean it's really having an active team at multiple levels, looking at lots of different companies, lots of different transactions so that you can ultimately get the ones that make the most economic sense.

So just another question on just, once again, what came out at the Analyst Day. So just sort of implied adjusted EPS growth from '23 to '25. So if you look at '21, actual '22 guidance, your implied adjusted EPS growth to reach the midpoint of your 12% to 14% 5-year CAGR from '21 to '25, is like sort of mid-single digits, like 6.5% from '23 to '25. So that would sort of suggest material deceleration over the next 3 years. So how should we think about that?

Yes. I mean I think what you're implying is we're being conservative. And I think it would be fair to say that we have ample opportunity to do better than that. I mean certainly, as we talked about it, it doesn't include the capital redeployment, the $10 billion, it certainly should be a tailwind to that number. It doesn't include necessarily our businesses delivering the plans that they're running after. So there could be upside there. So I feel -- I do feel that there's certainly some conservatism built into the number. What we think about it in general was that there's a lot of uncertainties in the world. And I think, certainly, what's happened over the last couple of months is proof of that. There's always things out there that you don't anticipate that happen, whether it's military conflict, whether it's China shutting down, right, the Southern China and Shenzhen. So we try to say, let's create a set of financial commitments and promises that we know we can deliver. And then as we deliver them, we'll take the numbers up and take our guidance up. And so I'm fairly confident that we'll do better than that. But from where we sit today, we think that's probably a prudent starting point for making a commitment.

No, that's a great point. So maybe we can shift to electrification trend. So -- and as I sort of said, I mean, I think the story over the past couple of years really has been your exposure to very unique and robust exposure. You have grid EV charging, e-mobility, that does even include -- we had an aerospace event and you're like the only electric guy doing aerospace. Can you talk about the underlying market trends and how the growth in these areas is impacted by actions of the U.S. government infrastructure bill? Or maybe a lack of something Build Back Better? Just...

I appreciate the question, and I'd say the first thing is this is really a very different period of time for our company, quite frankly, for the industries in which we participate. And it's -- I can't think of many times in my professional career when we had so many secular growth trends, essentially pointing in the right direction for our company. In fact, all of the end markets in which we participate in are all projected to have fairly attractive growth over the next number of years. And we think in our core Electrical business, we think we're entering into a 10-year, what we call super cycle for growth. And it is being driven by these core secular growth trends of electrification, digitalization and energy transition. I think if you step back from these 3 trends and you talk about what's going on more generally in the marketplace, it is the fact that climate change is real. It's been largely accepted by governments and businesses and communities around the world to be real. And as a result, there are a lot of regulatory and commercially-driven initiatives out there that are driving investments in renewables. When you go to renewables, clearly, that drives content opportunity for our business. Every time you put solar or wind, it means you need to change the electrical infrastructure. The downstream implication of that it says that you have to move things from carbon-based to electric. So your car has got to move from internal combustion engine to electric car, electric heating. So you have all of these kind of macro trends. And then on top of that, to your point, you have what we think is going to help supercharge that, and that's a lot of these stimulus-related spending bills that have taken place in the U.S. and Europe and other regions around the world. And so today, the stimulus bills today will certainly help us in things -- U.S. infrastructure, water, wastewater, airports, transportation, the grid itself in terms of putting in the electrical infrastructure to support this transition to electric vehicles. And so that's really just another turbocharger on top of a secular growth trend that we think is very favorable already. And we don't expect to see a lot from that particular initiative until we get the end part of 2022 at the very earliest, but a real benefit we're seeing probably in the '23, '24 time period.

Got you. So we just -- I am reading, there are questions coming up online. I'm reading them. We'll do our best to incorporate them. So please keep those coming. So data centers, clearly another key area of interest for investors. Maybe you can talk about these trends, enterprise colo, hyperscalers, U.S. versus the rest of the world. How much visibility do you have on data centers? And maybe you can just provide us some color by these end markets and geographies?

Yes. Data center is a very large important market for Eaton. Today, it accounts for about 17% of our electrical business. We think by the time we get to 2025, it accounts for some 23% of our electrical business. And that's another one of these kind of mega growth trends that we think is going to be around for a very long period of time. And we often step back on them and say something. So what do you have to believe in order to believe that data centers will continue to be attractive market in the long term, you have to believe that the world will continue to generate, consume, process and store increasing amounts of data? And if you look at everything that's impacting our lives, I think that's a pretty easy hurdle to get over. And it's one of the reasons why we think this market will grow and grow very attractively for some time to come. And it certainly has grown pretty dramatically over the last 5 years or so. Today, I mean, you think about it in terms of hyperscale, yes, when you think about colo on parameters, and the reality is every one of these markets is growing. It's not just the hyperscale guys that are doing well and driving growth. It's actually what's going on in your offices, in the on-prem stuff and then the colo guys as well. So you're really seeing this pretty broad-based strength, the hyperscale stuff tends to be big and visible, tends to be a little bit more lumpy. But the sector overall is growing quite attractively. And then on top of that, you have this whole movement towards the edge in the growth of 5G, which is also going to continue to accelerate growth as you move towards autonomous vehicles and the like. So this sector is going to, I think, continue to be good for at least a decade and it's a really large and important part of our Electrical business, and we are a leading player in this space around the world.

And specifically on enterprise, do you think post COVID, things will slow? Or do you think there is still this big reinvestment cycle?

Yes. I mean, I don't know that we saw an investment cycle tied to necessarily took over. I think this was simply a continuation of a much longer and broader term trend that's taking place, largely because all of the devices that we use in our everyday life are just all getting smarter. Everything today has a microprocessor built in. And everything is streaming data today. And as you stream more data, you have the ability to process the data to create new insights from the data. And so I just think it's a proliferation. That's one of the big issues we're dealing with right now with micro processes, right? Things got a microprocessor and this massive explosion in growth. And I just think that's going to continue for some time to come. I don't think it's a function of COVID or any of the other kind of extraneous variables that we dealt with.

So let me sort of hit the supply chain, and then I'll sort of ask a follow-up question that I did get online in terms of impact from commodities. But what have been your pinch points in the supply chain? And where do you think we are in terms of supply chain recovery? And just to provide a framework, clearly, you sort of highlighted risks from second and third tier order effects in -- from stuff in Ukraine, but also we had over the past several years, we had China tariffs, pandemic. I guess now you have -- you brought it up around the shutdowns in Southern China. So a -- question one, is sort of what are you seeing near term from all this stuff? And how do you think about what's the margin of safety toward those things? And the second thing, how do you think about longer term about the supply chains and manufacturing footprint going forward? And just mile on, historically, if you look -- historically have been a lot of assembly, but how do you think about automation spending in this sort of new world?

Yes. And so for us, I mean, just beginning, the important commodities for us, not surprisingly, is going to be copper, steel, aluminum, semiconductors, resins, kind of the big commodities for us in terms of the products that we make. And what we said as a part of our Capital Markets Day is that we think everything, with the exception of semiconductors, really begins to get better during the second half of the year. We've already seen some improvements in Q1, including in semiconductors, but we -- our thinking is that by time you get to the end of this year, a lot of these other commodities, resin, steel, copper will have worked through most of the bottlenecks that are impacting supply chain today. We think the issue around semiconductors really is more of a multiyear challenge, until we really get to the point where there's enough capacity that has come online and that no longer becomes a bottleneck. And so clearly, in the context of that, we've had to, as a company, step back and think about how do we build more resilience in our supply chain. We've always been a company that believed in localization. And most of what we do today is we manufacture in region for the regions that we do business in around the world. But some of our supply chains tend to be more global, where we're buying some key inputs in commodities like semiconductors, for example, from global suppliers. And so as we've stopped and reflected upon that, we've said that it's not enough just to be local and regional, you also need to make sure that you are more resilient even within the region in which you are currently doing for assembly and test and other manufacturing. So we, like others, made some investments and continue to make some investments in building more resiliency in our supply chain, building some redundancy in our supply chain, doing the same thing for our customers, and we'll continue to do that. I mean, I think kind of the bigger point in drilling what we were talking about last night is this issue around regionalization and nationalism that we're seeing creep through so many aspects of our lives. And I think as we look forward, over the next number of years, that trend is likely to continue. And governments, companies around the world will need to be more self-contained in their ability to deliver complete solutions without some of these global dependencies that we've had historically. It's not going to go away completely. But I think if there's certainly a trend, it's going to move in that direction.

And I have a question from an investor. I'm going to look at Yan's direction to see if he's going to nod yes or no. So Eaton has not historically disclosed cost structure. Can you size your commodity exposure in terms of dollar spend? I think we estimated -- we'll look at Bureau of Economic analysis like the numbers sort of in mid-teens for an average industrial company, that's sort of what the government says. Anything, if you can share the number with us? If not, we'll just move on. And I'm looking at Yan. Okay.

Yan is telling me I can't share the numbers, so...

So there you go. But for the person who asked the question, we did write about it, and we did go through the list of key commodities. It's in our report, I think, from last week. So e-mail me, we'll e-mail you the report, this sort of aggregate data from S&P 500, happy to share it with you. Another thing that I would just sort of ask you about, as we talk about supply chain, a lot of companies say sort of chip semiconductors, electronics, the issue is at this point as much as you would want to regionalize it, it all comes out of Southeast Asia. And I asked this question to another CEO earlier today, and he sort of said, he is talking to a lot of sort of semiconductor suppliers. Globally, he thinks that he could have access to North American capacity for semiconductors as early as '23, although he sort of qualified it, I think it's quite marginal. But if you sort of did say that maybe in the next 24 or 36 months, there will be sort of this emergence of semiconductor capacity in North America for North American companies, what are your thoughts about that? Just from -- obviously, you talked to a lot of people. What are your thoughts?

Yes, I think I would agree with you. I mean there's no short-term answer. It takes time to put in new semiconductor capacity. There have been, as you're well aware, a number of fairly sizable announcements that have taken place around new capacity that's coming on, including in my home state of Ohio. One of the major suppliers is putting in a new, fairly large investment, right? But it is going to take time. So I don't think this is one where there's an easy answer to it. I think on the margin, there are things that the industry is doing and can do to stretch their capacity. There are things that we can do working with them so that we can be more planful around giving them longer-term forecast, and so they can become more efficient and making the stuff that we need. But I'd say that '23 will be better. Will we be out of the woods with respect to the total industry supply chain to '23, I think it's going to be tight. That would be my assessment, it's still going to be tight by time we get to '23, especially I think the underlying growth that we're experiencing today and everything that we do that requires electronics, chips of some sort, I think that trend will continue to grow. And so I think that the industry will be short and tight, probably through 2023.

Got you. So maybe talking and shifting to working capital and inventory. So how should we think about inventories? There is more uncertainty, but also perhaps more growth going forward. How do you think about the optimal level of working capital going forward? Is there any opportunity for working capital release in '22, '23, if and when supply chains normalize?

Yes. And I guess it's a little bit of a good news, bad news story with respect to working capital. On the one hand, we are really looking at a pretty material change in the underlying growth rate of our company. And as a result of that, we need to consume but in more working capital. So we're certainly putting in more inventory. If you think about what we reported last year in terms of the growth and our backlog was up 56% through the end of last year. And by the way, through February, it's up north of 70%. So the backlog has continued to grow. Our rolling 12-month orders in our Electrical business and in our Aerospace business, up some almost 30% in electrical, more than 30% in aerospace. And so the markets have continued to perform very well. And as a result of that, forward view, we have to put in inventory and working capital to support this growth that's coming down the road. Now having said that, we're not operating anywhere near as efficiently today as we have historically. We have more work in process today than we've had historically. As you can imagine, today, when you're dealing with these spot shortages in supply chain, you're waiting for a particular component to deliver a pretty large piece of electrical assembly equipment and you can't ship it until you get that missing part. And so as a result of that, there is some inefficiency built into the system right now that won't go away until we really get through some of these supply chain constraints. And I would say order of magnitude, it's a fairly sizable number that we're sitting on today in inventory, specifically that's tied up in working capital that will not be there as we think about exiting 2022 or going into 2023.

And how do you think -- just a follow-up we -- and I know you have answered this question before, but this is also working capital and inventory. What gives you confidence that you don't have double ordering? And we've done some calls with your distributors, who have sort of said that you've been very prudent, shall we say, with managing your book. So I have confidence, I guess, based on our channel checks, but we'd love to hear it from you.

This is really kind of the $64,000 question and one I can tell you that we're asking all the time as well. I mean, can it really be this good. And are all of these orders real and good orders. And I guess a few things give us confidence. One, I'd say, first of all, if you understand our business, you know that today, what we do, what we sell is basically going into a project some place. And so most of what we do is project-based businesses. And it is projects that we essentially are involved with alongside of our distributor partners. So we typically will specify and we'll work with one of our distributors to help on the fulfillment side. So we have very good visibility into the projects that they're working on. So we have a sense from that perspective. Secondly, I can tell you, I'm testing for this all the time with the distributors, with the OEMs and asking them, are you sure, right? I mean, is this backed up with orders. And once again, we have very good visibility into their book of business, the projects that this inventory is tied to. And I haven't found an OEM or a distributor yet, who's told me that they're buying more than they need. Now reality is, is there some of that taking place? I mean, we'd be naive to assume that there's none of it taking place. But by and large, we walk away from every one of these conversations with a very good feeling and in the conversations I'm having with my customers now is not inventory, I need more stuff and they need more stuff now. I need more inventory, and I need more inventory now.

And that's a nice segue into sort of channel inventory. How do you think about inventory levels in the channel today? And actually, it's a broader question because there is debate, will the role of your channel partners or distributors change going forward because now that you carry your inventory, you may as well sort of because you are carrying it, you may as well go direct to customer and get the margin, and there is some reluctance by -- at least by some distributors to invest in inventory because of sort of swings in inflation. So how do you think the channel evolves after this? Do you think you're going to -- or the industry is going to bring more work in-house? And what would it take for your channel partners to sort of get more of your business, given what the world looks like?

I guess, I mean I don't accept that premise actually. In our case, some -- our distributors are willing to carry inventory. And they want more inventory. And I personally believe that there's a very important key role that distributors play within our industry that's invaluable, in terms of their reach into the marketplace and their ability to add value to what we do. And so I personally believe and certainly our company's point of view on this is that distributors are a tremendously value-added partner to what we do. We partner very closely with distributors, and we think the -- they're going to be a long-term part of our solution to how we go to market we're trying to, if anything, increase distribution in those regions of the world today where we're underpenetrated, and we don't have to reach to the market that we want. So I don't think the world is going to change. I think distributors are adding tremendous value, and they will continue to do so.

No, that's great. So maybe we can shift to a Brightlayer on digital strategy, more focus on digital recently, and you clearly have had some very, very key hires. So maybe can you tell us more about Brightlayer, you have a goal for [indiscernible] incremental revenue by '25. If you could provide any granularity or case studies would be appreciated.

Sure. And so maybe if I can just step back for a second, just talk about what Brightlayer is. And the way we think about our data strategy, and it really is a strategy that is built on data. So we think about it as in the IoT world, it's great to make the things. We make the things. We make all the devices that are out there in the marketplace. We have the ability to gather data, to do sensing. So let's build intelligent devices. These intelligent devices will collect data from this data, because we have domain expertise in and around these applications, will create unique insights from this data. And then the question becomes, so how do you monetize it? So we take the data and the insights and we put it into this platform layer that we call Brightlayer. That's where all the data kind of comes into. And we can either monetize it in the form of selling insights to third parties or we can monetize it through software that we sell ourselves. And so that's the way we think about it. And in specific examples. Let's take data centers, for example. Today, we have a software platform in data centers called Foreseer -- excuse me, PredictPulse, excuse me, in data centers. And so what we do in the software base, we're monitoring data centers, and we're monitoring batteries and fans and capacitors. And because of our domain expertise, we understand what a UPS looks like when the batteries are going to fail or when the fan system is not working properly, and there's too much heat in the system where the capacities are failing. And so then from that, we create a piece of software that there's alarming and alerts to our customers, which then we tie into make case into a service agreement, and that's how we monetize these unique insights, by selling a service contract or selling this information to a data center provider so that they can once again complete their mission -- critical mission of keeping uptime as high as they can. We do the same thing, by the way, in utility applications, whether it's in automation and the utilities to make sure that they're getting insight into our equipment and how well our equipment is working and indicators when equipment is going to fail. And once again, drew, in this case, software providing a service to utilities as well. So there's just tons of example, too many that to in the room where this whole insights as a service, data as a service, whether you monetize it through software or through selling the insights is another important piece of this formula around this digitalization trend that's taking place in society and how it's going to help us accelerate growth.

Excellent. So let's sort of move to portfolio management. And I think you've created a lot of value over the past several years. You've been very active in terms of your portfolio management over the past several years. You highlighted some of the things you bought. Where do you take the portfolio from here? What excites you? And any opportunities for divestitures?

Yes, I think what I'd say, once again, with respect to portfolio management, the first thing I would say is that as you think -- as we think about portfolio management at Eaton, we don't think about it in terms of the 5 or 6 reportable segments that we report the company through. We think about portfolio management in the context of every place that we can make a distinct decision around should we be in or out. So that's by product line, it's by market, by segment, by customer. For us, that's the way we think about portfolio management. It's really built on this belief that everything is a normal distribution. Every business, no matter how good the business looks on paper, has a piece of it that's extraordinary, where you have the right to win, you have great technology, you make great margins, and you should do more of that. Every business has a tale. Every business has a piece that says, I'm investing more time and energy here than the returns that I'm getting. And so one of the things that we do in terms of managing the company is that we require each of our businesses to look at their businesses through the lens of a normal distribution. And the goal is, let's do more of the good stuff, less of the stuff that's marginal, and that's the way we continue to evolve the portfolio, and that's the way, quite frankly, that we continue to expand the margins inside of the company. Now having said that, we like the portfolio today. We like where we sit today in terms of the makeup of the businesses that we're in. We have attractive businesses today, and we're leaders in just about every market in which we compete. And so we like the portfolio and where it sits today. But having said that, we like it today, but that doesn't mean we're going to like it a year from now or 5 years from now. So every year, we go through a process internally, where we look at every business and we say, here's the criteria that we've laid out as a company that says there's a strategic criteria around businesses that we want to be in. There's a financial criteria, how does this business measure up and in the event that we don't pass both screens, then we think about pivoting and doing something different. So today, we like the portfolio. We'll continue to evaluate it and look at it. And maybe it will look the same way 5 years from now, maybe it will look different. But what you can count on is that we'll be rigorous in looking at the portfolio in an objective way through both the strategic and financial lens.

So maybe this is a question, I'll just try to paraphrase, it's a question about Russian invasion of the Ukraine and disruptions that it causes. And the idea is more inflation. Clearly, you highlighted more uncertainty about supply chains and longer term, in this environment, as I said, I'll just paraphrase it, higher oil prices, these dislocations in global supply chains, what kind of risks and opportunities do these create for you over the next 6 to 12 months, both risks I mean -- but also opportunities because you do have Crouse-Hinds. If you build more plants, you have a ton of content there on the industrial side. So maybe you could just sort of provide your view as...

No, I appreciate that question. This is one of the things we were talking about earlier, where you'd say as a result of what's going on today in the Ukraine, does that mean that it's going to, in some ways, slow down the adoption of renewables and have the whole world pivot back to oil and gas. And my answer to that is what I think is going to happen is that it's going to mean more investment in both. It's going to mean more investment in short-term resiliency in oil and gas, and that's very good for Eaton and places where we have oil and gas exposure like Crouse-Hinds. But it's also going to mean an acceleration in the investments in renewables to lessen this longer-term dependency and codependency on places like Russia. So I think what you're going to find is, in general, this whole space is going to see more investment as a result of this event that's taking place in the Ukraine right now.

No, thank you. Right. And I guess we -- the clock turned orange. So maybe a last question for you. First quarter '22 guidance, any updates to Q1 guidance, given sort of the latest global macro events?

Sure. Yes. I'd say that through the first 2 months of the year, we're very much on track. January and February came out largely as we anticipated. March is always a big month for every company. It's a big month for us. At this point through today, we've not seen any significant downside from what's happening today in the Ukraine. I think the China card that just dropped earlier this week, we'll have to wait and see how that plays out. But so far, I mean, the quarter is coming out largely as we anticipate, and we'll continue to watch and monitor these events to see if we end up with some sort of dislocating event that's not within our line of sight today. So far, so good for Q1.

This has been fantastic. Craig, thanks so much. Thank you for gracing us here in London. It's great to do it in person. Thank you so much.

Yes. No. Great. Thank you. All right.