To Eaton's 2019 Investor Conference. I'm Don Bullock, Eaton's Senior Vice President of Investor Relations. Before we jump into the program today, I wanted to quickly cover a couple of items for you. First, I want to cover our schedule. Our comments this morning begin with words from Craig Arnold, our Chairman and Chief Executive Officer and Rick Fearon, our Chief Financial and Planning Officer.
We'll then transition to our industrial and electrical sector presentations that will be given by Uday Yada, who is President and COO of our Industrial Sector and Brian Brickhouse, who is President of our Electrical Systems and Services business. For those of you joining us on the webcast, at about 11:20, we're going to stop for a quick break. The webcast will go silent there for few moments and you'll rejoin us at about 11:40, where we'll begin to take question and answer. We'll take questions and answers till about 12:15. At that point in time, for those of you here, we've arranged transportation and buses to be able to transport to the airport.
The second item I quickly wanted to cover with you involves the materials we will go over today. Some of the items today are related to future results of the company as such are subject to uncertainties outlined in both our statements here and in our 10 ks. Following today, Chip, Jan and I will be available for any follow-up questions or items you have. And with that, I'll turn it over to Craig Arnold, our Chairman and CEO.
You hear me okay? Hey, the first thing I want to do before we get into the official program is actually to make an announcement because our very own Don Bullock will be retiring effective April 15. So, it's Don has been with Eton now for the last 21 years, has had many different jobs inside the company, including he's run businesses for us. He was the corporate leader of our Asia Pacific operations and he's been the head of the Investor Relations function for us for the last 8 years. And so, Don, we appreciate all the hard work and sacrifice.
You'll clearly be missed by all of your colleagues at Eton, and I'm sure by many of those of you in the room and on the telephone. So Don, thank you for your service. I also want to take this opportunity to introduce Yan Jin. Yan Jin will be replacing Don And many of you have met Yan. Yan has been with Eton for actually the last 18 years.
And in fact, Yan actually had his start as a financial analyst right here in Cleveland, where we worked together back in the days when we had the Fluid Power Group. And so Jan is no stranger to Eaton, is no stranger to Cleveland. And I know that many of you have met Jan and have worked with him a bit over the last 9 months or so. But Jan comes to us. He was most recently the head of our finance function for all of the corporation in Asia Pacific.
But he's a graduate of the Beijing Capital University, but they're doing in economics. He's a Badger. He's got an MBA from Wisconsin. So for those of you Badger fans, but Jan, we really look forward to your contributions in Don's replacement. Hey, we have a lot to cover today, so we should let's just go get to it.
I'd say that I always want to begin with kind of giving you the key takeaways for the day. And so help you write your headlines, if you will. First of all, I would say that Eaton, we're a premier management company. And I would say today, we have market leading businesses across the world, each of which is strong in its own right. And what I would hope you took away a little bit from the meetings yesterday for those of you who are here with us for the technology showcase, the company is stronger together.
2018 was a record year, 2019 will be even better. And the company has a long history of evolving our portfolio and improving our performance. And today, we announced the exit of our intention to exit the lighting business. Many of you were questioning me about that over the last couple of days and also our automotive fluid connectors business. I'd say our strategy overall as a company is clearly working.
Its results have been strong for sure. And we're creating better businesses. I think importantly, we're creating better businesses through the economic cycle. At the enterprise level, we have a number of key investment platforms. And the key for us is once again, and as you saw yesterday, this pivot that we've made to organic growth.
And we're putting a lot of effort behind that. And you'll hear a lot more about that story from both Udi Yatep and from Brian when they present today. And the other thing I think that's a bit of important news that you'll hear from us today, both in my presentation and also in Rick's is that we're going to set a new expectation for the way the company performs at our company today. We have significant cash flows as we look forward and we're going to be using that cash differently. Our strong balance sheet is going to give us the ability to make some set some expectations around consistent earnings through the economic cycle.
So the agenda today, I'm going to lead it off. I'm going to talk a little about the history of the company. I think it's always important to level set everybody. I'll talk about Eaton today and the way we see our company and a little bit about our future. And I'd be remiss if I didn't always begin with this slide.
And this is a little bit of just the history. Eaton has been around for a long time. The company is 108 years old. And I submit to you that you don't get to be 108 years old as an organization unless you do some things extraordinarily well over a long period of time. And I would once again suggest that there are 3 things that Eaton has always done throughout its history.
Number 1, we're a values based organization and a values based culture. Yes, the numbers are important. Our commitments to our shareholders are important, but also our values are important. Next, I would tell you that the company has consistently changed. The ability to look forward to anticipate what's coming and having the courage to make those changes proactively and build better companies as we look forward.
And then lastly, it really is all about the customer and being customer focused and delivering unique value to your customers. So I'd say 3 things that we've consistently done throughout our history and that we'll continue to do as we look forward. Certainly, M and A has been a big piece of that for our company. And this chart here is a look at what we've done over the years in terms of material M and A over the history of the company. 67 acquisitions, 47 different divestitures over this period of time.
And with each change, we've built a stronger company and a more relevant company for the future. We've paid down the Cooper debt. So our balance sheet is in great shape. We have more organizational capacity to do deals than we've ever done we've ever had in the last 5 years. And so you can expect us to do more.
But you can also count on us to be clear eyed and to be focused as we think about things that we add to the portfolio and as well as the things that we continue to prune and subtract from the portfolio. Just want to give you a couple of snapshots of the company, just to kind of cement this idea of the fact that Eaton is a very different company today than we've been in the past and really a very different company than we were just 8 years ago. Here's a snapshot of what Eaton looked like in 2,008. You can see we had $15,000,000,000 in revenue. We had EBIT of 8.4%, 12.2 percent segment margins.
We generated roughly $1,000,000,000 of free cash flow and our free cash flow per share, you can see here $3.06 Fast forward to 2018, dollars 22,000,000,000 company, 13.7 percent EBIT, 16.8 percent segment margins. We generate $2,400,000,000 a year in free cash flow and our free cash flow share free cash flow per share at $5.47 And so there's been a lot of work that's going on over the years to create a different Eaton, a new Eaton. And certainly, the acquisitions that we've talked about have been a big piece of that transformation, but it hasn't only been acquisitions. We spent $1,300,000,000 in restructuring and integrating acquisitions. We invested $11,000,000,000 in R and D and capital spending inside the company.
And we repurchased $4,500,000,000 worth of shares. And so, we submit to you that this is a dramatically different company than we've been in the past and one that we're going to continue to improve as we move forward. The other thing I'd say is an important piece of news that we'd like you to really have an appreciation for is that we're also a much better company. We understand how to improve businesses. We understand how to improve the Our EBITDA margins and our free cash flow is actually today above the average of our peer group.
And so we think the company clearly is company by the time we got to 2020 of getting to 17 to 18 you step back and think about what are the set of characteristics and attributes characteristics are true for much of our company today. And the products and the work that we do are essentially doing mission critical work, mission critical work around the specific applications that we're participating in and also mission critical in the sense that we're protecting people and assets. So, the things that we do matter our businesses, we have very deep domain expertise. For those of you who were with us yesterday, you saw a lot of that represented in some of the technologies and our teams who presented the company, so much of what we do is really value that we create by our deep understanding of the applications in which we participate. And you also saw yesterday that in the world of Internet of Things of more connected, more controlled universe, Eaton makes the things.
And so we make the products that will ultimately be at the end of the nodes that are collecting the data. And we think that puts us in a very good position to take advantage of this new emerging trends as we think about a more connected world. And lastly, all of our businesses have significant scale. We have scale to be competitive in all the markets and regions and businesses that we compete against compete in and around the world. And so here's the way we think about good businesses on a holistic basis.
I'll tell you a little bit at a little deeper dive by our individual businesses, but this is the way we think about it. And this is a chart that many of you in the room have seen. We've said that at the end of the day, we will continue to evaluate each of our businesses against this criteria. We've defined what good looks like. We've defined that internally.
So this is something that we've shared obviously with all of our business leaders and they understand what's expected. This is obviously something that we've agreed with our board and we share it with all of you because this is the way we think about the criteria of what is required to continue to be a part of our company and the criteria that we use, quite frankly, when we think about where we add to the company as well. So, we think it's fairly straightforward. It's about being a leader in your market. You have to grow faster than GDP, you have to deliver mid teen margins, you have to deliver mid-20s return on assets.
And then if you're in a cyclical business, you have to be a good business through the economic cycle. And we've set margin floors for those businesses of ours for all of them, but specifically for those who tend to be in cyclical businesses. And so this is the perspective that we have around what good businesses look like and this is what we'll continue to do as we think about evaluating the portfolio. And it really is in that context that we made the decision to spin lighting as business that we have that's reported as a part of our vehicle business. So, first of all, our lighting business, it's a good business.
It's a $1,700,000,000 business. It's certainly a leader in North America LED solutions. We report it today as a part of our electrical products segment. And it offers really a very broad range of LED products. It's got a strong network of agents and distributors, really significant growth opportunity in and around controlled and connected lighting technology.
The business has some 5,000 employees and we actually run it out of just outside of Atlanta, Georgia. It's a good business, but there are certainly a number of attributes about the business that say, we think it would be a better standalone business than it would be as a part of Eaton, as it thinks about investing in its own future, controlling its own destiny. And obviously, as we talk over the year, it's certainly dilutive to our margins. If we switch over to automotive fluid connectors, it's, as you can see, about $150,000,000 business for Eaton. It's a provider of power steering and air conditioning lines.
It's largely a business today that is serving European OEMs. It's a global business. It has a global set of customers and a global footprint, but principally European OEMs, some 1300 employees in the business. And it really, I'd say, it doesn't fit many of our criteria. And clearly, it's going to be a much more strategic and important asset as a part of the acquiring company's business.
And so, 2 important kind of announcements that we're making today around how we continue to strengthen the company. And we also made an announcement back in the end of January around the acquisition of this company called Ulo Soy. And Ulo Soy, we bought 82 percent or controlling interest in the company for some $214,000,000 and multiple of EBITDA of 7.2. So we think at a fair price for sure. This is a mostly Turkish medium voltage assembly manufacturer.
The manufacturing assets are mostly in Turkey, but they do have a facility in Jakarta as well. And we really think this is a great strategic fit for Eton in the way we go to market in IEC, assembly markets. And it gives us the ability to take this high quality, low cost manufacturer and really serve IEC medium voltage assembly markets around the world. And this business will naturally be reported as a part of our Electrical Systems and Services segment. The other thing I would argue here is that we know how to do business in Turkey.
We made an acquisition back in 2012. Many of you will recall a company called Polymer. So we've been in the country for a long time. That's been a very successful acquisition. And so, we really do know how to operate in the company and we think this just builds on that strength.
So let me just take you back to the businesses again, because I think this has always been perhaps the question that I get more than any around. How do you think about the portfolio? Tell me why you like the businesses that you have. And I'll just walk through each of our segments to give you a corporate perspective on the way we think about them and why we like the businesses that we're currently in. So first, electrical products, obviously, in 20 18, it was the largest segment in the company at 7,200,000,000 in revenue, but they're a leader in low and medium voltage components.
If you take a look at the key end markets that they serve, the big end markets for them are commercial construction, industrial facilities, machine builders and also residential, the 4 key markets that drive this business. You'll also note on this chart that we are taking up the margin expectation for this business through the cycle. Post the divestiture of lighting, the margins in this business will naturally go up. We think the growth rate goes up. And so we're reflecting that in our new expectations for margins through the cycle.
So what else do we like? There's a lot to like about this segment of the company is, in general. I mean, it's their end markets are obviously, we think, continuing to grow. But as you think about our presence in these markets, we're a leader in component technology. We have the number 1 or number 2 share position in North America and certainly what we think the number 1 distribution channel in North America.
And this is really the business perhaps more than any that's at the very cutting edge of controlled, connected and it's the components that we make in our electrical products business that ultimately give us this window into this new opportunity as the world moves more connected. Moving to our Electrical Systems and Services business, this business is a leader in low voltage and medium voltage assemblies. The key end markets very much like products include commercial construction, industrial facilities, but picks up data centers and picks up the utility market. The margins expectations for this segment 13% to 16% through the cycle. Clearly, it's a segment where the margins are improving and today are the market leader, number 1 or number 2 in harsh and hazardous.
We have number 1 and number 2 share positions in the data center market. We certainly have the number 1 or number 2 share position in the assemblies business in North America. So there's a lot to like about this business overall. And once again, it's a business that we think will continue to get better as we move forward. Turning to the hydraulics business.
The hydraulics business is one of the 4 leaders in the global hydraulics market. You can see here their key end market segments include construction and mining equipment as well as ag commitment and there's a piece number 3 would be in the commercial vehicle segment overall. This is a business, obviously, as we've talked about over the year that is going through a cyclical market expansion. So, markets are certainly continuing to grow. And if you think about our position in this industry, I'd say, we have one of the broadest portfolios in the market.
If you think about what we do, we certainly have one of the strongest distribution networks in North America. It's a business today that's got a very large and strong aftermarket component with a very large installed base. And so we have work to do here for sure and the work that we've been doing during the course of 2018 to restructure the business. But there's a lot to like about the underlying characteristics of this business and we think it will continue to get better. Aerospace.
Aerospace is a leader in hydraulics, motion control and what we call engine solutions. The 2 big end markets here are obviously military and commercial. We generally think about the business through the cycle as about sixty-forty split between commercial and military and sixty-forty split between OE and aftermarket. Those mix can change as we go through the cycle, But it's certainly a very strong business. And you can see, this is another segment where we're taking the margin expectation up.
And we took it up during the course of 2018 and we're taking the margin expectation of this business up again. And so we think the margins in our aerospace business will be between 18% 22% through the cycle. And a lot of it will be a function of spending on new platforms and programs, but a really strong business with a lot to like about our aerospace segment overall. It's certainly a business today that where the fundamentals are strong. We think the growth outlook for commercial and freight will continue to grow.
It's an industry today that I would say is highly regulated. So, the power of incumbency here is quite strong. It's not easy to displace once you're on a platform, which is why you have this very large and attractive aftermarket that goes for such a long period of time. And it's an industry and a business where you get paid for IP. You do get paid for your intellectual property here.
And so we think this continues to be a very attractive business for Eaton for a very long time. In our vehicle business, we're certainly a leader in this business. I would call this business a place where we play relatively narrow and deep in segments that we find attractive. Obviously, it's split largely between passenger car and the heavy duty truck market. And once again, another segment where we're taking the margin expectations up through the cycle post the sale of this automotive fluid convenience business.
And so this business once again continues to do well. We think this is a segment that continues to deliver very attractive margins and it's a place where we think we have a very unique vehicle business. But as you heard from the team yesterday, for those of you who were at the technology showcase, this is also a business that will continue to grow. Not only and we'll talk a little bit about e mobility in Udi's presentation, but also the legacy piece of the internal combustion engine based upon new programs and new platforms and our technology supporting better fuel economy and lower emissions, even the core business inside of Eaton will continue to grow, we think over the next 10 years. And so we're well positioned in this market overall.
We've also, as this group is well aware, we've entered into a number of joint ventures. And so, we're finding some really attractive ways of de risking the way we participate in some of these big opportunities around the world. The Cummins joint venture is certainly a great example of that. And so I'd say, the other thing that I'd say is important about this business and for anybody who's been around the vehicle business for a while, you have to have scale, you have to have cost competitiveness and we have both in all of the segments in which we participate and in all of the markets in which we compete around the world. And lastly, e mobility.
E mobility, obviously the newest segment inside of our company. We're making big investments in this segment to participate in what we think will be an extraordinarily fast growing electric vehicle market. The focus of this organization today continues to be both on highway and off highway. Certainly, as electric cars continue to grow, this chart and this picture will change dramatically with much more of the volume opportunity coming from electric vehicles. But today, it's largely balanced.
And we think at maturity, we're spending a lot today to invest in this segment. But at maturity, we think this segment delivers approximately 15% margins. And so, we think a lot of upfront investment. We think this will be a very fast growing piece of the company and we think it will deliver at maturity attractive margins as well. The other thing I would say is you think about e mobility and what it means for Eton, we talk about this being really a natural extension for us.
It's a very large opportunity and it gives us an opportunity to combine a couple of things that we do extraordinarily well today, both in our legacy vehicle business where we understand the customer, we understand the application, but also taking technology that's been tried and proven in our electrical business and essentially bringing the 2 together to, we think, create a very unique opportunity and a very unique set of value propositions that we can present to our customers. And I go one step further, and I would submit to you that as we think about the whole world becoming more electric, whether that's airplanes, whether that's commercial vehicles, whether that's construction equipment, we think we're creating the type of technology platforms inside of our company, inside of our eMobility segment that then will actually deliver benefits to the entire company, including delivering benefits back to our electrical business as the scale and the volumes go up as we launch some of these e mobility platforms. So we really think in many ways it's at the very center of the technology and in many cases at the very center of what the future of Eton will look like. And while we recognize it's important that Eaton improve, we also understand that what ultimately matters is relative performance.
And we would say once again that each of our businesses, when you compare their performance to the average of the peers, we'd say that we perform on average better. Work to do, lots of opportunities to be better here, but we're certainly pleased to be able to say that our company is getting better. And I would say to you, I'd also look at this as another proof point around the fact that the Eaton business system works, that the whole of Eaton is greater than the sum of the parts and it's because of the way we run the company, the way we leverage our scale and transfer knowledge across the enterprise. So, the last message around Eaton today, I'd like to leave you with is the fact that we're on track. We set 5 year goals.
We laid out our 5 year goals in terms of what the company would look like in 2020. And we talked about in the context of these 5 financial measures, revenue growth, segment margins, EBIT margins, free cash flow and earnings per share growth. And I'd say across the board, the company is either delivering or exceeding those expectations. And I would submit that segment margins and EBIT margins and even free cash flow will likely trend towards the top end of that. And so we're delivering on our promises.
We're making our commitments and the company continues to get better. So maybe just transitioning to a few words on the future of Eton and as we think about what we will look like in the future. And let me just begin by saying, there's a lot written these days about being a purpose driven organization. And I would submit to you that it's always been a part of who Eaton has been. We modified our vision 3 years ago, we to really reflect the way we actually run the company.
And at our core, we make a difference by doing things that matter, in buildings, in homes, on the road or at 30,000 feet. What everything that we do is connected to solving real world problems. And this has really been the company's mantra for a long time. And I can tell you that it's really a powerful recruiting and retention tool as well as around getting our employees to really feel connected to what we do as a company. And so as a power management company, and you saw it in the messaging yesterday, we have to make power safe, reliable and efficient.
We have to serve our customers better than anyone else. And we can only do this, we would submit to you if we have excited and engaged employees who believe in the work that they're doing. And when we get these two things right, and we will, it gives us the ability to give back to our communities around the world, And it certainly gives us the ability to deliver for our shareholders. So we understand for sure that our primary responsibility is to deliver to our stakeholders. But I would also suggest to you that it's not possible to do that without serving all of our stakeholders.
You have to do more, you have to have broader ambitions, which is why Eaton, we've set as a company, a set of aspirational goals, the things that we aspire to do as an organization beyond the numbers, beyond delivering for shareholders, because we truly believe that you can't just what a set of financials. And so we've set these financial goals around what we're going to mean to our customers, what we're going to mean to our employees, around creating a safe, healthy environment, around inclusion and diversity and being a role model in our industry, improving our communities and really being an active steward of the environment. And so we do think it's important that we as a company stand for more than just financials. We think it's absolutely possible to do both and to build a sustainable organization in the process. And as a result of that, we publish every year our sustainability report.
You can read a lot more about this in our annual report. But the idea of serving a broader societal mission really has been part of our company's fabric for some time and we have a lot to be proud of here. I'll just highlight perhaps a few of the examples. Half our manufacturing facilities and we have some 300 of them have been certified as 0 waste to landfill. 2018 was actually a banner year for the company in terms of external recognitions, whether it's LGBQT community or whether it's women, whether it's diversity or whether it's new grads, the company has really been recognized as a place to work.
And certainly our governance practices as a company continue to be well aligned with industry best practice. And so a lot of positive work going on in the area of ESG. And then I'd say, at the end of the day, it's really about building a winning culture. And so we, as a company, have defined the set of behaviors and the things that we expect from our leadership team. This is what we expect of all leaders.
This is the set of criteria that we would expect you to hold us accountable to. And so we said that an Eton leader is ethical, passionate, accountable, efficient, transparent, and continues to learn. And so this is really the standard that we've set for the organization. This is the way we think we build a trusting and supportive organization and deliver for all of our stakeholders. So let's just transition a little bit to the corporate strategy and this strategy hasn't changed.
I think at the end of the day, there's really 3 things that we'd have to do as a company. We have to grow. And I would submit, we have to grow organically. We have to expand our margins and we have to be efficient allocators of capital. Easy to say, not necessarily easy to do, but it's really the 3 things that I'd say that we have to do.
Organic growth will come from largely technology leadership, it will come from building strong partnerships and delivering superior value to our customers. And you'll hear a lot more of that from both Uday and Brian. Secondly, we need to expand our margins by running our businesses better, delivering productivity improvements and continuing to enhance our portfolio, what we call fix the head and grow the tail, excuse me, yeah, other way around, fix the tail, grow the head. That's right. And third, we need to be continue to be disciplined in the way we allocate capital, which is something that we'll do.
And I do believe, and we've always said that, that means we have to invest in all of our businesses. And as long as we're in a business, we have to continue to play to win. And so Rick will certainly cover more about the capital allocation strategy in his presentation, but we think a relatively straightforward, simple strategy that applies to all of our businesses and will ultimately be the source of what we do. But before I hand it to Rick and to the business leaders, I just want to share a few of my own thoughts around progress and how we're doing in these areas. Technology, the emphasis is really built, as I mentioned, around safe, reliable and efficient.
And for those of you in the room have seen firsthand, we think we're making tremendous progress here and we've never been better positioned in the places around technology. We also continue to strengthen our company through strategic partnerships, not just through the distributor partnerships that we've had for a long time, but through expanding the company in joint ventures, also through, as you heard from Ram yesterday, partnering with government agencies like NREL to really think about a way of leveraging their infrastructure and their installed base to deliver more. And then lastly, finding what I'd say, more opportunities to say yes to our customers, We see lots of opportunities every day from our customers to grow and we're finding more opportunities to say yes to bring more value to deliver their expectations in their regions with the types of products and solutions that they expect from us. And so, on the organic growth front, things are going fairly well. And then I'd say the key to executing our strategy and the key to expanding our margins really is embedded in the Eaton Business System.
It's the standard set of measures and tools and processes that we use to run the company. EBS is the way we find the best way of doing things. It's the way we then codify it and make it part of our system and then deploy it throughout the organization. It touches everything we do from the expectations, the planning, to the way we execute, to the way we do assessments and ultimately to the way we learn. And we know every company has a business system, everyone has a chart similar to this.
I would suggest to you that what makes the Eaton Business System unique is its emphasis on learning and the way we deploy the learning element of it in the company as we continue to get better. And so running the company better is something that we have to do. And it's something that we were focused on doing every day. It's certainly very much a piece of the fabric of the organization. And I'd say this element of running the company better is really at the very core of us expanding our margins.
Today, we have a lot of manufacturing facilities and the first leg of that is you have to be excellent in what you do. We talk about every one of our manufacturing facilities being world class. We've defined what world class looks like. In every one of our sites that you would visit, you would see the same set of metrics and you would see how they're doing against a set of metrics and you would see world class benchmarks and how they compare it to world class benchmarks. And I would say we're getting better here.
We had a 75% increase in 2018 in the number of world class sites. We have to continue to get productivity in every one of our businesses and continue to leverage the scale of the company, finding ways to eliminate waste to work smarter and to leverage the scale of One Eaton. And certainly, there's some examples here I know in terms of where we're leveraging our purchasing organization. And clearly, we have to continue to work the portfolio. And when we say portfolio, we're not talking about the 6 reportable segments that you view us through.
When we think about the portfolio, it's the hundreds of product lines and markets and segments and customers and applications that we're participating in every day that we're constantly looking at and saying, do we have the right to win here? Can we make attractive returns? Or is this a space that we should exit? And on the other side, we're saying, is this a place that we ought to be doubling down and putting more investment and growing the company because we truly have a unique value proposition and an opportunity to win. And so this idea of working the portfolio at the level that we define it will continue to be an important piece of how we expand margins in the company as we look forward.
And we'll continue to leverage scale. I mean, one of the reasons why we exist in this format is the fact that we think that shared services, we think the functions that we have in our company are delivering significant value to the corporation. It is making the whole greater than the sum of the parts. And by the way, it applies to every part of the company and every function. And that's really the expectation that we set that better service at a lower cost and delivering scale.
And it doesn't just apply to the traditional functions of tax and treasury. We expect every one of the functions inside of the organization to find a way to leverage scale and to deliver value for the organization. And I really do believe and expect that this will be a huge source of competitive advantage as we go forward and has been in the past. And as we think about the future, one of the other areas that we'd fully expect to leverage scale advantages is in a more digitalized world. And you saw a little bit this in Ram's chart yesterday for those of you who are here, as we think about how we take data and digitize data, and then essentially put in new processes and new automation, we really laid it out in terms of 4 work streams inside the organization, internal productivity, customer facing processes, Industry 4.0 and then essentially revenue generating.
And so this is another area that we would fully expect to get real scale advantages, because I can tell you that whether you're sitting in a function or a business, most of what we're talking about here is completely independent of the business that you're in and will give us tremendous opportunities to leverage what we do as a company. And the last leg of the SLAG strategy really is about allocating capital. And Rick will spend some time talking you through this, but I'd say, we commit to you that we're going to remain disciplined. We've laid out the priorities and the priorities continue to be the same. And that's number 1, playing to win in all the businesses that we're in.
We fully expect to continue to invest, to play to win in every one of our businesses. And we strongly believe that the moment you stop doing that is the moment you need to make the decision to exit. As soon as you start making trade offs between investing in business A versus business B, that's the point where you need to make the decision that it's a business you should not likely be in. So we fully intend to continue to invest and fund organic growth in every one of our businesses. We'll continue to deliver returns to shareholders in the form of a strong dividend.
We have a very attractive dividend yield today. We'll continue to buy back shares. And then obviously, we have a lot more capacity these days to do strategic M and A. And Rick will take you through the priorities as we've laid them out as a company. And the good news here is obviously we have a lot of cash that we'll get to deploy naturally reflected on this chart, Chart 36.
You can see a historical look at cash flow generation. And then you can see what cash flow has been post Cooper. And so you can see the company generates just an enormous amount of cash. And the other point I would point out here is that very consistent cash flows through economic downturns. One of the things that I'd say very unique about our company is that independent of what's going on in our end markets, our cash generating capabilities are quite attractive and that gives us what we think is an ability to do some things without cash as we move forward that we haven't been able to do historically as we were paying down debt and funding the pension plan.
And so here are the numbers. You can see our dividend yield here reflected 3.5 percent in the dividend that has continued to grow over time. You can see that we expect and we've committed to buy 1% to 2% of our shares back every year. And that will naturally do more in the event that we have buying opportunities, market pullback or we don't compete complete as many deals as we anticipate doing. And that really brings us to Page 38.
And I'd also say this is probably perhaps one of the most important charts that we're going to talk to you about today. And that's really a look at setting a new expectation for the new Eaton. And as we think about our company operating in a reasonably, let's say, growth, but slow growth environment, here's what you can expect from us. And you can expect our markets to grow 2% to 3%. You can expect us to grow faster than those markets by 3% to 4%.
You can expect segment margins between 18% percent, 2,800,000,000 of free cash flow and 8% to 10% EPS growth. Obviously, in better times, we'll do better than that. Then the question becomes, so what happens in the downturn? What happens to our revenue, our earnings in a typical recession? And we would define a typical recession as 2 or 3 quarters of GDP contraction.
We think our markets contract 3% to 4%. We think our sales reduced by 2% to 3%. We think we deliver 18% segment margins in a recession. We think our free cash flow will be flat. So we'll still generate $2,800,000,000 of free cash flow even in a recession.
And we think our earnings will be flat. I'd submit to you, this is a very different picture of Eaton today based upon the work that we've done over the years to build a stronger company. And this is made possible, yes, because it's a stronger company, but also as we look forward, we'll have the ability to take our balance sheet, to use our cash to not pay down debt, which we had to do during the last downturn, not fund the pension plan, which we had to do before. Those are taken care of. We'll now have an opportunity to use our balance sheet to essentially buy back shares and essentially buttress our EPS performance.
And so we think once again, a very different look at Eaton going forward. So in summary, if you get this page here, lots of words on those prior charts, but this is really our formula. If you think about how do we create value as a company, what's the formula that we use, on one page, here it is. Now, aspirational goals, with leadership expectations around what we expect of our team that define the culture, the business system that will be used at the standard set of processes through which we run the company and get scale advantage through all of our functions. Our growth strategy is clear.
We have to grow organically and through technology, through services and partnerships and lastly, through essentially creating value for our customers and get to expand margins. And we know how to do that. We've done it historically. We have a long track record of expanding margins and we'll continue to do that and we have to be efficient allocators of capital. So in summary, let me just finish where I started.
I'd say that Eaton is a much improved power management company. Each of our businesses are leaders in their own respect and the company is stronger together. 2018 and 2019 were 2018 was a record year, 2019 will be even stronger. We have a history of improving our portfolio. And today we announced the spin of lighting and the divestiture of our automotive fluid convenience business, another step in the direction of improving the company and really positioning the company for the future.
Our strategy is working. We think it's built around growth. It's built around execution, around capital efficiency and delivering for our shareholders, but also delivering for all of our stakeholders. And lastly, perhaps most importantly for the investors, in our new configuration, the new Eaton will perform very differently through an economic cycle. And we have an expectation that even in a recession that earnings will be flat, we'll continue to pay an attractive dividend.
And so once again, we think a company that is very different than perhaps the Eaton that you used to think about. So thanks for listening. I'm going to take the opportunity now to turn it over to Rick Fearon and Rick will take you through the numbers. Great.
Thanks, Greg. I'm going to take you through a little more detail on our 2019 guidance and then step back and look at our broader financial trends over the last several years and hopefully amplify on many of the comments that Craig made. Here are the 5 takeaways that I'd like you to come away from my presentation with. First of all, 2018 was a very strong year and we expect solid growth in 2019 2020. Secondly, our 2018 segment margin was a record, a new record and we expect a good step up in that margin in 2019.
3rd, we continue to generate record amounts of cash and are investing that cash both for growth as well as returning substantial amounts to our shareholders. 4th, and I'll give you some of the details behind Craig's thoughts about how we will operate through the next recession. We can use our very strong cash flow and very consistent cash flow to not only take advantage of downturns in equity values that typically happen in recessions, but that also will serve to keep our earnings growth flat. You can depending on the precise scenario you run, you could even imagine a little bit of an improvement in EPS. And then lastly, we're upgrading our portfolio, spin of lighting, sale of automotive fluid conveyance.
There will be a $200,000,000 set of charges connected with both of those activities. But absent that 200,000,000 of repositioning charge, the EPS for 2019 should remain unchanged. We expect both of these transactions to conclude just about at year end. So we will essentially own these two businesses through all of 2019. So let me jump into some of the details.
2018 a record year on so many dimensions, 6% organic revenue growth, that's the best organic revenue growth since 2011. Of course, 2011 was the 2nd year of recovery out of the great recession. So this is a very strong set of growth in 2018 and 16% EPS growth also the highest EPS growth since 2011. So we are really in a rather good growth curve right now. 16.8 percent segment margins up 100 basis points over the prior year and 13.7 percent EBIT margin.
Record EPS at 5.39 dollars Strong cash flow generation, dollars 3,000,000,000 operating cash flow, dollars 2,400,000,000 free cash flow, cash conversion above 100%. And we also took advantage of the weak equity markets in the Q4 to jump in and buy 700,000,000 of our shares back, which I think will prove to be a very wise set of purchases as we look back on that. So we bought back 4% of our shares last year alone. And that also adds to this very strong and long record of shareholder returns. This is total shareholder return, both dividends as well as stock price appreciation.
And as you see over this long period of time, almost 20 years, an average TSR of 12%. And if you compare to that peer set, and I think most of you would probably agree, those are pretty appropriate peers. The median of that group is 10% and our 12% is twice that of the S and P 500. So we're very proud of this record and we intend to build on this success as we look out over the next several years. First of all, let me talk a little bit about our view of the economic environment just to give you a context for our 2019 guidance.
And our perspective is we believe that world growth in 2019 will be a little bit slower than 2018, but it will nonetheless be a year of pretty solid growth. And so if you think about this little chart here and you look at, for example, global GDP, global GDP grew about 3.2% in 2018. It's going to down step a little bit in 2019, but 2.9% is still quite a respectable rate of economic growth. Manufacturing IP grew about 2.2% in 2018 and it will down speed a little bit to 1.8%, but nonetheless still relatively trend like growth in manufacturing IP. And if you look around this counterclockwise, let me make a few comments.
The U. S. Will for sure down speed a little bit. It was 2.9% GDP growth in 2018. It will drop to 2.4% and you have almost a similar reduction in manufacturing industrial production growth.
But those are still relatively robust rates of growth. In fact, if you believe the Federal Reserve, probably above trend growth rates. And why is that? Well, the fundamental reason is we have the lowest unemployment rate we've had in the last 50 years. And 2 thirds of this economy is built upon consumption.
And so it is highly unlikely with so many people employed and with wages rising, beginning to rise now a little more rapidly than they have, highly unlikely that you would go into any kind of downturn in an environment like that. It was interesting today, I was listening to CNBC and they reported their CFO survey, their global survey and 85% of the people in their survey expected that 2019 would be a year of pretty good growth and only 15% thought you might have some kind of a downturn. And I would concur with that assessment. If you look at Brazil, Brazil is going to be the one part of the world that actually accelerates from 2018 to 2019. Of course, Brazil went through this very deep recession.
They've now elected Mr. Bolsonaro, a much more pro business oriented President and many of the markets there are still in a rebound mode from this sharp downturn. So economic growth in Brazil was closer to 1% last year. It will go up to 2% and likewise you'll see a similar kind of pop up in manufacturing IP. India, just a slight decline in the rate of growth, but it'll be another rate of pretty strong growth in India.
China, in our view, you are seeing the slowdown mainly in a few consumer areas. You're seeing it in autos clearly. You're seeing retail sale growth decline to levels that are lower than they have been. But nonetheless, retail sales are growing about 8% a year. Think about that 8%, compare that to the U.
S. Or Europe or any other part of the world. And there still is strong growth in China. And we also believe that the government has started to stimulate and will likely add additional stimulus, including probably even in automotive in this year. And so those actions are already beginning to have an impact.
Just think about a few statistics. If you look at housing starts in the 4th quarter in China, up 20%. If you think of completions or industrial and warehouses up 3%. If you think about excavators, excavator sales in China in Q4 were up just slightly over 20%. And so there clearly is stimulus going into a lot of these infrastructure and investment areas.
We don't think that that's likely to change. So we believe that it'll be a year of reasonable growth in China, not quite as high as in 2018, but reasonable growth. And lastly, Europe is dealing with several political issues mainly, whether it be Brexit or an Italian government that isn't entirely on the program of the EU. And we believe that that will cause growth to step down some. But still it will be a reasonable rate of growth, not too far different, frankly, than the potential of Europe, which because of lower population growth just doesn't grow as fast as other parts of the world.
That translates into for Eton 4% to 5% organic growth. And let me just make some comments. This is the same slide we showed on our earnings call. And so I don't want to repeat some of what we covered there, but I'll just make a few comments. First of all, electrical products, 36% of our profits in 2018 and the highest growth we're going to see will be in the industrial and commercial space, which by the way is the largest part of the markets for electrical products.
And then we'll have lesser but still pretty good growth in lighting, single phase UPS and small commercial type applications. Electrical systems and service, that's 25 percent of our profits in 2018, very strong growth in the large power distribution assemblies and particularly in the Americas and also in data centers. So we see another year of really robust activity in those two areas and still pretty good growth in harsh and hazardous, the Crouse Hindsight businesses as well as the utility markets, which have started this year actually pretty strong. Hydraulics, 10% of our profits in 2018 and we believe you're still going to see good growth in mobile equipment in Asia as well as the Americas, witnessed excavator sales in China in Q4 of still over 20% growth year over year. And also industrial equipment markets in North America appear to us to remain relatively strong.
Aerospace, virtually all the markets are strong. I mean, this is some of the strongest conditions we've seen in quite some time, whether it be on the commercial side where the OEs have in the case of Boeing, what 5,800 backlog, in the case of Airbus over 7,000 in backlog and both are raising production rates, output rates this year by 10% to 12%. If you look at aftermarket, the aftermarket is now growing consonant with traffic growth and we don't see that changing. If you look at the military side where the U. S.
Government is funding more both new planes, but importantly more retrofits and bringing the fleet to operational readiness. We were in a position a few years ago where there were certain aircraft lines where only 30% to 40% of the planes were even operational because the rest of the planes had not been repaired. And so they're making significant efforts to bring the fleet up to operational readiness. All of that is a great help to both sales growth, but also to margins, because aftermarket obviously has higher margins than the OE part of the business. In the vehicle space, if you
look at the end
markets, Brazil is going to see definite growth this year. And to give you just an idea of the opportunity there, if you look at commercial trucks sales in 2018, they were 40% under the level of 2013. So Brazil is still not really recovered from this sharp downturn and we are definitely seeing strong demand for vehicles. We also believe that the interest rates, which are the lowest they've been in over 20 years are likely to stay at these levels. Inflation seems quite well controlled in Brazil right now.
We think the Class 8 market relatively flat, but at high levels. And we actually think the global light vehicle markets are going to be relatively flat. So we think the U. S. Is likely to see maybe a little bit of a downturn, but still at high levels.
We think that China is likely to see flat to maybe even slight increase, particularly if the stimulus comes in as we suspect it will. And but even at that, even let's say there is a slight increase still sales of cars in China in 2019 will be less than they were in 2017, which feels about right to us. And then in Europe, towards the end of last year, you had a big bottleneck of manufacturers having to take cars through new certifications due to the emissions issues that occurred in Europe. And so we think that most of that is already done. And so we think that you will see a year of better sales growth, just slightly better sales growth in Europe.
But again, to level set you, if you looked at 2018 car sales in Europe, they were almost identical to 2,007. So think about that. And in 12 years or 11 years, virtually no sale, no increase in the level of cars. And even though population doesn't grow very fast in Europe, it does grow some. And so we think that that underpins the need for more vehicles.
If you look at segment margins, what this chart does, the green are record margins and so all time record margins. So what I'm trying to show here is that we are progressively stepping up the level of our margin achievement year over year. So we had an 80 basis point improvement in segment margins in 2017. It got us to 15.8, 100 basis point improvement in 2018, it got us to 16.8. We're expecting at the midpoint a 40 basis point improvement in 2019.
And look at the number of segments that will post record margins. You'll have products, systems and service, aerospace, vehicle, all posting record margins. A comment about tariffs, because I know that's a topic that is near and dear to every analyst heart to understand just how tariffs are going to impact any industrial company. We expect the incremental impact assuming that the tariffs occurred on March 1 and of course Mr. Trump has now postponed those unclear for how long, but if they had occurred on March 1, the impact for all of 2019 would be $100,000,000 Now every month of postponement will reduce the tariffs by $4,000,000 to $5,000,000 So that gives you some idea of the sensitivity to postponing this 25% tariff.
We have taken a variety of actions to minimize tariffs and they actually worked quite well in 2018 and we think they'll work quite well in 2019 as well. So for example, we had a whole series of components and some finished goods, but mainly components that we used to send into the U. S. And then send to Mexico or send to Canada, because that was a logical flow of goods just from a transit perspective. And that obviously doesn't make a lot of sense if you're taking goods in from China and getting hit with a tariff.
And so what we've done now is we've redirected those shipments. They're going directly into Canada or directly into Mexico. And that of course eliminates the tariffs on those shipments. Secondly, we have applied quite broadly for relief from the steel tariffs because if you put it in perspective and I used to be in the steel industry for 5 years, 5 difficult years, I might add. The steel industry produces what about 1,006,000,000 metric tons of steel a year.
The United States produces 100,000,000. United States is a relatively modest producer of steel. And there are a lot of grades that are not made at all in the United States. And so what we've done is we have applied and gotten exemptions for a great part of our steel purchase because they're specialty steels like electrical steel, which basically isn't made in the United States. And so we've been able to manage through these steel tariffs pretty effectively.
And then lastly, we have selectively moved manufacturing out of China. The biggest move has really been a significant part of our single phase power quality production. We've moved to the Philippines. And that's a move that's been actually underway for a couple of years. And it obviously helps deal with issues of tariffs on product coming out of China.
And then lastly, for the remaining impact of tariffs as well as for the remaining impact of commodity price increases, we have used price quite effectively. In fact, as I look at our price realization in January, we more than covered any tariffs or commodity cost increases. And we expect that same dynamic to hold true for all of 2019. Common on our tax rate, it's no longer as topical as it used to be. It used to be a very popular topic.
But with the tax bill having occurred and with rates having become closer together, it's not quite as a key topic. But nonetheless, I'd like to make a few points. First of all, we've talked for some time about our medium term tax rate stabilizing at 14% to 16%. And 2019 really is a year when you're going to see that happen. We're really going to get into that medium term rate of 14% to 16%.
Now it's a bit of a higher rate than 2018. And why is that? Well, 1st of all, the tax bill itself had certain increments of the tax rate. So the tax rate went up for certain flows from in 2019 compared to 2018. And secondarily, we expect to have a higher mix of U.
S. Income in 2019. And the U. S. Despite the tax bill still has a blended rate federal, state, local of about 25%.
It's still higher than most parts of the world. And so as your U. S. Income mix rises a little bit, your tax rate rises a little bit. Having said all that, our 14% to 16% tax rate guidance for this year compares it's just slightly under other companies that have redomiciled into Ireland or other parts of Europe.
But it's about 8 points at the midpoint. Our 15 is about 8 points lower than other diversifieds and other electrical competitors. So we think it offers a competitive advantage that we intend to clearly take advantage of. But it's not quite the large spread that it was a very long time ago. Another topic I'd like to touch on is how do you think about our multiple because if you just look at our if you look at $80 a share, which is our share price bouncing around for most of this week around $80 If you looked at the consensus right now, which is $5.86 we trade at 13.7 times earnings.
But then if you want to look at it a different way, and I know many companies have started to talk about this, you look at a cash EPS perspective and that adds about $0.80 of cash to EPS. So our $5.85 really becomes more like $6.60 on a cash EPS basis. If you were then to look at that $80 divided by $6.60 you have a multiple of about 12, just a little bit over 12, 12.1. Another perspective is some people like to look at free cash flow per share. And if you were to look at it on that basis, our EPS would be just around 13.
And so we would submit that those are quite attractive multiples that there's a lot of value to be had at those kinds of multiples. And it's just a perspective that I think is worth keeping in mind. Talking about free cash flow in bulk, a few other observations. Notice that our free cash flow was at $2,400,000,000 in 20.18, growing we believe to 2 $600,000,000 at the midpoint this year. As a percentage of net income very solidly above 100%, so good cash conversion.
And free cash flow as a percentage of sales keeps ticking up here. So 11% in 2018, it will be around 12% in 2019. Now that massive cash flow, what are we going to do with it? Well, one thing we're not going to do with it is what we've had to do over the last few years. We're not going to be making U.
S. Qualified pension contributions. We're not going to be paying down debt. And so that frees up a lot of cash and I'll show you that in just a second. So this is this just shows you where we've had to divert cash flow over the last 5 to 8 years.
And first of all, we contributed $2,000,000,000 to our U. S. Qualified pension plan over the past decade, dollars 2,000,000,000 think about that. We have now de risked our plans by changing the asset mix. We're only 50% equities now and we used to be 85% equities.
And we're 92% funded just as of yesterday. Now, obviously, the discount rate can move around, returns can move around, but we feel pretty good about where we are and we would not expect to need to make any contributions over the medium term. Secondly, in terms of debt repayment, we paid down $2,700,000,000 of debt post Cooper. In fact, that's even more debt than we had expected to pay down. And if you look at our debt maturities from 2019 to 2021, it's only $882,000,000 So for the next 3 years, only $882,000,000 And we expect to simply refinance that because we believe that we are at a very appropriate capital structure.
So all of that will leave us with a large amount of capital available for growth. So let me talk about that. This shows you what our cash flow has been over the last 5 years and what we anticipate it being over the next 3 years. So we anticipate $8,000,000,000 of free cash flow over the next 3 years. We will not need to make any pension contributions, any U.
S. Qualified pension contributions. There's a small amount of international that we will continue to make just as we did this year. We won't have any net debt pay down because we're going to refinance the debt that is coming due. And our dividend over that time period will be about $3,500,000,000 We use roughly $1,100,000,000 to $1,150,000,000 a year for our dividend.
And so that leaves us with $4,500,000,000 over this next 3 years or $1,500,000,000 every year on average. And if you want to think about it another way, this little pie chart over on the right shows that if you think about all the money we're putting into growth or return to shareholders, we will over this next 3 years spend about 30% on just outright growth R and D and CapEx. We'll spend a little more than 30 percent on the dividend. Our share repurchases at this 1% to 2% per year that we've guided will consume about 14% and we'll have another almost quarter of all this cash available for whatever we believe creates the most value. So we would submit that's a really good cash optionality to have.
Let me talk a little bit about how we have historically invested just to put it in context. Over the last 10 years, we've invested $11,000,000,000 in CapEx and R and D, in fact, dollars 1,200,000,000 last year. We believe that we get really good bang for the buck for this investment in R and D. I mean, look at One of the ways we get bang for the buck is 40% of our engineers are in low cost countries. And so we've really cherry picked the world to find those locations where really talented engineers are available and at attractive labor rates.
And overall, just to give you a perspective, we intend to invest 5.5% to 6% of our sales going forward. So about 3% in R and D, dollars 6,000,000 to $700,000,000 in R and D and 2.5% to 3% in CapEx. So numbers that are somewhere around $600,000,000 Our dividend has grown rapidly. This shows you our dividend growth since 2010, 11% dividend growth on average over that time period. Just 2 days ago, we increased our dividend for 2019 by 8%.
And so you will see us continue to increase our dividend broadly in line with our expectations of earnings growth. Now your dividend is science, but also art. You want to keep some reasonable balance and cash payout and yield and we look at a variety of things. But on average, you're going to see our dividend growing in line with our earnings growth. Our dividend yield, this does reflect the increase that the board authorized in the dividend.
Our dividend yield is now about 3.5%, which is a top quartile yield amongst the peers and certainly for this year it will remain a tax deferred dividend for U. S. Investors. Let me talk about repurchases because we have been pretty active in the repurchase arena. If you look at our repurchase program from 'fifteen to 'eighteen, we said we were going to buy $3,500,000,000 or $3,000,000,000 Instead, we actually bought $3,500,000,000 And in 2019 because of our large purchases in Q4, we said, well, we'll perhaps buy only 400 this year.
Obviously, we have the wherewithal to do more. And depending on how we end up deploying that extra wherewithal that number could change, but it won't be less than $400,000,000 In a future year, it's just for the sake of planning. We're planning on 1% to 2% repurchases each year. So that's roughly $350,000,000 to $700,000,000 a year at our present market cap. Also to put things in context, over the last 5 years, we bought back just shy of 13.5% of our shares.
So that's a pretty significant reduction this chart, it shows you free cash flow each year in total. And it also shows you the change in our markets as we best can measure those. And if you look at 2016, our markets declined about 3.6%. That's pretty typical of a recession. In fact, many people call that time period an industrial recession.
And in that time period, however, our free cash flow grew 10%. It went from $1,870,000,000 to $2,060,000,000 Why is that? Well, I think you all understand the dynamic that as your volume comes down, you liquidate working capital and that working capital liquidation actually overwhelmed the decline in volume. And that's something it's a phenomenon that we see repeatedly have seen repeatedly over the decades. And that gives us a lot of confidence that a typical recession, we actually will have likely flat to even an increase in free cash flow.
And so if you think about our current next 3 years where we expect to generate $1,500,000,000 of we expect after dividends to have $1,500,000,000 available to use for acquisitions or repurchases. And if you think of going into a downturn, well, spending that $1,500,000,000 alone would allow you to buy 4% to 5% of your shares since equity prices typically come down 20% to 30% in most recessions, you can pretty easily come up with a model that says you should be able to buy as much as 8% of your shares back in a recession year. And since we don't have other demands on our cash in terms of debt debt pay down or pension contributions that gives us a lot of optionality to use to buy our shares back at particularly attractive points in the cycle and also to maintain the stability of our EPS. Our M and A process, as you know, is very disciplined. Where would we buy electrical, aerospace, e mobility.
E mobility mainly technology oriented, electrical and aerospace, a function of geographic expansion, filling in certain product gaps, channel coverage. We look, as Craig talked about, for leadership and proprietary technology and growth opportunities and we've got a really very clearly laid out set of financial criteria earning 300 basis points over the cost of capital, earnings accretive after 2 years and the ability to drive sustainable top and bottom line synergies. We have completed 67 acquisitions since 2000. Ula Soy is our 68th. Good news yesterday we got Turkish antitrust approval.
And so now because it's a public company, it has to then have a shareholder meeting. But we do expect Ulusoy probably to close early in the second quarter based on where we are right now. And I will remind you, we have completed 47 divestitures since 2000. And so we are highly experienced at fixing the tail and the 2 that we just announced today are continuation of that program. A couple of comments on that, dollars 1,700,000,000 of sales to be divested from electrical products.
It will give us higher growth and at maturity after we've taken up whatever stranded cost we have, we believe it will increase the margins 150 to 200 basis points in electrical products. Sale of automotive fluid conveyance, a similar story, dollars 150,000,000 to be divested, give you higher growth. Sorry about that, Cliff. And yes, I agree. And the vehicle margins will increase alone just from this action, a 100 basis points.
And it's obviously this is a business that has not been overly profitable. Adjusting for that no change in EPS and no change in capital allocation priorities. The guidance unchanged from what we gave you on the earnings call other than I do note that the $5.70 to $6 is after those $200,000,000 of repositioning costs as you would expect given their one time nature. So lastly, key takeaways. These are the proof points behind the key takeaways, behind the strong growth we've had, behind the strong margins, behind the strong cash flow and how we've decided to deploy the cash flow.
As I pointed out, we believe we with the strong and consistent cash flow, we can soften the impact of downturns. And we believe that the lighting and automotive fluid conveyance moves which will be done this year, will mark another improvement to our portfolio, another upgrading of the overall company. And so with that, thank you for your attention. I'm going to turn it over to Uday.
Thanks, Rick. Good morning.
Good morning. It's a good thank you. Good to see
you all again. And it was great to have dinner with some of you last night and catch up on the business. Look, the so you probably know the industrial sector businesses had a pretty strong 2018. We delivered robust margins really as a function of our markets returning and the prior restructuring actions that we've taken. And just to give you some historical context, if
you look
at our margins, our combined margins for the businesses in 2018, they were 200 basis points higher than the same level of revenue that we had in 2014. If you look at the combined businesses, and I think that reflects the fact that we've largely delivered through this part of the economic cycle. But we also know that we could have been even better than we actually were. And of course, none of this would have been possible without the tremendous hard work of our teams around the world. And I'm personally extremely grateful to everything they're doing every day to make a successful business for us.
And also we're very charged up by the opportunities that exist for organic growth. So with that said, let me kind of talk a little bit about the five reasons we're so optimistic. 1st, our vehicle electrification strategy is right on track. We've had a big breakthrough win and I'll be sharing with you today how we're going to be doubling the business in the next 5 years and we're on track to get to the €2,000,000,000 to €4,000,000,000 we committed to you by 2,030 last year. 2nd, we see new growth opportunities from intelligent products and IoT solutions.
And some of you in the room yesterday saw some of that. But you'll hear today again about our award winning intelligent valve technology in our hydraulics business. And then even more importantly, how we're starting to leverage cloud based analytics, both in aerospace and in hydraulics. 3rd, we're positioned really well to capture the growth that's coming in the aerospace aftermarket through a combination of technology insertion and innovation around the repair cycle. And 4th, we see real new regional growth opportunities in vehicle and hydraulics.
And just as an example, some 70% of our revenue in this new regional growth in vehicle, for example, is already booked. And then finally, you'll hear how we're managing the operating complexities how we plan to improve our execution to address some of the margin inefficiencies that we see. So just a quick reminder, our industrial sector serves a diverse set of end markets. Last year, we did €8,500,000,000 in revenue. This year we'll be pushing that to $8,700,000,000 We expect just under 60% of that revenue to come from outside the U.
S. The sector now includes 4 segments, Aerospace, Hydraulics Vehicle and our newly formed eMobility segment. And really what's exciting is we're preparing all of these 4 segments for a very fast changing future. I shared this slide last year,
so I won't
go into any depth, but this is a really good, I think, glimpse of sort of the number of high level industry shifts that are taking place that impact all of our businesses in some way or the other. And they really are creating great opportunities for growth. So let me come back to the first theme I talked about, e mobility and electrification. Now we've made really rapid and positive progress since we launched e mobility last year. And as a result, we're seeing tremendous potential to benefit from the electrification trend that's going to occur over the next decade.
So electrification is actually a major force impacting all three of our industrial end markets vehicle, hydraulics and aerospace. And if you look at the middle of the chart on the left is impacting and reshaping our end markets in 2 ways. There's the electrification of the powertrain and then electrification of actuation. So the powertrain is essentially what moves the entire vehicle And that's where our e mobility segment has been focused. But we're also seeing a trend into with mobile hydraulic applications and that's going to take place over time.
Actuation functions are what moves the accessory on an equipment on a piece of equipment and or moves the surfaces on an aircraft. And so we're starting to see this real trend take place. And this is where Eden really does have a distinct advantage as we move to this more electrified world. As you may have seen yesterday, we have unique expertise when it comes to blending different sources of flower and to get that optimum performance. And honestly, one of the very few companies in the world that has electrical, mechanical and fluid power in one company and able to leverage that capability across the entire company.
And we can actually leverage common technology roadmaps across the whole company to give us an advantage. And some of you that were here would have seen that in the Power of 1 Hub yesterday. It's a very unique set of insights as this world becomes more electrified. And the second advantage is as we scale up to support e mobility as Craig mentioned as well, we'll be able to leverage economies of scale with those volumes and feed that back into the rest of our businesses. So when we launched eMobility a year ago, it was a huge first step and I have to emphasize a first step to put ourselves in a strong position to capitalize on these trends as we move into this more electrified world.
So we're really pleased to report that after launching our Reavability business a year ago, we're gaining trust and traction with our customers. On the left hand side, just a quick reminder, we combine this business with using our vehicle domain knowledge and our electric power capabilities to create essentially an e mobility segment with a target of €2,000,000,000 to €4,000,000,000 by 2,030. And that market expectation is largely growing in line with our projections that we shared last year. But to penetrate this market, we've quickly built a really robust pipeline, engaging around 50 customers around the world. We're now on bid lists where we were not present even a year ago.
And this is really underscoring our credibility and relevance that we've been able to move so fast as a new entrant to the market. And additionally, we rapidly scaled up our global organization. Our engineering development resources, for example, have increased by a factor of 5. Our customers are engaged and their confidence in our capability levels is extremely high. And what's interesting is they're drawing insights from us, pulling us in to actually solve problems over on their current platforms.
So we are really establishing ourselves faster than planned and also capturing a lot of opportunities. So just a quick kind of check here, this is just to remind us of the electric vehicle market projections. Overall, we continue to see growth. Last year, we said that by 2,030, we would see roughly 23,000,000 electric vehicles and you can see that on the chart in red and sorry, blue and green. But the really interesting thing to be aware of and it's not on this chart, it's actually not on this chart is that the explosive growth that's going to occur in this industry is going to be between 2025 2,030.
And this is as batteries get cheaper, charging gets faster and they deliver longer range. That's when electric vehicle adoption will increase and actually drive 60% of the volume in those 5 years. And that's what everybody is lining up to and preparing for that explosive growth. And as you know, the OEMs continue to be bullish on the trend, are investing heavily in electric vehicles. In fact, our own e mobility business by 2025 at our projections prior to this inflection point will reflect 25% of our vehicle revenue for example and be linked to the electric vehicle markets.
So all of our efforts right now are on doubling our revenue by 2023 and then to position us to take advantage of the growth that will occur beyond that period. So to get ready, we've really accelerated our product development just over the past year. Now this chart I think is a really good scorecard for our product development team across all three areas of focus Power Electronics, power distribution and protection and power systems. And on this chart, we have actually had production wins or development agreements for all of the products on this chart. So what's happening is winning across the portfolio has been actually very opportunities ahead.
And I'll give you a little bit of insight as to why. And I think I shared this when we were walking around with one of the groups yesterday as well. The electric vehicle industry is actually in the very, very early stages of maturity. When you think about the internal combustion engine, it's been around for 100 years. And this electric vehicle industry is very, very new and relatively immature.
And new technical challenges are emerging all the time that weren't thought of before. It's quite natural. And these need to be solved prior to this mass scale adoption occurring. So there's a big rush to solve these challenges quickly and it's creating real opportunities for us. So the auto when you think about the automotive companies, they're investing they're heavily invested in the internal combustion engine.
There's still growth taking place and opportunities for the internal combustion engine, but they see a future in electric vehicles. So there's a real resource stretch for our customers. So they really need our help to innovate with new architectures around these new electrical needs. So this chart highlights 3 products and you'd have seen some of these yesterday, those of you that are in the room, around innovation that we're driving. The first on the top right is a traction inverter.
That's the heart of the system. It controls the movement of the car. It essentially has a major impact on performance, efficiency and driver experience. And 90% of the battery's power actually passes through it. So our inverter that we've developed delivers more power with less weight and less bulky and it consumes only half the space of compared to the current industry standards.
And because it's more efficient, the inverter reduces waste energy and will give the battery more life and extend range. The second product in the middle is the intelligent power distribution unit. And this is really the brains of the system. It's a really clever device. It's based on technology that we've applied in other markets.
It's smart enough to predict failures. When you think about conventional internal combustion engine, we have a lot of experience when failures are going to occur. We understand we don't have that background and experience with electric vehicles. And the intelligent PDU that we have is able to do catch diagnostic information to be able to know exactly what power is moving in the vehicle and therefore predict maintenance and predict component failure. And then 3rd, at the bottom is our resettable circuit protection product.
When you really think about an electric car, whether it's an car has to be shut off completely and immediately. And the ability to do this quickly is critical for both the driver and the first responders. On the other hand, if you have a minor you have a situation where the car is off and you're stuck out there. So how do you keep a breaker in your house almost? Now as a result of these innovations, all of these innovations that we're working on, we've captured a lot of opportunities much earlier than planned.
OEM is going to adopt our technology, the traction inverter that some of significant for a couple of reasons, not just because of the size of the web and the speed of it, But in one fell swoop was in the immobility segment. And more importantly, it demonstrates our ability to move fast and gain credibility plan. If you move to the middle of the chart, we've launched I know many of you know our industries very well, but just to make the point list. So to go from 0 to our current with a strong technical expertise and experience. We've signed 11 development agreements and these are early cycle product development opportunities with advanced technology.
They put us so what this does is it puts us right in the room where early decisions are being made around the architectures of the future. And when you take a look at it on a summary basis after $100,000,000 of mature year revenue wins. So as you can see, a lot of strong momentum. The market response has been overwhelmingly receptive. And customers are actually pulling us in, which is a great position to be in.
And I think this win on the traction inverter, which is a new product for a new entrant in this market is the early signs of success to come as we continue to drive this business. I'm just looking ahead quickly for eMobility. Obviously, we have to successfully launch the programs that we've won and prepare for these launches beyond 2019. Our target is to win another $200,000,000 worth of revenue year this year, sorry. And then to double down on our R and D portfolio as we continue to invest and you've seen that in our numbers where we're almost doubling our R and D spend this year versus last year.
So on balance, we remain very bullish about the immobility segment and more importantly our prospects. Moving to the next topic here and how we're creating intelligent sort of growth opportunities. So our portfolio has really continued to evolve with intelligent and connected solutions. If you look at the chart on the top, it's really and I think this was shared yesterday as well obviously in the early presentation. Our strong product reputation is now being further enabled by intelligence that's being connected to a much wider ecosystem such as an autonomous farm or a construction site.
So as was shared yesterday, you absolutely have to have a core product with a good reputation to be able to So what we're finding is this is creating real customer value. I'm going to share some examples and you saw them yesterday as well from these intelligent products. And what's unique here is that they adapt to real time performance needs. And that's what what that is doing is allowing us to start participating in new business models. And I will say it's early, but real revenue opportunities do exist.
And I'm going to share some examples from hydraulics and from aerospace today. So our award winning intelligent valve technology, some of you again saw this yesterday is now enabling hydraulic solutions in harsh and highly variable environments. We operate in these harsh highly variable environments where conditions are changing all the time and leading to improved performance. The mobile control valve market is growing at around $2,000,000,000 market growing around 3% CAGR. This advanced control piece which is a sub segment is growing at 3 to 4 times faster and we have the products that participate in this particular portion of the market.
So just for some context, if you look on the left hand side on customer needs here, so just to provide some context, you saw those of you here saw these products outside. But if you think about an excavator or a concrete pump, a forest forwarder, a snow groomer, these all perform work, which means moving heavy loads that have to be very precisely controlled. Now, just to emphasize when historically when these systems have been designed, they've been designed for average or most use conditions. So what that essentially does is when you operate outside those normal conditions, it creates situations where for example, the construction equipment that you saw, the arm will move too fast, too slowly, it will be jerky. And what that does is it creates inefficiencies, productivity goes down and actually lifespan of the product is reduced.
So again, just to make this real for you, let me take you inside one application that we are working on a logging operation in the forest in Finland. I'm doing this just to give you a sense of the environment and how this technology actually works. So this is a forest forwarder is a machine essentially all it what it does. So it seems like a pretty simple operation, but it's not as simple as it seems. The conditions are very demanding and they vary.
They vary a lot. Sometimes it's wet, sometimes it's soggy, Sometimes it's dry, sometimes it's rocky. The forwarder will have to operate on a steep incline in a very dense forest. So the variables around how this machine is operating are extremely sort of dynamic. In addition to that, you have multiple movements taking place.
The booms has to move, the arm has to be swung, you have to grapple to pick up the logs, you have to open and close, you have to rotate the cap. There's a lot of movements taking place in highly variable conditions. And so to be efficient, this forwarder has to essentially grab and move the timber as fast as possible, not damage it and be able to be efficient that way. So if you look at the middle now, that's kind of the problem and what many of our customers experience. And if you look if you move to the middle now, our solution, this intelligent control software allows for instantaneous adjustments in real time to these changing conditions to manage all of these movements.
So it's pretty unique technology. And that's why we've won this sort of award and you saw it yesterday and the customer response, end user response has been terrific. And in this example on the right, we're going to save 10% to 15% fuel savings, we've done that. In other types of application, you see other benefits taking place that we won't go through right now. But what this does is it represents for us a $200,000,000 revenue opportunity that will occur over the next 5 years.
And we have a dedicated business unit that's being set up to really go after this particular segment of the market. Just in the same way, maybe not on the same scale, but in the same way we set up a team to run our e mobility unit, we have now a dedicated team running this as on point to try and to grow this revenue stream. So here's another example I want to share with you of how we're creating a new revenue stream. So this is a sugarcane harvester. You saw some of it yesterday.
This piece of equipment really combines our intelligent products that provide real time adaptive control. But this time, we're also adding cloud based analytics that addresses very major customer pain points. And just to give you some context, sugarcane harvest operates in a very harsh environment. I had an opportunity to write on 1 last year in Sao Paulo state in Brazil. And I can tell you it's not for the faint of heart.
It's incredibly hot, very dusty conditions. And if you look at the chart, you see actually there are 2 vehicles up on the chart in the picture. What you see is actually the vehicle is picking up the sugarcane harvester. The sugarcane harvester is actually tucked behind all the sugarcane. And so you're literally your visibility as you're driving, you have no visibility and you have all this cane coming into you in your face as you're into your window.
It's a very complex harsh environment. And the driver that I was with was maneuvering this sort of 20 ton sugarcane harvester, it's 18 feet tall, 40 foot long. It's a really complex piece to machinery. But the reason I'm sharing this with you is that what you should be aware of is a sugarcane harvester has over 70 hydraulic components and we provide all of them in this instance. So in the blue box, what you see is actually some of the pain points that the user is experiencing.
They have excessive downtime when you think about the number of rotating parts, it's harsh environment, a lot of failures occur and they go down unplanned. Secondly, there's a high crop yield loss. So because of the nature of the cut, when you think about trying to cut and get the maximum amount of sugar, you have to have a very precise cut of the sugarcane. And it has to be very precise. And trust me from being in that cab, it's not it's hard to get that precise cut.
So the machine speed has to actually match the crop density. And that's how our intelligent solution comes in and allows that speed to be adjusted in real time to match the crop density. There's a couple of things going on here.
If you look at the
left hand side and I'll sort of continuously sort of monitoring the sugarcane harvester. On the left hand side what you see is how these products in real time adapt and make rapid decisions. So this is right on the edge. And this allows the machine to make these adjustments and therefore improve the crop yield. And as you move to the right hand side, we're gathering a lot of information now.
The chart illustrates kind of the almost the steady data streams. We capture contamination, for example. And that then allows us to predict failures to predict when preventive maintenance needs to happen and then improve component performance. And we believe just in this one example, right, now take this as one application of many out there in the field across a diverse set of end markets about $50,000,000 opportunity just with this one application. But big picture what I'd like to you to be aware of is we're part of a much larger ecosystem And we're working with partners who are pulling other pieces of information around the soil state, the weather that's coming in, allows them to take all this information together as they move towards developing more autonomous farm.
So we're one part of the ecosystem here. So now as part of our aerospace portfolio, I'm not sure whether you're aware, but we actually play a really key role in ground refueling when the aircraft comes into major airports around the world. And overall this ground refueling ecosystem is extremely complex and very inefficient. If you think about for a moment, when you come into an airport, there's any what 500 aircraft taking off and landing in a particular day. And these planes have to be turned around as we know very, very quickly.
And a critical part of that turnaround time is actually the ground refueling that takes place and it's critical part of the overall turnaround time. So ground refuelers have to have the right truck with the right amount of fuel available to match the airline's destination requirements and then deliver it quickly and on time. And it's a very dynamic situation. If flights get delayed, gates change, as you probably know very well. There's trucks that aren't available.
There's availability scheduling. It's a very dynamic environment. So as a result, things behind the scenes are actually very, very chaotic and things can go wrong leading to flight delays and also low asset utilization for the ground refuelers. So you're asking the question of where do we come in? Well, our intelligent product, there's a digital monitor you see on the screen there ensures constant refueling in real time based on the fuel tank conditions.
So we're in a position where we're capturing experienced. So how does this actually work? So on the left hand side is our intelligent fueling doodle system and it captures continuously being fed information to the cloud. And what it does is it combines other data services to optimize the performance of the fleet. So to prevent unplanned downtime and also improve utilization.
So if you go further, the advanced algorithms that are being used to move we're moving to an adaptive real time scheduling of the fleet. And what's interesting here is the refueling time that we actually capture is a central part of that solution. So this is a good example actually of where we're a core part of the overall aircraft turnaround time. But because we control and we know the actual refueling component of time and by virtue of this position, we've been able to expand our offering beyond our core role and provide additional value to the ground refuelers. So in the sugarcane example, we were part of the ecosystem.
Here we've been a 1st mover in being able to pull other information together in the Eaton cloud and provide a service to the ground refuelers. Now it is early days, but in one case that we've been working on with a large international airport, they've seen their asset utilization improve by 20 percent because all this data being pulled together. So these are just a few examples of the early progress we're making and leveraging our intelligent products and linking it in a more connected way with these IoT solutions. Okay, let me shift gears here and talk about turning to aerospace aftermarket growth. So the aerospace aftermarket is actually, as Rick mentioned and Craig, is very favorable right now.
We began a mix shift 5 years ago to take advantage of the new growth opportunities and we continue to see the shift through 2023. We expect our aftermarket revenue for the Aerospace business hit $1,000,000,000 by 2023. And the market for maintenance repair and overhaul is growing at about 3.5 percent clip. Military budgets are up almost 25% since 2016 to Rick's point earlier. And we're seeing the growth in future deliveries of freight.
So we focused on 3 strategic areas, driving retrofits, mods and upgrades, capitalizing on the repairs, we're moving into an engine super cycle, And thirdly, leveraging this increased military spending. And as a result of all of these actions, we expect to add $250,000,000 of incremental aftermarket revenue over the next 5 years. Let me just explain where these opportunities are actually coming from. And they're depicted on the hand side of the chart. And again, those of you that know our industry very well are very familiar with the aftermarket.
But I just want to emphasize, it's not just growth because of the OE platforms that we're on. We're also able to penetrate and win in the aftermarket in a much shorter to medium term timescale. So you have 3 opportunities. 1st, early on as these aircraft are ramping where some of the components don't meet the reliability expectations that happens. There's an opportunity to get in there.
2nd, as the fleet matures and the aircraft manufacturer, the OEMs and the airlines want to improve performance or change the mission profile, that's another opportunity for us to get in. And 3rd, as some of these aircraft are being sunset, they want to extend life. And that can typically be seen in military aircraft that are aging or commercial planes that are moving into the cargo space. So these are the three areas that we're focused on and where we're going to we're capitalizing on to win share as part of this growth that we're going to be seeing. So here are a couple of examples.
I'm showing these examples simply to give you insight into the pedigree that we have, the focus we have around it and what we've done. On the left hand side, what you see is an Airbus A320 electric motor pump. When you're on a flight flying around, you typically when you run into turbulence and things start moving around, more power is required to stabilize plane. And that's where our electric motor pumps will kick in typically, providing this auxiliary power. So it's a critical product.
And in this case, our product delivered reliability almost 20000 hours, triple the norm. And as a result, we're retrofitting 500 aircraft. They're all being upgraded with this new particular new product. On the right hand side is a different example. It's a military the CH-forty seven Chinook.
It's a heavy lift military transport helicopter that was originally built in 1962. Now the crews of models for models built before 2006 had to hand crank the engine. I mean that's essentially using hydraulic energy or accumulator which is essentially the same thing as a battery. And as you can imagine, in a war zone, that can be a little dangerous. So we retrofitted that whole fleet with intermittent power electric pump, which was a small pump, but had obviously had a big impact.
So the point I'm making here is we have again a team that's dedicated to looking at these opportunities, working with the military, working with our commercial customers to really drive these retrofit mods and upgrades that we see opportunities for. Now let me talk about the engine super cycle opportunities. And this is happening quite right now. As you all know and I'm pleased to know aircrafts have pretty rigid maintenance schedules. They have to come in for checks to be reliable and compliant with regulations.
Well, the production boom for older aircraft, older narrow body jets, I should say, sorry, peaked in 2017. And that was when a record so now a record number of commercial airliners are scheduled for engine overhauls between now 2025. So this is what is commonly known in the industry as the MRO engine super cycle. And what it's going to do is generate significant repair opportunities for us. In addition, we have good content in all of these engines that you see here.
And what we're also starting to do is innovate around this repair cycle. Again, you'd have seen some of that yesterday. But we're starting with the tube and ducts, which doesn't sound like a very attractive product, but actually it's the very first step in our supplying this technology to other products for repair. So let me kind of talk a little bit about that. This innovation around the repair cycle, you see this picture on the left.
It has again, you'd have seen it yesterday for those of you that are here, but it has a whole bunch of ducts, hydraulic ducts, air ducts, fuel ducts. And when an engine comes in for overhaul, we have to turn around that engine in 20 to 40 days. We don't do that, but obviously the MRO providers do. And the idea is to minimize the number of spare engines in the pool and the associated cost. And historically this has been time consuming.
So the turnaround of the engine repair is long. But when these ducts actually come off, it's quite a long time to actually get them actually turned around and repaired as well. They all have to come off. And often it can be the long pole in the tent. So our innovation has actually shortened the repair cycle.
And what we do is we upload a digital model to the Eaton Cloud. It undergoes analysis using some unique visual machine learning algorithms. And we're able to really then diagnose what that repair is, almost spit it out in real time and provide a price and a quote without that tube and duct ever leaving the customer site. So this is really we believe leading to going to give us an advantage. It's 80% reduction in repair time.
And our customers are very excited about what they've seen with us just in the last 5 months or so. I think the important point to note here is this machine intelligence around this particular product is just the tip of what we're going to be doing in other products that we're going to be repairing during the super cycle. And then the final part of our military our aftermarket strategy is to really take advantage of these military budget conditions that have improved. As I said, we got off to a strong start. Military aftermarket was up 8% last year and it looks even stronger this year.
We've targeted platforms like the F-fifteen and the M1 that you see on the right. And also we're bringing our additive manufacturing capability to help us with this turnaround time. So all in all, we feel very good about aerospace in general, the aerospace aftermarket growth which we see is very robust. And we think the actions that we're taking are going to lead to outgrowth in this aerospace aftermarket because of the actions that we're going to be taking like I shared with you. In Hydraulics and also in Vehicle.
So now let me move to regional growth in hydraulics and also in vehicle. 1st vehicle actually, let me give you a little bit of context around our vehicle sort of strategy that isn't on this slide. We're going through quite a significant sort of transformation in our vehicle business. 2017 we formed the Eden Cummins joint venture to address our North American heavy duty truck market. We then last year formed the eMobility segment to take advantage of the electrification trend.
We just as you heard announced the divestiture of Automotive Fluid Conveyance business. And the other part of the strategy is to focus on improving the geographical mix of our business. So today in vehicle, 20% of our business is in China, India and Brazil. Our plan is to grow this to 30% of the revenue by 2023. And the good news is that actually 70% of this business has actually already been booked and targeted.
And not included in this is $500,000,000 of unconsolidated JV revenue. So JVs are going to be an increasing the large part of our vehicle business around the world. And there's almost $500,000,000 of revenue that won't be seen, but we'll be getting the benefit of the profit from. When you think about our vehicle business, each country has a really strong record of wins and each has a very specific growth strategy. So in Brazil, we have great market position.
We were first in the market with light duty automated transmission, which is a growing segment of the market. In India, we're going to be doubling our business. Our valve train products are taking off very well. And then in China, we are going to be expanding and growing our core.
And I'd
say in China, there's a couple of things. One is regulations are really playing to our advantage. It's a country which has continued to put in the regulation. So our fuel vapor technology for example is already taking off. And then emphasize that we are being aggressive about forming joint ventures in China.
We formed 2 already, both are delivering with a much access to market and our speed of ramp is much faster. So we really are pleased with our joint venture strategy in China and it's playing out. Pulled together, when you look at the all of the businesses together, all of the countries in vehicle, probably we're going to add around $350,000,000 of revenue over the next 5 years because of the actions we've taken and the business that we've already booked. So when you move to our hydraulics business now, what's happening in China is quite interesting. There's sort of evolving construction needs.
It has both the characteristics of an early economy, early developing economy and also a mature economy. So you think about an early stage economic development, you find large construction sites, large work taking place in roads and buildings, bridges, and that requires large excavators. In more maturing economies, there's much smaller projects, tighter urban spaces, you need different types of equipment like mini excavators. And as China has become more urbanized, what we're seeing is that this mini excavator market for these smaller type of projects is actually growing at 3 to 4 times the rate of the larger excavator market. So what does this mean for us in Eton?
This trend actually plays right into our sweet spot and we're very fortunate to benefit from this. We have a strong suite of products, almost a dozen products on a mini excavator. We're a market leader. And as a result of this shift that's taking place, we would expect to deliver almost $100,000,000 of incremental present with specific content that we're going to be able to take advantage of. Okay, let me move on to talking a little bit about managing how we're managing hydraulics.
As Craig outlined earlier in his presentation and has done for several years, we have a number of criteria against which we are measuring our businesses. And we started restructuring Hydraulics a few years ago to improve the last two criteria consistent profitability and high margin potential. Now as we started sorry, go ahead. As we started our restructuring actions early on, if you see on the left, the green part on the left, the markets returned much faster than we expected. And to be candid, I want to be really candid here, it was a combination of our internal execution challenges that you can see on the top right and the external market dynamics really created some margin inefficiencies for us.
Now the good news is that back to the left hand side, the green on the left, the actual percentage of sales reduced almost 200 basis points on fixed costs. So we've taken out our fixed cost. It was almost a 10% reduction in fixed cost is actually being taken out. But as you can see on the right hand side, we've linked almost 100 basis points to 200 basis points of margin from these inefficiencies. So our goal obviously is to get off to these margin inefficiencies and improve them in 2019 and through the end of 2020.
And that's really the action is that this year we expect to see those margin efficiencies improve by almost just under 50%. We're aggressively looking at that as built into our plans and our profitability improvement. I'd say addressing these inefficiencies, the changes to the business model that we've made have impacted us. And then all things remaining equal as we work through these issues, we would still expect to deliver 13% to 16% through the cycle, all things remaining equal. And that's really what we're being aggressive about is getting after this.
We're bolstering our capability as well to address these inefficiencies. And so I'm optimistic that as we get through this, we'll still be able to deliver 13% to 16%, everything else remaining equal. So in closing, let me leave you with a couple of things. One is I think we really are positioning our businesses to take advantage of these diverse growth opportunities. I think a large part of the presentation today was around that.
We've had some big wins, both in the electrified space, regional growth and starting to get them in the intelligent connected world. More importantly, our customers are responding well to us. And what I've just told you, if you were to add up all of the revenue numbers and add on the e mobility growth over the next 5 years, I've just shared with you about $1,000,000,000 worth of revenue that we're going after over the next 5 years. So we're optimistic that we're on the right path. We're making the right kind of move to liver organic growth.
And we're pretty optimistic about our prospects for this year and going into next year. So thank you for listening. And now I'll hand it over to Brian.
All right. Thank you, Uday. All right. Again, I'm Brian Brickhouse. I lead our Systems and Services business in Electrical.
And for the next 40 minutes or so, I really want to focus in on 3 key themes here. The first is our business is performing really well. We had a great 2018. And we've got some exciting new developments coming at this point in time in both new product and services as well as some market developments that really provide us some unique opportunities to drive growth. 2nd is we have a pretty complex market in Electrical.
We have a tremendous number of stakeholders. And while we're focused on really meeting the needs of all of those stakeholders, there's really 3 that we kind of put some extra focus on. And those 3 are our channel, the electrical contractor and the end user. And we really meet the needs of these stakeholders with a combination of some very deep domain expertise, a broad portfolio of products and solutions and then lastly, a very extensive global footprint in supply chain and manufacturing. And then the last theme is really our focus and our focus on strategic growth initiatives that line up and align very well with some of the major secular growth trends in the industry today.
And the 2 most notable are energy efficiency and electrification and then second, digitalization and data. And I'd speak to data from really 2 aspects. 1, the data that we are driving out of our components and what kind of products and services and solutions we can deliver from that data, but then also just the volume of data and the impact that has, say, on our data center business. Okay. Very busy slide here, a number of messages.
Let me just start by just trying to reintroduce the sector. Again, we have an Electrical Products reporting segment, which includes our residential, our lighting products, industrial controls, low and medium voltage circuit protection or circuit breaker business. And again, this is the segment where lighting has been historically reported. Electrical Systems and Services, all of our assemblies products, our power quality solutions products, utilities and then all of our software and services businesses. Again, we had a terrific 2018 on both growth and margin in both reporting segments.
And as Rick showed you, our guidance for 2019 is another strong year. Now let me kind of separate the far right hand column from all the other data because all of the other data up here is really as the business has been run and reported last year and guided for 2019. The far right hand column represents a pro form a. You see the footnote there at the bottom, a pro form a reflecting the spin of lighting and the addition of Yo Yo soy. And so the note to make that I really want to make on this pro form a on the through the cycle is we've raised the floor.
And we've really raised the floor from a series of actions. 1 is the restructuring that's been done over the last 3 years and taking fixed cost out of the business. The second is really a pretty aggressive portfolio management. And it's not just portfolio management from the standpoint of lighting and Yoyo Soi. It's as Craig mentioned, there's a lot of blocking and tackling going on within every one of these product lines.
There's an aggressive focus on material cost inflation and tariffs and offsetting that with price, number 1, but also mitigation activities and cost out. And so really nice balance there of raising the floor in both Electrical Products and Systems and Services. This is also a pro form a chart. So we've got really nice balance both globally and across end markets. Lighting was obviously very focused in the North American market.
So post lighting or pro form a without lighting, it's a little more balanced globally, but also maintains a very nice end market mix. You can see roughly a third of our mix is in the industrial space, little less than 30% in commercial construction, but utility and data center also still maintain a very significant presence for us. So nice balance across those 6. We've really used M and A to help drive this portfolio over the last, say, 10 to 15 years. And you can see across the 6 target segments, a number of product, service and solution capabilities that have been added via acquisition.
You see the blue boxes there on Yo Yo soy. Yoyosoy brings us capability in both industrial facilities as well as utility. And I've got a slide coming up and I'll talk a little bit more about that. But in most cases, many of these acquisitions helped us build out across multiple segments. Just to recap on Lighting.
I guess the first thing I would say here is we truly believe this is a positive for both our lighting business and the remaining electrical business. Lighting has a terrific business, a lot of strength, $1,700,000,000 in sales, as Craig showed you, run out of our Atlanta out of Atlanta, Georgia with 5,000 employees. Great portfolio, leading technology, one of the best agent networks, great electrical distribution channel. But with all that said, the impact on the remaining electrical business, we feel, is pretty minimal. And we feel it's pretty minimal.
We'll continue to be global. We'll continue to drive the same types of solutions. But probably that bullet point on the bottom right is really the most germane and the one focus in on is that to this day, lighting has maintained a separate sales force. It's separate manufacturing facilities. It's separate supply chain.
And so there's really very little impact to the remaining business. And one note on channel. Even the channel strategy is different between lighting and really the rest of electrical. Lighting's channel strategy is very broad. The remaining electrical strategy from a channel perspective is much narrower.
And so really, there's not a lot of channel turmoil with this spin either. So again, punch line here is we feel it's a positive for both businesses. Joyasoy, Craig talked about this. This is a great addition to the family. The business is based in Turkey.
Heavily used in industrial as well. This brings a highly capable, low cost manufacturing base, which we can leverage. And so it is complementary from a product standpoint. I don't want to get into too much technical detail, but most of what Yoyo soy brings is what's called secondary switchgear. Most of our existing product is what's called primary switchgear.
Very attractive margins. As Craig mentioned, we also are picking up with this acquisition of facility in Indonesia. And we really feel like we can leverage this acquisition to shore up and expand our overall global IEC capability, not just in EMEA, but in Latin America and Asia Pacific as well. Okay. It's more than just portfolio though.
To really win here and why we win and what drives our success here is the fact that, that portfolio in most cases is very technologically differentiated with a strong brand. We have an extensive global footprint, large service team, which gives us scale, very strong channel presence and loyal partners, and those partners in many cases are other types of resellers. And then lastly, the one that we can particularly leverage is that deep, deep application and domain expertise that we have, leverage that through a very large commercial team and drive specifications and win. It is complex. There are a lot of stakeholders here.
And you see the 3 at the bottom are the 3 that we are mostly going to talk about as we go forward here today, the electrical distributor, electrical contractor and owner. And that focus includes investment on IT and front end tools, really focused on ease of business and how we interact with these various stakeholders. So I think you've seen this chart before. I believe we used this chart last year. These are the strategic growth initiatives.
I want to touch them once one more time here. I want to start right in the middle on the intelligent and connected solutions. If you were here yesterday, you saw a lot of that. You saw a lot of focus on driving communications and intelligence into our products. And the data, the data from those products really feeds a couple of other strategies.
Number 1, it leads to some other unique new service opportunities now that we can combine with an existing strength in project management, power systems engineer, other types of services. Also feeds down to the bottom left. That data helps us create some really kind of innovative new business models. 2 that we'll talk about here in just a moment. 1 is PredictVoltz, which is a data center monitoring offering.
2nd being Intelligent Factory and what we can do to learn about the power genome in a factory. Channel programs continue to be a real focus, not just at distributor, but also contractors. And we continue to evolve those programs as the market changes. In some cases, we have actually structured around our end markets. And so in the case particularly on the front end, in the case of both utility and data center and also oil and gas, We have dedicated teams focused in on those end markets.
Back over to the left side, expanding the core markets. And this one's both market and product expansion. You see the first two there, energy storage and microgrids, are examples of new markets emerging inside of our existing marketplace. Compact gas insulated switchgear is just a great example of an edge out, a product expansion for Eaton inside of our existing switchgear offering. So again, a combination of market and product expansion.
And then lastly, accelerating project productivity. These are very complex projects, electrical projects are. Lots of stakeholders that touch these projects. And so this focus on collaboration tools, how we share information across the stakeholders through the various stages of a project. That's critically important.
There's a lot of waste in that process today. One trend we'll talk about here more in just a moment is prefabrication and modular. There's a lot of benefits to that. We're seeing it pop up in numerous markets today, and it's a great opportunity for Eaton to provide some incremental value. And then lastly, automated designs, which has to do with commissioning time and again speeding up this project process.
Okay. So what I'm going to do is step through. We've lumped the 6 segments kind of down into 4 here, and I want to step through some examples of value that we're driving in these segments. So starting in commercial and residential, number of just different proof points here. You see bottom left, this a statistic on modular.
Modular global construction market projected to grow at roughly a 7% compound annual growth rate. There's multiple reasons for this. One is, if you look over to the right, you see since 2014, Many of our contractors today
talk about
Many of our contractors today talk about this consistently, a labor shortage. Many of our end customers from a construction standpoint also are complaining about this factor. So we have our customers asking us to do more inside of our factories. So that prefabrication modular has a labor impact, a labor productivity impact, but it's also a cost saver and a time saver. And so we have this one slotted in the commercial construction residential, but we're seeing this trend in markets like data center and industrial as well, where those customers are asking us to do more before we get to the job site.
Connected home, just an explosion in Connected Home, which is driving an explosion in connected devices. So by 2023, 275,000,000 voice assistant devices will be used in smart homes. That plays to one of our strengths. And then lastly, on the regulation side, a lot of regulation today is driving demand for our solutions. So again, different stakeholders, different needs, whether it's the contractors and distributors really looking for productivity improvements in one of these construction projects, while the users on the user side, it's really more focused on safety, efficiency and productivity.
You've seen these types of drawings before. I'm not going to spend much time on this. But really, the takeaway from this chart is we have a very broad portfolio across, whether it's a commercial office building or a home, a lot of products and solutions that can be deployed to this marketplace. So a couple of examples here. Here is one that's taking advantage on the trend towards smart home connected home.
And really, the value proposition here, although there also is a value proposition for the user, this one's targeted to the builder. And so what this lets the builder do is install and commission our smart electrical outlet switches and dimmers before there's an Internet connection in the home. And so they haven't been able to do that in the past. They've had to wait, in which means in a lot of cases, the builder could not supply those components. So this is a value proposition for the builder to let them raise their BLE technology, they can configure these smart devices without Internet in the home and then create the kind of the smart home before the homeowner even arrives.
And so we have a partnership with Doctor Horton, largest homebuilder in the U. S, they're going to feature Eaton connected devices in roughly 50,000 of their new homes. 2nd, this is not all about smart products, big data. I think this is a great example of using that domain expertise to help drive productivity and what you may look at as what do you why are you standing here talking about conduit outlets. This is a great example of our teams really understanding how contractors use our products.
And so this is a hands free bracket. It's got a snap on feature. It's a conduit trapeze support used in buildings. Now we just talked about labor shortages with our electrical contractors. And look at some of the statistics here.
This reduces installation time by an entire shift by using these hand free brackets and 50% with our conduit trapeze support versus the traditional way. So 50% reduction in contractor hours. That's significant. That's the type of productivity that we're driving even without anything connected here, any big data analytics. This is an example of a relatively traditional technology, an exit sign, emergency exit signage, one of our businesses.
And what this will provide is, number 1, differentiation for the building owner, because the building owner can now market some extra capability here with regards to safety. But there's also an obvious value proposition to the tenant or the user from a safety perspective. And so the way this works is a very what used to be static emergency exit sign can now become dynamic, can be tied into a centralized fire or security control system. And in the event of an emergency, if you look down in the bottom left corner, those emergency exit signs can direct tenants away from danger. So you see the one with the X meaning don't go this way and we can reroute tenants towards a safer path.
Again, just a way to take technology into a relatively traditional type of product. Okay. Let me shift gears and talk a little bit about data centers. Spent a good bit of time, if you were here yesterday, on this topic. It is a very dynamic marketplace today, Greater than 55% of all data center traffic by 2021 will be through a hyperscale data center.
50% of the IT assets and enterprise data centers by 2022 will be able to operate autonomously. All 5 of the hyperscales, greater than 50% renewable energy, and it's not slowing The demand for data or the need to do something with that data is increasing. 25,000,000,000 things will create data by 2021, and that's So I think to Rick's comment, data a little bit of a twist here. Data center operators have a couple of unique characteristics. They obviously need reliable power, but commissioning speed after it's commissioned, ease of operations and if they have a problem, how they can get that data center back up and running very quickly.
And we have a very broad portfolio here that we can deploy. We talked a little bit about this yesterday. This extends from what we call the gray space or the electrical room in a data center through the white space or the data hall in a data center. And I just point out one thing. If you look at the very top there, I'm not sure you can see it all that clearly, but it says turnkey power container.
Here's an example of modularization or prefabrication being used in a data center, particularly with regard to the electrical room and the electrical equipment for the power. And this is becoming more and more prevalent in data center construction today. Okay. The first solution here we call PredictPulse has to do with the UPS. And basically, what we can do here is monitor roughly 300 sensor points coming out of a UPS.
It's a cloud based monitoring system. And what we can do with that data is a lot of predictive analytics. And this really can help us prevent data center outages by predicting a failure in advance and creating a service alert. So there's an obvious benefit to the data center operator here, but there's really a secondary benefit as well because most of these data centers, most of these UPS products we have under a service agreement. Right?
So we
have a service contract with that data center operator. And so we can also take that data and feed it to our technician. And so that as they are going to the site, they already know what they're walking into and they know what they need to bring with them, in which case we can minimize the amount of time it takes to get that data center back up and running. And in some cases, we can extend the service life. When we have this type of monitoring in place, this reduces the risk of UPS component downtime by roughly 75%.
The next one is really interesting. If you think of it, a UPS and a string of batteries sitting in a data center is an asset. And in general, if you're the data Or 2, we actually did a demonstration with Microsoft, won a data center dynamics award for this. The energy savings for a 30 megawatt data center can be roughly 10%. This has got some real, real as data centers have become bigger and bigger and bigger, particularly hyperscale data centers, 30 megawatts is pretty typical.
This has some real value going applies kind of across the board, also resonates very well with industrial end users. This is really looking at how can we do as much as possible inside our factory to minimize commissioning time at a job site. And so the way it works historically is we ship all of our equipment to a job site. We have a team of service technicians and experts that descend on that job site and do final configuration. What we're kind of morphing into here and have changed is really using digital designs and pushing configuration settings from the cloud while the switchgear and while our assemblies and our products are still in the factory.
And so think of it as kind of preconfiguring, if you will, in our factory instead of doing it at the job site. And again, that data center commissioning, particularly in the data center space, commissioning of the electrical system is one of the longest time durations that they face. And so by doing this type of commissioning from the cloud, roughly a 30% savings of that electrical system commissioning. So it is a significant savings from a commissioning time standpoint. Okay.
Shifting gears over to industrial. 20 21, 20% of manufacturers will have transitioned to intelligent manufacturing, dollars 907,000,000,000 per year investment on the Industrial Internet of Things. 3 d printing industry is really growing very rapidly, 21% to 7 $3,000,000,000 And roughly 2 thirds of these Fortune 100 companies have renewable energy targets. So again, all trends that play towards our products and solutions. Industrial Facilities, safety is king.
And so you hear this time and time again. After safety, it would become both OpEx and CapEx productivity and productivity savings and cost savings. So one of excuse me. So again, very broad portfolio, turnkey services, all the products they could need. And one of the recent introductions that we had, we introduced this product last year.
It's called Art Quenching Switchgear. Really very unique in the industry. We have patents on this technology. It provides industry leading protection to protect against what is one of the most catastrophic faults you can have, which is an arc flash incident. Roughly 2000 to 3000 arc flash incidents per year.
What usually happens if you are not protected at all is the picture on the left, Switch gear literally can explode. What this arc quenching switch gear And the real benefit here other than the safety aspect is the fact that it also provides equipment protection. And that's pretty unique. And so what that allows is I can get the equipment back up and in service within hours versus days or weeks. And so a real, real benefit here.
And the industrial users, in particular, are very excited about this technology. 2nd, you would hope we can use our own technology, and we do. And this is really some work that we've been doing over the last few years into really understanding what we call the power genome in an industrial facility. And so we're deploying our intelligent power IoT solutions inside our own facilities to see what we can learn about our own power consumption and our own effectiveness of using our equipment. And so it's actually had some pretty significant insights.
And it's interesting. It is telling us things about equipment that's not even being monitored. And so what we've been able to do here is optimize the equipment operation to the extent that we've saved about 20% on our annual power expense in our facilities. And so the next step is we're deploying this more widely in our own facilities and then we'll begin to offer this for consumers and other customers as well. This one's an interesting example.
So we're combining what is traditionally a pretty rugged or harsh and hazardous product line, combining our intelligent circuit protection into this harsh and hazardous product line, which really provides predictive maintenance and remote operations. And the point of this is, number 1, minimize downtime for some very critical processes in the harsh and hazardous world, but also keep those operators out of those environments with this remote operation. And in essence, try to minimize the downtime situations that can occur in these environments. And then lastly, let me speak a little bit about utility. I showed some of these statistics yesterday if you were here.
The utility market has become quite dynamic. There's a lot going on in the grid today. One of the things happening on the grid is a significant cybersecurity threat, 650,000,000 cyber attacks in 1 year at one utility. And so you hear a lot about grid hardening and the demand for solutions that provide protection from cyber attacks. 2 thirds of the net global electricity capacity growth is now renewables.
There is a real need from the utilities to expand demand response programs. And so you see roughly 0.6 gigawatts, 600 megawatts of demand response for every 1 gigawatt of power added. And so there's a real focus here by the utilities. And if you look at the right statistic, it's not getting any better. So the average outage in the U.
S. In 2017 was 7.8 hours, and that's up from 2016. So, outages are not getting any better. So again, it's the need for our types of solutions. If you're a consumer, and we all are from a utility perspective, you want safe, you want reliable, you want power on.
From the utilities perspective, it's somewhat similar. It's reliable power, but also the need to incorporate renewables and protect that grid from a cybersecurity standpoint. And they need automation to be able to handle the complexity of the grid today. And so 3 solutions that we've talked about yesterday, if you were in my technology showcase. Number 1, a great example of taking a very traditional technology, a recloser, it's been around for over 60 years, and adding to that technology, a state of the art controller, our new Form 7 controller that has built in cybersecurity encryption and a lot of automation flexibility.
And so it's just a great example of how we can weave new technology into a relatively traditional application. The middle one is our SIEM, our grid planning and analysis software. And again, this is a software tool that the utilities can use to help manage the complexity and the acceleration of adding renewables. And so it gives them a very, very quick way to determine whether the grid and where on the grid the capacity exists to add renewables. And then lastly, and again, this is the one that we worked on with the Department of Energy, a completely new way to look at demand response.
And so rather than the traditional one way turn things off type of demand response that we see in the utility space today, this is two way dynamic demand response. And the point of demand response is to try to get people to opt in. And so the belief is with this two way control that customers can have some sort of easier feeling about turning over control of certain assets in their home to the utility and their participation rate will increase. And what that provides to the utility is more peak shaving capability and more capability to regulate frequency. So again, significant improvements on all fronts.
So lastly, to kind of pull all this together, leveraging all of those growth initiatives in both product and services and solutions, we feel this is a $500,000,000 plus incremental growth above market by 2023. And how do we do that? Again, leveraging a very broad portfolio, manufacturing scale on a global basis from both manufacturing and supply chain, a lot of channel strength and then wrapping it all together with that domain expertise. And again, we really feel like the focus of those growth initiatives around those secular growth drivers, energy efficiency electrification and digitalization and data are the key for our growth.
At this point in time, we're going to take a 20 minute break. It's almost 11:10 here for those that are on the webcast joining us. We will regroup here for a question and answer session at 11:30 Eastern Standard Time. Thank you. For those of us here in the room, we're going to regroup and open up for Q and A.
For those of you on the website, thanks for joining us back. With this, I'll turn it over to Craig to questions.
Yes. So once again, just want to say thank you for being patient and sitting through our presentations. I think we got a great story and we're open for questions. And I know Anne maybe we'll give you the first question, because we know you have to catch an early play.
Thank you. My question is for Uday. Could
Yes, that's a great question. And I would say, we're trying to create a very unique e mobility culture. So almost in the benefits of a big company, but almost a startup type environment and thinking moving with speed. And in a large company, things don't always move as quickly as you like. So we've taken away a lot of the constraints and of how we normally do things.
So we've freed the team up. And the team is doing a lot of work to create sort of a new culture. Has it been easy? No. But we have good HR team involved.
We have our leader, Jeff Lowinger, who's really trying do that. So we are in this process of changing creating a very unique culture within eVulnerability. And I'll give you an example. We don't do a regular kind of reviews. We're all in it together myself, Joao Faria, Jeff, we sit together once a month and we're in the same review with the team going this.
We're not doing levels of review. So those are the small things we're doing to try and change how we're doing things. And given the team an open book is to push back and tell us how they want to do things differently.
You might want to add, Woody, that everybody wants in, right, which is a little bit different than historical view of vehicles.
There's about over 1500, 1200 people right
now. When we do our next questions, if you would, please be sure to grab the mic in front of you so that we can catch the webcast with it, please. Thank you.
I'm sure we're going to have time to get through all the questions. So let's work the room from this side to this side and we're going to get to everybody. So we'll go right here.
Does it work? Yes. Just a question for you. I think you guys did a very good job sort of outlining the excitement that you see a lot of end markets and your products. Could you just maybe describe it in a slightly different way?
If you sort of look at Eton 5 years ago today and 5 years from now, how big is software? How big are recurring revenues? And where is it sort of revenue driven by cycle versus sort of underlying, however you want to describe it? And when do you see it in 5 years or whatever timeframe you want to pick in the future?
It's a very good question and it's one that our teams have obviously spent some time trying to think about. But I'd say in many ways, it's also unknowable in many ways at this point. There's so much going on today in the world of connected and everything is going to the Internet. And today, I'd say IoT, there's a lot of, I'd say, substantive things that are going on around the Internet of Things. I think there's also quite frankly a lot of hype.
And I think today, it's we don't quite know where it's going to end. We're all very busy trying to build business models and value proposition around how do you monetize it, who's going to own the data. And so I think today, the forecasts that are out there are quite wide and broad in terms of how big is it going to be. I think the message that we'd like you to take away is that Eaton will be there. We'll be ready.
We're making the investments today in every one of our businesses. Every single product line is working on a strategy to be IoT enabled. We have a team of people who is working on looking at business models in terms of how do we monetize the data and create new revenue streams for the company. It's just, I'd say at this juncture, tough to really assess how big it's going to be and the rate of growth. And it will be different by different businesses.
You heard Brian talk a lot about what's going on today in data centers, what's going on in utility markets. That market will probably the uptake will be a bit faster than to wrap some of the other longer cycle businesses like aerospace, where quite frankly, you have a huge installed base and these platforms run for 20, 30 years before there's the next upgrade. So for us today, it's a question that's difficult to answer given a lot of the uncertainty around these opportunities.
And what about recurring revenue 5 years ago today and where do you see it going?
Yes. All I can say is it's bigger today than it was 5 years ago and we see it increasing. But the absolute number, I don't have it at my fingertips in terms of exactly what is it today versus what it was 5 years ago. So, just keep walking this way.
Yes, just push the button. You pressed the button there.
All right.
I think we're good to go now. So two questions on hydraulics. Craig, maybe first for you. Obviously, big announcement today with the lighting business. How did you think about hydraulics within that context?
And then I have a follow on question for Uday.
Sure. I'd say today, we think hydraulics, as I talked about in my presentation and Uday shared it is, we think it's a business today that has a lot of attributes and characteristics that we like. And most of what goes on today inside of hydraulics meets the criteria. They are a leader in their market. We do have the prospects of growing faster than GDP.
Today, their return on sales, they're above the minimum threshold, but they're not where they need to be. They're not where we expect them to be. Our return on assets, when you take a look at our businesses, you'd be amazed at how consistently they are in our businesses. And so it's got very good return on net tangible assets. We have to do some work to continue to make sure that it performs well through the economic cycle.
So they're on the right path. And at this point, we believe they'll get there. And if we ever get to the point where we believe they won't make the turn, we'll be making the same kinds of announcements that we made in lighting. But I would tell you that that's true for every one of our businesses. And we hold every one of our businesses to the same standard.
And in every one of our businesses, even our most profitable businesses, there are elements of those businesses that we are evaluating and looking at potentially stepping out of. So it's not just, as I mentioned in my presentation, the way you think about the portfolio, we think about it at a much lower level of granularity and every part of the company is going through a forensic assessment of show me what's in the tail, show me the places where we don't have the right to win, where we don't have attractive returns let's talk about whether or not we should step out of those activities.
Thanks, Craig. And Uday, the follow on question. It was helpful for you to touch on at least some of the internal challenges that you faced on hydraulics. When I look at the list and you see something like 81 new suppliers that was surprising to me. And so maybe provide a little bit more color specifically as it relates to that item and where you guys are in terms of getting through the challenges that you face in Germany?
Yes, it's a
good question. Let me answer that question in 2 ways. 2 things that happened when we made this move. One is, during the upturn, a lot of suppliers that we had previously got out of doing business with us and moved the business elsewhere and some suppliers were acquired by other people. That was one reason we changed suppliers.
The second reason was actually our own doing around the business model changes. So as we move to factories, we also outsource components that we previously made in house to reduce our capital intensity. That extended the supply chain as well. So those two factors led to this number of new suppliers coming in place.
Great.
Okay. Thanks. So maybe starting with the analysis that you guys put together on the downturn, Pretty stunning to see that you expect to hold EPS flat, trough margins 2 times above where they were during the past downturn. So maybe you could talk a little bit about the scenario that's built into that and what gives you the confidence to project that? And then I'll ask a question on ESS afterwards.
Rick, you want to take that one? That you built a model?
Yes. That's true, I do. First of all, that reflects lighting out and reflects automotive fluid conveyance out. So that already boosts the margins. And then secondarily, what the model looks at is, just think about it this way Nicole, if you're able to buy 8% of your shares back in a downturn and you take also in a downturn you take the appropriate decremental minimizing steps which we have outlined and sort of have a playbook inside as to how we're going to do that.
That's how you get to roughly flat EPS.
Okay. Got it. And then on ESS, if you guys could just talk about the level of conviction you have and continued strength in orders over the next 12 months. Obviously, we saw some choppiness in 3Q, but broadly throughout 2018 orders were really strong. So I'm just curious if they can kind of continue with that clip or if we should be expecting deceleration?
Maybe I'll take the first part of that and then I'll turn it over to Brian specifically. But one of the things that we spent some time, Nicole, quite frankly, thinking about the way we report orders coming out of this end of Q3 event where I would suggest that we had an outside reaction to a quarterly orders number in what is a very long cycle business. And so one of the things that we reflected upon and we're going to do as we move forward is we're really going to take a look at reporting orders in our long cycle businesses, Aerospace, Electrical Systems and Services on a rolling 12 month basis. Because quite frankly, we think that paints a more accurate picture of really what's going in. So I think there's an over read on slower growth.
There's an over read on 1 quarter of outgrowth, significant growth. And I think it's much more important to paint a consistent picture of what's happening with growth over time. And so overall, we're comfortable with the growth rates in our Electrical Systems and Services business. But I'll let Brian maybe talk a little bit about more of the end markets that are giving
us guidance.
I think we see continued strength. We monitor our pipelines, our negotiation rates, our close rates. That's all continuing strong. As Craig mentioned, it comes at us in waves. Closure, project closures come at us in waves.
Some of that's the nature of some of the markets like hyperscales versus industrials and how they order and how they want to say, in some cases, they're trying to give us a visibility of what their demands are over a pretty long period of time. And in a sense, they're trying to lock capacity. So that does tend to create this volatility in the order profile. But overall, I would say it's pretty encouraging right now from a pipeline standpoint.
It's Greg. I'll get Chris. This is Nick here. So one long term and one short term question. Long term on e mobility, it's obviously a very different profile of business to your portfolio.
Market probably has a problem and you're kind of buying that business. So as this business gets bigger over time, are you open to maybe creating a separate board, bringing in external investors, especially if the R and D investment profile starts to expand? Are you open to doing that with eMobility?
I don't I'd say that maybe the short answer of that is, way we think about the business today, no. And certainly, we have the wherewithal as a company given our size to absorb a segment like eMobility and making some fairly sizable R and D investments in that segment and at the same time continuing to grow the company's earnings. And so I think we have enough size and scale to absorb e mobility. And as we mentioned in our presentation, not just for what it means for e mobility. And as we mentioned in our presentation, not just for what it means for e mobility, but for what it means for the entire company as the core technologies, as the whole world moves more electric, this has so much applicability to everything we do.
And so we think e mobility is absolutely at the center and the core of what the future of Eden looks like.
The decision to spin lighting, the tax basis for lighting is actually reasonably high because that came with Cooper. So curious on the decision to spin rather than sell that business. Did you go through a process to sell lighting?
Let me answer that. No, we did not. But our prime path is to spin the business. Obviously, we'll do what maximizes the value to us. And there may be folks that approach us and have an idea of buying the business and we will consider that and whether that's credible and makes sense.
But we didn't do a presale kind of process.
Okay. That front here Martin.
Kind of a micro question for you, Dave. Ford recently shut down truck production in Brazil and plan to cease it permanently. I believe that plant was actually built to support for it. So what's the how do you think about what to do with that plan?
Yes, that's good. Yes, obviously Ford is a customer of us in Brazil. And so we're quite right now reevaluating the impact of them exiting the market. How much of their business will be apportioned to other players in the market, other their competitors. And we're actively looking right now what we need to do to take action to resize that operation as we speak.
But just to be clear, the plant wasn't built to support Ford. We have a very broad footprint in South America with many customers and that plant was not built specifically to support Ford and they would not account for disproportionate share of our business.
Thanks. Just a couple of quick ones. First just on Lighting and the separation. Can you give us a sense cash versus non cash on kind of the separation costs? And also how quickly do you think you could get after the stranded costs if you are moving forward with the spin path?
Do you start taking actions tomorrow on getting the stranded costs out? Or does this have play forward a little bit?
Out of the $200,000,000 again it's for lighting as well as for automotive fluid conveyance. And there is a portion of write downs associated with the actions we're taking. So it's probably 2 thirds cash, 1 third non cash. And in terms of stranded costs, we will we have started working through the plans now that it's publicly announced. It's going to be a lot easier to work through the details.
Then Craig just back to the question of the tail. I'm sure it's always evolving, right? And you'd like to get things off the tail organically if you can. But can you maybe characterize what percent of the portfolio isn't where lighting ended up today, but it's kind of on the watch list, need some work
and
kind of how much clock time do businesses have when they're in that position?
Yes. I think the way to really think about it is the world is a normal distribution and so are our businesses. And so even in our very best businesses, there is a normal distribution of things that we're taking a look at, whether it's a product line, whether it's a region that we're doing business in, whether it's an application that we're selling into, whether it's a customer. So there's going to be a normal distribution around every one of our businesses that we're taking a look at. And I'd say it applies equally to every business.
And so I haven't quantified the dollar value associated with it, but it's worth going on every place. And I think with timing, I'd say for us, there isn't one answer to that question. I think it's as a management team, we have different businesses, they have different cycles, there's a different level of confidence around our ability to fundamentally fix businesses or if you're in industries that have historically been challenged industries as well. So there isn't one answer either for how much time we're willing to allow something to play out. It's really a function of our confidence in the plan that the business has put together in the context of the industry in which they compete.
And just one separate one also. Just on the whole grid modernization opportunity, the secular trends that would support this have been there for a while, but it doesn't seem like we've hit much of an inflection yet in actual dollars being spent. Do you see that changing? Is there some impetus maybe with the storms, the fires and the cyber dynamics that in fact there's some change in utility behavior on what we're seeing?
Yes, I would certainly agree that the trends are accelerating. 1, there's regulatory pressure. 2, I think cyber is increasingly more relevant to the utilities. And then as over time, as more automation is applied to the grid, some of those other characteristics like cybersecurity become even more heightened. And so it's kind of a compounding effect that's taking place there.
But I do think it's reaching an inflection point.
Great. Ben?
Yes. Thanks. I want to go back to the Lighting spend, which some logistics for Rick. Could you comment on what you expect the balance sheet to be investment grade? The use would be a dividend back to the parent with proceeds, buybacks for the M and A, the whole capital allocation
side to it? Well, we would expect to That's our expectation. So there would be a by Eaton standards, a modest amount of cash that we would take back in the 100 of 1,000,000 of dollars through we haven't worked on the exact structure, but probably a dividend from the spinning the spin co. And we will have further details over the next 6 months. We are just starting the process of making the SEC filings and that normally takes 4 to 6 months to sort through.
And so it will be probably in the Q3 that we'll have much further information to share with you.
And if you could just clarify what's included and what's not included in the spin. So the harsh and hazardous lighting that the connected exit signs that we just saw that's not included. Is there any other nuances there that
Think of this as our traditional lighting business like this commercial type lighting. And then the only other business that's in it is our aircraft lighting, airport lighting business, which is a specialty lighting business that uses much the same technology.
So I guess maybe a question around eMobility and you talked about the announcement here with a win, new OE win on the traction inverter OE win. Obviously, I
know you don't you can
be sensitive around the customer. But can you talk to us about maybe the geographic region where it came from and where you see the biggest opportunity on penetrating those OEMs?
That particular when we're okay to say this as well based on the customer's feedback, it's a European automotive OEM we won the business with. And we're very active in actually all regions of the world right now in China, Europe and in the U. S.
Thank you. One's a homework question And that is that it's been striking to me for a long time that your valuation is much lower than most of your peers. So if that is and that's obviously something you highlighted today, so it's of concern. Have you done the kind of root cause analysis where you have assumptions on why that is and what you're going to do about it?
Yes, I mean, I think it hasn't been lost on us that the valuation is below where we think it should be. We do think the company is undervalued. And I think, Cliff, if you take a look at the history as to why, I think you could paint a lot of different scenarios as to why. And we don't profess to have all the answers. But one I'd say, we didn't do great through the last downturn.
During the last downturn, the company made some commitments that we missed and we certainly lost some credibility coming out of the Cooper end markets kind of fall at the same time. And so I think we certainly lost some credibility as a result of that. I think we have to do some work continually to make sure that our story is understood about today's Eaton. I still am amazed sometimes as something happens in a vehicle market someplace in the world and we trade down on the news. The company is not a machinery company anymore.
We're not a vehicle company anymore. We still trade in these pairsets around news that take industries down. So I think we have to do some work to continue to share our story around why the company is different. And then I think at the end of the day, we have to prove it. I think we have to work through an economic recession and demonstrate to the investor community that this is a very different company.
I think we have a great track record, as we tried to share in a number of my slides around a company that's continued to improve over time. Margins have continued to improve over time. Cash flows have continued to improve over time. But clearly, we have some work to do that remains for us to demonstrate that this is really a different company that deserves the same multiples as some of the other premier diversifieds.
And a follow on question if I may. Do you aspire to take any of these new technology developments and turn them into business models? I mean, would you ever sell a sugar cane harvester? Would you ever I assume this is retrofitable stuff. Would you ever sell that product with some kind of a guarantee on tons produced or on your UPS, what do you call it, energy aware take a Sure.
Selling up time. You got it.
You understand what I'm asking.
Hour by the hour. Yes. So we do have examples in some of our businesses and Udi, you may want to talk about the power by hour agreements that we have, for example, in aerospace and some of the partners. But we're absolutely looking to put it on all of those different kinds of business models.
I mean, obviously, in aerospace, we knew that for a while. It's powered by the hour. It's based on reliability and performance. I would say as you move to these new models, which are more software oriented with subscriptions, you can offer services where the end user or the customer can switch those subscriptions on or off based on the services that they need. And that's the direction we're kind of moving down.
But those kinds of services tend to have a very different liability profile as well. Sure.
They do. Agree. So you really have to understand your reliability data. And it's one of the things that we had to do before we entered into power by the hour agreements in aerospace, for example, we really had to know the reliability profile of our products, of our pumps and motors and valves, so that we could be comfortable essentially underwriting these new business models. Completely agreed.
Thank you.
Julien? Sure. Maybe one first question around acquisitions and partnerships. You mentioned a few times today that you're making a push on JV structures. So I just wondered what was behind that strategy?
And also, does it tell us anything about your acquisition appetite? And maybe just a couple of quick comments around how you see M and A valuations?
I'd say, my own personal point of view, Julian, and the one that I think our management team and the Board chairs is that as you think about what it's going to take to be successful over the next century is that the idea of doing everything yourself and going it alone is not going to be the right business model many on many occasions. The idea of sharing risk to by accelerating your time in the market by partnering with somebody else, sharing R and D investments, sharing the gain in general. I just think that as we think about successful business models of the future, it is going to require companies to really think more broadly around how do you get to a right answer. And if I can get to a right answer and half the time by sharing half the upside and sharing half the risk, I think that's a good outcome for many of the scenarios that we face. And so we're going to be looking to do more of those and we've seen a number of them in our vehicle business, and you're seeing us partner with organizations and government organizations.
But I just think as we think about doing business in the future with the amount of complexity that we're dealing with in general, with the rate of change that we're dealing with, that the idea of partnering to share in some of these opportunities is a good approach to take to business in general. You want to take
the other one on your Yes. In terms of the M and A market, as you know, we've seen a lot of volatility in equity prices over the last 3 months. And that volatility has caused M and A activity to become a little subdued, but it does appear the market is coming back. Question still about valuations. I mean, the valuations for most of last year were rather robust, meaning too high.
And as you saw from my presentation, we've retained our discipline. We've retained our intense focus on financial returns. And so it's unclear how many deals we can get done in that environment. But I will tell you that we're deploying our traditional approach of principally one off negotiations. So not really being involved in broad auctions and of companies largely that we've come to know over many years.
And we have many of those discussions underway. And so I've got a sense of optimism, but I can't tell you for sure how many we can get down or what the timing will be.
So I think the old formula for growth at Eton was that your markets grow faster GDP and then you aspire to outgrow your markets by 1.5 times. And if I look at the long term guidance, if you squint hard enough, you're still kind of in that band. But we heard a lot yesterday about some outgrowth initiatives. And I think very clear that you're transitioning from, hey, we want to bring the margins up to, hey, now we want to grow and we're focusing on that. Would you be disappointed if outgrowth wasn't better over the next 5 years as it was over the last 5?
And is there anything you're doing at either sales or management level to incentivize
or hold people's feet to
the fire on that kind of behavior?
Yes. I'd say that the short answer is absolutely that we made a relatively meaningful and I'd say significant pivot a few years ago to organic growth and said that as a company, if we're going to be successful, we're going to have to figure out how to grow organically. We, I think, have had a very good track record up until that point of growing through M and A. And through that process of so much of the growth coming from M and A, we took some of the emphasis, quite frankly, off of our organic growth capabilities. And so we recognize that and we made some changes to address it.
And so, yes, I would be disappointed if the rate of growth is not faster. The rate of outgrowth is not faster over the next 3 years than it was, let's say, over the last 5. And we are in fact making the investments, the kinds of things that many of you in the room saw yesterday that we think will result in a faster rate of growth outlook. Now the question becomes, are you going to guarantee it? Can you promise it?
And so what we gave you are a set of assumptions that we think that we can stand behind and build a financial model on, but we would obviously hope that we're going to do better than that.
And then I guess just related to that, that growth is not like a peanut butter smooth phenomenon that you're talking more about recurring revenue and having kind of almost like a SaaS or software model to some parts of this. Is it should we focus less on necessarily like a headline outgrowth number and more on, hey, quality of this growth is much better where we can protect your downside scenario better than past recessions because it's seems to be part of the message. I just I don't want to understand how you guys are thinking about it.
Well, I do think in the context of these growth numbers, we will continue to do and take actions to enhance the portfolio. Obviously, when you factor in a lighting, an automotive fluid conveyance business, that's going to obviously take away from growth. And so we will consistently look for opportunities to make sure that it's growth at the kind of margins that we find attractive. But there is the other side of the growth ahead, right? So in addition to fixing the tail, we're also spending a lot of time and our business is figuring out, okay, what's on the other side of that distribution list, where you have great margins, you have the right to win, you have competitive advantage, and you ought to be doubling down, making bigger investments and growing faster.
And so we would hope that over time that we're actually adding more to the head to the right side of that curve than we're taking out the bottom.
No hands.
Any other questions?
So I thought maybe somebody else will ask a question, but anything on 1Q? I mean, I think you mentioned utilities that start off January pretty strong. Any broader comments on 1Q? And I think you reaffirmed FY 'nineteen, but obviously, you're reaffirming 1Q as well, correct?
Yes. Nothing to report on 1Q. So, hey, let me just close by if there aren't any more questions. And we would hope once again that as you think about the last day for day and a half for those of you who were with us yesterday or those of you who are joining remotely that you would really think about Eton as a new company, a power management company with leaders in all our respective markets and a company that's stronger together and businesses that are improving. I think the decisions that we made around the portfolio with lighting, with automotive fluid conveyance, I think is another example of the fact that we're willing to act where it makes strategic sense to act where it's in the shareholders' best interest that we take steps.
We've run it over our history and we'll continue to do it. And I think this idea that Eaton will be a very different company through the economic cycle is a really big message and an important idea. We have the balance sheet today that we didn't have through the last economic downturns and we'll use that balance sheet to ensure that we protect the shareholders and find a way to make sure we hold our EPS flat during a typical economic recession. So we're excited about the growth stuff that you see. We'll continue to focus on growth and invest in growth.
And it's we really think that the company is in great position strategically, and we're really excited about our future. So thank you for coming. Thank you for investing the time with us over the last day or so, and safe travels.