Q3 2024 nVent Electric PLC Earnings Call
Okay.
Speaker Change: Good day and welcome to the advent of electric third quarter 'twenty 'twenty four earnings conference call.
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Speaker Change: Now I tried to conference over to Tony writer, Vice President of Investor Relations. Please go ahead.
Tony Writer: Thank you and welcome to invest third quarter of 2024 earnings call.
Tony Writer: On the call with me are Beth Wozniak, our chair and Chief Executive Officer, and series of Whiskey, Our Chief Financial Officer.
Tony Writer: Steve will provide details on our third quarter performance and outlook for the fourth quarter and an update to our full year 2024 outlook.
Tony Writer: Please take note.
Tony Writer: As a result of the previously announced agreement to sell the thermal management business.
Tony Writer: He is reporting the results of this business as discontinued operations and has reclassified 2023 and 'twenty 'twenty four results for all prior periods.
Tony Writer: In addition guidance is now presented on a continuing operations basis.
Tony Writer: All results referenced throughout this presentation are a continuing operations basis, unless otherwise stated.
Speaker Change: 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 red cell by and in today's press release and filings with the Securities and Exchange Commission.
Speaker Change: 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.
Speaker Change: Actual results could differ materially from anticipated results.
Speaker Change: Today's webcast is accompanied by a presentation.
Speaker Change: You can find in the investors section of <unk> website.
Speaker Change: References to non-GAAP financials are reconciled in the appendix of the presentation.
Speaker Change: We will have time for questions after our prepared remarks Cleveland.
Speaker Change: Please limit your questions to one and one follow up.
Speaker Change: 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 strong third quarter results.
Beth Wozniak: We continue to execute on our strategy for growth with a focus on high growth verticals, new products and global expansion in.
Beth Wozniak: In the third quarter, we delivered record sales up 9% both on a continuing operations and total basis.
Beth Wozniak: Total adjusted earnings and cash flows were strong coming in better than expected.
And we continue to make investments to expand our data solutions business.
Beth Wozniak: Our portfolio transformation is underway with the announced sale of thermal management business.
Beth Wozniak: And we expect the sale of the business to close by early 2025.
Beth Wozniak: Our most recent acquisition track team is off to a good start growing sales strong double digits and is a great new platform for in that we.
Beth Wozniak: We believe these portfolio moves, we're making that a more focused and higher growth electrical connection and protection leader and further positions in that with the electrification sustainability and digitalization trends.
Beth Wozniak: Now on to slide four for a summary of our third quarter performance.
Beth Wozniak: Sales in the quarter were up 1% organically led by infrastructure year to date, new products have contributed over three points to sales growth and we've launched 77 new products.
Beth Wozniak: Adjusted operating income grew 4% year over year with return on sales down 120 basis points due to investments and mix.
Adjusted EPS was 63 cents we.
Beth Wozniak: We generated an impressive $143 million in free cash flow.
Beth Wozniak: Up over 30% we're on track for another strong year.
Beth Wozniak: Looking at sales performance across our key verticals infrastructure led the way up low double digits organically with data solutions growing double digits industrial was down low single digits commercial revenue declined mid single digits with continued end market softness.
Beth Wozniak: Turning to organic sales by geography, North America was up low single digits and Asia Pacific had strong broad based growth Europe declined low single digits.
Beth Wozniak: Lastly, organic orders in Q3 grew mid single digits year over year.
Beth Wozniak: Looking ahead to Q4 from a vertical perspective, we expect infrastructure to have the strongest growth, particularly data solutions and power utilities.
Beth Wozniak: Industrial is expected to be flat commercial ready to remain soft.
Beth Wozniak: In addition, macro uncertainty remains with the upcoming election and interest rates, which has some distributors cautiously managing inventory overall.
Speaker Change: Overall, I'm very proud of how our event team overall I'm very proud of our advent team and how we continue to execute and deliver for our customers and shareholders. While transforming the portfolio are on track for another strong year I will now turn the call over to Sarah for further detail on our third quarter results and our updated.
Outlook for 'twenty 'twenty four Sara. Please go ahead. Thank.
Sarah: Thank you you bet we.
Sarah: Had a strong third quarter performance with both segments growing better than expected earnings and record cash flow, let's turn to slide five to review our results, which as a reminder are all on a continuing operations basis.
Sarah: Sales of $782 million were up 9% relative to last year or up 1% organically.
Sarah: Volumes contributed approximately two points to growth and price was essentially flat.
Sarah: Acquisitions added $59 million to sales or eight points to growth better than expected.
Sarah: Foreign exchange impact was neutral.
Sarah: Third quarter, adjusted operating income was $168 million up 4%.
Turn on sales was 21, 5% down 120 basis points every year. This reflected tough prior year comps and corporate costs and electrical <unk> fastening mix and higher investments this year.
Sarah: Inflation was roughly $25 million in the quarter.
Sarah: Q3, adjusted EPS was 63 cents down 3% due to higher interest and taxes as expected.
Sarah: We generated outstanding free cash flow in the quarter of $143 million up 33% or 18% of sales, reflecting strong working capital performance.
Sarah: Now please turn to slide six for a discussion of our third quarter segment performance.
Sarah: With enclosures the team delivered another excellent quarter.
Sarah: Sales of $477 million increased 16% and 1% organically Act.
Sarah: Acquisitions added 14 points to sales.
Sarah: Rocky acquisition performed very well with sales up strong double digits versus a year ago and a growing robust backlog.
Sarah: Integration is off to a great start.
Sarah: From a vertical perspective infrastructure led up double digits with strength in data solutions in both power and cooling.
Sarah: Industrial and commercial Razee each declined.
Sarah: Geographically North America grew low single digits and Asia Pacific grew mid teens, while Europe was down.
Sarah: Enclosures third quarter segment income was an impressive $104 million up 17% return on sales of 21, 9% increased 20 basis points year over year, driven by strong execution.
Productivity and higher margins from new products more than offset inflation and helped fund investments.
Sarah: Electrical <unk> fastening return to sales growth in the quarter.
Sarah: Sales of $305 million increased 1% organically.
Sarah: Growth was led by infrastructure, including power utilities up high single digits and.
In addition, industrial grew mid single digits commercial.
Sarah: Commercial Ramsey remained soft.
Sarah: Geographically organic sales in North America were flat and Asia Pacific grew double digits, while Europe was down.
Sarah: Okay.
Sarah: Electrical and fastening segment income was $93 million down 5% year over year.
Sarah: Return on sales was a solid 34% down 190 basis points, mainly due to tough comps from mix.
Sarah: On slide seven titled balance sheet, and cash flow, we ended the quarter with $137 million of cash on hand, and $600 million available on our revolver for.
Sarah: Free cash flow was exceptionally strong in the quarter.
Sarah: Year to date free cash flow of $277 million was up nearly 50% versus a year ago.
Sarah: The fourth quarter is historically, our highest cash flow quarter, and we expect continued improvements in working capital.
Sarah: Turning to slide eight where we outline our capital allocation priorities.
Sarah: We will continue to take a balanced and disciplined approach to capital allocation to deliver strong returns.
Sarah: Growth remains our first priority, both organic and inorganic in.
Sarah: In the quarter, we expanded our footprint to increase our liquid cooling capability Forex and support our growing backlog we completed.
Sarah: Did the actual acquisition of track D, providing a new growth platform and we have returned $195 million year to date to shareholders, including $100 million in share repurchases in the third quarter.
Sarah: Looking ahead, we expect to have a significant optionality for further capital deployment with a sale of the thermal management business and strong cash flow generation.
Sarah: Moving to slide nine and our full year outlook on a continuing operations basis.
Sarah: We are updating our full year guidance to reflect the thermal management management business moving to discontinued operations and narrowing the range with one quarter to go.
Sarah: For the full year reported sales are expected to grow approximately 13% organically up roughly 3%.
Sarah: Acquisitions are expected to contribute approximately 10 points to sales growth and FX is expected to be neutral.
Sarah: Our outlook for full year, adjusted EPS is $2.49 to due to $2.51, which represents growth of 7% to 8%.
Sarah: This includes an eight cents or three percentage point negative impact to EPS related to changes in the global tax standards.
Sarah: A few important items to note for the year first we expect adjusted operating income to grow 15% to 16%. This reflects price and productivity offsetting inflation. In addition, we are making investments in capacity new products and digital to accelerate.
Sarah: Growth and productivity.
Sarah: Second we are well on track to generate over $400 million of free cash flow with conversion in the range of 95% to 100%.
Sarah: Third corporate costs are now expected to be approximately $110 million. This includes indirect costs of approximately $15 million previously allocated to the thermal management business.
Sarah: Work is already underway to address these costs.
Sarah: A few additional 'twenty 'twenty four assumptions include a tax rate of approximately 23% net interest expense of approximately $105 million.
Sarah: Shares of approximately $168 million and capex of approximately $80 million.
Sarah: We expect full year 2024 to be another year of strong sales profit and cash flow.
Sarah: Moving to slide 10, and our fourth quarter outlook.
Sarah: We expect reported sales to grow 11% to 13% with acquisitions contributing approximately nine points to sales.
Sarah: Organic sales are expected to be up 1% to 3% with both segments growing we expect.
Sarah: Adjusted EPS to be between 58, and 60 cents up five 9% year on year.
Sarah: Wrapping up I am pleased with our third quarter performance and believe we are well positioned heading into 2025.
Sarah: This concludes my remarks, and I will turn the call back over to Beth.
Beth Wozniak: Thank you Sarah.
Turning to slide 11, let me give you an update on our data solutions business and liquid calling in particular as you know we are a leader in liquid cooling for data centers and have been offering solutions for many years across the cooling continuum.
Beth Wozniak: Our differentiation is based on our deep application expertise and our innovative multi generational designs, we continue to expand our product portfolio to serve datacenter customers across Hyperscale enterprise multi tenant.
Beth Wozniak: And our distribution partners.
Beth Wozniak: Our high density liquid cooling portfolio includes rack and row coolant distribution units and various manifolds are advanced cooling solutions are specifically designed to manage the substantial heat output of cutting edge AI infrastructure, helping to drive optimal performance and longevity.
Beth Wozniak: We are well positioned to support the expansion of AI capabilities, driving innovation and efficiency and high performance computing environments.
Beth Wozniak: We are currently engaged with no video in the design of liquid cooling products solutions and architectures that meet the needs for the GBP 200 N V. L 72, and its follow on next generation platforms.
Beth Wozniak: We will be showcasing our new video reference design solutions, a supercomputer in a few weeks.
Beth Wozniak: We are also actively engaged with other chip manufacturers to understand future cooling requirements.
Beth Wozniak: In addition to investing in new products, we are expanding capacity in our facilities building out our advanced lab and testing capabilities and partnering with our suppliers to ensure they can rapidly scale with us.
Beth Wozniak: We continue to see high demand for our data solutions products in cooling power cable management and now expect 'twenty 'twenty four data solution sales to exceed $575 million.
We believe we are well positioned to win in this rapidly growing space.
Beth Wozniak: Please turn to slide 12.
Beth Wozniak: Over the last few years, we have demonstrated our growth strategy is working with strong execution delivering robust sales and adjusted operating income and earnings per share.
Beth Wozniak: Looking ahead to 2025, we are undergoing a portfolio transformation, which we believe will make us a more focused higher growth electrical connection and protection company.
Beth Wozniak: Over 70% of our portfolio is exposed to the secular trends of electrification sustainability and digitalization.
Beth Wozniak: Infrastructure now represents approximately a third of our portfolio and is expected to grow the most next year.
Beth Wozniak: We are well positioned and data solutions and power utilities with robust backlogs.
Beth Wozniak: Our outlook for industrial and commercial resi is more positive.
Beth Wozniak: New products again are expected to be a key driver of our growth.
Beth Wozniak: Finally, as part of our portfolio transformation, we have a very healthy M&A pipeline and project nearly $2 billion in available capital to deploy from the thermal management sale and a robust free cash flow generation.
Beth Wozniak: In summary, we expect 2025 to be a strong growth here.
Wrapping up on slide 13, we have.
Beth Wozniak: Had another strong quarter of operational performance, including record cash flow our portfolio transformation is underway.
Beth Wozniak: We are well positioned to grow with the electrification sustainability and digitalization trends.
Beth Wozniak: And our future is bright with that I will now turn the call over to the operator to start Q&A.
Speaker Change: Yes. Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Can you talk to your question has been addressed you would like to withdraw it. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: And it's one of the first question comes from Julian Mitchell with Barclays.
Speaker Change: Okay.
Speaker Change: Hi, good morning, good morning.
Julian Mitchell: Maybe just a first question around the margin outlook. So it looks like I think margins might be down 100 bps also operating wise sequentially in Q4, I'm just wanted to check that's.
Julian Mitchell: Roughly correct and when we're thinking more broadly about.
Julian Mitchell: <unk> into next year, you have this big investment spend.
Julian Mitchell: It wouldn't right now in the second half.
Julian Mitchell: Does that normalize into next year and how quickly should that 15 million of indirect on the allocated costs to get worked down please.
Speaker Change: Okay, Julian I think that was a three part question.
Speaker Change: To start with the first one you know in terms of that seasonal downtick on margin from Q3 to Q4, it's just that more seasonal and if you look at historically E. S. S tends to be strongest in Q2, and Q3 and lighter from a sales perspective in Q4, and Q1 and the Ross right is commensurate with that so.
Speaker Change: You do have some seasonality from a Q3 to Q4 standpoint from a return on sales aspect of things I think your second question is in regards to investments I mean, we've been very explicit kind of walking into this year than investments are important to fuel future growth, particularly around new products and data solutions, we have seen that.
Speaker Change: Accelerated here in the back half, bringing some of that liquid cooling capability online here in Q3 and Q4.
Speaker Change: I think you can expect us to continue on that new product and some of those commercial data solution investments.
Speaker Change: As we walk into 2025 mm, but those ramp up costs. You know should diminish you know over time related to just bring that capacity up online and I think your third question was around indirect costs. So essentially you know as part of that thermal management now going into disc ops. There are some you know indirect costs.
They essentially don't get allocated if you will to thermal management now that sits within that corporate cost bucket and.
That's roughly $15 million and I would say two things one we.
Speaker Change: Work is already underway in terms of reducing those costs really focus on driving more efficiencies accelerating some of our business process transformation efforts that we already have underway and I would say the second piece of it is you know really some of that falling off if you will you know with that thermal management.
Speaker Change: Being divested, but there's gotta be targeted actions and we've got that work underway renegotiating contracts, you know et cetera, and so I would expect those indirect costs to reduce really throughout you know 2025.
Julian Mitchell: That's super helpful. Thank you and then maybe it's very simple simpler second question would just be on the organic sales outlook. So I think growing them sort of one to three in the current quarter year on year Beth you sounded more enthused about the outlook for say industrial and.
Julian Mitchell: Electrical whereas in 25, so is it reasonable to assume in 'twenty, five or you still feel Collins, but you're not too far off.
Speaker Change: So as things look today.
Speaker Change: But medium term sort of growth place holder of them four to six that you talked about last year.
Speaker Change: Yeah as we go into 2025 look the portfolio looks different and we've been repositioning it around infrastructure as I said in my comments right and so we can look at our backlog in these higher growth verticals and so we think that is going to set us up as we go forward you know the portfolio is now exposed.
Speaker Change: To those trends and I think as we sit here today. There remains this macro uncertainty we've got an election coming up you know interest rates, where they're at and I think we've seen our distribution partners just be cautious on inventory and recall a lot of our portfolio is sold through that distribution channel. So we expect as we get into 2025.
Speaker Change: Five are the outlook there was more positive in the end market outlook as well.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and the next question comes from Jeff Sprague with vertical research.
Jeff Sprague: Hey, Thanks, Good morning, everyone. Good morning.
Jeff Sprague: Good morning, Hey, just on the a.
Jeff Sprague: In video collaboration that you mentioned here.
Jeff Sprague: Maybe I missed it but did they press release, this namely by named partner ecosystem or something.
Jeff Sprague: I'm just wondering maybe we're going to hear that a supercomputer, but any any color there.
Speaker Change: More to come how about I say that and yes, we will be showcasing a lot of our products and collaboration efforts at supercomputer.
In their booth or just in your food.
Speaker Change: Our in our Booth and I will say, we will have other cooling products in other booths as well I don't want to give away too much there, Jeff, but you will see our invent products showcase around the supercomputing show.
Jeff Sprague: Okay.
Speaker Change: And what was the negative mix effect.
Jeff Sprague: You mentioned.
Speaker Change: Yeah, a lot of that you know Jeff was prior year, and we called that out last year, particularly in Q2 and Q3 you know their return on sales in those quarters was north of 32% and just based on the mix of sales in those corridors them. They were getting kind of an outsized impact from positive.
Speaker Change: Next that we Didnt expect you know to continue as we go forward. So again on an absolute basis. The return on sales. This quarter was north of 30%. It's just that year over year comp was a tough comp. We do think that that comp gets easier in Q4, you know based on what that next looked like a year ago as well.
Speaker Change: And how are you thinking about price going forward.
Speaker Change: Obviously, it took a little negative in a trail you know kind of inflation productivity investments collectively.
Speaker Change: How do you think you can kind of manage that algorithm as we move into Q4 and 2025.
Speaker Change: Jeff I think we see the price you know things are very stable is how we would characterize it and you know in several in the past several years, we've seen more outsized price than volume now we're seeing strong contributions of volume, but we do think that that in price will be positive as we go forward into 'twenty two.
Speaker Change: 25.
Speaker Change: Great. Thank you.
Thank you and the next question comes from Nigel Coe with Wolfe Research.
Nigel Coe: Thanks, Good morning, everyone.
So yeah.
Yeah, I think Sarah this is good for you I think the so the full full Q1 to 3% Hussein, maybe just break that out between.
Nigel Coe: The two segments I'm guessing smoked me that different between the two but I do want to try and understand a little bit better the lumpiness in it solutions and perhaps liquid cooling as well and how thats influencing sort of the kind of speak to the full Q because it does feel like the sales are.
Nigel Coe: But the plateau after two to four key than perhaps normal seasonality.
Speaker Change: Well, let me take that first one.
Speaker Change: Your guess is right Nigel in terms of both segments kind of being in that 1% to 3% range and if you look at it just from a girl vertical standpoint. Overall, you know we continue to expect good growth in infrastructure industrial. The next you know stronger in E. S. S M a bit softer in enclosures and continued commercial red.
Speaker Change: Softness overall and again I would just reiterate what best said in her prepared remarks is what's encouraging is that both segments. You know saw good order growth in Q3 as well informing that I think the one you know caution. There is just you know at the end of the year and given some of these macro uncertainties and we would expect some disk.
Speaker Change: Jupiter's you know to manage those inventory levels at year end in terms of you know Q3, and Q4, you know seasonality from a sales perspective, you know look I think that the biggest seasonality element. There that we're seeing is really just E. S. S and I think that's pretty consistent with historically you know again.
Speaker Change: Going back you know Etfs is going to be stronger in Q2, and Q3 and that Q3 to Q4 youre going to see a little bit of that downtick. If you will I'm on the sales front.
Speaker Change: And anything on the phasing of shipments Hum and data solutions.
Speaker Change: I'm not necessarily know we talked about data solutions kind of this first half versus second half, we talked about that a little bit last quarter and some of that is just based on you know timing of some of these you know more meaningful customer programs of where that comes into place, but we feel really good about our backlog order.
Speaker Change: Those are strong and again, making great progress and building that capability and Beth talked about what we're also underway in terms of building out the testing in the lab capabilities. So I'm really excited about the future of data solutions and now I know you guys have been asking you know in terms of what that data solutions number looks like but you know kind.
Speaker Change: Characterizing that at $575 million, we expect you know for this year, so meaningfully higher than what it was a year ago.
Speaker Change: That's great. Thanks, and then just a quick one on the M&A sort of a.
Speaker Change: Pipeline developments, you've got a lot of cash to deploy which is obviously good news, but do you do you expect this to be a series of acquisitions. What do you think that could be one or two sort of larger opportunities and.
Speaker Change: Are we sort of sets on deploying the bulk of the surplus capital in 'twenty three five on M&A or could there be some buybacks as well.
Speaker Change: Well as you know, we've always said our first priority with our capital allocation is to growth, both organic and inorganic and as we look at our pipeline. We think that it is very robust I think we've demonstrated our ability to integrate larger deals and so as we look into two.
Speaker Change: 25, and I always say this you never can control the timing of deals, but I think it does give us an opportunity if we want to do a more sizeable deal, but again, we're disciplined in the multiples we pay but I'm I believe that you know we have a good opportunity as we go into 2020 five to exit.
Cute on M&A.
Speaker Change: Okay. Thanks, Jeff.
Speaker Change: Yeah.
Speaker Change: Thank you and the next question comes from Deane Dray with RBC capital markets.
Deane Dray: Thank you and good morning, everyone. Good morning, I. Appreciate the slide allowed then are with the portfolio snapshots as well with sizing data solutions and I know you said up double digits, but can you be more specific on what data center.
Deane Dray: In the quarter in terms of growth.
Speaker Change: We don't necessarily break that out more specifically, but I think if you look at just that $575 million that we're expecting for the full year and look at where that was last year. That's you know in that in excess of 20% from a year over year growth perspective and.
Speaker Change: And again I'll just go back to the order book has been strong there you know with continuing backlog growth as well so feel good about that heading into 2025.
Speaker Change: Understood. So in that kind of brings up the question about market share and growth rates and how you stack up versus peers in this space.
Speaker Change: And so one of the challenges and we've talked about this with you before but the idea here is you are in many platforms.
Speaker Change: Partners, where you don't see the and that name.
Speaker Change: So it's a bit like you know in the early 19 nineties when Intel went to the Intel inside that's when people started to see and appreciate how pervasive and what kind of share Intel had so how are you addressing this in the way of being able to profile your share and who you're a leader who's been in it.
Speaker Change: Look first and in terms of liquid cooling but.
Speaker Change: What kind of challenges you have here and being able to talk about where and how you're indifferent.
Speaker Change: That forms, but not necessarily equal to put your name on it.
Speaker Change: Well, then I think I would start by saying that in this hyperscale high compute community. The invent name and capability is well known and understood. So those who are involved in the design and development and I think we're continuing to expand our offer.
Speaker Change: Rings, and ensuring that we're marketing our capability more broadly, especially as you get perhaps into multi tenant or more through the distribution channels, where the knowledge of what's going on in this high compute and in terms of just the liquid cooling capability. There's still many who are learning about it. So we're working on.
Speaker Change: With our distribution partners there, but our view is we're going to continue to invest in new products were ramping with many of those customers that we can't speak about where on the next generation of design, we talked about our collaboration with Nevada, and I said stay tuned theres more that we will be sharing a supercomputer.
Speaker Change: So you know from my perspective, I think we just need to continue to go fast the space is evolving rapidly and we're making investments from new products to capacity to our suppliers to our lab capability and expect this to continue to be rapid growth for us.
Speaker Change: Great. That's just my follow up question is exactly on that the Forex capacity expansion can you give us a sense I mean, if the market is growing in excess of 40%. How much is this capacity expansion how far does that take you.
Speaker Change: In the next couple of years, and just remind us how much is actually manufacturing capacity versus the amount of test labs, because that's really how you have proof.
Speaker Change: To your partners that the liquid cooling delivers on the specs that they require.
Speaker Change: Yeah, So deane the manufacturing capacity when we refer to that is about a forex capacity and we think that's going to get us through the next couple of years at this point that can change and so we're in the process of building that out our lab expansion is going to take us through into 2020 five but that you know.
Speaker Change: More than doubles, our lab capability and capacity of what we have today and by the way all of that isn't enough and so I wanted to make that point that we've been working with our supply base. Because you also have to ensure that they can rapidly scale as well. So there's a lot of different areas that we're investing.
From an end to end perspective to make sure that we can you know continue on the growth rate that we're at and continue to offer solutions more broadly as we start to see some of these AI chips, you know extend beyond just say the hyperscale or.
Speaker Change: Okay.
Speaker Change: That's great I look forward to seeing the team in Atlanta. Thank you. Thank you.
Speaker Change: Thank you. The next question comes from Joe Ritchie with Goldman Sachs.
Speaker Change: Hey, guys. Good morning, good morning, Joe.
Joe Ritchie: Hey, so maybe maybe following on that thread and I'm sure again, what we'll hear more.
Speaker Change: Few weeks, but.
Joe Ritchie: I'm trying to understand like the the productivity right now that you have in your data center business and liquid cooling specifically, maybe just kind of comment.
Joe Ritchie: Last time, we saw a b offering it just seems like you guys were trying to run it as fast as we could and there was probably.
It's probably not fully efficient at that point and so I'm just curious I understand the margins and just any any comment you can make around the productivity you have around that business today.
Speaker Change: Well I'll I'll start there and I'll, let Sarah jump in you know, we've always said that our liquid cooling margins or sorry, our data solutions margins kind of reflected the products in that portfolio of our segments. So our what we do around cable management and kind of reflects the margins that we have any F. As what we do around.
Speaker Change: Liquid cooling and tower and some of the other products reflect the margin in enclosures now having said that there's a lot of investment going in and there's a lot of startup costs to that and so we do think that over time, there's opportunity to drive some more efficiencies. So the margins are good today, but we know that over time they will.
Speaker Change: We'll get better as things scale, more and more and I'll, let Sara add anything to that but she wants and maybe the only thing else I would add is you know I think in the enclosures business has just delivered some underlying you know strong productivity and and seeing some good operating leverage as well as you know better mix you know on some of these new products.
Speaker Change: New programs, so even with some of these bringing the capacity on line and and these investments are we still expanded return on sales in the quarter. So there's some strong underlying productivity there as well.
Speaker Change: Okay. That's good to hear and then I guess.
Speaker Change: Just circling back to the organic growth question and heading into next year, if I, if I kind of pull out your acquisition contribution from this year and the comments that you've made around data solution. It seems like the rest of the business.
Speaker Change: Isn't growing this year for from an organic growth standpoint, and so I'm curious you know Beth as you kind of think about 2025 are there are there areas that are kind of really depressed within your business, where you could see an inflection. That's just spur organic growth and then just a follow on to that are there any capacity constraints that you have to be.
Speaker Change: Able to meet demand if it were to inflect outside of data solutions of course, okay, well I think one of the things you know we've said this year is that commercial Rodney has been soft and so we do expect that to improve in 2025.
Speaker Change: The second I would point out too is industrial and so we've seen some strength in industrial any F. S and we've seen some weakness in our enclosures business. Some of that also has to do with Capex investments interest rates, but it also has to do with our distribution channel again, we think that improves going into next year I would.
Speaker Change: Talk about power utilities, where again, we've strengthened the portfolio with that truck the acquisition, but earlier in the year. We certainly saw this level of inventory at end customers and the distribution channels, but our E. S. S business and closures in Q3 saw nice growth in power utilities.
Speaker Change: Because we believe some of that.
Speaker Change: Inventory adjustments have taken place.
Speaker Change: But looking at 2025, you know I think the the well some of those macro uncertainty even tied to elections gets behind us and the portfolio. We believe is strengthened with the things that we've done with acquisitions and new products and so you know our view is positive as we go into our backlog.
Speaker Change: <unk> support going into 'twenty, and 'twenty five as a strong growth year.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you and then I suppose the kinds of rubber strictly with Citigroup.
Speaker Change: Okay.
Speaker Change: Hey, good morning.
Speaker Change: Thanks for taking my call.
Speaker Change: So maybe just following up on.
Speaker Change: On the growth question.
Speaker Change: In another way munis to think about you had mid single digit orders growth and re queue.
Speaker Change: But 1% organic revenue and then you're guiding one to three organic for Q. So I guess can you talk about when we should see that.
Speaker Change: Higher level of orders gross more directly converts to revenue.
Speaker Change: Well I think Oh, yes, you're correct, we're guiding one to three and I think you know we have a mix when we look at our orders of short cycle and some backlog we've spoken to that we see with say data solutions, but we believe you know as we get into 2020 five because again I think this quarter.
Speaker Change: We see this macro uncertainty that has you know against distributors pausing for example, or managing inventory and I think as we get into 2020 five we start to see improvements in terms of you know how our growth layers in.
Speaker Change: And maybe I would add just one point to 2024 here I mean, if you look at just kind of where we're at year to date and and some of the context that we've given on Q4, if you look at and closures I mean, they're expected to be strong mid single digit growth this year, right and and infrastructure has been a big.
Speaker Change: Part of that and that's even with some of the underlying headwinds around industrial.
Speaker Change: Europe et cetera, and then yeah first obviously not not as much but again in the start of the year you know, that's where we had some of the infrastructure of the utility you know channel inventory.
Speaker Change: Inventory dynamics that we were working through them and commercial resin headwinds and again, it's always we flip next year you know, it's not far off right from enclosures being strong mix. It in single digits and then it's the end market dynamics that Doug talked about in terms of turning on the FX side.
Speaker Change: Okay.
Speaker Change: Got it that's helpful. Appreciate it and then maybe just.
Speaker Change: Moving to attractive for a minute.
Speaker Change: And it's off to a good start as it's coming into the portfolio with double digit growth, which is great to hear can you just talk more about sort.
Speaker Change: Sort of the visibility that you have within their backlog how far how far out does their visibility extend.
In some cases, we can see orders that we got like a year of visibility some or maybe shorter than that but you know we do have a good backlog as we go into next year and if you think about what we're doing there. These are control houses that are used to support upgrades for an aging electrical infrastructure as well as.
Speaker Change: With renewables and with data centers as well. So so we have some nicer visibility there and just see continued strong growth in our outlook.
Speaker Change: I appreciate the color. Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And of course, the boys with Deutsche Bank.
Speaker Change: Yeah. Thanks, good morning, good morning.
Speaker Change:
Speaker Change: Maybe just starting on orders and kind of Dovetailing with the expectation for 2025 with respect to industrial and commercial and resi have you guys seen any sign of improvement in order activity or is it more about you know rates coming down and some of the macro dynamics that you know gives you conviction that those parts of the businesses can turn positive.
Speaker Change: You know, it's it's I'd say things have been stable, how would I put it that way, but our view is that interest rates and the macro uncertainty and also just how distributors are managing through this year that at first the fact that it's stable as good utility certainly improved I would make that comment but our view.
Speaker Change: Is that does get better in 2020 five.
Speaker Change: Okay. That's helpful. Thank you and then I guess, maybe you could you talk a little bit about what you're seeing holistically from a channel inventory perspective. It seems like things are kind of going according to plan with less of those headwinds in the back half of the year, but I guess, how would you characterize inventory now thank you.
Speaker Change: Well I think I would start by saying through the distribution channel. We've actually seen positive sell out are really you know and so the sell in is a little bit weaker and so this is why we believe that they many of them have talked about managing their cash flow performance and interest rates and so you know we think that it's.
Speaker Change: That inventory level, they're just being very cautious and so as we get into 2020 five because they talk about end market demand still being you know good. So we expect you know that will you know that situation will improve as we go into 2025.
Speaker Change: Thank you I'll pass it on.
Thank you.
Speaker Change: And the next question comes from Jeff Hammond with Keybanc capital markets.
Jeff Hammond: Hey, good morning, good morning, Jeff.
Jeff Hammond: Piece back to capital allocation I'm, just wondering you did 100 million buyback in the quarter and I'm. Just wondering you know I know the focus is organic inorganic, but just how to think about any earmarked for buyback around the you know the thermal sale.
Speaker Change: You know when we announced the sale of it.
Speaker Change: And you know the intent for the sale, we did say our first priority always remains growth both organic and inorganic but there is the opportunity to do some buybacks and so we did that in Q3 and I think as we go into next year as I like to say you never can control the timing of M&A and certainly you know if there was.
Speaker Change: No M&A opportunity or the world changed at all and there's always opportunity to do some buybacks.
Speaker Change: Okay.
Speaker Change: And then utility.
Speaker Change: Yes, I think that had been kind of a drag in it you know I think you called out high single digit growth is that just a function of comps or are you actually see that business start to reaccelerate.
In our E. S. S business you know this was a challenge for us in the first half of the year and we talked about you know high cost you know, we had really high growth in 2020. Three we also had lead times that were extended and they've now come back in line. So Q3 for us in our E. S. S business and that utility segment was very strong and so we.
Speaker Change: Believe that and we also see the backlog that we have in our enclosures and track the business and so we you know as we look into 2025, we think utility this is going to be a key driver of our infrastructure growth.
Okay, Great and then just last one orders.
Speaker Change: Mid single digits, I think you haven't really been calling out order. So I'm, assuming that's a reacceleration and I'm just wondering.
Is that largely data solutions or is it or is it more broad based.
Speaker Change: It's actually more broad based and so you know we've seen.
Speaker Change: You know strong orders in enclosures, and and it's it's a mix, but data solutions has been good and we've seen you know a mid single digit orders in our U S as well.
Speaker Change: Okay. Thanks, so much Chris.
Speaker Change: Yeah.
Speaker Change: Thank you.
Brian Drab: That's from Brian drab with William Blair.
Speaker Change: Yeah.
Brian Drab: I was wondering if you could just oh I don't know if you're willing to do this you know give us a little more granularity on that $575 million in the past we've talked.
Speaker Change: <unk> talked about.
Speaker Change: No the data solutions category, and then within that power and cooling and then within that liquid cooling and can you just comment on whether power and cooling is.
Speaker Change: No maybe more than half of that $575 million and then.
Speaker Change: You know what I am curious what.
Speaker Change: Power and cooling is growing as well.
Speaker Change: Yes, you're right, we've always said that cooling and power is about 50%. So I would say, it's a little more than 50%, but I also like to say you know some of our cable management business has been growing at that same rate because it's all part of the solution as we go forward. So, but you know certainly with the growth rates around liquid calling weeds.
Speaker Change: That's going to continue to increase as a percentage of that overall data solutions portfolio.
Okay, and then is there.
Speaker Change: Any way you could give us an update on the expected timing.
Speaker Change: Of the thermal deal and it's going to be a massive amount of cash that you're you'll have at that point and the interest rate that you.
Speaker Change: Do you expect at least that you know I know you can't predict interest rates, we like the interest rates that youre getting on your cash.
Speaker Change: So yes, when we announced the sale, we said that we expect the sale of the thermal management business to occur.
Speaker Change: In early 2025 by early 2025.
Speaker Change: And I'll, let Eric comment on our cash.
Speaker Change: Yeah, I think you can think about it in the context of sort of a rate in that 4% to 5% range. Depending upon you know what sits on the balance sheet and you know earns interest you know from a deposit standpoint, or even looking at you know some of our pre payable term term debt and what we're paying on that which is 6%.
Speaker Change: So if you look at kind of the blend of that you can think about you know in that 4% to 5% range.
Speaker Change: Right. Okay. Thank you very much.
Speaker Change: Yeah.
Speaker Change: And then I suppose it comes from David Silver with CL King.
Speaker Change: Okay.
Yeah.
David Silver: Yeah, Hi, good morning.
Speaker Change: Hum.
David Silver: I just wanted to follow up maybe on your comments on the track the ER business, serving as a new platform.
David Silver: I think you mentioned that a couple of times in your prepared remarks.
Speaker Change: But yeah, you mentioned the business is off to good start, but my senses is that it touches on some different end markets different customer base.
David Silver: Hum.
David Silver: When you did make the deal I'm sure you had some longer term plans I mean do those plans I mean, maybe if you could just add a little color on where the business might be heading in the next few years, but is this a business you want to scale up is this a business where the breaths you know, adding breadth is more important.
David Silver: And then maybe.
David Silver: You know since it is quote unquote, a new platform is this something that's best managed.
David Silver: Within the enclosures, you know the larger enclosures group or are there some differences that maybe make you think down the road.
David Silver: Could form the basis for a new <unk>.
David Silver: <unk> segment anyway, just you're thinking about it I know, it's very early days, but strategically you know what what the what what are some of your thoughts about the opportunities there.
Speaker Change: As you know and we've published this we have this act M&A framework and we always think of great products in high growth verticals that we can invest in and scale and so for us as we thought about our enclosures segment at how could we have a stronger position in utilities, we saw this as an.
Speaker Change: Offering that was growing with the dynamics of an aging infrastructure data's datacenter build out.
Speaker Change: And effectively and I'm being very simplistic here. It is a larger type of enclosure than what we were doing today and I also like to say that when you go in these control houses you see more enclosures and you also see some of the other products that are in the invent portfolio and so we saw this as an opportunity.
Speaker Change: For us to extend what we do in enclosures in a more scaled way that we felt that we could have synergies with the rest of the invent portfolio and allow us to expand our position in utilities renewables and add to what we do in data centers and I think there's.
Speaker Change: A lot of synergies within the enclosures portfolio, because you can think of how we purchase materials et cetera that at this point, we believe that it's you know it's a part of that segment and we're going to continue to as per our framework you know invest in it and scale it to grow.
Speaker Change: Okay, great. Thank you very much that's it for me appreciate it thank you.
Speaker Change: Thank you and that does conclude the question and answer I would like to turn the conference back over to Beth Wozniak for any closing comments.
Beth Wozniak: Thank you for joining us today.
Beth Wozniak: Very pleased with our performance in Q3, we will continue to focus on our customers employees and shareholders by executing on our growth strategy and transforming our portfolio I'm excited for our future. Thanks again for joining US. This concludes the call.
Speaker Change: Thank you just mentioned the conference has concluded. Thank you for attending today's presentation you may now disconnect.
Beth Wozniak: [music].
Beth Wozniak:
Beth Wozniak: Hmm.
Beth Wozniak: [music].