Eaton Pricing Spineometer: 5 of 5 Vertebrae
Eaton, a power management company, had a strong FY 2022. Revenue increased 5.4% to $20.8 billion while earnings before interest and taxes increased 19% to $3.0 billion over year prior.
In their 9 February earnings call, improved revenue was attributed to high demand for Eaton’s offerings related to megatrend investments in the energy infrastructure and power changes occurring globally. Improved margins were largely attributed to operational excellence and financial discipline.
Almost in anticipation of questions regarding pricing and inflation, Tom Okray, CFO, stated in his opening remarks: “We continue to manage price effectively to more than offset inflationary pressures.”
Regarding the future role of pricing and performance, Craig Arnold, CEO coupled future pricing actions to anticipated input cost inflation. He stated: “Yes. Certainly, price will be a contributor to the growth for 2023. It obviously contributes at a much lower rate than it’s contributed in 2022. And yes, there is some more to do. We are, in fact, expecting to see positive price over the course of the year. We — today, commodities have certainly slowed their rate of ascent. In some cases, we treat it a little bit, but they’re back up again. You see copper is back up again. And the big challenge right now we’re finding is really on the labor front. Labor inflation is certainly coming through the system.”
Research into the quality of Eaton’s pricing team indicated a positive state of affairs. Pricing professionals were identified with titles of analyst, manager, and director. Pricing professionals worked on channel pricing, contract pricing, global pricing, and pricing strategy. Pricing professionals were distributed across business units and geographies.
The review of pricing at Eaton opened a few new inquiries: (1) Given the changes in the power industry and Eaton’s role in these changes, how is Eaton pricing its numerous new product launches? Is there a “Eaton Business System” protocol for this process? (2) How is Eaton embracing new business models and price structural changes? Given the data revolution, and the data associated with power systems and distribution, is Eaton leading their sector in this area or planning to act as a fast follower?
Given the importance and capability of pricing at Eaton as indicated in financial reports, management comments, and our pricing team research, and given their performance, we have come to the following conclusion as of April ‘23.
Eaton Corporation Pricing Spineometer: 5 out of 5 Vertebrae.
ETN (Eaton Corporation) rose from 169 on the day prior to their earnings call to 174 one week later. 2022 revenue of $20.8 B with a 15% operating margin and P/E ratio near 25.
Currently, a 1% improvement in price would yield a 6.9% improvement in EBIT holding all else constant for Eaton Corp.
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