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5. Eaton Corporation plc Business Report FY ended Dec. 2017

Eaton Corporation plc Business Report FY ended Dec. 2017

Factors
1) Net Sales
-In the fiscal year ended December 31, 2017, the Company’s net sales increased by 3.3% to USD 20,404 million. Organic sales increased by approximately 3% during the fiscal year, while currency translation effects were flat. The increase in organic sales was primarily due to increased sales volumes in the Company’s Electrical Products, Hydraulics and Vehicle business segments.

2) Vehicle segment sales
-Sales in the Vehicle segment for the fiscal year ended December 31, 2017 totaled USD 3,333 million, an increase of 5.7% over the previous year. The segment’s organic sales increased by approximately 5% over the previous year, primarily due to growth in North America. Positive foreign currency effects increased sales by an additional 2%. These gains were partially offset by a decrease in sales of 1% due to the divestiture of a 50% interest in its automated transmission business to Cummins.

3) Vehicle segment operating profit
-The operating profit for the Company’s Vehicle segment was USD 537 million in the fiscal year ended December 31, 2017, an increase of 13.3% over the previous year. The increase in operating profit was caused by higher sales volumes, lower restructuring costs and savings from restructuring actions. Negative effects from commodity inflation and unfavorable product mix partially offset gains.

Joint Ventures

-On April 10, the Company and Cummins announced an agreement to form a joint venture for automated transmissions for heavy-duty and medium-duty commercial vehicles. Cummins and the Company will each own 50% of the new joint venture, named Eaton Cummins Automated Transmission Technologies. The joint venture will design, assemble, sell and support all future medium-duty and heavy-duty automated transmissions for the commercial vehicle market. Under the terms of the agreement, the Company will receive USD 600 million in cash from Cummins for 50% interest in the joint venture. Cummins will consolidate joint venture results as part of its Components business segment. The Company’s current medium-duty automated transmission, Procision, and next-generation heavy-duty automated transmissions will be part of the joint venture. In addition, the joint venture will market, sell, and support the Company’s current generation of automated heavy-duty transmissions to OEM customers in North America. The transaction was closed on August 1, 2017. (From a press release on April 10, 2017, updated on August 1, 2017)

Recent Developments

-In October 2017, the Company’s plant in Belmond, Iowa, U.S. received the new International Automotive Task Force (IATF)-16949 quality system management certification, making it the first Company facility to receive the certification. The IATF standard replaces the TS-16949 certification which will be phased out in 2018. IATF members include General Motors, Ford, FCA, Volkswagen, Daimler and BMW. (From a press release on October 5, 2017)

Contracts

-The Company announced that its technologies were on several of the engines chosen by WardsAuto as part of its Ten Best Engines competition for 2018. The Company’s technologies on the winning engines are as follows:
Valves

• Ford Focus RS: 2.3-liter turbocharged DOHC I4
• Honda Accord Hybrid: 2.0-liter DOHC I4
• Mercedes-Benz C300: 2.0-liter DOHC I4

Superchargers

• Volvo V60 Polestar: 2.0-liter supercharged DOHC I4

Roller rocker arms

• Mercedes-Benz C300: 2.0-liter DOHC I4

Bussmann series electric vehicle fuses

• Chevrolet Volt: 1.5-liter DOHC I4 with dual electric motors
• Chrysler Pacifica: 3.6-liter V6 with dual electric motors

(From a press release on January 11, 2017)

Outlook

-The Company expects that it will have organic revenue growth of approximately 4% for the fiscal year ending December 31, 2018.

-Over the last five years, the Company has invested approximately USD 3.1 billion in research and development.

R&D Facilities

-The Company has engineering, research and development centers dedicated to the automotive industry located in Marshall, Michigan, U.S.; Turin, Italy; Baden-Baden, Germany; Pune, India; and Shanghai, China.

-The Company announced the inauguration of its India innovation center at Magarpatta City in Pune. The new Eaton India Innovation Center (EIIC) is a strategic program that is focused on enhancing organizational capabilities by leveraging high-end engineering talent and best-in-class infrastructure. The new EIIC is a vertically integrated engineering organization that will deliver complete product design lifecycle management solutions. The innovation center currently employs more than 1,500 engineers. (From a press release on October 5, 2017)

Product Development

Fuel efficient powertrain package
-Eaton Cummins Automated Transmission Technologies, a 50/50 joint venture between the Company and Cummins, announced that it has introduced a new fuel economy-focused powertrain package specifically designed to exceed the demands of the Mexican commercial trucking industry. The newly configured 18-speed UltraShift PLUS MXP automated transmission will be paired with a Cummins ISX15 diesel engine, providing sustained performance and maximum fuel efficiency in Mexico’s unique driving conditions. The new powertrain package will be available as a service release in December, with production availability in the first quarter of 2018. (From a press release on November 15, 2017)

Endurant 12-speed automated transmission
-Eaton Cummins Automated Transmission Technologies, a 50/50 joint venture between the Company and Cummins, introduced the new Endurant 12 speed automated transmission at the North American Commercial Vehicle Show in Atlanta, Georgia. The 1,850 lb-ft capable heavy-duty transmission weighs up to 105 pounds less than competitive automated manual transmissions. Endurant is the first automated heavy-duty transmission to be introduced as part of the newly formed joint venture between the Company and Cummins. The new transmission will be paired with the Cummins X15 Efficiency Series engine beginning in October for Peterbilt and Kenworth trucks. (From a press release on September 24, 2017)

HCM1A high-current power inductors
-The Company launched its automotive grade HCM1A product line of high-current power inductors designed to meet electronic system power and thermal handling requirements of transportation manufacturers. The alloy powder core material of the HCM1A inductors are designed to withstand stresses found in vehicle engine compartments and deliver high reliability for DC-to-DC converters, voltage regulators, battery powered systems, multi-phase regulators and point of load modules. HCM1A inductors are AEC-Q200 Automotive Grade 1 compliant, which specifies an ambient temperature range of negative 40 degrees to 125 degrees Celsius as the range in which a component can be safely operated. (From a press release on March 27, 2017)

-The Company expects to invest approximately USD 575 million in capital expenditures in the fiscal year ended December 31, 2018.