Q1 2021 nVent Electric PLC Earnings Call
Ladies and gentlemen, thank you for standing by and.
And welcome to the Q1 earnings conference call.
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I would now like to hand, the conference over to your first of people today Casey.
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Thank you Amy and welcome everyone in the first quarter 2021 earnings call on J C. Weigelt, Vice President of Investor Relations and on the call are Beth Wozniak, Our Chief Executive Officer, and the series of Whiskey, Our Chief Financial Officer Today, We will provide details on our first quarter performance and provide the outlook for the <unk>.
Second quarter as well as an update to our full year 2021 outlook.
Before we begin let me remind you that any statements made about the company's anticipated financial results are forward looking statements subject to future risks and uncertainties.
Such as the risks outlined in today's press release and in the filings with the Securities and Exchange Commission Bornemann.
Forward looking statements are made as of today and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.
Actual results could differ materially from anticipated results.
Today's webcast is accompanied by a presentation, which you can find in the investor section of <unk> website.
References to non-GAAP financials are reconciled in the appendix of the presentation. We will have time for questions. After our prepared remarks, and now I will turn the call over to Beth.
Thank you, Jason and good morning, everyone.
Our first quarter performance was ahead of our expectations on sales earnings and cash.
The result of stronger than anticipated demand as the.
Well as channel restocking, both of which were particularly strong in March.
Execution was another highlight as we saw good price realization, but increased customer demand, while delivering strong productivity and continued to make progress on our growth initiatives I.
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 three 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 on 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.
Or invent we saw pick up in sales globally, reflecting the broader recovery we're.
Return on sales for the quarter was $17, 7%, marking an increase of 210 basis points.
And we generated $40 million of free cash flow, we believe the faster global recovery and our strong execution were the main drivers to our performance to our over performance this quarter.
Our adjusted EPS of <unk> 43 cents was up 26 per cent year over year, given the strong start to the year, we are raising our full year guidance.
Now onto slide four for a summary 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 nine to down 4%. We originally guidance your incrementals were robust at 56 per cent.
We believe the number of factors drove our top line performance one of those is the accelerated recovery of the global economy recall, our expectation was that enclosures would recover first and that is playing out and closure sales were up 4% organically and industrial sales within enclosures were up 7% organically.
Another factor was channel restocking, where we saw a meaningful improvement in March we believe that this restocking activity was due to a combination of low inventory levels the uncertainty around supply chains and the buy ahead of inflation well this likely pulled some sales into the first quarter, we still believe the.
Underlying global economy continues to recover and we are optimistic about further strength as we progress through 2021.
One of our factor driving our strong results is our focus on higher growth verticals around the electrification of everything.
We believe we are one of the best positioned companies to grow with this mega trend.
Infrastructure was up mid single digits as data center and networking solutions sales were up 20% of number of other sub vertical saw strong growth, including telecom five G and renewables.
Rounding out the vertical discussion, we continue to see weakness in energy, particularly in North America, and MRO, which remain down double digits in commercial and residential electrical <unk> fastening, some modest growth and thermal management saw strong growth driven by fire rated wiring and type of freeze protection.
Turning to our geographical performance sales within North America were down modestly although ahead of expectations Europe continued to improve with sales up almost 4% organically year over year and high teens growth within European distribution, which is a focus area for us.
Emerging geographies, such as China saw strong double digit growth as they continue to lead the recovery.
Looking ahead, we are raising our full year guidance. This reflects the strength we saw on the first quarter and our order momentum while our outlook is positive we remain cautious given broader supply chain constraints and the fact the regions of the world are still struggling with COVID-19.
Regarding inflation, we've raised our outlook for the year around input costs and are executing well on a number of price increases with the strong realizations thus far.
Over the last several years, we've invested in capacity and resiliency in our supply chain and have been able to respond well to the increased demand.
I'm proud to say that due to our new products strong execution and product availability, we are converting customers and emerging stronger.
I will now turn the call over to Sarah for some detail on our first quarter results and our updated outlook from 2021 Sara <unk>. Please go ahead.
You bet. It is exciting to begin the year with such great performance.
Turning to slide five to review first quarter performance sales of $549 million were up 5% relative to last year or 2% organically.
Saw strong price realization, adding approximately a point in the half to growth.
<unk> was our strongest month during the quarter, particularly in enclosures and electrical on fasting.
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 incremental 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 43 increased 26% and was above our original guidance range of 32 to 36 debt.
Free cash flow during the quarter was the positive $40 million.
In summary of this was another quarter of strong execution and a return to growth.
Now please turn to slide six 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 accelerating growth in the infrastructure.
In particular data and networking solutions sales returned to strong double digit growth in our expanded IEC portfolio grew high single digits.
Enclosures segment income increased 19% with return on net sales of expanding 180 basis points to 17, 6% incrementals of 43%, reflecting strong operational productivity.
Now on to electrical <unk> 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 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 on fasting segment income was up 17% and return on sales was 26, 5% up 290 basis points relative to last year, Inc.
Incrementals were very strong at 94 per cent.
The team continues to perform at a high level focusing on fast growing vertical new products channel on contractor conversions, all improving return on sales relative to all while improving the return on sales relative to last year.
Moving to thermal management sales of $124 million declined 1% organically, while orders improved sequentially in industrial MRO sales remain down double digits due to continued spend reductions commercial and residential sales were up low double digits with particular strength in fire rated wiring and.
We continue to see the benefit from longer cycle projects globally.
Thermal management segment income was up 3% and return on sales expanded 10 basis points as the structural changes we made last year are reading out the business.
<unk> continued to see of negative mix impact of margins due to declines in industrial MRO.
On slide seven titled balance sheet, and cash flow, we ended the quarter with the cash balance of $105 million, we have an additional $565 million available on the revolver. We continue to make progress on our working capital goals and we're pleased with robust positive free cash flow during the quarter versus <unk> <unk>.
Typical usage.
This was the result of strong operational performance as well as working capital improvements.
Turning to slide eight titled Capital allocation update we exited the first quarter with the net debt to adjusted EBITDA ratio of $2, One times, which remains at the low end of our target range of two to two and a half times.
We completed the bolt on acquisition of <unk> early in the second quarter, which expands our enclosures portfolio further into infrastructure.
Also repurchased $20 million in shares earlier in the quarter to help offset dilution.
We believe our strong balance sheet and cash generation puts us in a good position to invest in growth and execute our M&A strategy.
Moving to slide nine titled 'twenty, 'twenty, one and then outlook.
We are raising our full year guidance for the following reasons.
<unk> is our strong sales performance of the first quarter, which reflected a faster recovery, particularly in the industrial vertical.
Second our order book gives us confidence that the global economy continues to recover.
Third is our strong operational performance, which we believe is a competitive advantage with our ability to service increased demand.
I'm setting some of these positives is an updated view on inflation, which has meaningfully increased we have successfully executed multiple price increases in enclosures and electrical <unk> fastening.
We continue to monitor inflation and a value of our pricing and productivity actions with the goal of protecting profit.
We are off to a strong start and are confident in our teams the ability to execute but it is still early in the year.
We now expect to grow sales, 8% to 11% versus our prior guidance of 4% to eight per cent and now expect adjusted EPS to be in the range of $1 67, the $1 75 versus our original guidance of $1 58 to $1 68.
The new guidance reflects earnings growth of 11% to 17% versus 2020.
From a segment perspective, we expect the strong recovery in the industrial vertical to benefit our enclosures segment the mode.
Strength in infrastructure and industrial is expected to drive electric on fasting sales with continued resiliency in commercial.
For thermal management, we are encouraged given positive order trends in commercial and sequential improvements in industrial MRO and continue to expect this to be a more gradual recovery.
On currency, we now expect the two point tailwind to sales this year.
We expect another year of strong cash flow and cash conversion of adjusted net income at or above 100 per cent and lastly, we expect corporate costs the increase relative to initial guidance by approximately $5 million.
This is related to higher compensation accruals in response to such a strong start to the year some temporary costs coming in sooner along with continued strategic investments.
Looking at our second quarter outlook on Slide 10, we expect organic sales to be up 14% to 17% as we lap of quarter that was significantly impacted by global shutdowns in the peak of the pandemic.
This outlook is supported by high single digit Oregon of growth in the first quarter with particular strength in March.
We expect adjusted EPS to be between 36, and 40 cents, which at the midpoint reflects a 31% growth relative to last year.
Recall, the second quarter of 2020 included actions around the furloughs and salary reductions during the peak of the pandemic, causing a headwind this quarter still we expect margin expansion and attractive incremental due to strong execution of the benefit of structural actions taken in 2020 and increasing volume.
Wrapping up I'm pleased with our first quarter performance, we executed well to meet strong customer demand. We believe we have the good handle on price cost in this inflationary environment and expect to take the necessary actions to protect profit.
With the successful first quarter in the order momentum. We believe we are set up for a great year with strong sales growth margin expansion and robust cash generation. This concludes my remarks, and I'll now turn the call back over to Beth. Thank.
Thank you Sarah turning to slide 11, I would like to review the progress we've made on our 2021 priorities are.
Our first priority remains of 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, our strategic initiative to build stronger relationships with European distributors is paying off with high teens growth during the quarter, we saw 20% plus growth in our focused verticals such as data and networking.
Solutions and rail as well as high single digit growth amongst our strategic distribution alliances.
We launched nine new products during the quarter across the business. These include connected solutions and thermal management as well as of Universal free stand portfolio of enclosures. We are on track to launch over 50 products. This year recall, we are tracking our progress by measuring new product vitality, which continues.
To rise into the high teens.
And we are seeing of strong revenue and margin contribution from these products.
On the digital front, we continue to launch new capabilities on go to market automation and Digitization of our back office functions and factories, we're expanding our use of data and data and intelligence, helping us drive insights to support our growth. We also expect this to drive productivity and working capital.
<unk>.
On M&A, we completed the <unk> acquisition earlier, this month, which strengthens our enclosures segment, providing us with an expanded non metallic portfolio positioned in high growth verticals, such as solar utilities and five G.
We also formed a strategic partnership with cool I T systems. They are a leader in cooling solutions for data center of networking and we see this further strengthening our cooling capabilities.
Our M&A strategy is to build upon our great brands, leading positions and to expand globally.
We're very pleased with the successful integration of Eldon and W. E T.
Both are performing very well with orders up double digits in the quarter.
We have robust integration playbooks and believe we are capable of delivering value through acquisitions.
We see ourselves competing in a highly fragmented space and have a strong M&A pipeline around the megatrend of the electrification of everything.
We believe M&A is going to continue to play a key role to grow our business and create shareholder value.
The global recovery is underway and even a little earlier than anticipated. We said, we would see the recovery first in enclosures and that is what transpired here in the first quarter.
Since spin we have invested in our capacity and improve the planning and management of our supply chain across all segments and believe we are well positioned to meet our continued increase in global demand.
We have a healthy balance sheet and continue to look for attractive M&A opportunities that deliver high returns over the past year, we've made decisions and investments to put us in a position to emerge stronger on our first quarter results as well as our order book gives us the confidence that we are indeed emerging stronger our outlook for the year has improved.
And we're executing at a high level to deliver both sales and income growth as well as improved cash generation.
Wrapping up on slide 12.
We have a strong foundation with many bright growth prospects because of the macro trends towards the electric electrification of everything we believe we can drive more demand for our products and solutions with our strong brand, our spark management system and our momentum on marketing and sales excellence new products and digital we.
I believe we are well positioned to benefit from these trends.
Our future is bright as we continue to gain traction within high growth vertical global growth and strategic distribution alliances. In addition to growth we're executing at a high level to deliver margin expense expansion and strong cash flow generation, we are emerging stronger and are on a path to making invent a high.
<unk> electrical company with that I will now turn the call over to the operator to start Q&A.
The time, ladies and gentlemen, mobile piece of debt.
Ask the question. Please go ahead of Star.
And the number one on your telephone keypad.
Again, the star one to ask the question.
Your first question today comes from the line of Jeff spoke with vertical research. Please proceed with your question.
Thank you and good morning, everyone. Good morning, good morning, good morning.
Maybe just a little bit more on price cost if we could you share the price was up one 5% in Q1.
What are you anticipating for the full year on price and.
Would that be.
Dollar for dollar recovering the cost pressures that you anticipate at this point.
Yeah, Hi, Geoff I'll take that so I mean, I would just start by saying you know we've got a good track record in terms of realizing price, especially on these inflationary periods and I think you know Q1.
Is evident of that its a good start to the year with pricing strong at a point in the half we do anticipate sequentially as we move into Q2 that inflation will increase if you recall. We've got you know of locking strategy that gives us a bit of of 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 of magnitude, but at the same time, we would expect you know the <unk>.
Racing to increase as well as of our productivity initiatives. So for the full year. You know, we expect to manage their sort of that price cost and cost of fine that material side of the equation on them to run sort of neutral to positive and I think I think the last point I would just leave you with is overall, even with the temporary costs.
Coming in as well as the more inflationary environment. We continue to expect modest Ross expansions of the year and I think that really is more of a testament of the volume recovery that we're seeing is you're seeing surely helps from a productivity standpoint, but also the cost structure work that we did last year along with the the exit you.
On price and and the operational equations on the operational execution. So on price cost is something that we're going to continue to manage as we progress during the year here.
And on the channel side.
The behavior, you saw and closures is there any indication that the.
That's unfolding in the U S on kind of preordering and.
Just how would you describe kind of the the level of channel inventories relative to what looks like it's unfolding on the demand side.
Yeah. So we did in March we started to see some improvements across the channel also in E. S. S. So enclosures first thing strong, but then E. S. S and I think of couple of dynamics there of the recovery 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.
Our suppliers are on allocation, we're not so they're I 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 is as they see global demand. So I think there's still some runway there in terms of the channel globally.
Great. Thanks, I'll pass it on.
Thank you.
Yeah.
Your next question comes from the line of Nigel Coe with Paul.
Proceed with your question.
Oh, Thanks, good morning, everyone.
Yeah.
So.
The details on the thermal I'm, just obviously still the MRO is still remains a bit on the water, but wondering maybe if you could just talk about what you're seeing.
And the people of detail on the on the moving pieces going forward on simple and.
Specifically, but the MRO of them I mean, obviously, if we run against the much easier comps now so can we get back to growth in <unk>.
But would you expect sequential growth the <unk>.
The simple things.
Yes on the on the MRO you know that was.
A significant impact to us in 2020, and we saw that improving every quarter, including going into this first quarter. We would expect you know of returned to growth across all of thermal in Q2, but it's an area where I would say we have seen activity in quoting and we're seeing some of those.
Of projects and some of the that spend getting released so I think we're going to see it continue to improve throughout 2021.
Right.
On this quarter from some of your comps we've seen much strong the commercial construction trends.
The most across the globe, but the.
Particularly in the North America, and you've got some pluses and minuses here of course the portfolio, but just generally speaking what are you seeing in construction and again expectations for this year would be improving growth.
I mean are you more confident now in the market.
Yes, I would say that we are you know when we had our investor day, we talked about commercial being down slightly and I think we see it improving so it could be.
Flat to down maybe a slight positive one thing that I think we're watching very carefully and it's what I've heard through our distribution channel is that there are supply constraints not on our products, but on other 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.
Oh have launched new products in particular from our EMS 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.
Thanks Best of luck with that.
Thank you.
Your next question comes from the line of Jeff Hammond with Keybanc. Please proceed with your question.
Hey, good morning, everyone.
Morning, Jim.
Just on the revenue guidance is it fair to say that the increase is just largely enclosures and youre, leaving the other on.
Unchanged and if not where are you where are you kind of upping. It on the other two segments and then just give us what what you're putting in there for Vicki a free.
From a contribution standpoint within the guide.
Yeah. So let me just kind of walk the top line first you know that increased the guidance. So all in was that four to eight mm and now it's 8% to 11% that that includes almost a point per benki a another point for currency and again, that's going to predominantly show up here in the first half and then roughly two points.
[noise] of organic growth and that really reflects the stronger start to the here that's mostly industrial most of the enclosures, but I would also say we're also seeing some strength on the infrastructure side.
Which would benefit us as well.
And I think from it yeah, and then from an EPS perspective, you know the BCA is it's probably on the smaller bolt on size for us we see it having a more meaningful contribution next year from an EPS perspective is really the focus on integrating on that acquisition. This year, but believe that it really sets us up nicely.
In terms of additional presence there on the infrastructure space.
Okay, and then back on price cost I mean, the the.
The incrementals in the.
Price and productivity versus cost of <unk>. It was pretty exceptional just win.
When do you think which quarter is kind of most challenging for you and.
Yes.
If any are you seeing any pushback on price.
So all on.
I'll take the first question first and then what were the main.
And maybe just comment upon the price comment I would say from an incremental perspective, you know 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 you know where the pandemic was at its peak in terms of impact to our business. So as the temporary cost headwinds you know 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.
To teeny and some of our more discretionary spend and also the corporate cost Oh, we'll expect that to more show up here in Q3, so from an incremental standpoint for.
For Q2, we still feel like those incrementals are looking 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 lap of the temporary costs.
As well as some of the type of temporary costs coming in this year and I don't know if you're on an on price I would say this you know the the again recall that the majority of our products are sold through distribution and the distributors are completely under its understand the inflationary environment that we're in now we have some.
We have to give them do notifications, 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 of.
The timing of how we manage especially when we see rising inflation quickly, it's just the timing and our ability to manage that.
Okay excellent. Thanks, so much.
Thank you.
Your next question comes from the line of.
RBC capital market.
Please proceed with your question.
Thank you and good morning, everyone. Good morning morning.
Hey, like the circle back on enclosures for the quarter and back to you in your prepared remarks that there may have been some pull in.
Of it.
Is there any way you can quantify that and just kind of indications or is it just the.
The inventory in the channel that gave you that.
Insight that there might've been some Poland, but any color or quantification there would be helpful.
Yeah, Deane, it's hard to quantify that exactly because we've got multiple factors going on when I first one I said, Poland I referred to that because our initial view was that we were going to see returned 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.
B 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, where actually responding really well and have you know at the managing demand. So we think of.
That there are distributors that are taking a position to ensure that they have access given that they've got constraints in other areas in the third I would just say with this inflationary environment. We usually see this behavior of the distributors, sometimes one of stock in advance of some of that inflation. So it's that it's the compounding of all of those factors is why we.
I actually think we saw some strength in Q1 that we anticipated more in Q2.
Alright, Thats 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 a higher earnings and yes. It is 100% of free cash flow of.
Better, but just how you're thinking about the the drop through.
Reading into free cash flow for the year.
Yes, again, we would expect those free cash flow dollars right to increase right along with the better net income performance and so while the percentage of net income yeah, we still see at or above right. The dollars would increase in concert with that.
And I think he wanted the it's a good indication there of just a great start I mean, you see the the 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 from last year activity.
Good and just last question and Sarah you one of the first in the sector that we heard using the term feathering back and 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 is some additional temporary costs are starting to come back sooner.
<unk>.
Could you frame for us what those are and the timing and the impact.
Yeah. So we talked about temporary costs last year of book being roughly $30 million and a lot of that really was in the end and again concentrated in Q2 Q3 mm roughly a third of that was teeny roughly a third of that was just salary.
Reductions in the third of that was more discretionary spend and I think what you're seeing is that you know that teenage teenager, you know that that will begin to drop and I think in Q2, but more of it more from a Q3 perspective and I think what we're what we're seeing as of the volume continues to recover we're gonna.
The best in the business and return in some of those more discretionary costs. So it's it's 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 Dean is just on the higher compensation accruals that would come with a stronger performance.
Of course, that's great great color there. Thanks.
Your next question comes from the line of total.
With Barclays.
The good with your question.
Hi, Good morning, maybe I just wanted to circle back to the margin guide. So I think the the margins in the first half of the operating level the guidance would be up maybe of 150 bps or so.
It looks like the full year is not up very much. So the second half margins implied I think the down year on year.
Just confirm whether that's correct and is any of them.
So.
Understood the temporary costs aspect, but obviously your organic growth should also be stronger I guess in.
In the second half versus Q1.
So is there anything else kind of in the moving parts.
Net of weighing on those second half margins year on year there'll be haven't yet discuss.
No I think they're really going to be you know the the thing.
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 it just as you look at that back half you are going to have more of were anticipating more of that inflationary environment, coupled with these temporary costs and not necessarily you know.
Still seeing strong growth, but not necessarily of the year over year of growth that we're seeing here in Q2, just because of the difficult lap them. I think there continues to be some moving pieces here, but what I'm confident in as we continue to run the scenarios you know continue to take actions quickly and execute well. So we're going to continue to manage all of these levers to you know get to the.
Ross expansion for the year, despite some of the inflationary and temporary costs that we're seeing.
Understood. Thank you and then on the.
The segment basis, and when we look at the margins being up for the full year.
The company why is there anything to call out on the segments, where we could see a bigger increase so smaller increase perhaps relative to that some white.
Average.
Yeah, it's been consistent really with how we entered the year, we continued to see.
The largest ros expansion and enclosures and as well as in thermal enclosures, you know really because of that industrial cart recovery that we're seeing and and really the team doing an excellent job managing the price cost as well as our productivity on the operational side.
You know thermal you know 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 the last year as well as anticipating some recovery in the back half with MRO.
Yeah, that's a little bit more flattish in part because they had a great Ross our performance last year and they continue to manage that price cost equation very well as well so really enclosures, we would expect them. The most ros expansion and then and then thermal on a bit more muted on the ESI side.
Great. Thank you.
Okay.
Your next question comes from the line of Joe Ritchie with Goldman Sachs, who was the.
Uh huh.
Thank you good morning, everybody good morning, good morning.
Hey, guys. When you think about the the TQ guide the the organic 14th of seven 2% and you think through the different segments.
Maybe provide a little bit of color on on what your expectation is on the sub segments of level and also if theres any color to provide from April trends at this point that would be helpful as well.
Okay, and just from a top line perspective for Q2 of them you know, obviously, we're expecting strong double digit growth at and then Beth 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 recover of the recovery that we're seeing and I think the order rate.
In Q1 helps the point to that.
But we would expect to see strong electrical <unk> fastening in thermal management growth as well maybe the other comment I would make you know of thermal we do expect of more gradual recovery here and so we see that kind of playing out here in the first half.
From an April perspective, you know it becomes a little less helpful from a year over year perspective, because April last year was probably one of our lowest month in terms of sales per day.
But what I will tell you is that you know it does continue to point to that underlying recovery is it if we look at it just on a per day basis per invent.
It might not be at those at the at the March levels, you know because we do think that that benefited from some of the some of the restocking in pre buys but it's but it's ahead of January and February.
And it's particularly that way right an enclosure. So again as we look at it from a per day basis and puts us well on track to the to the Q2 guidance.
That's helpful and I guess my follow on question, just sticking with maybe thermal for the second.
<unk> seen Brian of oil now sitting in there that the the high Sixty's and Youre not the only company that hasn't really.
Hearings the recovery yet.
On the oil and gas spending I guess, maybe just some color on what your customers are saying.
Do you think of that the second half of the year is going to be much better just any commentary.
Commentary around that would be helpful.
We do think that we're going to see of continued gradual recovery and and we base that on you know the discussions that we've had with our customers, but also the <unk>.
Activity that we have on quoting opportunities and so it seems like you know kind of as we planned it that it's 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.
Thank you.
It's kind of gotten ladies and gentlemen ask the question press the star.
Then one on the telephone.
Your next question comes from the line of thinking.
On the C. L. King. Please proceed with your question.
Yeah.
Yeah, Hi, good morning, Thank you very much good morning.
Hey, My first question would just be to kind of get your I'm going to just touch on maybe some.
Cost of store of the logistics issues that may.
Challenge you to meet your guidance. So firstly I was just wondering you know beyond the steel I was just wondering if you might highlight what are your brother principle of raw materials are purchased the inputs and in particular be on cost, but I mean is there anything that.
Might be of customize their process of product that just might happen naturally limited number of suppliers.
And then along those lines freight has been an issue I'm I'm more thinking about availability of free maybe airborne free going overseas. I mean is there from your perspective, you know any risk to the EBIT to the availability there that you'd need that day.
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 than the nishu just within the industrial sector. Thank you.
Okay, well the majority of our products use steel copper nickel right. There are some resins and some electronics and 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 you know even before we were a public company. You know, we always had really good supply relationships, there and I would say some of the other of 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, you know I think we man.
That and plan 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 on 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 would 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 of electronics and some of our products, but I think we've managed that very well our bigger concern is what happens if something else in the.
Fly chain is a disruptor, so you might be able to get the enclosure and the fastening solutions, but if there's a another product maybe it's wiring cable or maybe its debt at nee slows things down for instance in terms of just.
From capital projects or it could slow things down in terms of some construction you know we even hear lumber is a is the so.
I think we're well positioned to convert and I think you know, 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 cautious now 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 of that and our product availability remains very high and so it's not without a lot of work because of our teams have worked 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 in income.
But at the we're going to be able to continue to respond as demand improves.
Yeah.
Thank you for the and I'll apologize in advance of this next question might be a little wordy, but I was hoping that you could provide some perspective from you.
You know from your perch.
You know with what parts of the company are you thinking maybe this is the 2019 versus 2020 question, so which parts of the company as you look out in 2021 of them beyond are going to maybe revert back to a pre pandemic kind of strategy or operational execution kind of method.
And which parts of the company.
Operations in which functions you know may take the lessons from the pandemic of your environment.
And continue them on into the future on.
On the last 0.1 thing I would say it was <unk>.
You talked about the success with the virtual new product demonstrations you know my sense is.
That's something that's probably kind of persist long into the future and might even be enhanced.
But I'm thinking in a rising price environment.
Managing customer relationships.
Restoring of certain amount of business travel I mean, I think you know some some things youre going to keep from how you've been operating during the pandemic and some things I think to hit your growth targets, you know youre going to have to open.
The open up of 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 cigna.
The significant change to get back to pre pandemic versus things that you're doing in the pandemic era of that'll that'll persist.
<unk>.
Alright, well, we talk a lot about you know emerging stronger and looking forward and you know 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 of our digital.
<unk>, that's now extending into how we launch our new products. It allows us to reduce our cycle time get velocity.
And.
I'd 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 our 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 the level of that will be reduced because we found we can be more effect of operating in a very digital way and I think you know the the way forward is really to have a flexible working environment, we think that.
It 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 an agile approach to everything that we do.
So we're just going to continue to build momentum on.
Okay, Great and then I had just one last one for sure but.
In the first quarter.
You spent $20 million on buybacks and I believe your comment was that it was targeted to offset the.
Chris 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 of full year of of share creep or might there be $20 million per per quarter. This year to offset the creep or something in between just capital deployment to the to offset share creep would be helpful. Thank you yeah.
I mean, I think it I think it puts us in a pretty good spot right. So we exited Q4 with the diluted share count of roughly 169 million shares.
And with you know what we did in Q4, you know along with what we've done here in Q1, and you know, we sit and an exit rate for Q1 and that 169 million share. So it's something that we're going on you know continuing to monitor right from the dilution perspective, and you could expect us to continue to offset any dilution, but again I think what we did in Q4 of them.
What we did in Q2 here, but just kind of good spot.
Yes.
Thank you very much thank you.
Your next question comes from the line of Justin Bergner with G. Research. Please proceed with your question.
Good morning basket boarding Sarah nice start to the year. Thank you.
I had just a couple of questions around.
Sort of price cost and volume.
I guess on the 200 basis point increase in the organic sales guide how would you break that out between incremental price in the incremental volume or.
Maybe just how much is price within your full year organic revenue guide now.
Yeah. So in terms of the incremental guide you can probably think about you know of 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 you know again, how inflation unfolds, because it's it's still relatively fluid and we're going to continue to monitor and <unk>.
The act upon that right as we see that inflationary pressure.
But you know 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 on and again some of them. Some segments are going to be higher than that just based on.
Some of the inflow of inflationary pressures that they're seeing.
Okay that makes sense I mean on.
Impressed with your ability to forecast positive price cost I guess some of your competitors are not forecasting positive price cost.
And maybe this is hard to answer but I guess and then is on the on a FIFO inventory.
Accounting system and not all of your competitors are no I was just wondering is any of that positive price cost.
In your opinion of sort.
Of the aided by the FIFO inventory accounting of what do you think you're doing better than your competitors to put you in that positive.
Camp versus the slight negative camp, that's on the Denver and.
Well, let me respond to just you know we always think that price is the.
Both of the offsets inflation, but it's also a matter of value you know, 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 E. F. S business. When you look at how do we take out labor right, which is value and so therefore, we launch new products with stronger margins are higher.
Price points as a result of that value equation. So I think that's one of the things that we do very well as the company is think about value.
And so therefore that gets reflected in how we manage price and I'll, let Sarah to talk about the FIFO comment yeah. I mean, I think what that does is it just gives you. Some you know some time.
Period rates and visibility in order to to make the right pricing actions, but I think you know for US It comes back into the value creation of the stuff just talked about and just capability. I mean, we have good capability here in regards to pricing and the analytics and I also think it comes down to just a testament to our brand strength of our channel strength of customers.
Service and where we're servicing on.
The increased demands well right now so.
So I think all of that combined puts us in it in and of good spot here, it's not without a lot of hard work to manage the pricing side of the equation you know along with productivity, but again I think we've got a good track record here and we're going to kind of continue to manage it going forward.
Okay, and then maybe just to wrap up that line of questioning on the on a more positive note you mentioned that some of the distributors suppliers are on allocation do you see this environment as giving you incremental out of the growth opportunities because some of your competitive.
Competitors are.
The constrained in terms of what they can bring to market in your less constrained.
We do believe there is that opportunity because we're able to supply that you know that when I talk about conversions of distributors or conversions of contractors that is one of those factors that a lot because we can respond.
Yes.
Okay. Thank you.
Alright, 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 invent the top tier of high performance of electrical company. We hope you remain safe and look forward to speaking to you again, thanks for joining US This concludes the call.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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