nVent Electric plc (NVT) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the nVent Q1 Earnings Conference Call. I would now like to hand the conference over to your first speaker today, J.C. Weigelt. Please go ahead. J. C. Weigelt: Thank you, Amy, and welcome, everyone to nVent's First Quarter 2021 Earnings Call. I'm J.C. Weigelt, Vice President of Investor Relations. And on the call are Beth Wozniak, our Chief Executive Officer; and Sara Zawoyski, our Chief Financial Officer. Today, we will provide details on our first quarter performance and provide an outlook for the second quarter as well as an update to our full year 2021 outlook. Beth Wozniak: Thank you, J.C., and good morning, everyone. Our first quarter performance was ahead of our expectations on sales, earnings and cash. This was a result of stronger-than-anticipated demand as well as channel restocking, both of which were particularly strong in March. Execution was another highlight as we saw good price realization that increased customer demand while delivering strong productivity and continue to make progress on our growth initiatives. I am so proud of how well our teams are executing in this challenging environment. Overall, it was a great start to the year. Beginning on slide 3 titled Executive Summary. Our employee safety and wellbeing remains our top priority, and we continue to execute on our priority to emerge stronger. We returned to growth in the quarter, and our financial results are well ahead of the guidance we provided in February as well as ahead of the update in early March. We saw particular strength in Enclosures with strong sales within the industrial and infrastructure verticals. For nVent, we saw a pickup in sales globally, reflecting the broader recovery. Return on sales for the quarter was 17.7%, marking an increase of 210 basis points. And we generated $40 million in cash flow. We believe a faster global recovery and our strong execution were the main drivers to our performance -- to our over-performance this quarter. Our adjusted EPS of $0.43 was up 26% year-over-year. Given the strong start to the year, we are raising our full year guidance. Now on to slide 4, of our first quarter performance. Sales during the quarter were $549 million, up 5% reported or 2% organically. This was well ahead of the down 9% to down 4% we originally guided to. Incrementals were robust at 56%. We believe a number of factors drove our top line performance. Sara Zawoyski: Thank you, Beth. It is exciting to begin the year with such great performance. Let's turn to slide 5 to review first quarter performance. Sales of $549 million were up 5% relative to last year or 2% organically. We saw strong price realization adding approximately 1.5 points to growth. March was our strongest month during the quarter, particularly in Enclosures and Electrical & Fastening. Orders in the quarter turned positive and outpaced sales across all three segments, with particular strength in Enclosures. Price plus productivity more than offset inflation, and we delivered incrementals of 56%. Segment income increased 19%, driven by top line strength, good operational execution and productivity from the cost actions we took in 2020. Adjusted EPS of $0.43 increased 26% and was above our original guidance range of $0.32 to $0.36. Free cash flow during the quarter was a positive $40 million. In summary, this was another quarter of strong execution and a return to growth. Now please turn to slide 6 for a discussion of our first quarter segment performance. Starting with Enclosures, sales of $277 million grew 4% organically. We saw volumes increase, driven by a broad-based recovery in industrial and accelerated growth in infrastructure. In particular, data and networking solution sales returned to strong double-digit growth, and our expanded IEC portfolio grew high single digits. Enclosures segment income increased 19%, with return on sales expanding 180 basis points to 17.6%. Incrementals of 43% reflected strong operational productivity. Now on to Electrical & Fastening. Sales of $148 million were up 1% organically, demonstrating the continued strength and resiliency of this portfolio with double-digit growth in industrial, low single-digit growth in commercial and, as expected, modest declines in infrastructure due to difficult comps. Global sales outperformed expectations with strength in Europe and APAC. Order growth in power utilities and data center and networking solutions, all critical areas in the electrification of everything, gives us confidence our infrastructure vertical sales can improve as we progress through the year. Electrical & Fastening segment income was up 17%. And return on sales was 26.5%, up 290 basis points relative to last year. Incrementals were very strong at 94%. The team continues to perform at a high level, focusing on fast growing verticals, new products, channel and contractor conversions, all improving return on sales relative to -- all while improving the return on sales relative to last year. Beth Wozniak: Thank you, Sara. Turning to slide 11, I would like to review the progress we've made on our 2021 priorities. Our first priority remains the safety and wellbeing of our employees. We continue to engage in regular conversations with our employees to ensure they feel safe and supported as we continue to navigate through this crisis. Growth remains a priority for us, both organic and inorganic. We've recently seen a marked improvement in global sales with particular strength in Europe and other global geographies. Operator: Your first question today comes from the line of Jeff Sprague with Vertical Research. Please proceed with your question. Jeffrey Sprague: Thank you. Good morning, everyone. Maybe just a little bit more on price-cost, if we could. So you shared that price was up 1.5% in Q1. What are you anticipating for the full year on price? And would that be dollar-for-dollar covering the cost pressures that you anticipate at this point? Sara Zawoyski: Good morning. Jeffrey Sprague: Good morning. Maybe just a little bit more on price-cost, if we could. So you shared that price was up 1.5% in Q1. What are you anticipating for the full year on price? And would that be dollar-for-dollar covering the cost pressures that you anticipate at this point? Sara Zawoyski: Yes. Hi, Jeff. I'll take that. So I mean I would just start by saying we've got a good track record in terms of realizing price, especially in these inflationary periods. And I think Q1 -- and evident of that is a good start to the year with pricing strong at 1.5 points. We do anticipate sequentially, as we move into Q2, that inflation will increase. If you recall, we've got a locking strategy that gives us a bit of a lead time in terms of when that inflation kind of rolls in. So we are anticipating inflation to uptick sequentially here from Q1 to Q2, sort of in that $10 million magnitude. But at the same time, we would expect pricing to increase as well as our productivity initiatives. So for the full year, we expect to manage sort of that price-cost and cost defined by that material side of the equation to run sort of neutral to positive. And I think the last point I would just leave you with is, overall, even with these temporary costs coming in as well as the more inflationary environment, we continue to expect modest gross expansion to the year. And I think that really is more of a testament of the volume that we're seeing, surely helped from a productivity standpoint, but also the cost structure work that we did last year along with the execution on price and operational equations -- and operational execution. So price, cost is something that we're going to continue during the year, Jeff. Jeffrey Sprague: And on the channel side, the behavior you saw in Enclosures, is there any indication that, that's unfolding in EFS on kind of preordering? And just how would you describe kind of the level of channel inventories relative to what it looks like it's unfolding on the demand side? Sara Zawoyski: Yes. So we did -- in March, we started to see some improvements across the channel also in EFS, so Enclosures first being strong, but then EFS. And I think a couple of dynamics there, the recovery is starting a little bit earlier. I also think that some of the distributors were trying to take a position, because they're seeing that some other components or suppliers are at allocation or not. So they think they're trying to ensure that they've got stock. But I think it's still going to continue to improve. I wouldn't say that they have fully restocked. I think it's improving as they see global demand. So I think there's still some runway there in terms of the channel globally. Jeffrey Sprague: Great, thanks. I'll pass it on. Sara Zawoyski: Thank you. Operator: Your next question comes from the line of Nigel Coe with Wolfe. Please proceed with your question. Nigel Coe: Thanks. Good morning, everyone. Sara Zawoyski: Good morning. Nigel Coe: So good details on Thermal. I'm just -- obviously, still -- MRO still remains under the water. But wondering maybe if you could just talk about what you're seeing, in a bit more detail, on the moving pieces going forward on Thermal? And specifically with MRO, I mean, obviously, we're running into much easier comps now. So I presume we get back to growth in 2Q. But would you expect sequential growth 1Q to 2Q in thermal? Thanks. Sara Zawoyski: Yes. On the MRO, that was a -- significant impact was in 2020, and we saw that improving every quarter, including into this first quarter. We would expect a return to growth across all of Thermal in Q2. But it's an area where I would say we have seen activity and quoting, and we're seeing some of those projects and some of those -- that spend getting released. So I think we're going to see it continue to improve throughout 2021. Nigel Coe: Great. And this quarter, comps, we've seen much stronger commercial constructional trends pretty much across the globe, but particularly in North America. And you've got some pluses and some minuses here across the portfolio. But just generally speaking, what do you see in commercial construction? And again, expectations for this year would be improving growth? I mean are you more confident now in that end market? Sara Zawoyski: Yes. I would say that we are. At our Investor Day, we talked about commercial being down slightly. And I think we see it improving. So it could be flat to maybe a slight positive. One thing that I think we're watching very carefully, as what I've heard through our distribution channel, is that there are supply constraints, not in our products, but products even just lumber. And so that may change the timing of when some of these commercial projects get executed. So we feel that we're in a good position. We feel that we're -- have launched new products, in particular, from our EFS business that is allowing to -- us to convert customers and contractors. And I think it's going to be -- commercial will definitely be healthier. Just some timing based on some of the other supply chain constraints is what we're just being cautious about. Nigel Coe: Thanks for that. I leave it at that. Sara Zawoyski: Thank you. Operator: Your next question comes from the line of Jeff Hammond with KeyBanc. Please proceed with your question. Jeff Hammond: Hi. Good morning, everyone. Sara Zawoyski: Good morning. Jeff Hammond: Just on the revenue guide, is it fair to say that the increase is just largely Enclosures and you're leaving the other unchanged? And if not, where are you kind of up in it -- in the other two segments? And then just give us what you're putting in there for Vynckier from a contribution standpoint within the guide? Sara Zawoyski: Yes. So let me just kind of walk the top line first. That increase in guidance, so all in, was at 4% to 8%, and now it's 8% to 11%. And it includes almost a point for Vynckier, another point for currency, and again, that's going to predominantly show up here in the first half, and then roughly two points of organic growth. And that really reflects the stronger start to the year that's mostly industrial, mostly Enclosures. But I would also say we're also seeing some strength on the infrastructure side, which would benefit EFS as well. And I think from -- and then from an EPS perspective, look, Vynckier is probably on the smaller bolt-on size for us. We see it having a more meaningful contribution next year from an EPS perspective, as really we focus on integrating that acquisition this year, but believe that it really sets us up nicely in terms of additional presence there in the infrastructure space. Jeff Hammond: Okay. And then back on price-cost, I mean the incrementals in the price and productivity versus cost in Vynckier 1Q was pretty exceptional. Just when do you think -- which quarter is kind of most challenging for you? And where, if any, are you seeing any pushback on price? Sara Zawoyski: So I'll take the first question first, and then Beth can maybe comment upon the price comment. I would say, from an incremental perspective, clearly, Q1, we feel great about kind of the execution and being able to deliver incrementals of 56%. We do expect that to ease in Q2. The biggest factor there is just going to be the temporary cost. If you remember, a lot of our temporary cost actions sort of peaked, if you will, in Q2 and Q3 of last year in concert where the pandemic was at its peak in terms of impact to our business. So as the temporary cost headwinds kind of fold in here in Q2 and Q3 and as some of our temporary costs begin to fold in as well as it relates to T&E and some of our more discretionary spend and also the corporate costs, we'll expect that to more show up here in Q3. So from an incremental standpoint, for Q2, we still feel like those incrementals are going to look pretty good just because of the contribution from the overall volume and probably expect Q3 to be our most challenged just because of the lack of those temporary costs as well as some of the temporary costs coming in this year. And I don't know if... Beth Wozniak: Yes. And I would say this, again, recall that the majority of our products are sold through distribution and the distributors completely understand the inflationary environment that we're in. Now we have some -- we have to give them due notification so that they're able to then adjust their pricing and pass it along. But that process, I think, we've got down very well. And a smaller portion of our business may go direct. And usually, we have some material clauses in there that we're able to adjust some pricing. So I would say we're not seeing any pushback. It's more just timing of how we manage, especially when we see rising inflation quickly. It's just the timing and our ability to manage that. Jeff Hammond: Okay. Excellent. Thanks so much. Sara Zawoyski: Thank you. Operator: Your next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Deane Dray: Thank you. Good morning, everyone. Sara Zawoyski: Good morning. Deane Dray: Hi. Like to circle back on Enclosures for the quarter. And Beth, you in your prepared remarks said there may have been some pull-in. Is there any way you can quantify that? And just kind of indications, is it just the inventory in the channel that gave you that insight that there might have been some pull-in? But any color or quantification there would be helpful. Beth Wozniak: Yes. Deane, it's hard to quantify that exactly, because we've got multiple factors going on. When I -- first, one I said pull-in, I referred to that because our initial view was that we were going to see return to growth in Q2, and that happened in Q1. So as far as our planning and phasing was -- that happened earlier. And so what we had thought would be restocking in Q2 seemed to happen in Q1. The second point I would make is because we are hearing about significant supply chain challenges in other parts of the electrical world, we're actually responding really well and have been managing demand. So we think that there are distributors that are taking a position to ensure that they have access, given that they've got constraints in other areas. And the third, I would just say with this inflationary environment, we usually see this behavior. The distributors sometimes want to stock in advance of some of that inflation. So it's that -- it's the compounding of all those factors is why we actually think we saw some strength in Q1 that we anticipated more in Q2. Deane Dray: All right. That's really helpful. And I appreciate that additional color. And then in terms of the guidance boost for the year, I see you're leaving free cash flow unchanged, even though you've got higher earnings. And yes, it's 100% free cash flow or better. But just how you're thinking about the drop-through reading into free cash flow for the year? Beth Wozniak: Yes. So Deane, we would expect those free cash flow dollars, right, to along with the better net income performance. And so while the percentage of net income we still see at or above, right, the dollars would increase in concert with that. I think Q1 is a good indication there, just a great start. I mean you see the positive impact by way of just the stronger performance and that flowing through to free cash flow. And we're really pleased with some of the early reads of our working capital initiatives, some of that being even carried over from last year activity. Deane Dray: Good. And just last question. And Sara, you were one of the first in the sector that we heard using the term feathering back in temporary costs. And so you've given good visibility in terms of how these come back into the P&L. You did say that there's some additional temporary costs that are like starting to come back sooner. Could you frame for us what those are and the timing and the impact? Sara Zawoyski: Yes. So we talked about temporary costs last year being roughly $30 million. And a lot of that really was in the -- and again, concentrated in Q2, Q3. Roughly one-third of that was T&E. Roughly one-third of that was just salary reductions. And then one-third of that was more discretionary spend. And I think what you're seeing is that T&E, that will begin to drop in, I think, in Q2, but more from a Q3 perspective. And I think what we're seeing is as the volume continues to recover, we're going to invest in the business and return in some of those more discretionary costs. So it's a matter of some of these strategic investments that is investing kind of in the here and now as well as in that future growth. I think the other piece, maybe just to keep in mind too, Deane, is just the higher compensation accruals that would come with a stronger performance. Deane Dray: Of course. That's great. Great color there. Thanks. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. Julian Mitchell: Hi. Good morning. Maybe I just wanted to circle back to the margin guide. So I think the margins in the first half at the operating level are guided to be up maybe 150 bps or so. It looks like the full year is not up very much. So the second half margins implied, I think, are down year-on-year. Just confirm whether that's correct? And if so, I understood the temporary cost aspect, but obviously, your organic growth should also be stronger, I guess, in the second half versus Q1. So is there anything else kind of in the moving parts that are weighing on those second half margins year-on-year that we haven't yet discussed? Beth Wozniak: No. I think they are really going to be the things that we've already highlighted. I mean I think I pointed to Q3 probably being our most difficult quarter just from an incremental standpoint already. And then just as you look at that back half, you are going to have more of a -- we're anticipating more of that inflationary environment, coupled with these temporary costs and not necessarily -- still seeing strong growth, but not necessarily the year-over-year growth that we're seeing here in Q2 just because of ROS. I think there continues to be some moving pieces here, but what I'm confident in is we continue to run the scenario, continue to take actions quickly and execute well. So we're going to continue to manage all these levers to get to that ROS expansion for the year, despite some of the inflationary and temporary costs that we're seeing. Julian Mitchell: Understood. Thank you. And then on a segment basis, when we look at the margins being up for the full year, companywide, is there anything to call out on the segments where we should see a bigger increase or smaller increase perhaps relative to that firm wide average? Beth Wozniak: Yes. So consistent really with how we entered the year, we continue to see the largest ROS expansion in Enclosures as well as in Thermal. Enclosures really because of that industrial cart recovery that we're seeing. And really, the team is doing an excellent job managing the price-cost as well as productivity on the operational side. Thermal, part of this is just kind of bouncing off the lows that we had, and again, seeing the benefit from the cost structure that the team executed in last year as well as anticipating some recovery in the back half with MRO. EFS, a little bit more flattish, in part because they had a great ROS performance last year, and they continue to manage that price-cost equation very well as well. So really Enclosures, we'd expect the most ROS expansion and then Thermal and a bit more muted on the EFS side. Julian Mitchell: Great. Thank you. Operator: Your next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question. Joe Ritchie: Thank you. Good morning, everybody. Sara Zawoyski: Good morning. Beth Wozniak: Good morning. Joe Ritchie: Hi, guys. When you think about the 2Q guide, the organic 14% to 17% and you think through the different segments, maybe provide a little bit of color on what your expectation is on a sub segment level? And also, if there's any color to provide from April trends at this point, that would be helpful as well. Beth Wozniak: Okay. And just from a top line perspective for Q2, obviously, we're expecting strong double-digit growth at an nVent level. And really, that flows through to each one of the segments. We would expect Enclosures to be leading the pack, if you will. I mean part of this, again, is due to an easier comp, but it really is more indicative of that industrial recovery that we're seeing. And I think the order rate in Q1 helps point to that. But we'd expect to see strong Electrical & Fastening and Thermal Management growth as well. Maybe the other comment I would make, Thermal, we do expect a more gradual recovery here. And so we see that kind of playing out here in the first half. From an April perspective, it becomes a little less helpful from a year-over-year perspective, because April last year was probably one of our lowest months in terms of sales per day. But what I will tell you is that it does continue to point to that underlying recovery. If we look at it just on a per day basis for nVent, it might not be at those -- at the March levels, because we do think that, that benefited from some of the restocking and prebuys, but it's ahead of January and February. And it's particularly that way, right, in Enclosures. So again, as we look at it from a per day basis, it puts us well on track to the Q2 guidance. Joe Ritchie: That's helpful. And I guess my follow-on question, just sticking with maybe Thermal for a second. You've seen Brent oil now sitting there at the high 60s. And you're not the only company that hasn't really experienced a recovery yet on oil and gas spending. I guess maybe just some color on what your customers are saying? Do you think that the second half of the year is going to be much better? A commentary around that would be helpful. Beth Wozniak: We do think that we're going to see a continued gradual recovery. And we based it on the discussions that we've had with our customers, but also the activity that we have on quoting opportunities. And so it seems like kind of, as we planned it, that is just going to improve over the course of the year. And remember, we were at lows last year. So that's the expectation. We're going to see that gradually recover. Joe Ritchie: Thank you. Operator: Your next question comes from the line of David Silver with CL King. Please proceed with your question. David Silver: Yes. Hi. Good morning. Thank you very much. Beth Wozniak: Good morning. David Silver: Yes. Hi. My first question would just be to kind of get your -- I'm going to just touch on maybe some costs or logistics issues that may challenge you to meet your guidance. So firstly, I was just wondering, beyond steel, I was just wondering if you might highlight what are your other principle raw materials or purchased inputs. And in particular, beyond cost, but I mean, is there anything that might be a customized or processed product that just might have a naturally limited number of suppliers? And then along those lines, freight has been an issue. I'm more thinking about availability of freight, maybe airborne freight going overseas. I mean is there, from your perspective, any risk to the availability there that you need? And maybe just the last point, are you sensitive at all or dependent at all in any meaningful way to the semiconductor type of shortages that have been prevailing in autos and maybe a couple of other niches within the industrial sector? Thank you. Beth Wozniak: Okay. Well, the majority of our products use steel, copper, nickel, right? There are some resins and some electronics in what we do. But we feel we've got very good positions when it comes to our sources of metal. And over the last several years, even before we were a public company, we always had really good supply relationships there. And I would say some of the other secondary suppliers, we've done a lot to ensure we've got regional supply chains. That in some cases, we've got dual sources. So as we sit here today, I think we've managed that and planned for that very well. And as we've talked with -- as I've said, we've talked with our distribution partners, and they've said many other electrical suppliers are in allocation. That is not the case for us, and we are responding and, I think, driving some conversions as a result. When it comes to your comment around what's going on with semiconductors and electronics, again, I'll say, for us, we've been able to manage that. It's not as big of a spend item for us. But obviously, we do have controls and we do have some electronics in some of our products. But I think that we've managed that very well. Our bigger concern is what happens if something else in the supply chain is a disruptor. So you might be able to get the Enclosures and the fastening solutions. But if there's another product, maybe it's wire and cable or maybe that it may slow things up, for instance, in terms of just some capital projects or could slow things down in terms of some construction. We even hear lumber is -- so I think we're well positioned to convert. And I think we're managing our supply chain really well. And that's the feedback that we get from our distributors. But I think this is the cautiousness that we have in just terms of the rate or pace of recovery, given these other disruptions. And then I think your other comment was around logistics and freight. And I would say, yes, earlier in the year, like many other companies, we had issues in just terms of containers. But I believe we've been able to work through all that, and our product availability remains very high. And so it's not without a lot of work, because our teams are working really hard to do that. But I'm very pleased with how we've been able to respond to the demand that we're seeing and confident that we're going to be able to continue to respond as demand improves. David Silver: Thank you for that. And I'll apologize in advance, this next question might be a little wordy. But I was hoping that you could provide some perspective from your perch. What parts of the company are you thinking might -- this is a 2019 versus 2020 question? So which parts of the company, as you look out in 2021 and beyond, are going to maybe revert back to a pre-pandemic kind of strategy or operation kind of method? And which parts of the company operations and which functions may take the lessons from the pandemic year environment and continue them on into the future? On the last point, one thing I would say was you talked about the success with the virtual new product demonstrations. My sense is that's something that's probably going to persist long into the future and might even be enhanced. But I'm thinking in a rising price environment, managing customer relationships, restoring a certain amount of business travel. I mean I think some things you're going to keep from how you've been operating during the pandemic and some things, I think, to hit your growth targets, you're going to have to open up or revert back to pre-pandemic operations. So I was just wondering if you might call out one or two highlights in each area where you think significant change to get back to pre-pandemic versus things that you're doing in the pandemic era that will persist. Beth Wozniak: All right. Well, to talk a lot about emerging stronger and looking forward and going forward, and by that, I think we've become digitally agile. And so as we think about what we needed to do this year in terms of -- we have embraced the agile methodology to how we drove all our digital programs. That's now extending into how we launch our new products. It allows us to reduce our cycle time, get velocity. And I would say, as we go forward, all of that digital capability that we've built to launch new products, to move with velocity, to market digitally, to have our information available to and do training digitally, that is not going away. Now I would see us, in some cases, having to supplement, because we will get customers or channel partners who will ask for face-to-face meetings and that there will be times when that's very important. But I think the level of that will be reduced, because we found we can be more effective operating in a very digital way. And I think the way forward is really to have a flexible working environment. We think that is a competitive advantage for our company. We think that it's important. We found that we can be even more productive. We had more new products and more digital launches operating in this way. So I really don't see us kind of going back. I see us going forward. And I think it's the digital approach and agile approach to everything that we do that we're just going to continue to build momentum on. David Silver: Okay. Great. And then I had just one last one for Sara. But in the first quarter, you spent $20 million on buybacks. And I believe your comment was that it was targeted to offset the share creep or share dilution. And I'm just wondering if you could maybe -- and I'm sorry if I missed this. But is that $20 million spend in the first quarter sufficient to offset a full year of share creep? Or might there be $20 million per quarter this year to offset the creep or something in between? Just capital deployment to offset share creep would be helpful. Thank you. Sara Zawoyski: Yes. I mean I think it puts us in a pretty good spot, right? So we exited Q4 with a diluted share count of roughly 169 million shares. And with what we did in Q4, along with what we've done here in Q1, we sit at an exit rate for Q1 in that 169 million shares. So it's something that we're going to continue to monitor, right? From a dilution perspective, we'd expect us to continue to offset any dilution. But again, I think what we did in Q4 and what we did in Q2 here puts us in a good spot. David Silver: Thank you Very much. Sara Zawoyski: Thank you. Operator Your next question comes from the line of Justin Bergner with G Research. Please proceed with your question. Justin Bergner: Good morning, Beth. Good morning, Sarah. Nice starts the year. Beth Wozniak: Thank you. Justin Bergner: I have just a couple of questions around sort of price-cost and volume. I guess on the 200 basis point increase in your organic sales guide, how would you break that out between incremental price and incremental volume? Or maybe just how much is price within your full year organic revenue guide now? Beth Wozniak: Yes. So in terms of that incremental guide, you could probably think about a point of that being volume and a point of that being price. I think from a full year guide on price, I think that's going to be somewhat dependent upon, again, how inflation unfolds, because it's still relatively fluid, and we're going to continue to monitor and act upon that, right, as we see that inflationary pressure. But again, I think Q1 gives you a good indication of kind of the start, and that's not even getting fully realized, if you will, in terms of the pricing actions that we took here in Q1. So we would expect pricing overall for the year to be over two points. And again, some segments are going to be higher than that just based on some of the inflationary pressures that they're seeing. Justin Bergner: Okay. That makes sense. I mean I'm impressed with your ability to forecast positive price-cost. And I guess some of your competitors are not forecasting positive price-cost. And maybe this is hard to answer, but I guess on a FIFO inventory accounting system and not all your competitors are. And I was just wondering, is any of that positive price-cost, in your opinion, are sort of aided by this FIFO inventory accounting? Or what do you think you're doing better than your competitors to put you in that positive camp versus the slight negative camp that some of them are in? Beth Wozniak: Well, let me respond to just -- we always think that price is -- both it offsets inflation, but it's also a matter of value. We teach our salespeople to sell on value. And so one of the things I commented on is when we launch new products, particularly in our EFS business, we look at how do we take out labor, right, which is value. And so therefore, we launch new products with stronger margins or higher price points as a result of that value creation. So I think that's one of the things that we do very well as a company is think about value. And so therefore, that gets reflected in how we manage price. And I'll let Sara talk about the FIFO comment. Sara Zawoyski: Yes. I mean I think what that does is it just gives you some time period, right, some visibility in order to make the right pricing actions. But I think for us, it comes back into the value creation, as Beth just talked about, and just capability. I mean we have good capability here in regards to pricing and the analytics. I also think it comes down to just a testament to our brand strength, our channel strength, our customer service. We're servicing the increased demand well right now. So I think all of that combined puts us in a good spot here. It's not without a lot of hard work to manage the pricing side of the equation along with productivity. But again, I think we've got a good track record here, and we're going to continue to manage it going forward. Justin Bergner: Okay. Then maybe just to wrap up that line of questioning on a more positive note, you mentioned that some of the distributor suppliers are on allocation. Do you see this environment as giving you incremental outgrowth opportunities, because some of your competitive -- competitors are constrained in terms of what they can bring to market and you're less constrained? Beth Wozniak: We do believe there is that opportunity, because we're able to supply that -- when I talk about conversions at distributors or conversions at contractors. That is one of those factors that allow -- because we can respond. Justin Bergner: Okay. Thank you. Sara Zawoyski: All right. Well, thank you, and thank you for joining us today. We are pleased with our first quarter performance and believe we are executing at a high level. Our outlook has improved, and we're continuing to invest and focus on growth, which remains a top priority. Investments in people, R&D, digital, manufacturing capability and social responsibility are critical for our long-term success. We believe we can make nVent a top-tier high-performance electrical company. We hope you remain safe, and look forward to speaking to you again. Thanks for joining us. This concludes the call. Operator: This concludes this conference call. Thank you for your participation. You may now disconnect.NVT Ratings Summary
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nVent Electric Reports Q2 Beat, Raises 2022 Guidance
nVent Electric plc (NYSE:NVT) reported its Q2 results, with EPS of $0.57 coming in better than the Street estimate of $0.54. Revenue was $728 million, compared to the Street estimate of $687.72 million.
The revenue upside was tempered by ongoing supply chain challenges that weighed on margins and free cash flow conversion. Organic sales surprised meaningfully to the upside, growing 21% in the quarter, compared to the company’s guidance for 12%-14%, and all segments grew above 15%.
The company provided its full 2022-year guidance, expecting EPS to be in the range of $2.17-$2.23, compared to the Street estimate of $2.20.
