Q1 2022 nVent Electric PLC Earnings Call
Good day and date for standby welcome TD invent first quarter earnings conference call. At this time, all participants are in listen only bananas. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Require any further assistance. Please press star zero. Please be advised that today's call is being recorded.
I'd like to hand, the call over to Tony winner Vice President Investor Relations. Please go ahead Sir.
Thank you Charlie.
Welcome to <unk> first quarter 2022 earnings call.
I'm 20 rider Vice President Investor Relations on the call with me are Beth Wozniak, our Chief Executive Officer, and Sara a voice Keith <unk>, our Chief Financial Officer.
Today, we will provide details on our first quarter performance provide an outlook for the second quarter and an update to our full year 2022 outlook.
Before we begin.
And 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 <unk> filings with the Securities and Exchange Commission.
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 on the investors 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 with that please turn to slide three and I'll turn the call over to Beth.
Thank you Tony and good morning, everyone. It's great to be with you today to share our outstanding first quarter results.
Our first quarter performance exceeded our guidance on sales and earnings.
Our strategy to focus on high growth verticals, new products and global expansion combined with strong execution were key to our success.
We delivered record sales in Q1 growing 27% with strong growth across all segments.
Orders grew 28% in the quarter higher than sales.
Adjusted earnings per share of 50 cents was up 16% year over year.
Overall, we are pleased with these results to start the year and are raising our full year sales and adjusted EPS guidance.
Now onto slide four for a summary of our first quarter performance.
Sales in the quarter were broad based up 24% organically with each segment up greater than 20%.
This was well ahead of our Q1 guidance, primarily driven by strong volume of 13 points, coupled with 11 points of price.
Our results show, we are winning and executing well new products added approximately two points to our growth rate and we're on track to deliver 50, new products again this year.
We are focused on growth, serving our customers and delivering long term value creation, we continue to have significant wins with the electrification of everything.
For example in enclosures in the data solutions vertical we had several wins from RCI EFS acquisition with our leading intelligent power distribution unit offering.
We want a large program for our social media provider for their new Hyperscale data center and are now a preferred partner.
The rollouts of five G and fiber to the home in electrical <unk> fastening are easy to install hammerlock ground Rod connection has been specced in by multiple telecommunication companies. We've seen good adoption with large north American utilities, resulting in a seven fold increase in orders year over year.
And in thermal management, we recently converted and account valued at over $5 million with a large chemical producer we won with our heat tracing systems, including our advanced controls that enabled longer circuit legs, lowering cost and labor hours, providing benefits to both the project.
And the end user.
In addition to these business wins, we received numerous awards and recognitions from our top distribution partners.
Our electrical and fastening team recently received platinum recognition highlighting our strong level of support and partnership our thermal management team was awarded the above and beyond service Excellence award for their unprecedented support.
And our enclosures team earned the operational and technological Excellence award in recognition of their innovative state of the art business practices and quality services.
These recognitions are a testament to the great work of our events teams, serving our customers and partners each and every day.
I now want to comment on the verticals that we serve we continue to see broad based growth with all verticals growing more than 20% year over year.
Industrial led the way with continued growth in automotive food and beverage and material handling.
Infrastructure continued its strong growth led by strength in data solutions and power utilities.
Commercial and residential continued its trend of double digit growth driven by North America and Europe .
And finally in energy, we continued to see a nice recovery, particularly in MRO.
The driving factor in our strong results is our focus on higher growth verticals around the electrification of everything where we believe we are one of the best positioned companies to grow with this megatrend.
I will touch on these in more detail in a few minutes.
Looking at our geographical sales performance, we continued to see the strongest growth in North America up over 30% Europe was up low double digits and developing regions grew low single digits looking.
Looking ahead, we are raising our full year guidance, reflecting our strong start to the year.
Our outlook is positive we remain cautious given the impacts of the Russia, Ukraine conflict Covid Lockdowns in China and ongoing supply chain challenges.
I'm very proud of our team and how we continue to perform and deliver outstanding results I remain confident in our ability to manage through these challenges and deliver for our customers and shareholders I will now turn the call over to Sarah for some detail on our first quarter results and our updated outlook for 2022, Sarah. Please go ahead.
Thank you Beth let's begin on slide five with our first quarter results. We are off to a strong start to the year sales of $695 million were up 27% relative to last year or an impressive 24% organically. We saw continued strong price realization.
11 points to the top line.
<unk> were better than expected, adding 13 points to growth while acquisitions added another five points.
<unk> growth was broad based across segments and verticals.
First quarter segment income was $110 million up 13% while return on sales of 15, 9% was down 180 basis points, both better than expected recall, we forecasted Q1 year over year margin performance to be similar to the previous quarter, including a prior year corn.
Cost headwind.
Rice, nearly offset total inflation of $69 million in the quarter, despite higher than expected material logistics and energy costs.
Q1, adjusted EPS was 50 cents.
Up 16% and above the high end of our guidance range free cash flow was a usage of $3 million in the quarter, reflecting working capital investments due to robust demand.
Now please turn to slide six for a discussion of our first quarter segment performance.
Starting with enclosures sales of $359 million increased 30% and 23% organically with another quarter of strong contribution from both volume and price growth was broad based across all verticals with particular strength in industrial geographically.
All regions grew double digits year over year led by North America.
Acquisitions also continued to perform exceptionally well, adding nine points to growth.
C. A S global and <unk> each grew more than 30% in the quarter delivering outstanding growth and a testament to our high growth vertical focus.
Enclosures first quarter segment income was $50 million up 3% return on sales improved sequentially to 14% well down 360 basis points year over year.
There were several factors impacting return on sales.
First inflationary costs came in higher than we expected.
Second we experienced inefficiencies in our operations due to significantly higher output.
It's a challenging supply chain.
In addition, we continue to invest in growth and capacity to position us well for the future.
Partially offsetting these impacts was strong price realization of 11 percentage points.
We believe our increased output and inventory are key to winning new business.
Moving forward, we expect return on sales performance to continue to improve sequentially with better price cost and improve productivity.
Moving to electrical <unk> fastening sales of $188 million increased an impressive 29% organically with strength across all verticals and double digit growth in North America and Europe .
Both pricing and volume contributed nicely to the top line, adding 19 and 10 points respectively.
As the electrification of everything accelerates. So does the growth trajectory of this business for example data centers and power utilities were up over 40% in the quarter.
Electrical and fasting segment income was $47 million up 20%.
On sales was 25, 1% down 140 basis points relative to last year. This result was better than expected due to strong volume growth and price offsetting inflation.
Lastly, thermal management grew 22% organically with sales of $148 million driven by strength in industrial and infrastructure Hi.
High margin industrial MRO growth was strong for the fourth consecutive quarter up 46%.
Geographically North America, and China were both up strong double digits.
<unk> and backlog grew double digits year over year, including longer cycle projects.
Thermal management segment income was up a tremendous 54% return on sales expanded 500 basis points to 21, 9% driven by volume and positive mix contribution from industrial MRO.
On slide seven titled balance sheet, and cash flow, we ended the quarter with a cash balance of $51 million, we have an additional $446 million available on our revolver, we have a healthy balance sheet with ample capacity.
Turning to our capital allocation priorities on slide eight we exited Q1 with a net debt to adjusted EBITDA ratio of two times at the low end of our target range of two to two and a half.
We believe our robust balance sheet and cash generation puts us in a great position to invest in growth and execute on our M&A strategy we.
We returned approximately $38 million to shareholders in the first quarter, including a competitive dividend and share repurchases. We expect to continue to deploy capital to drive growth and attractive returns for shareholders.
Moving to slide nine titled 2020 to invent outlook, we are raising our full year guidance, reflecting our performance in the first quarter, along with strong orders and record backlog. We will continue to manage price cost inflation stepped up our outlook now includes price contributing over six.
Percent to full year sales growth.
For the year, we still expect pricing plus productivity to offset inflation.
We also expect supply chain challenges to persist along with a greater overall macro uncertainty.
We now expect organic sales to grow 11% to 13% versus our prior guidance of 6% to 9%.
And expect adjusted EPS to be in the range of $2 14 to $2.22 versus our original guidance of $2 10 to $2 20.
This new guidance reflects earnings growth of 9% to 13% on top of the 31% EPS growth in 2021.
And lastly, we expect another year of strong free cash flow performance with conversion of approximately 100%.
Looking at our second quarter outlook on Slide 10, we expect organic sales to be up 12%, 14% and adjusted EPS to be between 52 and 54 cents at the midpoint. This reflects 6% earnings growth relative to last year.
Wrapping up I am pleased with our first quarter performance, we executed well to meet strong customer customer demand, we again demonstrated our ability to manage price cost in this inflationary environment, our acquisitions are growing faster than overall invent and importantly, we are investing in capacity.
Rose.
With a successful first quarter. We believe we are set up for another great year. This concludes my remarks, and I will now turn the call back over to Beth.
Thank you Sarah.
Turning to slide 11, since we became a new company, we put a strategy in place that's been working and we keep executing on the elements of the strategy.
In particular, one element has been to expand in high growth verticals and capitalize on the megatrends of electrification of everything.
We have added to our portfolio by launching new products acquiring new businesses and partnering with technology companies. Let me touch on a few of these high growth verticals.
Data solutions, which includes data centers communication infrastructure and 19 networking has it been has been a significant area of emphasis for us. It has grown double digits almost every year and we expect this strong growth to continue.
We have advanced our differentiated liquid cooling capabilities launching many new innovative products, we have a dedicated commercial team focused on expanding our wins through hyperscale accounts system integrators and distribution channels.
We also have completed two acquisitions in this space.
Global and WB T, adding power distribution units and cable trays to further extend our offerings.
We've achieved significant wins with marquee customers and believe we are well positioned for the future.
With the mood tomorrow electrical infrastructure, our emphasis on power utilities and renewable energy continues to grow.
We've expanded our commercial team and continue to launch more new products. The think he acquisition provided us with a stronger non metallic enclosures portfolio, including a unique offering in solar.
We see investments being made in infrastructure, which we expect to drive further demand for our products and solutions globally.
In commercial we've always had a strong position and as buildings become smarter and more electric we believe there's even greater opportunity for our products.
In electrical and fastening, where we focus on power and data infrastructure, we see the number of connections growing in a building.
Whether it is more data solar power or EV charging stations. All of this requires more of our products. We've been a leader in developing labor saving solutions that are faster easier and safer to install and as we continue to see labor shortages our portfolio provides outside.
Value, allowing contractors to save time on the job site. We believe we're well positioned in this vertical and continue to innovate and increase our offerings.
Finally, another example is industrial automation.
We have a strong portfolio, particularly with enclosures are Eldon acquisition expanded our global presence, even further with an I E C offering.
We've been setting up lines in our factories around the world to be able to manufacture this portfolio globally.
This allows us to support global Oems, who specify our solution globally, yet want to be served locally.
We've also been investing in new products and digital capabilities to be able to configure and build products with velocity our growth in our enclosures portfolio over the last year is a result of many of these investments.
As we see more Iot solutions and more automation, all the electronics need to be protected from the environment for safety and for security reasons. This means more and more enclosures will be required and with our breadth and capability to meet almost any specification. We believe we are well positioned.
To grow.
These high growth verticals have become a more significant portion of our event sales accelerating our growth trajectory.
We believe we're well positioned with the electrification of everything secular trends.
Wrapping up on slide 12, we're off to a strong start the momentum has continued from last year and we are executing well in a challenging environment I.
I'm very proud of our team and our ability to scenario plan respond and execute.
We expect double digit sales and EPS growth for the year and we believe we are positioned well for this year and beyond our future is bright.
With that I will now turn the call over to the operator to start Q&A.
Sure Ma'am as a reminder to ask a question you will need to press star one on your Tolson and wait for your name to be announced to bid for your question you May press the pound key.
Once again this is star one to ask a question.
Your first question comes from the line of Julian Mitchell. Please go ahead.
Thanks, very much good morning, good morning.
Good morning, maybe.
Notable the strong volume growth, but perhaps starting off with <unk>.
Price and inflation. So you talked about $63 million of price in Q1 than I think $69 million of inflation on the cost side.
What's dialed in for those numbers and Youll sort of Q2 guidance and then how do you see them in the back half.
Yeah. So a couple of things so from a full year perspective, you know we came into the year thinking prices, what's going to be in that 4% to 5% range and now we're saying that that's going to be greater than that 6% that incorporates what we did in Q2 and importantly, you know what we'll need to keep pace with from a price cost.
Perspective.
So we would expect just from a year over year perspective in Q2 for that price those price increases to fold in I think I would just call out keep in mind from a year over year perspective, we did see considerable step up in price last year in Q2. So we're roughly at a point of price in Q1, and we saw you know five to six points here.
In Q2, so that's going to impact that year over year perspective from an inflation perspective, well, we expect to kind of be the higher inflation to stick them. We did see sort of an outsized impact here in Q1 from a year over year perspective, because of the very favorable metal locks of a year ago. So.
A nice way to maybe wrap this up Julien is that we expect that price cost equation to improve in Q2 and through the back half of the year and that's going to be one of the driving factors of the over all Ross on margin performance improvement that we expect going into Q2 as well as into the back half.
Thanks, very much and then maybe looking at it sort of from a segment standpoint, I think you'll roll, but Q2 is implied at around 17%.
So, it's maybe 100 bps sequentially or so.
Flattish revenue sequentially anything to call out there by <unk>.
Segment.
Suppose people, particularly in stream that thermal business and the sort of sustainability of that.
Very strong Q1 margin.
Yeah. So a couple of things to point out there wouldn't be one from an inbound perspective, we have less of a year over year corporate cost headwind that was sort of outsized in Q1, and then if you look at that margin sequentially from Eros performance standpoint, we would expect enclosures Ross to improve really largely.
On a better price cost position.
As well as just better leverage on some of these investments on growth in capacity that we're making so we would expect that ross year over year to improve.
From a thermal management perspective, we still still expect great Ros expansion in the quarter, just not to the magnitude of Q1 and that's largely because that's when we begin to lap that industrial MRO recovery of a year ago that really began in earnest there in Q2 from an <unk> perspective, we still it still.
Expect nice year over year income growth, but just by way of you know the inflation being at elevated levels, even as that team you know prices that off from a price cost perspective, we're still seeing that in the overall Ros performance.
Great. Thank you.
Thank you. Your next question comes from the lineup to Ritchie. Please go ahead.
Hi, Thanks, good morning, everyone.
Good morning.
Hey, congrats on a nice a nice start to the year it's interesting.
The organic growth rate this quarter was really good and you expect it to be kind of above the.
The guidance range for the year and in <unk> as well and so I guess I'm just kind of trying to think about that that full year number and whether you're just maybe the styling and some conservatism today.
Just based on how fluid the backdrop.
Your thoughts around that would be helpful.
You know I think you know, we're very pleased with how we've been able you know the orders growth and the momentum that we've had and I think as we look at the full year a couple of things. One remember we started to see tremendous growth as we got into Q2 of last year through Q3 and Q4. So then we start to lap that so to speak and search.
I think we're just pointing to the fact that there still are a lot of uncertainties out there in the environment and we've been doing well and being able to respond but not everything is within our control. So that's just part of the thinking into our guide.
And Beth maybe can you can you maybe comment on.
Some of the uncertainties, specifically, China, that's clearly been evolving since the end of the quarter.
Your exposure there and how your business is operating there or any color there would be helpful. Okay. So again for you know for US China is not M. A C.
<unk> portion of the overall invent revenue, we don't have any manufacturing in Shanghai, where there are lockdowns, but we do have manufacturing across the country I'm like many others. We've you know we've had employees have locked down our salespeople and I and we've certainly seen you know some slowness I'd say overall in APAC on some of the orders.
From where we were in Q1, and it's hard to predict how those lockdowns are going to occur across the country. You know I would say at this point you know, we're managing that well and so we just you know, we'll just have to be able to respond because I think it does create supply chain greater supply chain disruption.
You know for many companies, but overall I think you know our guide for Q2, just reflects the position that you know where we think we are today.
Okay, great if I could sneak one more in just on the back of Julians question on price cost.
Seems like the enclosures business is the area, where you're probably feeling some of the most pressure, but you felt that through 11 points of price. This quarter I guess, maybe just talk through some of the dynamics there in enclosures.
This call is positive as well.
Progressive.
The quick answer to that is yes, we expect that to be price cost positive. So it's just a matter of timing you know from an enclosure standpoint, I think the other thing to keep in mind too just by way of how that enclosures P&L looks maybe a little bit different than the other two is we do have a much higher labor as a percentage of sales higher frame.
As a percentage of sales so that cost tends to come in quicker. If you will overall to the to the P&L, but love we've got a lot of confidence that we're going to continue to see that Ross improve we did from Q4 to Q1, 13% to 14% and we expect it to continue to prove here into Q2 and the back half largely on that.
Price cost equation, but also underlying productivity that the team is driving as well.
Perfect. Thank you.
Thank you. Your next question comes from the lineup Nigel Coe. Please go ahead.
Yeah.
Yeah, Nigel good morning.
Yeah.
Hello.
Got it.
Oh, sorry about that so that they don't happen to.
Morning, everyone, sorry about that so.
So I wanted to circle back to thermal you mentioned I think industrial MRO up 46%.
If I'm not mistaken you were down 40%, 45%.
By a quarter and I know 2020.
One is wholly Oh, Oh, it puts it down so just given the math would suggest that we're still running double digit finished below twin 19 levels is that correct.
Any reason why we shouldn't get back to peak levels there.
Well, here's what I would say that that industrial MRO recovery began really in Q1, a year ago by way of orders right, but not yet sales and then we did begin to see that industrial MRO recover by way of some strong double digit sales growth in Q2 of last year I would say that we still see them.
Further runway you know to get to that 2019 levels from industrial MRO standpoint, and and that's reflected in the growth profile right. That's got to continue to improve just both from a sales trajectory perspective, and as well as from an MRO or as well as from an Ros expansion standpoint.
That's typically what we've seen in past cycles is that it takes a couple of years for that MRO to fully recover so we're in the midst of that improvement.
Improvement if you like sequential improvement and we've seen it now for four quarters.
Right right that makes sense and then Russia, I think you've got a chunky exposure and thermal to Russia just wondering.
That's swinging your guidance in the back half of the year.
Well you know for overall invent them ourselves or in Russia are less than 2% and you are correct in that it is weighted more towards our thermal business.
And you know our position there is that where you know we suspended any new business activities in Russia, and so we are just supporting and completing existing business and the position. We have their full is fully reflected in our guide.
Okay, Great and then just a quick one.
<unk> auto.
Yes.
Covid has disconnected.
Maybe you can proceed with the next question.
Okay.
Your next question comes from the line you Didnt agree your line is now open.
Thank you good morning, everyone.
Hey, I really liked that electrification of everything slide that's a good roadmap for you.
So nice who put together. Thank you question is can you quantify the supply chain impact in terms of any missed sales.
Clearly you've got the demand, but were you not able to ship any products and can you quantify that.
Well I would say Deane.
It's hard to say with a strong growth rate that we didn't have a good you know sales output.
But it's still.
Important to point out that we're building backlog right. So as we continue to deliver for our customers orders keep coming in right and so I do think that you know.
I think it's less about we think about kind of lost sales. If you will in the quarter I think what it does as you know continues to give us great backlog, great order trends and visibility you know as we step into Q2 here.
Got it and I'm not sure. If you commented on this but how has April started.
Yeah. So April I think we commented upon this a bit but I'll give it a bit more color here. So yeah. We continue to see April orders and sales up double digits and when we look at it from a segment perspective enclosures and E. S. S lead on both of those.
Franz you know from a geographical standpoint.
Consistent with what we saw in the Q1 I mean, North America continues to really lead you know from a growth perspective, Europe . We continue to see some growth in APAC is where we see them a bit of that easing. If you will and were largely reflecting the China lockdowns that Bob referred to earlier.
That's real helpful. Just last one any comments about inventory in the channel with distributors.
Yeah, we've talked to our key distribution partners and what we've seen for our products is that the sell out is more or less matching the sell in so that the perspective that we get is that we're in balance.
So you know, we're keeping up with that strong pull in demand that they're having from their flow through of sales.
That's really helpful. Thank you.
Thank you thanks Dean.
Once again, if you would like to ask a question. Please press star one on your telephone keypad and wait for you need to be announce your next question comes from the line is kept Hammond. Please go ahead.
Hey, good morning.
Yeah.
Yeah, I also like the slide 11, but but for a lot of good detail I'm just wondering if you can.
Frame, either collectively or individually like how you would size those markets within your business.
We have you know we haven't given you the full perspective on all of that but I would just you know share with you that we have for example, with data solutions show to you that you know that used to be less than $100 million of our portfolio. Now you know mid two hundreds and we're growing that are double digits. So that just gives you a sense of.
That trajectory you know when you look at our commercial portfolio and we spoke to smarter buildings, but you know commercial's been around 27% of the overall in that portfolio and the others are more or less subsets right of of what we look at it in overall industrial so we haven't really given you all that perspective, yet, but I just.
I want to say you know these areas are just growing faster when we look at our in overall vertical view of our business.
Okay, Great and then certainly you know oil and gas pricing is moving up I'm just wondering.
What youre seeing from a from an MRO and project quoting and order activity any kind of incremental inflection around.
The renewed focus on oil and gas.
Yeah, we have seen our orders and our quotations pick up you know and that's been a steady increase certainly the MRO activity has been very strong as we've pointed out. So you know one of the things. We that we see is that everyone is looking for energy security or energy independence.
If you like and so we do expect that they're going to be continued investment and we're well positioned to respond to any global investments that are made so we think that we're you know we're in an upturn here in terms of energy.
Okay, Great and then just if I could sneak one more in.
Just any thoughts like what do you need to see or what do you need for things to happen in terms of productivity starting to get better either less negative or moving back positive.
Well I would say it this way Jeff is in our full year guide them. You know, we really didn't reflect meaningful improvement from our supply chain efficiency perspective, because I'm. So we're not counting on that in our overall guide so if if somehow that gets miraculously better.
And quicker turn you know that should help them, but we think we haven't baked in with some of the current challenges that we see here today and whether that'd be just continued tight labor market and so the teams are doing a tremendous job to increase output service the customer.
But we're gonna reluctant working a lot of overtime and as we bring in new people. It takes you know time to train them and we're not as efficient initially.
Cereal availability I think that.
Becoming you know.
Less of an issue, but it's still an issue in pockets and it just adds to more of a choppy.
<unk> process, if you will so I think the.
The key point here is that we're not counting on that supply chain, you know to get meaningfully better in our overall guide.
Okay perfect. Thanks for all the good color.
Thank you and your next question comes from the line if you like okay.
Please go ahead Sir.
Oh, Thanks for the second by the Cherokee is and then what happens.
Just a quick one on also you called it out as an area of strength.
Within the industrial vertical and it's it's it's it piqued my interest because it's not something we've talked a lot. So I'm assuming this is EV projects.
And maybe just talk about that and remind us how big auto is for for and then.
Well, yes, what we're seeing our investments remember, where we play as we're not on the automobile we're actually in the factories and in the operations and so as you start to see line changeovers to electric vehicles and you start to see some of the automation that's going in all of that is.
Growth that we're seeing in our enclosures portfolio.
Great. Thank you very much.
And once again, if you would like to ask a question. Please press star one on your telephone keypad.
And we have no further question at this time I would like I would now like to turn the call back to our presenters for closing remarks.
Thank you for joining us today, we're very proud of the outstanding performance. We delivered in the first quarter. We will continue to focus on delivering for our customers and shareholders by executing on our growth strategy. We will continue to make invent a great place to work for our employees and.
Well, we believe invent is a top tier high performance electrical company well positioned for the electrification of everything thanks again for joining US. This concludes the call.
And this concludes today's conference call you may now disconnect.
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Yes.
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