NVent Electric : Quarterly Earnings Document

Corrected Transcript

08-Feb-2022

nVent Electric Plc (NVT)

Q4 2021 Earnings Call

	Total Pages: 18
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nVent Electric Plc (NVT)	Corrected Transcript
Q4 2021 Earnings Call	08-Feb-2022

CORPORATE PARTICIPANTS

Sara E. Zawoyski	Beth A. Wozniak
Chief Financial Officer & Executive Vice President, nVent Electric Plc	Chief Executive Officer and Director, nVent Electric Plc
Tony Riter
Vice President-Investor Relations, nVent Electric Plc

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OTHER PARTICIPANTS

Deane Dray	Nigel Coe
Analyst, RBC Capital Markets LLC	Analyst, Wolfe Research LLC
Julian Mitchell	Jeffrey D. Hammond
Analyst, Barclays Capital, Inc.	Analyst, KeyBanc Capital Markets, Inc.
Joe Ritchie	David Silver
Analyst, Goldman Sachs & Co. LLC	Analyst, C.L. King & Associates, Inc.

Jeffrey Todd Sprague

Analyst, Vertical Research Partners LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by and welcome to the nVent Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Chief Financial Officer Sara E. Zawoyski. Thank you. Please go ahead.

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Sara E. Zawoyski

Chief Financial Officer & Executive Vice President, nVent Electric Plc

Thank you, and welcome to nVent's fourth quarter earnings call. Here me today is Beth Wozniak, our Chief Executive Officer. And I would also like to introduce Tony Riter, our new Vice President of Investor Relations. I know many of you already know him from his time at 3M, and we are thrilled to have him join the nVent team.

With that, I will turn the call over to Tony.

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Tony Riter

Vice President-Investor Relations, nVent Electric Plc

Thank you, Sara, and good morning, everyone. I'm excited to be here at nVent and looking forward to working with all of you. Today we'll provide details on our fourth quarter and full year performance and the outlook for the

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nVent Electric Plc (NVT)	Corrected Transcript
Q4 2021 Earnings Call	08-Feb-2022

first quarter and full year 2022. Before we begin, I'll remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's press release and nVent's 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 can be found on the investor section of nVent's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We'll have time for your questions after our prepared remarks.

With that, please turn to slide 3, and I will now turn the call over to Beth.

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Beth A. Wozniak

Chief Executive Officer and Director, nVent Electric Plc

Thank you, Tony, and good morning, everyone. It's great to be with you today to share our fourth quarter and full year results. 2021 was an outstanding year. We grew sales 23% and delivered 31% adjusted EPS growth. We exited the year with orders up 37% in the fourth quarter and record backlog. I could not be more proud of our nVent team and what we accomplished. We executed on our strategy, had record growth and navigated many challenges to deliver for our customers.

We made great progress with new products and our digital transformation. We completed two acquisitions to strengthen our portfolio and expand our offerings in high growth verticals. And we made significant progress on our ESG priorities. We had a goal to emerge stronger and our results demonstrate we have.

Slide 4 summarizes our Q4 and full year performance. Fourth quarter sales were up 28%, with broad-based growth across all segments and verticals. Adjusted EPS grew 16% year-over-year, and we generated $101 million of free cash flow. Our fourth quarter results were solid. Looking at some of our key verticals in the quarter, industrial continued to lead the way with particular strength in automotive, food and beverage, and material handling. Infrastructure had strong growth in data networking solutions and power utilities. Commercial and residential continued its trend of double digit growth across all segments. And finally, in energy, we continue to see a nice recovery, particularly in MRO.

Looking at our geographical sales performance, North America was exceptionally strong, led by Enclosures. Europe was also up double digits with ongoing strength in Electrical & Fastening. And developing regions grew over 40%, led by China with particular strength in Thermal Management. For the full year, we have record $2.5 billion, an increase of 23% or 18% organically. Adjusted EPS was up 31% and up 10% from 2019. For the full year, we generated $334 million of free cash flow.

Let me share a few highlights for the year. We launched a record 58 new products, which generated a 1.5 of sales growth and increased our new product totality to 18%. Our digital efforts are supporting growth, improving the customer experience, and driving productivity in our operations. Acquisitions are strengthening our positions in high growth verticals, Vynckier and CIS Global expanded our offerings in solar and data networking solutions, the execution of our strategy to develop new products, invest in high growth verticals and make acquisitions is accelerating in best growth trajectory.

We recently announced a new strategy and business development role and are thrilled to have Nitin Jain join the nVent team. Nitin will be leading our efforts in strategy, M&A partnerships and alliances, and identifying new growth platforms and technologies to further enhance nVent's growth.

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nVent Electric Plc (NVT)	Corrected Transcript
Q4 2021 Earnings Call	08-Feb-2022

Looking at trends entering 2022, we anticipate ongoing supply chain and inflationary challenges, particularly in the first half of the year. We remain confident in our ability to manage these headwinds and deliver for our customers. We also expect strong demand for our products and solutions with the electrification of everything.

I am proud of our team and the results we delivered in 2021. We made strategic investments to drive future growth and executed well. We believe 2022 will be another year of strong growth and value creation.

I will now turn the call over to Sara for some detail on our results, as well as our 2022 outlook. Sara, please go ahead.

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Sara E. Zawoyski

Chief Financial Officer & Executive Vice President, nVent Electric Plc

Thank you, Beth. Let's begin on slide 5 with our fourth quarter results. Sales of $669 million were up 28% relative to last year and grew an impressive 24% organically. Strong volume and price each added 12 points to the top line, while acquisitions added another 5 points of growth. Fourth quarter segment income was $110 million, up 14%, while return on sales of 16.5% was down 210 basis points. As you may recall, our Q4 guidance reflected a margin decline year-over-year, including growth investments and the lapping of onetime temporary cost reductions.

With the stronger than anticipated sales, we saw increased cost pressures related to a very tight supply chain and higher inflation. Still, price more than offset the stepped up inflation of $58 million in the quarter. As a reminder, we talk about these costs as total inflation, including materials, wages and freight logistics. Q4 adjusted EPS was $0.50, up 16% and above the high end of our guidance range. Free cash flow performance was also strong, with conversion of 120%.

Now, please turn to slide 6 for a discussion of our fourth quarter segment performance. Starting with Enclosures, sales of $332 million increased 44% and 35% organically. Growth was broad based across all verticals and geographies, and acquisitions continued to perform very well, adding 11 points to growth. Enclosures fourth quarter income was $43 million, up 22%. Return on sales was 13%, down 240 basis points. As a result of this very strong growth, we saw higher than anticipated costs and overall inflation. We also made investments in capacity. These impacts were partially offset by solid price realization of 11 points. Sequentially, we expect return on sales to improve with better price costs and productivity.

Electrical & Fastening sales of $171 million increased 17% organically, with growth across all verticals and strong double-digit growth in North America and Europe. Electrical & Fastening segment income was $45 million, up 9%. Return on sales was a solid 26.3%, down 170 basis points as we lapped the onetime temporary cost actions of a year ago. Overall, return on sales was better than expected and price offset inflation in the quarter. It's worth noting that Electrical & Fastening expanded return on sales of 120 basis points for the full year on top of solid margin expansion in 2020.

Thermal Management grew 16% organically with sales of $166 million, driven by continued strength in industrial, and commercial and residential. High margin industrial MRO growth was strong for the third consecutive quarter, up 34%. Backlog grew sequentially and year-over-year, reflecting an improving trend in longer cycle projects.

Thermal Management segment income was up 30%. Return on sales expanded 290 basis points to 26.4% driven by volume and positive mixed contribution from industrial MRO.

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nVent Electric Plc (NVT)	Corrected Transcript
Q4 2021 Earnings Call	08-Feb-2022

Now turning to slide 7, this gives us a recap of our full year 2021 results. We ended the year with sales of $2.5 billion, up 23% and 18% organically. Strong volume contributed 11 points to sales growth, while price added 7 points, nearly offsetting total inflation. Notably, we finished 12% above 2019 pre-pandemic level.

For the full year, segment income of $436 million was up 25%. We expanded return on sales by 30 basis points to 17.7%. Adjusted EPS for the full year was $1.96, up 31%. And I'm particularly pleased with our free cash flow performance of $334 million, up 9% versus prior year and 100% conversion of adjusted net income. In summary, our 2021 performance puts us on a great trajectory to deliver on the long-term targets we set out in our Investor Day last March.

On slide 8, titled Balance Sheet and Cash Flow, you'll find we exited the year with $50 million of cash on hand and $493 million available on our revolver. Our recent debt refinancing, coupled with our strong cash generation, provide ample capacity heading into 2022.

Slide 9 gives us an update on our capital allocation priorities. We exited the year with a net debt to adjusted EBITDA ratio of 2 times at the low end of our target range of 2 times to 2.5 times. 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 continue to make investments in new products and digital, and plan to launch another 50 new products in 2022.

We added over $100 million in annualized sales from two acquisitions, and these acquisitions are on track to generate great returns like Eldon and WBT, both of which we delivered greater than 10% returns in year two. We returned approximately $230 million to shareholders in 2021, including a competitive dividend and share repurchases of $112 million. We will continue to deploy capital to drive growth and attractive returns for shareholders.

Now, moving to slide 10 and our 2022 outlook. We expect organic sales growth in the range of 6% to 9%. This assumes higher volumes along with price realization in that four- to five-point range. Growth is expected to be stronger in the first half, given comparisons. And from a segment perspective, we expect strong growth in Enclosures and Electrical & Fastening, with more modest growth in Thermal Management. Our outlook for full- year adjusted EPS is between $2.10 and $2.20, which represents growth of 7% to 12%.

A couple of important items to note. First, our outlook assumes supply chain challenges inflation persist, particularly in the first half. We anticipate margin performance to improve, as we move through the year. Second, we expect price plus productivity to more than offset inflation for the full year. Third, we will continue to invest in new products, digital and our supply chain. And lastly, we expect another year of strong free cash flow performance with conversion of approximately 100%, as we execute on our working capital initiatives.

Some 2022 below the line item assumptions we'd like to call out include: net interest expense of $30 million to $35 million; a tax rate in the 17% to 18% range; and shares of approximately 170 million. Additionally, we anticipate corporate costs of $75 million to $80 million, and CapEx of $50 million to $55 million.

Now moving to our first quarter outlook on slide 11, we expect organic sales growth in the range of 10% to 12% and adjusted EPS in the range of $0.42 to $0.44. Several items to note for Q1. First, margin performance year- over-year is expected to be similar to that in Q4, reflecting higher costs related to supply chain challenges.

Second, we expect price to largely offset inflation in the quarter. Keep in mind, last year we had very favorable material [ph] logs (00:15:11) as we began the year.

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