Q2 2022 nVent Electric PLC Earnings Call
Work on the en banc.
Electronics second quarter 2022 earnings conference call, all participants will be in listen only mode.
Any assistance please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be opportunity to ask questions.
Asking the question you May Press Star then one on your telephone keypad with.
Well, it's all your question. Please press Star then two.
Please note that this event is being recorded.
I'll like to turn the conference over to Mr. Tony Woodard, Vice President Investor Relations. Please go ahead.
Thank you, Nick and welcome to <unk> second quarter 2022 earnings call.
On the call with me.
Wozniak, Chief Executive Officer, Sara <unk>, our Chief Financial Officer.
Today I'll provide details on our second quarter performance provide an outlook for the third quarter.
The update to our full year 2022 outlook.
Before I begin my remark.
Statements made across the company anticipates.
The financial results are forward looking statements subject to future risks and uncertainties.
Such as the rest are outlined in today's press release.
Filings with the Securities 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 it in the investors section.
Right.
References to non-GAAP financials are reconciled in the appendix of the presentation.
Have time for questions after our prepared remarks.
Please turn to slide three and I'll turn the call Goodbye.
Thank you Tony and good morning, everyone.
Great to be with you today to share outstanding second quarter performance.
That team has done a tremendous job serving our customers responding to strong demand and overcoming supply chain challenges.
Our second quarter performance once again exceeded our guidance on sales and earnings our strategy to focus on high growth vertical new products and global expansion combined with strong execution were key to our success, we delivered record sales in Q2 growing 21%.
Base growth strong contribution from both right.
And volume.
Orders grew double digits in the second quarter, and we exited with a solid backlog.
<unk> improved 110 basis points sequentially, our Q2 EPS grew 14%.
Given our strong second quarter results, we are again, raising full year sales and adjusted EPS guidance.
Now onto slide four for a summary of our second quarter performance.
Sales in the quarter were up 21% organically with double digit growth.
All these vertical.
This is well ahead of our Q2 guidance driven by both price and volume.
Results continue to show, we are winning and executing well.
New products added three points to our growth and we're on track to deliver 50, new products again this year we.
We generated $48 million in free cash flow and our adjusted EPS of <unk> 57 from what was up 14% from the prior year.
Overall growth was broad based across our key verticals each organically growing double digits.
Infrastructure led the way with continued strength in data solutions and power utilities.
Commercial and residential grew double digits, driven by North America and Europe .
Industrial continued its broad based growth, particularly in material handling automotive food and beverage and chemicals and finally in energy, we continue to see a nice recovery, particularly in MRO.
A driving factor in our strong results continues to be our focus on your electrification of everything. We believe we are one of the best positioned companies to grow with the secular megatrends.
Looking at our geographical sales performance, we continue to see the strongest growth in North America.
Nearly 30% in each of the segments.
Europe was up high single digits and developing regions declined slightly.
Looking ahead, we are raising our full year sales and EPS guidance, reflecting our second quarter performance.
Our ongoing strength strong orders and backlog gives us confidence in the rest of the year.
Well our outlook remains positive we continue to be cautious given the macro uncertainties and ongoing supply chain challenges.
We remain confident in our ability to execute and deliver for our customers and shareholders I will now turn the call over to Sarah for some detail on our second quarter results and our updated outlook for 2022 zero. Please go ahead.
Thank you Beth.
Pleased to share with you another quarter of strong performance with both sales and adjusted EPS above the high end of our guidance.
Let's turn to slide five to review our second quarter results sales of $728 million were up 21% relative to last year on both a reported and organic basis.
<unk> was strong adding nine points to grow with price contributing 12 points.
Acquisitions added another four points, which was offset by a four point FX headwind.
Segment income was $125 million.
14% on strong sales growth.
Return on sales improved sequentially to 17, 2%.
While down 110 basis points year over year performance improved compared to Q1 as you indicated it was in April .
Price offset total inflation of approximately $65 million in the quarter.
In addition, we continue to make investments in R&D digital and sales and marketing to support our customers and fuel future growth and productivity.
Q2, adjusted EPS was 57 cents up 14%, we generated $48 million of free cash flow in the quarter an improvement from Q1. This is lower than prior year, mainly due to higher inventories to address supply chain issues and support robust demand.
We expect momentum in cash flow in the second half, reflecting our seasonal strain and working capital improvements.
Higher volume and price cost improvement drove the better than expected results in Q2.
Now please turn to slide six for a discussion of our second quarter segment performance.
Starting with enclosures sales of $381 million increased 27%.
Organically the segment grew 23% with another quarter of strong contribution from both volume and price.
<unk> growth was broad based across all verticals with strength in infrastructure, particularly data solutions.
Geographically all regions grew double digits year over year led by North America.
Acquisitions also contributed to perform exceptionally well, adding eight points to growth with a standout performance in sea ice global up over 35%.
For enclosures orders were up strong double digits in the quarter similar to sales growth.
Enclosures second quarter segment income was $62 million up 15% driven by another quarter of tremendous volume growth.
Return on sales was down year over year, However, improved 220 basis points sequentially to 16, 2%.
This performance mainly reflects improving price cost.
Oh supply chain challenges have eased a bit but remain a headwind to productivity.
In addition, we continue to invest in growth and capacity to position us well for the future.
We expect return on sales performance to continue to improve sequentially with better price cost and improved productivity.
Moving to electrical <unk> fastening sales of $201 million increased 22% organically with strength across all verticals led by commercial.
Geographically North America led the way with strong double digit growth.
Orders outpaced sales again in Q2.
Pricing remains strong demonstrating the value our labor saving products provide to our customers.
Volume in the quarter was impacted by supply chain constraints. However, our improved output in June coupled with strong orders and backlog gives us confidence in the second half.
Electrical <unk> fastening segment income was $59 million up 20%.
Return on sales was 29, 3% up 40 basis points relative to last year.
Price offset higher than expected inflation, and we continue to invest to support our customers and drive growth.
Now turning to thermal management sales of $146 million grew 15% organically driven by strength in industrial.
High margin industrial MRO growth continued to be robust for the fifth consecutive quarter up mid teens.
Geographically North America, and Europe were both up strong double digits.
Overall orders were up low single digits impacted by China Lockdowns in Russia, we continue to see robust orders for longer cycle projects.
Thermal management segment income was up 14% to $28 million return on sales expanded 50 basis points year over year to 19, 4% 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 $56 million.
We also have an additional $442 million available under our revolver, our healthy balance sheet provides us with ample capacity.
Turning to our capital allocation priorities on slide eight we exited Q2 with a net debt to adjusted EBITDA ratio of two times.
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.
Year to date, we returned $67 million to shareholders, including a competitive dividend and share repurchases we.
We expect to continue to deploy capital to drive growth and deliver attractive returns for shareholders.
Now moving to slide nine titled 2022 in that outlook, we are off to a strong start with sales up 24% and adjusted earnings per share up 15% in the first half.
As Beth highlighted earlier, we are raising our full year sales and earnings outlook. This.
This reflects our strong first half performance and higher pricing assumptions, partially offset by greater FX and inflationary headwinds.
A couple of other key points to call out while we saw a gradual improvement in the supply chain through the quarter, we expect challenges to persist.
For the year, we expect pricing plus productivity to offset inflation.
We will continue to invest to support our customers.
And we now expect corporate costs of roughly $80 million, mainly to higher investments and inflation.
Organic growth, we now expect a range of 15% to 17% versus our prior guidance of 11% to 13% for the year.
<unk> EPS is expected to be in the range of $2 17 to $2.23 versus our prior guidance of $2 14 to $2.22.
This new guidance reflects earnings growth of 11% to 14%.
Top of the 31% EPS growth in 2021.
For free cash flow, we now expect conversion of adjusted net income in the range of 90% to 100% due to higher working capital to support our strong sales growth and backlog amidst a challenging supply chain.
We are watching the macro environment closely which remains dynamic and uncertain. We can choose a scenario plan and we'll be ready to respond as we have done in the past.
Looking at our third quarter outlook on slide 10, we expect organic sales to be up 13% to 15% and adjusted EPS to be between 58 and 60 cents.
At the midpoint this reflects 11% earnings growth relative to last year.
Wrapping up I am pleased with our second quarter performance, we continue to execute well to meet strong customer demand and demonstrate our ability to manage price cards are acquisitions continues to generate great value for customers and shareholders shareholders and importantly, we continue to invest in.
Capacity growth for the future.
With the successful first half we believe we're set up for another great year.
This concludes my remarks, and I will now turn the call back over to Bob.
Thank you Sarah.
Turning to slide 11, we've had a consistent strategy since we became a new company that has been driving our success with.
With the electrification of it everything we believe our growth strategy will continue to drive our performance.
Our focus is on high growth verticals, new products, and innovation global growth and acquisitions and partnerships.
Turning to slide 12, let me provide some highlights of how we're executing on our strategy.
Looking at the high growth vertical of data solutions, which includes data centers networking and communications, we expect sales to grow approximately 30% this year.
This vertical now represents more than 10% of our overall in that portfolio.
We've grown our offerings from networking and server cabinets to liquid cooling solutions power distribution units and cable management.
We've strengthened our portfolio with acquisition and technology partnerships.
We've had many large multi million dollar wins with key customers as a result of our differentiated offerings.
Our liquid cooling solutions for example are more energy efficient and sustainable reducing power consumption in a data center and improving reliability.
New products and innovation is another key tenant of our strategy year to date, we've launched 20, new products on a path to 50 for the full year new products that contributed three points to our overall sales growth in the first half.
One of our new products, our flex bus connection solution enables up to 50% faster installation and can reduce total installation costs by 20% or more.
We have found it to be safer and easier to install highly reliable and easy easily customizable.
This new product has applications across many high growth verticals from energy storage to E mobility to data centers, we're seeing significant wins with this new product.
On acquisitions and partnerships I wanted to share that we recently announced an investment in a company called isotope. We are collaborating to offer innovative precision emergent cooling solutions, expanding our cooling portfolio for data center and computing applications.
We recently celebrated the one year anniversary of our C. I S Global acquisition.
With its innovative new products and technology and strong customer relations. It has grown over 35% in the first half we are investing in this portfolio and have opened two new factories, including one in Thailand This quarter.
This is key to our global expansion to increase capacity and serve more global data center customers.
We're moving with velocity and our results demonstrate that we are winning with our growth initiatives.
Moving to slide 13 earlier this week, we published our 2021 yesterday report.
And I want to give you an update on our ESG progress.
Is it 'twenty 'twenty report for the first time, we outlined goals in each of our three pillars people product and planet.
Pleased with the tremendous progress we have made in each of these three pillars.
On people, we have made great strides in inclusion and diversity and our safety performance.
I'm very proud to highlight 70% of advanced board of directors are diverse.
We believe our culture and our people are a differentiator for <unk>.
And we are now a great place to work certified company.
On products, we have set new long term goals.
Including increasing the number of new product introductions with positive ESG impacts this.
This aligns to our vision of developing innovative solutions that deliver efficiency safety and reduced resource consumption.
Planet, we've updated our goals to be more ambitious after making significant progress in 2021, reducing our scope, one and two cotwo emission by 15%.
Our new goal is to reduce scope, one and two greenhouse gas emissions by 50% by 'twenty three.
With ESG at the center of our strategy, we are building, a more electrified and sustainable world and I'm excited about what the future holds for investors.
Wrapping up on slide 14.
We delivered another strong quarter, we are executing well and winning with our growth strategy.
And that gives us confidence in the future we.
We've made significant progress on our ESG commitments, we expect double digit sales and EPS growth for the year and believe we are well positioned for the electrification of everything our future is bright with that I will now turn the call over to the operator to start Q&A.
Well now begin the question answer session asked the West you May Press Star then one on your telephone keypad Youre using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble the roster.
First question comes from Julian Mitchell Barclays. Please go ahead.
Hi, good morning.
Good morning, Good morning, maybe just the first question on the orders and the top line. So just wondered on the orders front.
What youre seeing in Europe , right now and then more broadly on the thermal business.
Do you see the orders picking up there after those headwinds in Q2.
And when we look at the revenue line.
Are you assuming sort of low single digit volume growth firm wide in Q4.
Well good morning, Julien So let me just start on the order so generally our orders.
I have been in line with our sales and when you look at as we commented we had the strongest.
Sales in North America, and that is you know we had the strongest orders growth in North America and generally our European orders followed what we're seeing in European sales so less in North America.
Honest thermal management, we've had a couple of disruptions there remember thermal management is our most global business and so there we were impacted by some of the Lockdowns in China, and we work on longer cycle projects. As you know and also some of our business in Russia as we have chosen not to pursue it.
New business activities, so, but as we looked at the beginning of July orders across all of our segments are very strong as we enter this next quarter.
And then Julien on your question I think in terms of volumes from a Q4 perspective, let me give a little bit of color. There. So we would expect to continue to see strong contribution from both volume and price in the back half now we'd expect to see a little bit more on the volume side in Q3 than we would in Q4, but again.
We expect each quarter's to contribute from a volume perspective and that is simply more of the two year kind of stack lap. If you will of the volume that we saw in Q4 of a year ago, but overall, we continue to expect both volume and price to contribute nicely across the topline in the dotcom.
Okay.
Thank you and then just my follow up would be around.
You mentioned, a sort of a larger inflation assumption in your guidance for the year. When we're looking at that slide five with the segment income bridge that net productivity number the sort of 80 ish million figure in Q2, you know that was a similar figure in the first quarter.
How are you thinking about that for the full year.
Yeah, So two things on that front I'll take the last 0.1st from a productivity standpoint.
Talked about in that $82 million net productivity number in that walk roughly 65 of that is inflation. So the balance of that really is a couple of things. One is gonna be you know productivity and that's still showing up negative as we sit here today just given the strong demand that we're seeing you know amidst a very cheap.
LNG supply chain. So we're still seeing those inefficiencies in the factory getting a bit better right as we suggested gradually through the quarter. The other thing are those investments that we continue to make in our system to be able to fuel that growth I think as you look in the back half I think the most significant thing I would point out from a year over year is.
Just easier comparisons as remember that Q3 Q4 is when we really began to see those supply chain challenges show through in.
In terms of that productivity line. So we would expect that productivity year over year.
To get better but from a sequential standpoint, it's important to note that we're not counting on if you will that supply chain getting meaningfully better.
Your question in terms of inflation.
What we're seeing and I would say a couple things from a from a overall commodities perspective.
From a spot perspective, you know we are seeing some easing there its important to keep in mind that with our locking strategy on much of our metal by you know that tends to have a quarter or two where I.
The other piece I would say, we're seeing meaningful inflation outside of metal so what I would call significant broader inflation whether that way.
Wage health care.
Logistics.
Significant inflation that we're seeing energy cost. So we're seeing that broad based inflation and so that's where we continue to have to manage that price cost equation, you know as we see it on the material front, but I would say generally is we are seeing meaningful inflation.
Sign up material.
That's very helpful. Thanks, very much best and Sarah.
Thank you Julien.
Thank you.
Question comes from Nigel Coe Wolfe Research. Please go ahead.
Thanks, Good morning, everyone.
As always good morning.
So just so I just want to pick up on.
Your you'll respond some price cost I think you mentioned the $882 million buckets in the and in the margin bridge $65 million of inflation. So it looks like roughly $9 million of positive price cost how do you see that.
Evolving in and I guess the real question is how should we think about pricing over the back half of the year and as Hugh you mentioned inflation ex metals. So how would you describe the pricing conversations right now with your customers.
Well, let me, let me start with the pricing piece of that.
Thank you.
We're in an inflationary environment and so on.
Our customers and our channel partners.
Our understanding of all because they're experiencing that as well when you look at wage inflation energy inflation logistics all of those things so really what it comes down to there is just having good lines of communication. So that everyone understands when price increases are coming but there certainly isn't a question.
Why are we having price increases so that has just been an ongoing situation I would say for over the last.
12 to 18 months.
And then just from a numbers perspective, you know we talked about this in our prepared remarks is that we would expect that price cost equation to improve in the back half.
And it's continued to me continue to be vigilant in managing that price cost equation as we continue to see inflation in some of these.
Costs outside of the material front.
But we would expect that to improve in the back half and in enclosures as a big part of that improvement as we look to two Q3 into Q4.
Okay.
I do have a follow on question, but just on that point. So obviously at the price cost balances still a margin dilutive, but it.
It looks like it's got a low double digits on the price increases but.
Would you expect that margin kind of neutralized and thereby by the time, we get to the end of this year. So just wondering about that but I wanted to ask a question on the data center.
You know relatively small but important.
Mark if you guys.
A lot of debate surrounds our data center investments I'm you know just given the fact that a lot of these tech customers are getting smoked right now so how do you see DC investments and the outlook for the next 12 to 18 months.
Yeah, we're very positive on the outlook and I think because when we think about data centers. We don't have to serve the hyper scale data centers, we're looking at networking and communications, we're looking at the edge and other computing applications.
One important point I want to make is we've talked a lot over the years about our liquid cooling capability that we're investing in and expanding if you think about liquid cooling. It really is a sustainable more energy efficient solution and as our data centers with.
You know a lot of computing power getting hotter.
It's a retro suitable solution in some cases, but it really is an investment that has a good payback and so that's where we're seeing this liquid cooling, which is a new technology ships really taking off so from our standpoint.
We believe we're going to see solid growth in data centers for many years to come.
Yeah.
Great. Thank you very much.
And I know I think you had a you know started.
It started that question in terms of Ross and price cost a couple of things I would say the implied in our guidance is margin expansion in the back half.
We would expect that to be more so in Q4 with Q3, showing that sequential and year over year RASK improvement because you're right that price cost dynamic even as we covered off on our inflation here in Q2. It is having an outsized impact from a year over year Ross perspective, but we're confident.
Getting to Ross expansion here in the back half.
Really was improving that price cost equation I think the second piece is the productivity element that we talked about a little bit earlier.
That's great thanks very much.
Thank you. Our next question comes from Jeff Sprague vertical research. Please go ahead.
Thank you good morning, everyone.
Morning.
Good morning.
A couple of things from me first just on supply chain can.
Can you elaborate on the.
Where the issues are is it still kind of tilted towards electronics or is there some other than a bottleneck, that's new or different that's emerged.
Yeah, I would say we're not you know it's it's still those same things that we've seen electronics definitely.
I would say in our E S S business.
<unk> <unk> from last year that we had some challenges there just with even some of the material input that we had as well as recall.
Some of you know, China got shut down and so that had some impact across our businesses as well.
But it's the same challenges, but it is getting better and you know electronics is still an area that we're focused on as well.
And then.
In your prepared remarks, you actually mentioned strength and rosy.
That sounds a lot different than a lot of other things you've heard on <unk>. This quarter. So I was wondering if you could give a little color on that.
Maybe the visibility you have there and also just looking at Q3 I think your guide implies that Q3 revenues would be down sequentially.
It's not clear to me why that would be the case based on kind of seasonality in order trends, maybe you can give us a little color there also.
Okay. Let me start with in my comments I talked about commercial and resi and we sometimes will grouped them together because really ready for us isn't a significant segments of mechanic group that together.
Some of that rosy businesses from our thermal management will reduce our under floor heating. So when we look at that combined commercial and residential business.
It was strong for us not only in thermal management, but the commercial side of that so that's that's what that comment pertained to.
And then just from a sales perspective, it simply is I think what Beth alluded to earlier from a from a sequential perspective from a thermal management perspective, so typically that seasonal uptick isn't that thermal management business. We're.
We're not seeing that.
Given that April timeframe.
As you know things transpired from the Russia, Ukraine conflict and we made the decision to not pursue who you know to suspend new business in Russia, So that you're just seeing that impact.
They're in the back half, particularly in thermal management, we've talked about Russia being roughly 2% sales for overall invent most of that sits in our thermal management business. So youre just seeing that reflected in that overall guide.
Great. Thanks for the color I appreciate it.
Yeah.
Thank you next question will be from Jeff Hammond Keybanc capital markets. Please go ahead.
Hey, good morning, everyone.
Good morning.
Just back on that thermal can you maybe just spike out how you're you're seeing industrial MRO, playing out and if you still think that.
That's a mixed positive driver into the second half I know you cited a number of moving pieces there.
Yes, and as we've commented MRO and industrial MRO has.
<unk> been.
On an uptick and you know it usually it's not something as we've seen in previous.
Times that it bounces back all in one year. It takes a couple of years that combined with some focus we have with some of our new products.
And looking at just how we support services.
We expect that MRO business to continue to.
To grow for us and provide.
Provide some strength and have a positive mix impact in the back half of the year.
Okay.
Okay, Great and then.
You said in the prepared remarks, you know PFS was particularly strong in June and you know it sounds like it's brought in July .
Particularly MFS, what what do you think's driving that inflection is that where a lot of the new products are or is it you know a market dynamic just a little more color there.
Yeah, when we made that comment yes, that's had some of those supply chain challenges, so great orders and backlog, but our ability to execute that and get that out and we've worked through some of those bottlenecks. So we saw some strength there through June and July , but I would say, what's driving our growth there is a couple of things.
You know that portfolio focuses a lot on power and data infrastructure, we've launched a lot of great new products that are labor saving solutions someone signs of labor constraints. They do very well and you know as I gave that one example, we're finding some new product applications that are.
This electrification of everything they are really well suited to the growth that we're seeing in building out some of that infrastructure. So it's really sitting in great high growth verticals that have some nice secular trends new products, and then our own ability to drive our execution.
Through our manufacturing plants.
Okay, and if I could just sneak one last one in on back on the data Center comment.
What's your mix. That's you said, you're kind of maybe underexposed to hyperscale, but if hyperscale where were to be the area to slow.
You feel that at all or or just maybe frame that a little bit more.
Yeah, I mean, I think we're fairly well balanced between Hyperscale between you know some of the system integrators networking communication I mean, we're really trying to provide solutions, whether it's a closet, whether it's an edge or whether it's all the way to my Hyperscale accounts and I think we believe we've got plenty of opportunity.
To continue to expand with our products and with power distribution units now in liquid cooling.
You know, we're very positive in terms of how we look at our growth and it doesn't have to rely on greenfield applications is that as I mentioned earlier, because liquid cooling is an energy efficient.
Efficient solution that can be retrofitted bowl.
Okay. Thanks, so much.
Thank you. Our next question will come from being <unk> RBC capital markets. Please go ahead.
Thank you good morning, everyone.
Morning, Hey, can we start with the inventory in the channel just to give us an update sell in sell through where do you think your distributors are today.
Yes. This is something that we track very closely as we look at this are uncertainty and just trying to understand how it's playing out.
Couple of things one.
Are the sell out and sell it remains robust in both cases, we believe that we're increasing our position. That's what has been our strategy to expand with some of our key channel partners and we believe we're doing that well and so at this point, it's an area that we watch, but I think we're seeing.
Good sell through of our products at this time and it remains in balance is how I would speak to inventory.
Good and then for Sarah the trimming of the free cash flow target.
With this we've seen this everywhere in the sector.
So could you just and we understand the dynamics here, but on the working capital side for inventory build.
Is there any way you could just parse out how much of the additional inventory is what you would classify as supply chain inefficiencies, where you're carrying more buffer inventory and then how much of it is.
Building inventory ahead of satisfying all of that demand and backlog.
Well, here's what I would say Dan is we're seeing obviously, a little bit of flows and you know, especially coming into the year and some of the supply chain backdrops.
We prioritized are delivering for our customers and so with that even in some of our long lead times supply.
Elements you know, we we leaned in from that perspective, and so you saw that in Q1 Q2, I think the other thing that's probably exacerbating what you see here in Q2 is you know what was happening in China, Russia, Ukraine, and some of that getting stuck if you will.
Here in Q2, I think the other piece of it you know and that we've been talking about this and you see it you know converting right into sales, but we still said with a lot of backlog.
And the orders continued to be strong and so those two things coupled right, where we're seeing higher inventory levels now at the same time right. You know Deane, we're very focused on you know our working capital initiatives nothing's changed from that standpoint.
And so we still continue to see opportunity and so as we as the supply chain settles down a bit you know we expect you know to get back to what what you guys have counted on us for and what we're driving to and that is that 100% conversion from net income to cash.
That's good to hear and then just lastly.
On the thermal side a lot of discussion about industrial MRO, how about on the energy side and energy projects were still kind of waiting for those to kick in.
What can you tell us about either front log or quote activity just expectations on how that may play out.
Yeah, you know we are seeing quote activity pick up.
And globally right as everyone looks to have more energy independence.
But these are typically longer cycle projects and so you know our view is we would expect.
That I, you know that to translate into growth.
In the outgoing years, so things are picking up but we're not going to see that conversion into revenue revenue, it's more it's longer cycle.
Got it thank you.
Thank you and again if you have a question. Please press Star then one.
Next question comes from Joe Ritchie of Goldman Sachs. Please go ahead.
Thanks, Good morning, everyone.
Morning.
Hey, just on the on the.
Price cost dynamics as we head into 2023, I know that we still got about ways to go but you are you did mention you are seeing from your base metal pricing come down consistent with what we're seeing across the industry as well I'm. Just curious how does your how is your pricing mechanism is going to work in 2023 if.
These do deploy will you be able to keep most of the pricing that you put through some of it goes back to your customers how is that going to work across the portfolio.
Yeah, a couple comments I would make on that is one that as we think about pricing. It's not just based on commodity metals theres all the other inflationary elements.
And two I would say as we think about new products and some of our portfolio. We look at labor saving solutions. So as we come out with new products, we're creating warranty value those typically command.
Stronger pricing because in a.
Time of labor shortages is a real value equation there.
Gary I would just say you know even as we think about our distribution partners.
They help they manage price through to end customers and certainly.
You know.
Their view is that the pricing levels hold just because of the inflationary environment that we're in so that's our view next year that we're still going to see.
Strong pricing just as a result of just this inflationary environment and we believe we're going to be able to maintain that those pricing levels given all the dynamics that are going on.
Oh, that's great to hear that and I guess, maybe just following up on that.
For Etfs this quarter I don't think I've seen the queue come out maybe it has but.
What was the what was the pricing component of the organic growth in BFS.
And then it's really interesting to see those margins are like really very close to approaching 30%.
Despite what's probably no benefit really from the price cost dynamic.
Just trying to get an understanding of the trajectory of the margins and the progress you guys have made there.
Yeah, so from a price cost perspective much of that topline. This quarter was contributed from a pricing standpoint, and the volume you know like we said in our prepared remarks, we're seeing strong customer demand strong volume in orders in backlog.
And would expect that to contribute both volume and price here in the here in the back half.
From a margin perspective, you know, we said that we see.
See margin expansion opportunity in this business longer term.
We've.
Been able to execute on that yes, I think a 180 basis points of margin expansion last year, a lot of that is coming through.
Productivity in the factories you know we said we were in this lean journey and electrical <unk> fastening and I think that team has made a lot of progress. There is still more progress to me I think the other piece that that touched upon earlier is there is strong labor savings attached to a lot of our portfolio there in electrical <unk> fastening so the.
Value proposition to that brings to our contractors to our customers.
Is meaningful as well.
Awesome. Thank you both.
Thank you.
Well, thank you for joining us today.
We're very proud of the outstanding performance, we delivered in the first half we will continue to focus on delivering for our people customers and shareholders. We're executing on our strategy to make it a top tier high performance electrical company. We've made great progress on our ESG commitments, we believe and that is well positioned for the west.
Houston of everything Thanks, again for joining us this concludes the call.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.