Eaton Posts Record First-Quarter Results Fueled by AI Power Demand, Cautious Outlook Weighs on Stock

Deep News
05/05

Power management leader Eaton Corp PLC reported record first-quarter financial results, with robust demand for power infrastructure from AI data centers serving as a primary growth driver. However, the company's full-year and second-quarter profit guidance fell somewhat short of market expectations, leading to a stock decline of approximately 6% in early trading. The financial report revealed that Eaton's first-quarter revenue reached $7.451 billion, a 17% increase year-over-year, surpassing market expectations of $7.14 billion. Adjusted earnings per share were $2.81, exceeding the anticipated $2.74 and setting a new first-quarter record. The electrical business segment performed exceptionally well, with sales in the Americas Electrical sector hitting $3.6 billion, a 20% year-over-year increase. Data center orders surged by 240%, strongly evidencing the pull-through effect of the AI infrastructure investment boom on power equipment demand. Despite the strong quarterly performance, the company's forward-looking guidance was more conservative. Eaton raised its full-year organic growth forecast from 8% to 10%, but the midpoint of its full-year adjusted EPS guidance is $13.28, slightly below the analyst consensus estimate of $13.30. Furthermore, the second-quarter EPS guidance range is $3.00 to $3.10, with a midpoint of $3.05 that falls short of the market's expectation of $3.12. Management cautioned that demand for industrial equipment is cooling, with large clients placing orders at a slower pace and order visibility decreasing. The market reaction to this guidance was negative. Analysts noted that Eaton's stock has risen about 33% year-to-date, leaving its valuation at elevated levels, and investors were hoping for more substantial guidance increases to justify the high valuation. Despite the near-term pressure, Eaton's order backlog remains robust—the total backlog for the electrical sector grew 48% year-over-year, while the aerospace sector backlog increased by 28%. The recently acquired Boyd thermal business is off to a strong start, with revenue growing over 100% year-over-year. The planned divestiture of the mobility business remains on track for completion in the first quarter of 2027.

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