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Small image of Craig Arnold, Chairman and CEO, Eaton

To our shareholders:

When I became CEO of Eaton a few years ago, one of our first tasks was to decide the kind of company we wanted Eaton to be and the legacy we would leave behind. We began by modifying our vision. Today, the vision that guides us is our commitment to improve quality of life and the environment. It’s this emphasis on having a positive impact on the world, combined with a clear understanding of our responsibilities to shareholders, that propels our company forward. We’re keeping our commitments, and we’re making a difference for our customers, communities, shareholders, and employees. In this report, you’ll see why I am so proud of where we are today, and why I’m confident in our future.

Meeting our financial commitments

2018 was a good year for Eaton. We generated 6 percent organic revenue growth, double the rate of the previous year. We delivered strong segment operating margins of 16.8 percent, up 100 basis points over 2017. Our earnings per share were $4.91, and excluding the impact of the arbitration decision, earnings per share were $5.39. This represents an increase of 16 percent over the prior year, excluding the gain in 2017 from the creation of the Eaton Cummins joint venture and 2017 income related to the U.S. tax bill. In addition, we achieved strong cash flow, making it possible to reinvest in our business and return $2.45 billion to shareholders through a combination of share buybacks and dividends. 

Investing for the future

Last year, we also increased our focus on organic growth. We invested in technology leadership, strengthened our channel and created new strategic partnerships, and found ways to deliver superior value for our customers. Here are a few examples:

  • Electrical: We enhanced our cybersecurity program to provide our customers with increased protection against cyber threats. We also earned UL cybersecurity certifications for our labs in Pennsylvania and India – an industry first. And, we expanded partnerships with Microsoft, Cisco, EPRI, and Nissan as we continue to create intelligent and connected solutions for customers.
  • Aerospace: We began construction on our first aerospace manufacturing facility in India, which will allow us to better serve the growing Indian market. In addition, our Additive Manufacturing Center of Excellence earned a quality certification in 3D printing, enabling Eaton to supply 3D printed metal components to civil and military aerospace customers.
  • Hydraulics: We significantly expanded capacity at our Turkish hydraulic hose plant to reduce customer lead times, improve on-time delivery performance, and support share growth. Our new mobile valve technology, which provides unmatched precision and control in mobile equipment applications, was recognized by the industry as one of the most innovative advancements in the design engineering space.  
  • Vehicle: We entered into a joint venture with Shaanxi Fast Gear to develop, manufacture, sell, and service light-duty manual transmissions. This will allow us to expand our presence in the growing Asia-Pacific, Eastern Europe, and Africa markets. In addition, we’ve expanded the use of our automotive advanced valvetrain solutions into commercial vehicle engine brakes and will start production with a major Chinese engine manufacturer this year.
  • eMobility: We are preparing to open our first eMobility production plant in China, which will further enable us to grow in the largest electric vehicle market in the world.

We are also investing in our future and have created a new Center for Intelligent Power (CIP) in Dublin, Ireland. The CIP is an important part of our global engineering organization and is focused on developing new insights and business models that are tied to our proprietary data.

Turning our aspirations into reality

Meeting our financial commitments and investing for tomorrow’s growth are crucial, but we set our sights on achieving more. We’re continuing to make Eaton a great place to work, and the world a little better. Here’s more on what we are doing to achieve our aspirational goals.

  • We are making good on our commitment to be active stewards of the environment. We’re pleased to report that nearly 50 percent of our manufacturing facilities have achieved “Zero Waste to Landfill” status. We now offer 106 Energy Star certified products that help customers reduce their energy consumption and carbon footprint. We were also pleased to be named again to the FTSE4Good Index, which recognizes companies that demonstrate strong environmental, social, and governance practices.
  • We aspire to be a model of inclusion and diversity in our industry – and here, too, we are making progress. Several years ago, we established employee resource groups to promote awareness, respect, and inclusion within the workplace. Since that time, we’ve seen participation in these groups increase significantly. Additionally, we were recognized for the third straight year for our commitment to LGBTQ+ equality by the Human Rights Campaign, and as one of the best employers for diversity, new graduates, and women by Forbes. 
  • We’re committed to the communities in which we live and work. Eaton has a long tradition of community involvement, and whether it’s refurbishing a local school in Indonesia, supporting an orphanage in Brazil, or revitalizing a neighborhood in Ohio, our employees are keeping that tradition alive. In 2018, we also provided $12 million in financial support to local community charitable activities. 

Our strategy is working, and our future is promising

We’ve worked hard to transform Eaton into a new company – a power management company with leading businesses in their respective markets. As we look ahead to 2019, we continue to believe we have the right strategy in place to accelerate growth and deliver long-term value:

  • We will maintain our focus on strategic growth initiatives by developing technology leadership, growing our strategic partnerships, and delivering superior value for our customers.
  • We will continue to expand our margins by running our business better. This will require that we create world-class manufacturing facilities, deliver productivity improvements, and enhance our portfolio of products and businesses.
  • We will maintain our disciplined approach to allocating capital – investing to win in all our businesses, returning cash to shareholders through dividends and share buybacks, and being financially disciplined in the mergers and acquisitions market.

In closing

Our company is getting better, but we know our work is not done. We will continue to be led by our vision – to improve the quality of life and the environment. We are committed to achieving our financial goals and creating a stronger and more capable company. This will require that we excel at serving the interests of our customers, our employees, our communities, and our environment. And when we do these things well, our shareholders will be rewarded. We’re looking forward to the challenge.

On behalf of our employees and partners, thank you for your confidence in Eaton.

Sincerely,
Craig Arnold, chairman and chief executive officer