Eaton (ETN) Q4 2021 Earnings Call Transcript

Eaton (ETN 2.27%)
Q4 2021 Earnings Call
Feb 04, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Corporation fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator instructions] This conference is being recorded.

I would now like to turn the conference over to our host, senior vice president of investor relations, Mr. Yan Jin. Please go ahead.

Yan Jin -- Senior Vice President of Investor Relations

Hey, good morning, everyone. I'm Yan Jin  Eaton's senior vice president of investor relations Thank you all for joining us for Eaton's fourth quarter 2021 earnings call. With me today are Craig Arnold, our chairman and CEO; and Tom Okray, executive vice president and chief financial officer. Our agenda today includes the opening remarks by Craig highlighting the company's performance in the fourth quarter.

We'll be taking questions at end of Craig's comments. The press release and the presentation that will go through today have been posted on our website. This presentation includes adjusted earnings per share, adjusted free cash flow, and other non-GAAP measures that are reconciled in the appendix. A webcast of this call is accessible on our website and will be available for replay.

I will remind you that our comments today will include statements related to the expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projection due to a wide range of risks and certain all lines in our presentation, release, and presentation. With that, I'll turn it over to Craig.

Craig Arnold -- Chairman and Chief Executive Officer

Thanks, Yan. Hey, let's start on Page 3 with a few highlights of the quarter, and I'll begin by saying that despite what's now very well-publicized and ongoing supply chain issues, our team delivered solid results in the quarter and a record performance for the year. And in Q4, we generated an adjusted EPS of $1.72, a fourth quarter record. Our sales of $4.8 billion, up 6% organically.

And I'd say here, we had particular strength in residential data centers and in industrial markets. And I'd say also our aftermarket businesses in both commercial Aerospace and vehicle continue to deliver strong growth. We were certainly impacted by supply chain constraints, which had an impact on our revenue and especially in our Electrical Americas, in our vehicle segment. The good news is the market remains strong.

Order growth accelerated in the quarter and we ended the year with a record backlog. For our combined Electrical business, orders were up 21% on a rolling 12-month basis and our backlog was up 56%. Our Aerospace business also had a significant increase in orders, up 19% on a rolling 12-month basis and the backlog was up 16%. We also continue to post strong segment margins, 19.3% in the quarter and a Q4 record.

And I'd say here, the actions that we've taken to mitigate inflation, our portfolio changes, and the restructuring savings are all contributing to the strong incremental margin performances. And also note that we benefited from a favorable mix in the quarter, and I'd say that our portfolio changes continue to be an important part of our strategy. We're pleased to have completed the Royal Power Solutions transactions a few weeks ago, and the addition of Royal Power will allow us to accelerate our growth in e-Mobility and actually in the broader electrical market as the economy continues to adopt more electric solutions. And so I think you'd agree that we're not sitting still, we're managing the things that we can control operationally while continuing to advance our strategic agenda.

Moving to Page 4, I'll highlight a few additional points on our quarterly results. First, total revenues of up 2%, we increase operating profit by 14% so continue to demonstrate strong operating leverage. Second, acquisitions increase revenues by 7% which was more than offset by the sale of hydraulics, which was a 10% headwind. And we will not complete it, we're certainly pleased with our progress on the portfolio.

We continue to drive changes to support our overall goals of creating a company with higher growth, higher margins, and more earnings consistency. Third, I just point out that our margins of 19.3% as I noted, were above the guidance range of 18.8% to 19.2% and I think a good indicator of our team's ability to execute operationally while once again managing the things that were in our control. And lastly, we noted both adjusted eps of $1.72. And second margins of 19.3% were Q4 records.

In the face of the significant supply chain constraints that we've been dealing with. Next, on Page 5, we show the financial results of our Electrical Americas segment. Revenues were up 13%, 5% organic, and 8% from the Tripp Lite acquisition. The organic sales growth was really driven by strength in residential, industrial, and data center markets.

On a sequential basis, organic growth did step up from 1% in Q3 to 5%. So we're making progress, but still, as I noted, continue to be impacted by supply chain constraints. In some cases, our ability to meet demand was also impacted by labor availability as we had the spike in the Omicron version certainly, at the end of the year. Operating margins of 19.2% were down 190 basis points year over year, and the decline was driven really by higher input costs, labor, and supply chain inefficiencies, and disruptions in our facilities.

And on price recovery, we're making good progress, we made good progress in the quarter, but certainly not fast enough to prevent, some margin erosion on the net between inflation and price in a way that plays through to operating margins. And as noted in my opening remarks, market demand remains strong, which was reflected in orders and the growth in our backlog when a rolling 12-month basis orders were up from 20% accelerating from up 17% in Q3 and 13% in Q2. And our backlog reached another record of 57% from last year, and that's 7% higher than it was in Q3. The strongest markets continue to be residential and data centers.

And I say here also beyond orders, we also have strong momentum in our negotiation pipeline, which was up against some 11% in the quarter. Turning to Page 6, we summarize our electrical global segment. And as you can see, we delivered really strong results in this segment. Organic growth was 15% with strength in all regions and particular strength in commercial data and industrial markets.

We also delivered significant operating leverage while operating margins of 19.5% and incremental margins of 40%. We did have a little bit of a favorable mix here from our exposure to industrial in-market, but we do expect this to continue. Like the Americas, orders remain strong, a 22% increase on a rolling 12-month basis and a step up from the 17% number we posted in Q3, and our group in our backlog remained above 50%. In this segment, order strength was especially strong in data centers, residential, and utility markets.

Yes, I say overall, I'd say that our Electrical Global business had a very strong quarter on top of a strong year and is really carrying a lot of strong momentum into 2022. Moving to Page 7, we summarize results for our Aerospace segment. As you can see, we had a strong quarter, the industry recovery has certainly begun. Revenues increased 40%, 4% organic, 37% from the acquisition of carbon emission systems, and currency at 1% negative impact.

Aftermarket and biz jet, this was partially offset by weakness in military markets. Operating margins were 24.9% in all-time record and up 660 basis points from the prior year in the quarter. We had solid incremental margins of more than 40%, which were helped by a favorable mix, particularly the growth in aftermarket and by our portfolio actions. Another bright spot in the quarter was the growth in orders in backlog when rolling 12-month basis orders turned positive in Q3 and were up 19% in Q4, with particular strength in commercial markets, commercial transport biz jets, and commercial aftermarket were all up significantly.

And lastly, our backlog was up 16% from last year. Next, on Page 8, we show the financial results of our vehicle business. Revenue was down 2%, 1% organic, 1% from currency. We had strong organic growth in North America truck and in our South America business, which was offset by weakness in global light vehicle markets.

As you're aware, we had certainly significant supply chain constraints in the segment, including a number of customer shutdowns that impacted our revenue. We do, however, think the worst is behind us here, and we'll see improvement in supply chain-related disruptions this year. Overall, I think our team executed well, delivering solid margins of 16.4% in decremental margins of 30%. Turning to Page 9, we have the results for the eMobility business.

Revenues were up 4% with growth in North America and Asia, partly offset by weakness in Europe. Like our vehicle business, we experienced significant supply chain constraints and customer shutdowns in this segment. And operating margins were negative 9.1% as we continue to invest heavily in R&D and start-up costs associated with new program wins. As I mentioned earlier, we acquired Royal Power Solutions in January, and it will be reported within the eMobility segment.

It is an important acquisition, it's part of our strategy to improve the long-term growth rate of Eaton. First, it expands our addressable market for eMobility with a portfolio of highly engineered terminal connectors for electrical applications. Second, Royal Power has a strong track record of profitable growth and will continue to grow as the electrical content in vehicle continue to expand. And third, Royal will allow us to offer a more complete customer solution as we bundle their products with our own power protection and power conversion products that we're selling in eMobility markets.I'd say here, with organic growth momentum, the completion of the Royal Power acquisition, we're well-positioned to realize our long-term objective here, which is building a new $2 billion to $4 billion e-mobility business inside of Eaton.

And our cumulative new program wins are now at $800 million material revenue when you include the impact of new wins from Royal Power. Moving to Page 10, I just take a minute to recap the 2021 performance before we turn our focus to 2022. First, we delivered strong organic growth for the year, up 10% with significant strength in our electrical global segment of 15% vehicle up 21, in eMobility up 16. And I'm especially proud of the team for delivering record segment margins of 18.9%, 250 basis point improvement over 2020, despite the challenging supply chain environment.

Our team executed on a high level and delivered incremental margins of 43%. We also had one of the most transformative years in the history of the company, when you think about the portfolio, we completed $8 billion of portfolio actions toward our goal of building this high growth, high margin company with more earnings consistency. And we're off to a good start in 2022 with another value-enhancing acquisition and Royal Power. The result of our disciplined execution, the transformative portfolio of actions allowed us to deliver 35% growth in adjusted EPS.

And importantly, our shareholders were well rewarded for their commitment to Eton with a total shareholder return of 47% for the year. Our 2021 results certainly set a high bar for what we expect of ourselves, and I'm sure what you expect of others of us as well. But we're up for the challenge and we think the best years are still in front of us. So let's turn our focus to 2022.

On Page 11, we show organic growth and margin guidance by segment. Overall, we expect organic growth to be 7% to 9% starting with our electrical businesses. Americas and global are both expected to grow 7% to 9%, and we expect these businesses to see growth really across all end markets, with particular strength continuing in data centers, distributed IT, and industrial markets. In Aerospace, we expect organic growth of 10% to 12% with strong growth in both commercial OE and aftermarket channels.

Our base assumption here is that travel continues to expand from, the COVID impact to downturns without any significant new variants. And we expect low single-digit growth in military markets. For vehicles, we're anticipating organic growth of 7.5% to 9.5% with strength in both light motor vehicles and truck markets. And in eMobility, we're expecting organic growth to be 11% to 13%, driven by the continued strength in electric vehicles.

And just turning to segment margins, we expect Eaton to be between 19.9% and 20.3%. At the midpoint, this is a 120 basis point improvement over our record margins that we delivered in 2021. And we expect to see margin expansion in all of our segments. Turning to Page 12, we cover the balance of our 2022 guidance.

Organic growth, as we noted, is expected to be 7% to 9% with acquisitions and divestitures subtracting 3.5%, and currency is expected to be flat. We're also forecasting Corp.'s cost to be flat and our tax rate to be between 16% and 17%. Adjusted EPS is projected to be in a range of $7.30 to $7.70 at the midpoint of a $7.50, a 13% increase. Operating cash flow is expected to be between 3 billion and 3.2 billion in capex will be approximately $650 million.

At the midpoint, our operating cash flow is expected to increase 15% versus last year. Our free cash flow is expected to be between $2.4 billion and $2.6 billion and at the midpoint of $2.5 billion also a 15% increase. This represents free cash flow to sales of approximately 12% and free cash flow to net income of approximately 100%. And we expect share repurchases to be between 200 million and 300 million.

And this really reflects our pivot to what we think is going to be a higher priority on tuck-in acquisitions. And lastly, our Q1 guidance is as follows we expect adjusted EPS to be between $1.55 and $1.65. Organic revenue growth to be up 7% to 9%. Segment margins to come in between 18.4% and 18.8%.

And we expect our tax rate to be between 15% and 16%. And it just allows me for a moment I like to close with once again, Page 13, which is a brief summary on how we think you should think about the company and I'd say, first, our top line is supported by strong secular growth trends. And I'd say of note, most of this growth impact is just beginning to show up in our revenue. So most of it's still out front of us.

We've proven that we know how to expand margins and are comfortable with our ability to deliver 11% to 13% EPS growth overall planning horizon. We also have clear capital allocation priorities and a disciplined approach to M&A, which we think is paying off. As a result, I say we're a different company today. We've transformed our portfolio.

We're now a company that will deliver high growth, better margins, more consistency and I'd say once again, we're not done. We also have a long-standing commitment to ESG, it remains at the forefront of what we do every day. In fact, sustainability for us is really a part of how we drive growth in the company. Many of you have gotten to know our chief sustainability officer, Harold Jones, and you'll be hearing more from him at our investor meeting next month.

In the short term, you can count on us to continue to manage through these operating challenges as a result of COVID. The supply chain disruptions and labor shortages by managing the things we can control. 2021, we think, was an important proof point on our journey to transform the company, and we're proud of our results. More importantly, we're ready to do it again this year.

Now, I'll turn it back again to Yan, and we'll be happy to address your questions.

Yan Jin -- Senior Vice President of Investor Relations

Thank you, Craig. For the Q&A on the call today, please limit your opportunity just to one question and one follow-up. Thank you, once again, for your cooperation. With that, I will turn it over to the operator to give you guys the instructions.

Questions & Answers:

Operator

[Operator instructions] Our first question will come from the line of Josh Pokrzywinski with Morgan Stanley. Please go ahead.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

I always know if there's a pause, it has to be coming to me so I can start unmuted. Good morning, guys.

Craig Arnold -- Chairman and Chief Executive Officer

Hey, Josh. Good morning.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

So a couple of questions here, I guess first on free cash flow conversion. How should we think about some of the moving pieces around there, working capital or otherwise? And what -- when do you think we start to get back to your kind of more historical conversion rates?

Tom Okray -- Executive Vice President and Chief Financial Officer

So thanks for the question, Josh. Appreciate it. We intentionally used GAAP earnings in our prepared remarks when we said we were close to 100% in our free cash flow conversion. And the reason we did this is it's important to look at GAAP earnings when you're going through multi-year restructurings and doing a lot of M&A.

So it is really four main items that you need to think about as it relates to free cash flow conversion. One is acquisition integration and divestiture costs, which are going to generate cash requirements for us in 2022. The other one is the multi-year restructuring program. Now, while we're at the tail end of that, we will have cash requirements, which will also be in 2022.

Another element is capex, as you probably noted for our guide, we're up $75 million in capex investing to grow. And then the final one is a smaller one, but it's relevant to the CARES Act, we still have 50%, which is due which will pay in 2022. So if y if you're using adjusted earnings, you likely got in the low 80s, mid-80s, if you adjust for those four items, you're going to be well into the mid-90s. So I don't think it's a departure from what we've done historically.

I think it's I think it's consistent. The other thing I would note is we're also growing operating cash flow by $400 million in the year, which is significant.

Craig Arnold -- Chairman and Chief Executive Officer

And I'd say that in addition to that, Josh, I mean, we're obviously not through a number of the supply chain-related challenges. And so, we're certainly as we think about today, how do we protect customers? How do we get out in front of some of these supply chain constraints? We're still sitting on a fairly large pile of, working capital specifically in inventory as we're dealing with some of these supply chain-related issues.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it, that's helpful, and then I guess, just speaking of the supply chain, probably the volume output here is, is held back and we can see that in the 1Q guide, I guess, specifically in Electrical. But if order rates hold, what sort of volume growth, are you guys thinking about? It's kind of been a second-half or exit rate or, as some of these supply chain issues abate, how do you guys think about that in the guide here?

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, I mean, it's certainly a tough question to really address. I mean that you can appreciate. We and others have got this thing wrong in terms of how long the supply chain constraints would be with us. But certainly, the underlying order growth in the businesses is a good proxy for where the real demand is.

And I'm sure the question that sits just behind this one is that, to what extent do you believe this over-ordering, taking place, restocking in the channel? And I can tell you as we continue to test for that, we're not seeing it. And our distributors, are certainly today calling for more inventory than we're currently able to deliver to them. So much of our business is project-driven and so on projects you're not over-ordering on a project, a project is a project. And so if you just look at the order levels that we're seeing in our business, I mean, orders and sales, at some point converge to the extent that there isn't a bunch of order over taking place.

And so we feel really good about the underlying strength in a market. You see this tremendous growth in our backlog and eventually, this stuff is converted to sales. And so I mean, we're talking about the guidance of seven to nine, which is well below the underlying order rate that we've seen in our electrical business. And so at some point, those two things converge.

Tom Okray -- Executive Vice President and Chief Financial Officer

Yeah, I guess for perspective, Josh, we estimated in Q4, just in the Americas, we probably lost about $100 million in sales related to supplier disruption.

Craig Arnold -- Chairman and Chief Executive Officer

Right timing. We didn't think so. We think that those revenues are pushed into 2022. It just went into the backlog.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Appreciate the color. Thanks, guys.

Operator

Thank you, our next question comes from the line of Andrew Obin with Bank of America. Please go ahead.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Yes, good morning.

Craig Arnold -- Chairman and Chief Executive Officer

Hey, Andrew.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Hey, how are you? Just a question on the backlog. How much visibility do you currently have from your project backlog, and how does the margin profile of those projects look relative to the current input costs? Because sort of mixed message from various folks as to how that's going to play out in '22? Thank you.

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, I'd say that we're naturally sitting on a lot more visibility today than we have ever in the history of the business. When you think about this, 57%, 56% growth in the backlog for our Global Electrical businesses, and so we have much better visibility today than we would have, going into almost any year in the history of the company. And I'd say with respect to pricing in the backlog, I mean, we naturally have seen this inflation trend coming for some time now. We certainly have had the ability to anticipate where it was going as well with respect to commodity inflation.

And so we're very comfortable today with pricing in our backlog, and that's certainly reflected in the guidance that we have. But we don't expect like perhaps you've heard from some others that have a margin impact as a result of a backlog that's not reflective of today's commodity prices.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Excellent. And just maybe to build, on the previous question. So you are highlighting that sort of underlying free cash flow conversion as close to 100%. But look, I think cash flow is one of the factors here as we sort of entering this growth, what looks like industrial growth period.

How generally do you think about the sort of investments needed in the capacity working capital supply chain to keep up with demand in the longer term? And how do you see managing it and what kind of impact do you foresee it having on margins, free cash flow conversions, return on capital, etc. Just big picture question. Thank you.

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, I'd say if you think about, we talk about these important secular growth trends and the fact that we do expect our business as well as we look forward to being a much faster-growing business than we have historically. And we have had to and we talked about some examples before making some fairly sizable investments in new capacity to deal with some of this growth that we're going to be, that we're booking today and will be coming into the future. And so I would say, as you look into the future, certain with respect to investments incapacity to support demand, we would expect to up to see a bit of a tick up in capital spending requirements. Our revenue is going to be growing as well.

And so if you think about capex as a percentage of sales, it probably won't be a material change, but there'll probably be a bit of a tick up in. On the working capital side, I'd say today we still have opportunities. We are sitting today on record investments in inventory as we try to protect our customers and protect our sites so that they can keep running. And so I would say I would not anticipate today a large investment in working capital once we get through some of these supply chain-specific driven transitory items.

I would hope that at some point it'll be a source of cash, even as we continue to grow the business, and we literally have built that much inventory inside of the company to really try to protect customers. But on the working capital -- excuse me, on the capex side, we would anticipate continuing to make investments in capacity in our facilities in resiliency to ensure that we have the ability to support the growth that we see coming.

Tom Okray -- Executive Vice President and Chief Financial Officer

Andrew, I think it's also important to note is, we're not walking away from our objective of 100% free cash flow conversion and 14% free cash flow as a percentage of sales. That remains something that we're focused on too.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Really appreciate it. Thanks so much.

Operator

Thank you, our next question comes from the line of Jeff Sprague with Vertical Research. Please go ahead.

Jeff Sprague -- Vertical Research Partners -- Analyst

Thank you. Good morning, everyone.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning, Jeff.

Jeff Sprague -- Vertical Research Partners -- Analyst

Hey, good morning. If we could just kind of peel the price cost the part a little bit further and just wonder specifically on price if you can give us some sense of what the realization was in the quarter? And what is embedded in your guide? And also as part of that, Craig, you just kind of mentioned you didn't expect price cost to be a margin headwind. So are we? Sounds like we're probably positive on the $1 rate, perhaps. Maybe you could confirm that and just clarify the margin impact if you will?

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, appreciate the question, Jeff, and this is obviously one that we're spending a lot of time internally on ensuring that we're recovering all of the commodity inflation that we're seeing in our business. So my comment, my opening commentary, I talked about the fact that we saw a marginal impact in our Electrical Americas' business specifically as it relates to price and cost, largely because we are in fact recovering the dollars. But we're not getting a margin released in the fourth quarter, we did not get a margin on top of the recovery. And so it obviously got a very dilutive impact on the margin rate as we look forward.

We do expect that we will be slightly positive in price cost. We think about 2022 and that will just continue to build from this point forward. So 2022 will be a better year. It will be less of a headwind for sure than we experienced in 2021.

And we certainly would expect from an EPS standpoint that it'll be positive to our EPS earnings. On the specific question of what the dollar percentage, Jeff, as we talked about, on the last earnings call. And I know it's a number that everybody is looking for and I can understand why. But we're in so many different businesses and we have very different inflation rates.

When you think about, something in Crouse-Hinds, which has a really heavy content of steel versus something that's in one of our other businesses. And so the inflation rates are quite variable. And so we have chosen not to provide that number so as not to confuse customers around, prices they're seeing versus what we're talking about on earnings call.

Jeff Sprague -- Vertical Research Partners -- Analyst

Well, thank you for that. Since you mentioned steel, maybe I'll go there with my follow-up. Obviously, the futures are pointing a lot lower. Perhaps you just give us an update on the likely lag effects of, perhaps deflation on steel coming through the system.

You do have, some big backlogs to work through. So certainly I would suspect it's going to take a couple of quarters, but any color there on steel specifically or just the other key commodity inputs that we're all keeping an eye on here?

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, appreciate the question as well. And, like, as you mentioned, we are in fact seeing steel prices going to retrench a little bit versus where they were last year and certainly where they were in the fourth quarter. And the typical, lag time on that, can be, anywhere from 30 days to 90 days, depending upon, which segment of the business and what type of agreement we have with our suppliers. But I would say with respect to commodities overall is that we're really not seeing commodities overall.

Essentially improved copper is up, resin costs are still high. The cost of semiconductors, if you can get them, is up dramatically. And so we are still living in this inflationary environment and we would anticipate for much of 2022 that we continue to operate in this elevated environment of input costs. Steel is the one kind of good guy right now, but there's there are more than enough other, bad guys out there in terms of what we're still seeing inflation that is offsetting the benefits that we're going to see from steel.

Jeff Sprague -- Vertical Research Partners -- Analyst

Great. Thanks for the color.

Operator

Thank you, our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please go ahead.

Nicole DeBlase -- Deutsche Bank -- Analyst

Yeah, thanks. Good morning.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning.

Nicole DeBlase -- Deutsche Bank -- Analyst

I just kind of want to go back through the free cash flow and working capital discussion so completely understand that this is an area of opportunity. And that's kind of been reflected over a lot of companies that we've heard from over the past few weeks. But I guess when we think about your 2022 guidance, have you embedded continued working capital build, or are you anticipating that it will be a source of cash for this year?

Craig Arnold -- Chairman and Chief Executive Officer

I think what's embedded, correct me if I'm wrong. I think it's a slight positive. Yeah. What's embedded in our forecast?

Tom Okray -- Executive Vice President and Chief Financial Officer

We're looking at some networking capital improvement, primarily as it relates to inventory, right?

Craig Arnold -- Chairman and Chief Executive Officer

So it's not a big needle mover force in 2022. It is a slight positive, is what I'd say.

Nicole DeBlase -- Deutsche Bank -- Analyst

Okay, perfect.

Craig Arnold -- Chairman and Chief Executive Officer

Once again, it could be an area of opportunity if we, get through some of the supply chain-related challenges and more quickly than we're currently anticipating. It certainly could be an opportunity to generate stronger free cash flow.

Nicole DeBlase -- Deutsche Bank -- Analyst

Of course, got it. Thank you. And then I guess just kind of following up and finishing up the price cost discussion. Craig, you specifically caught out Americas, which makes sense.

Are you having price cost headwinds at the margin line in any of your other segments? Or is this just really isolated as predominantly in the Americas this year?

Craig Arnold -- Chairman and Chief Executive Officer

I'd say we're having price cost headwinds in all of our businesses. For the most part, it is just the most acute in the Americas. And so I'd say, we haven't -- we just -- if you think about today what's going on and it's kind of interesting what's going on around the world. It's really the US businesses in general that have had the biggest challenges around price cost.

And that's largely on the input side that the inflation that we've experienced in our Americas businesses and our US-based businesses have been significantly higher than what we've seen in other markets around the world. But we're having -- let's say, inflationary pressures every place, which is most acute in the US-based businesses.

Nicole DeBlase -- Deutsche Bank -- Analyst

Thank you, I'll pass it on.

Craig Arnold -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you, our next question comes from the line of John Walsh with Credit Suisse. Please go ahead.

John Walsh -- Credit Suisse -- Analyst

Hi, good morning.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning, John.

John Walsh -- Credit Suisse -- Analyst

Maybe the first one, can you give us a little more detail on what you're seeing in the data center market globally and if you are actually booking out now to 2023 on some of those projects?

Craig Arnold -- Chairman and Chief Executive Officer

John, the data center market has been extraordinarily strong for us during the course of the year and on the back of really what's been a multiyear trend of a really strong market. And whether we're looking at hyper-scale or whether we're looking at a co-location or whether we look at even on Prem, each of those markets has been extremely strong and as has been the IT channel in general. And so I'd say today if we think about where we're challenged around our ability to really service customer demand to these really strong markets of data centers and residential that certainly have built very large backlogs. And today, we're struggling to keep up with demand.

And quite frankly, we think that the market stays strong for a very long period of time and link it back to some of the earlier conversations of where are you going to need to make some capital investments to really deal with some of these longer-term growth trends? It's going to be in markets like data centers, which we think is going to be, strong for a very long period of time as the world continues to, as I've said before, generate, consume, process or just increase amounts of data. And so I believe we're sitting on kind of the verge of another big growth wave when we think about 5G. When you think about, autonomous vehicles. And so we think that markets are going to be strong for a very long time and we're going to have to continue to invest to keep up with the growth.

John Walsh -- Credit Suisse -- Analyst

Great, thank you for that, and then maybe one on Aerospace margins, if I did the math right, it looks like there's a little pressure on the conversion. Obviously absolute numbers. A nice improvement. Is that mix or is there something else happening there?

Craig Arnold -- Chairman and Chief Executive Officer

So when you say pressure on conversion, you're talking about incremental margins in thequarter?

John Walsh -- Credit Suisse -- Analyst

Yeah, the incremental margins, maybe that's just a mix with OE growing fast or something happening? Commercial, military, and calculating something in like the upper 20s mid to upper 20s.

Craig Arnold -- Chairman and Chief Executive Officer

Incremental margins for Aerospace business was 40%, 4-0.

John Walsh -- Credit Suisse -- Analyst

Oh, I'm saying in the guide, sorry in the forward-look for 2022.

Craig Arnold -- Chairman and Chief Executive Officer

Why don't you let us get back to you on that in terms of the incremental margins in the guide, I think you have an acquisition impact on that as well. And I'm not sure what you're assuming in terms of stripping out acquisitions, which obviously don't come at a normal incremental. They come at the underlying margin rate of the business. So why don't you let us get back to you on that one and maybe deal with that offline?

John Walsh -- Credit Suisse -- Analyst

Sure, appreciate you taking the questions. Thank you.

Craig Arnold -- Chairman and Chief Executive Officer

All right. Thank you.

Operator

Thank you, our next question comes from the line of Joe Ritchie with Goldman Sachs. Please go ahead.

Joe Ritchie -- Goldman Sachs -- Analyst

Thank you. Good morning, everyone.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning.

Joe Ritchie -- Goldman Sachs -- Analyst

So Craig look, interesting dynamic occurring in the market right now on the inventory side. And so you guys build inventories this quarter, which makes a ton of sense. Obviously, to be able to supply the market. But you're -- I kind of want to try to square that, the comments on distributor inventories being lean clearly no inventories.

If you're doing a project, what's your sense in the OEMs? Because we are hearing from some of our companies that they are building inventories, but everybody's also saying that the market is still very lean out there.

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, and I'd say that I mean -- I think it's fair to say everybody would like to build inventory and we're getting lots of requests, to get back to historical levels of inventory with our distributors and we're OEs carrying inventory. Many of them don't. Some of them do. But keep in mind, so much of what we do today is what is a project in Electrical and projects you typically are not finding.

Obviously, any inventory builds there. And so I'd say that this is one that is certainly been one that we've been concerned about. We've been watching, we've been testing in terms of whether or not there is over inventory in the system, whether or not there's double ordering in the system. And I can just tell you, having talked with and been engaged with a number of our teams and our distributors, that's not what we're hearing or seeing.

They would like more inventory and their inventory levels today or below where they'd like them to be given, they're up to their forward look on revenue growth.

Joe Ritchie -- Goldman Sachs -- Analyst

Yeah, that makes sense, Craig. I appreciate the comments there. I guess my one follow one question, I guess would be more around like Electrical Americas' margins and clearly understand the pressures that you're feeling this quarter. Lots of other companies were feeling the same.

How do you think -- I know that you guys have a pretty healthy margin expansion baked into 2022 at what point does that start to turn positive year over year? And maybe just providing a little bit more color on the cadence would be helpful?

Craig Arnold -- Chairman and Chief Executive Officer

So when the margins turned positive year over year, I mean, what quarter to the margins turned positive?

Joe Ritchie -- Goldman Sachs -- Analyst

Yeah, just cadence around like the puts and takes on margins as we progress through 2022 in Electrical Americas.

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, I say that certainly. Every time we hit Q2, we would expect that our margins would turn positive, and obviously, we're dealing with a number of factors right now in the business. And obviously, you know, what's getting a lot of attention right now is supply chain-related issues. But I can tell you also, you know, a big part of the challenges I mentioned in my speaking opening commentary that we're seeing significant labor-related issues and inefficiencies in our plants, too, we had pretty large absentees in a number of our facilities at the end of last year, the beginning part of this year as a result of COVID.

Our suppliers are seeing the same thing. And so it's not just, supply chain and we can't get parts. And in many cases, we were challenged to get labor and to run our factories efficiently until all of these inefficiencies. Today are kind of built into the results in Q4 and to a certain extent in Q1 as well.

I think it's really Q2, we really get beyond some of the labor inefficiencies. We do think that the supply chain continues to get better every quarter, but in some cases, we think we're going to be dealing with supply chain challenges for the entire year. When you think about components like semiconductors, what other components whether that's, copper, steel, or resins, we do think, those things continue to get better every quarter.

Joe Ritchie -- Goldman Sachs -- Analyst

Makes sense. Thank you, Craig.

Tom Okray -- Executive Vice President and Chief Financial Officer

It's important to note at the midpoint, which you saw in our prepared remarks, we're 90 bps above the prior year margins in Electrical Americas. So that reflects the bullishness that we feel about things correcting throughout the year.

Joe Ritchie -- Goldman Sachs -- Analyst

Great, thank you.

Operator

Thank you, our next question comes from the line of Julian Mitchell with Barclays. Please go ahead.

Craig Arnold -- Chairman and Chief Executive Officer

Hey, Julian.

Julian Mitchell -- Barclays -- Analyst

Hi, good morning.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning.

Julian Mitchell -- Barclays -- Analyst

One starting point, perhaps, is just within Electrical Americas' business. I just wanted to try and understand sort of on the residential side of that, how much was residential as a whole as a proportion of that business today? And how strong was the business up last year? And when you're thinking about this year ahead, you dial in any kind of slow down there? I think people are obviously pretty cautious about a number of other resi-facing product categories in multi-industry right now.

Craig Arnold -- Chairman and Chief Executive Officer

Sure, I appreciate the question. I mean, resi today, I think we'd say. 18% roughly of our business would be -- would go into residential markets in that market did grow strongly during the course of 2021. I'd say that business was probably up double-digit.

Tom Okray -- Executive Vice President and Chief Financial Officer

It's around 10%, yes, around 10%.

Craig Arnold -- Chairman and Chief Executive Officer

Yep. So and we're clearly expecting that market to see somewhat of a slowdown, which is baked into our guidance for 2022. Still, growth in the market, but not at the heady levels that we experienced over the course of 2021. The other thing I think it's important, though, as you think about residential markets to keep in mind, as you really think about this market over the near and the longer term is that it's not just the growth in the housing stock, it really is also the growth in the electrical content in buildings, residential buildings, multifamily buildings as they adopt the new electrical codes.

It requires additional electrical content. And as we really start moving seriously into an energy transition, we think the opportunities continue to grow at a really attractive rate as consumers have put electric cars in their garages and they have to change their electrical infrastructure to support the electric vehicles as consumers continue to look at things to improve their resiliency. Whether that's solar or the ability to island the home, the ability to sell energy back to the grid. All of these things, all of these kinds of secular growth trends that are taking place more broadly in the economy are going to also have an impact on residential.

And even though let's say the housing numbers are not going to grow dramatically, the electrical content we think is going to grow at some multiple of that. That's what we've seen over the last, let's say, 10 to 15 years and and and that really didn't even have the impact of some of these energy transition-related trends that we're talking about. The resi for us we think continues to be a really attractive market. We have a great position and residential and it's one we'll continue to invest in.

Julian Mitchell -- Barclays -- Analyst

Thanks very much, and then my second question, I guess, is touching on what Joe had mentioned earlier about inventories, because I guess if I look at say, automotive is one area light vehicles, whether we've heard about all the constraints. It was a very large OEM earlier this week who said, wholesale volumes are up 20% plus in 2022, and they could liquidate inventory, early in the year. So that -- I thought was interesting because it suggests that, that's a massive OEM who feels like they have enough goods on hand to satisfy double-digit growth this year. And so I just want to sort of push a little bit on that point and ask, any areas when you look across different regions or different markets where your salespeople or your channel partners may think, maybe there has been a good amount of inventory built up? I don't know if there's any kind of broad views you had on end markets that had more or less inventory relative to norms as you look today.

Craig Arnold -- Chairman and Chief Executive Officer

I'm sure they're out there someplace, Julian. I can tell you that they're out there, their voices are being drowned out by probably 100 to 1 on the other side of customers asking us for more specifically as it relates to the automotive inventory levels. I mean, the inventory levels today continue to run at record low levels. I mean, think about an industry in the US that is typically run of 75 days of, inventory been running under 30 days of inventory and so I'm surprised that any automotive OEM would say that they're comfortable with the levels of inventories.

We're not hearing that from any of our customers. And so that's I think there's a bit of an outlier.

Julian Mitchell -- Barclays -- Analyst

That's helpful. Thank you.

Craig Arnold -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you, our next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe -- Wolfe Research -- Analyst

Thanks a lot. Good morning.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning.

Nigel Coe -- Wolfe Research -- Analyst

You did 9% growth across Electrical in '21. You're forecasting 7% to 9% in '22. Your long-term target is 4% to 6%. So I don't want to get too far ahead of March -- the March Investor Day, but how are you thinking about growth beyond '22 in Electrical? I'm assuming it might be above 4% to 6%.

But -- and then kind of allied to that is you're highlighting utility, data center, resi. A little bit surprised you're not highlighting industrial and commercial institutional turning around because we are seeing some strength in orders there. So just wondering what you're seeing in those two specific end markets?

Craig Arnold -- Chairman and Chief Executive Officer

Yeah. First of all, I appreciate your question about the longer-term growth outlook in our electrical businesses. And to your point, we will be addressing that on our Investor Day next month. And I do think it's reasonable to assume that we've seen certainly more strength than we anticipated and it would be fair to, we anticipate that that number is going to move up slightly.

With respect to the end markets and I'd say for us, certainly, we talked about industrial markets are doing well and we talked about that as being one of the strong markets for us in general. And so we are seeing the strength in industrial. We're certainly seeing the strength in utility resi data centers, even in commercials. I'd say if you think about commercials, we've talked about this before.

We're still seeing growth in the in-office low single-digit growth. That's not huge there, but we're still seeing positive growth in the office segment. But also what goes into commercial is things like warehouses. And as you think about, the continued expansion of the Amazons of the world and the warehouse segments that have much higher once again electrical intensity than an office building or a retail store.

We continue to think that there's going to be a positive mix associated with, as we continue to move more and more of our retail activity online. And so, as we said, we think all of the markets are going to be growing next year. But we will see, somewhat we think would be outsize strength and in data centers, in industrial markets, in utility markets. But every market we would anticipate would see positive growth.

Nigel Coe -- Wolfe Research -- Analyst

Yeah.

I mean, to Craig's commercial and institutional, we saw high single-digit this year growth in the overall market. And for industrial, we saw, mid-teens growth. So they're very strong.

That's great. That's a great color. And then a follow-on for Tom on free cash conversion. Sorry to go back to this one.

But the four things you called out make total sense. I see $0.25 or $0.30 coming orders on restructuring charges and also kind of acquisition charge of the things, what you call it, in the GAAP to headline earnings. But is there stuff wrapped up in purchase accounting on the balance sheet that's going to have cash outflow this year? Is this more a purchase accounting issue?

Tom Okray -- Executive Vice President and Chief Financial Officer

No, no. It's really the four things that I describe. The acquisition, integration, and divestiture of the multi-year restructuring, the capex, and the CARES Act. And I think, you're probably alluding to, pension funding and those types of things.

Nothing, nothing extraordinary there.

Nigel Coe -- Wolfe Research -- Analyst

OK, thanks a lot.

Craig Arnold -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Scott Davis with Melius Research. Please go ahead.

Scott Davis -- Melius Research -- Analyst

Good. Good morning, everybody.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning, Scott.

Scott Davis -- Melius Research -- Analyst

My questions have been asked, but I'm kind of curious. It's been a while since we have an upcycle and Crouse-Hinds is how -- what's your order book look like in that part of the world? And I would imagine probably taking some costs out of that business since the last, the last peak. And perhaps you can just give us a little bit of color on that specific business.

Craig Arnold -- Chairman and Chief Executive Officer

Yeah. Appreciate the question, Scott. And for those of you who follow Crouse-Hinds over the year know that that business that we acquired many years ago from Coupa was a very profitable business, went through a cyclical industry downturn. But when we think about industrial, when you talk about industrial strengthening, that's where a lot of the Crouse-Hinds business goes.

I mean many of you think about it as an oil and gas business, but a lot of what they do today goes into industrial markets. And that business is, in fact, growing. And so we are clearly seeing a rebound in the Crouse-Hinds business. A lot of the industrial markets that they support and serve are growing nicely.

And so we certainly think we're at the, once again, the front end of what should be a pretty attractive recovery in those markets.

Scott Davis -- Melius Research -- Analyst

Okay. Good. And then as a follow-on, I just think in terms of the projects that are out there that you're bidding on, it has. Are there less people bidding on projects today than perhaps a couple of years ago, just given the reality that everybody's kind of sold out? Or is a competitive dynamic not really changed much? I know what --

Craig Arnold -- Chairman and Chief Executive Officer

I would say that the fact that everybody sold out means that I think everybody's being more selective around the projects that they take, and it's obviously, changes the price dynamic in the marketplace. And so I'd say, that I can't necessarily say that we're seeing less competition on projects. Lead times are being pushed out for lots of companies and the I said, it's never easy to recover from inflation, but we're in an environment today. We're given how well known the issue is and our public and visible it is.

It's probably as easy as it's ever been in my professional career because everybody kind of understands what we're dealing with. But I say I can't really speak to whether or not we're seeing fewer bidders on projects. But I think every company ourselves included has the ability to be a bit more selective today, given the fact that there's more demand and there is capacity.

Scott Davis -- Melius Research -- Analyst

Yeah. That makes sense. Well, best of luck in '22, guys.

Craig Arnold -- Chairman and Chief Executive Officer

All right, thank you.

Operator

Thank you, our next question comes from the line of Brett Linzey with Mizuho America. Please go ahead.

Brett Linzey -- Mizuho Securities -- Analyst

Hi. Good morning, all.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning.

Tom Okray -- Executive Vice President and Chief Financial Officer

Good morning.

Brett Linzey -- Mizuho Securities -- Analyst

I wanted to come back to capital deployment. This is probably the lowest share repo guide we've seen in a number of years, and you mentioned a focus on Bolt-ons. Could you just spend a moment and talk about the acting ability in the pipeline? Some of the sizes you're shopping for and just trying to understand, where you're looking within the portfolio?

Craig Arnold -- Chairman and Chief Executive Officer

Yeah. Appreciate the question. I mean, you've probably observed over the course of the last 24 months, we've done quite a bit of portfolio transformation, selling businesses, lighting hydraulics, and we've done a number of acquisitions. And we continue to prioritize our electrical business and certainly make investments in electrical that are really tied to these big secular growth trends that we've talked about of electrification, digitalization, energy transition, and we'll continue to look for things in that space.

So as acquired this company called Green Motion last year, which is a play into electric vehicle charging infrastructure. And you've seen us do a number of transactions in the Asia-Pacific region to really participate in a very fast-growing Chinese market, anticipating what we call the Tier 3 -- the Tier 2 market where we historically have not played. So you're going to see us do things geographically that allow us to penetrate underserved markets. You've seen us do the Tripp Lite acquisition, which is obviously an important play in data centers in the IT channel.

And so I think what you can expect as we move forward is for us to continue to do, transactions in this kind of size and scale and really focused on kind of these really important aspects of where we think the future growth is going to? We said that Aerospace continues to be a priority and we've done a number of important acquisitions in Aerospace. We like the composition of Aerospace businesses. These are technology, highly differentiated businesses. You get paid for your technology.

Very strong aftermarket. We want to make sure that we're on growth platforms and that was essentially the play with Cobham. Their sole source, the one on virtually every platform that they're on. They have a growth outlook for that business that takes it from $700 million to $1 billion based upon programs that they've already won.

And it's a very profitable business with a strong aftermarket. And so you can count on us to continue to look for acquisitions that are very much consistent with what you've seen us do over the last few years. And I think, the pipeline today is better than it's been in a while. We're looking at a number of opportunities to really buttress our capabilities in and around, some of these spaces that we talked about.

Obviously, we're not in a position to talk about anything or to announce anything. But what you're seeing from us is a pivot toward as we think about how do we deploy our capital and how we can create the most value for shareholders. We think that we can find value-creating acquisitions at a fair price for them and generate more value today incrementally than perhaps buying back our stock. But having said that, we've said before, we're not going to let cash build up on the balance sheet if we can't get deals done.

We will go back into the market and buy our stock back. And so we're just always just trading off. How do we create the most value for shareholders, either through M&A or stock buybacks or some other way of returning capital to shareholders? But it's been a great thing for us, and we like what we're looking at in front of us, and we would hope to be able to deploy more capital to value-creating M&A.

Tom Okray -- Executive Vice President and Chief Financial Officer

And the only thing I would add to secular trends gives us some really exciting opportunities, such as Royal Power that we can leverage across eMobility, Aerospace and, our electrical sectors. So it's exciting and we're seeing read-across.

Brett Linzey -- Mizuho Securities -- Analyst

That's great, and then just one last one for me on utility T&D, you'd noted as a driver of the order activity within international didn't get a call out in Americas' business. So I'm just curious, what are you hearing from your customers around capex? Any change in tone there at all?

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, I'd say that the T&D market continues to be, an attractive market, I think as you think about, a place where it's in desperate need of some significant investment in aging infrastructure. On the one hand, but also once again, the changing nature of the grid, is also driving the need and requirement for some fairly significant investments in upgrades in the grid and grid resiliency. And so, yeah, we think that in the Americas as well continues to be a really positive story for some years to come.

Tom Okray -- Executive Vice President and Chief Financial Officer

Yeah. Grew mid-single digits last year. We expect it to grow the same in 2022.

Brett Linzey -- Mizuho Securities -- Analyst

Great. Thanks for the questions.

Operator

Thank you, and our final question today will come from the line of Markus Mittermaier with UBS. Please go ahead.

Markus Mittermaier -- UBS -- Analyst

Yes. Hi, good morning, everyone.

Craig Arnold -- Chairman and Chief Executive Officer

Good morning.

Markus Mittermaier -- UBS -- Analyst

Craig, you mentioned in your opening remarks that in the Electrical Americas your negotiation pipeline is up 11% if I remember the number right? Is there anything already in there on some of the semiconductor activity that we see? We've heard from some machine builders that there's some early activity there. Just wanted to check if that's already part of that pipeline.

Craig Arnold -- Chairman and Chief Executive Officer

Yeah, I appreciate the question. I don't -- it's a question I can't really answer. I don't have that information on my fingertips right now in terms of, where the additional negotiations are coming from specifically -- down at that level of specificity. But maybe, Yan -- we'll ask Yan Jin to follow up with you on that question to give you the color on the composition of where those negotiations are coming from.

Markus Mittermaier -- UBS -- Analyst

Absolutely, but the semiconductor opportunity obviously still remains sort of an interesting one.

Craig Arnold -- Chairman and Chief Executive Officer

There's no question. I mean, to the extent that you end up with a fairly sizable infrastructure, build out reshoring and semiconductors and the like, those are all markets that need our electrical switchgear. And so they certainly create great growth opportunities for us.

Markus Mittermaier -- UBS -- Analyst

Great. And then just maybe a very quick one on electrical global you mentioned on Crouse-Hinds earlier the strong growth, obviously, that you see there. Should I interpret the very strong margin profile largely as an effect of Crouse-Hinds? Or is it more broad-based inside of Electrical Global over here in the quarter?

Craig Arnold -- Chairman and Chief Executive Officer

Oh, it's definitely broad-based. Yeah. Crouse-Hinds is helping, but our Electrical Europe business and Electrical are doing a great job of expanding margins. And so we're seeing it both and in the -- let's call it, the traditional Electrical business, and we're seeing it in Crouse-Hinds as well as, the 19.5% margins in the quarter.

I mean, which is an all-time record for our global and it's really contributions from them and quite frankly, contributions from our Asia team as well. I mean, our Asia business, as well as a dramatic improvement in profitability over the last number of years, is we're really seeing it, you think about what makes up global. It is what we do regionally in Asia, what we do regionally in Europe, and then it's the global Crouse-Hinds, these tend to be global businesses. But all three of those businesses saw significant improvement in profitability during the quarter of 2021.

Markus Mittermaier -- UBS -- Analyst

Great. Thank you very much. Good luck.

Craig Arnold -- Chairman and Chief Executive Officer

Thank you.

Yan Jin -- Senior Vice President of Investor Relations

Good. Thanks, guys. As always, Chip and I will be available to address your follow-up questions. Have a good day.

Thanks.

Craig Arnold -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Yan Jin -- Senior Vice President of Investor Relations

Craig Arnold -- Chairman and Chief Executive Officer

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Tom Okray -- Executive Vice President and Chief Financial Officer

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Jeff Sprague -- Vertical Research Partners -- Analyst

Nicole DeBlase -- Deutsche Bank -- Analyst

John Walsh -- Credit Suisse -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

Julian Mitchell -- Barclays -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Scott Davis -- Melius Research -- Analyst

Brett Linzey -- Mizuho Securities -- Analyst

Markus Mittermaier -- UBS -- Analyst

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