Andrew Obin: Got you. And then just a follow-up, I guess, naturally builds on the first answer. In terms of your supply chain, what are the biggest challenges are you still experiencing? And what has gotten better over the past 3, 6 months? And what’s still a problem?
Craig Arnold: Yes. What I would tell you, in many ways Andrew, we’re really back to where we’ve been historically and we’ve never lived in a world where we didn’t have the intermittent supply chain issues. So I would say, by and large, we’ve seen fairly significant progress every place. It used to be that electronics were a major bottleneck and issue. Most of those issues are now behind us. We still have pockets of individual challenges in various suppliers with various components. But I would say today, it is really more episodic and unique than it is, I’d say, a pattern or a broader, let’s say, capacity constraint in a particular commodity. And so we, like in our own investments, we’ve been working hard to build capacity internally.
We’ve also been working with our suppliers, giving them lead time and visibility into our growth over the next multiple years to ensure that they, too, are making investments in capacity to keep up with our demand. And so I would say today, it’s largely the episodic issue as opposed to a systemic issue.
Tom Okray: Just to jump in Andrew, on the last point. I think that’s really been key, partnering with the suppliers so we can grow together with them. And we’ve gotten much more efficient, probably as a result of the pandemic, understanding what we need on a go-forward demand basis.
Andrew Obin: Tom, you’ll be missed and congratulations.
Operator: Our next question is from Chris Snyder from UBS.
Chris Snyder: So obviously, mega projects have become a big driver of the Eaton story and an important driver of the outlook, so I appreciate all the information you guys provided there. But if we step back and look — and even look through the low single-digit mega project tailwind in 2023, I think you said it was 3% of total of Americas revenue, organic growth has still grown at a double-digit rate for the last 8 quarters. Can you just talk about why underlying demand has been so strong? Because I think when most investors see the huge growth numbers, everyone just assumes it’s the mega project opportunity already playing out.
Craig Arnold: No, I appreciate the question. And I think I’d say long before we were talking about mega projects, we were talking about secular growth drivers, we were talking about energy transition, we were talking about the electrification of the economy. We were talking about digitalization. You think about — today, mega projects deal with these big projects above $1 billion announcements but we’ve seen very similar growth in projects that are well below the $1 billion threshold until reindustrialization of the U.S. and other markets where today, you have production moving back in and big investments taking place. And so the trends are much broader than mega projects. The reason we’ve put this emphasis on mega projects is because it’s a great indicator of the multiyear runway that we have and a chance to give the investor community visibility into the outlook over multiple years.
But you’re absolutely right. We’re seeing broad-based growth in our business much beyond this mega project emphasis but the mega projects will become a bigger piece of our future. That’s why we talked about 3% of sales, 6% of orders, 16% of negotiations, that continues to be a tailwind, a real impetus for future growth.
Tom Okray: Yes. And Chris, if I could just throw in on that. We talked about in the prepared remarks at a high level, our major projects, our large project negotiations and that’s much less than these mega projects. And just some of the numbers, if you look at year-over-year for data centers growing over 160% in terms of negotiation volume; institutions over 40%; government and health care over, 30%. So it’s really, really broad-based, as Craig says. The mega projects, if you like, just really put the cherry on top and give us just a long runway going forward.
Chris Snyder: Yes, no, absolutely. I appreciate the durability and sustainability that it brings. And then just kind of on that same topic, my back-of-the-envelope math suggests that this ramp in mega projects at least drives about a $25 billion incremental market opportunity over the next few years. So a pretty massive ramp for an industry that is already having trouble keeping up with demand. So I guess the question is, do you see a pathway forward for the industry to meet this demand? And how does that impact your multiyear expectations for our ability to push price and drive margins higher?
Craig Arnold: Yes. I think your back-of-the-envelope math is pretty good, actually. It does create a very large growth opportunity for the electrical industry. And I would say to this question around whether or not the industry is going to have enough capacity and bandwidth to capture all of these opportunities, I think one of the restrictions today on growth in general is the fact that there is not enough capacity in the industry which is why we’re making fairly sizable investments in our own manufacturing facilities and working with our suppliers to do the same, so that we can try to get out some of this demand and continue to grow the company. And then on top of that, perhaps the greatest limiter on growth may be the labor constraint in terms of finding enough skilled trades people to deal with the significant backlog of demand.
And so what we think fundamentally is going to happen is that the growth will be there but the cycle will be extended because we simply will not have enough capacity and labor to deal with all the demand and the time frame in which is requested. And so the cycle will simply be expanded out multiple years beyond where it normally would reside.
Operator: The next question is from the line of Steve Tusa from JPMorgan.
Steve Tusa: Tom, congrats on going out with a bang here. Great, great results. Just the pricing dynamics, what are you guys assuming for — in your electrical businesses for price roughly in ’24 embedded in your guidance?
Craig Arnold: Yes, Steve, as you probably are aware, we don’t provide specific price guidance. We don’t separate price and volume. I will tell you that on a relative basis, when you compare, let’s say, 2024 and 2023, 2022, the price will contribute a much smaller piece of our growth than volume will. And that’s — so we’re going to be probably back to more of a historical level of price realization in terms of 2024. And that’s really a function of the fact that we’re not seeing inflation. We had to essentially work the price lever fairly significantly over the last couple of years as we dealt with this inflation that was in the system. Now we still have some inflation principally on the labor side. So we will still get price but its contributions to our growth will be significantly less than it had been in prior years.
