Yahoo Finance nVent Electric plc (NYSE:NVT) Q1 2024 Earnings Call Transcript
nVent Electric plc (NYSE:NVT) Q1 2024 Earnings Call Transcript May 3, 2024
nVent Electric plc misses on earnings expectations. Reported EPS is $0.624 EPS, expectations were $0.73. nVent Electric plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the nVent Electric First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tony Riter, Vice President of Investor Relations. Please go ahead.
Tony Riter : Thank you, and welcome to nVent's First Quarter 2024 Earnings Call. On the call with me are Beth Wozniak, our Chair and Chief Executive Officer; and Sara Zawoyski, our Chief Financial Officer. They will provide details on our first quarter performance and outlook for the second quarter and an update to our full-year outlook. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's press release and 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 you can find in the Investors section of nVent's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We'll have time for questions after prepared remarks. With that, please turn to Slide 3, and I will now turn the call over to Beth.
Beth Wozniak: Thank you, Tony and good morning, everyone. I'm pleased to be with you today to share our first quarter results. We had another great quarter. We continue to execute on our growth strategy, focused on high-growth verticals, new products, global expansion and acquisitions. We had impressive volume growth, margin expansion and robust free cash flow. We continue to see AI accelerate demand for our data solutions offerings. We also recently published our 2023 sustainability report which highlights significant progress on our ESG goals, including adding two new goals. Overall we’re pleased with the strong start to the year and are raising our full-year adjusted EPS guidance. Now on to Slide 4, for a summary of our first quarter performance.
First quarter sales were up 18%. On an organic basis, sales grew 5% on top of 8% growth a year ago, with growth across all geographic regions. New products contributed over 3 points to our sales growth, and we launched 17 new products in the quarter. Orders in the quarter grew low-single digits and sellout through our key distribution partners remained positive. We believe the distribution channel has largely completed their inventory adjustments. From a segment standpoint, Enclosures had strong sales growth driven by data solutions. As expected Electrical & Fastening Solutions, was down due to a decline in infrastructure with customer and channel inventory normalization. Thermal Management continued to improve sequentially, and we believe is positioned for growth the rest of the year.
Looking at our key verticals, Infrastructure led the way up low-teens with Data Solutions growing strong double digits. Industrial grew low-single digits with all segments up. Commercial-Resi also grew low single digits. And finally, energy was down impacted by our exit from Russia a year ago. Turning to organic sales by geography. We continue to see broad-based growth led by North America, up mid-single digits, Europe grew low-single digits and Asia Pacific grew high single digits, with solid growth in China. Lastly, segment income grew 30% year-over-year with return on sales up an impressive 200 basis points. Adjusted EPS grew 15% on top of 34% a year ago, and free cash flow grew 41% year-over-year. Looking ahead for full year guidance, we’re maintaining our sales outlook and raising our adjusted EPS range, reflecting our strong start to the year.
We expect electrification, sustainability and digitalization to continue to drive demand. We're on track for another great year. From a vertical perspective, we expect infrastructure to have the strongest growth, benefiting from the electrification and digitalization trends. We expect continued strong growth in Data Solutions, particularly our liquid cooling solutions given the acceleration of AI. In Commercial, we anticipate modest growth with Residential being soft. In energy, we expect growth driven by the energy transition, in particular LNG, clean fuels, carbon capture and hydrogen. Overall, I'm proud of our nVent team and how we continue to perform and deliver impressive results. I will now turn the call over to Sara for further detail on our first quarter results and our updated outlook for 2024.
Sara, please go ahead.
Sara Zawoyski: Thank you, Beth. Let's begin on Slide 5 with our first quarter results. We are off to a great start to the year. Organic sales growth and adjusted EPS exceeded guidance and execution was strong. Sales of $875 million were up 18% relative to last year or 5% organically. Volumes were up 4 points and price added 1 point to growth. Acquisitions added $98 million to sales or 13 points to growth. Foreign exchange was roughly flat. First quarter segment income was $192 million, up 30%, with incrementals of 33%. Return on sales was 22%, up 200 basis points year-over-year. Price plus productivity more than offset investments and total inflation of roughly $20 million. As expected, the ECM acquisition was accretive to return on sales.
Q1 adjusted EPS was $0.77, up 15% and above the high end of our guidance range. Acquisitions contributed a strong $0.06 in the quarter. We generated robust free cash flow of $74 million up 41% compared to a year-ago, reflecting our strong operational performance. Now please turn to Slide 6 for a discussion of our first quarter segment performance. Starting with Enclosures, the team delivered a fantastic quarter. Sales of $440 million increased 13%. The TEXA acquisition added 2 points to sales. Organically, sales increased 11% on top of 11% growth a year ago. This included high single-digit volume growth and positive price. Infrastructure grew strong double digits, led by Data Solutions, Industrial and Commercial-Resi each grew low single digits.
Geographically, North America led up low teens, followed by Europe up mid-single digits. Enclosures first quarter segment income was $95 million, up 15%. Return on sales of 21.6% increased 50 basis points year-over-year, driven by strong growth and execution, but we continue to make significant growth investments. Moving to Electrical & Fastening. Sales of $292 million increased 42%. The ECM acquisition contributed 44 points to sales growth. Organic sales were down 3%, reflecting positive price and lower volumes. Industrial and Commercial Resi each grew in the quarter. This was more than offset by a decline in infrastructure due to customer and channel inventory normalization and a strong prior year comparison. Geographically, organic sales declined in North America and Europe while Asia Pacific was up.
Electrical & Fastening segment income was $85 million, up 39% year-over-year. Return on sales was 29.2% and down 60 basis points, mainly due to lower volumes and the impact of the ECM acquisition. Turning to Thermal Management. Sales of $143 million were down 1% organically. The Russia impact was approximately 4 points to growth. Volumes were down low single digits with positive price. Notably, Commercial Resi can continue to improve sequentially, and industrial MRO sales remained strong. In addition backlog grew year-over-year and energy transition represents over one-third of the project backlog. Geographically, growth was led by Asia Pacific or North America and Europe declined. Thermal Management segment income of $32 million was up 3%.
Return on sales of 22.3% was up 80 basis points year-over-year, due to strong execution and favorable mix. On Slide 7, titled Balance Sheet and Cash Flow. We ended the quarter with $211 million of cash on hand and $600 million available on our revolver. We believe our healthy balance sheet provides us with ample capacity to invest in the business and execute on our growth strategy. So turning to Slide 8, where we outline our capital allocation priorities. We continue to prioritize growth and execute a balanced and disciplined approach to capital allocation to deliver great returns. We had strong free cash flow in the quarter, growing 41% year-over-year. As a result, we exited Q1 with a net debt to adjusted EBITDA ratio of 1.9 times. As previously announced our quarterly dividend increased 9%, returning $32 million to shareholders.
We believe we are well positioned for capital deployment in 2024. Moving to Slide 9 and our full year outlook. We continue to expect reported sales growth of 8% to 10%, with organic growth in the range of 3% to 5%. This includes positive price and strong volume growth for the year. And acquisitions are expected to contribute approximately 5 points to growth. We are raising our full year adjusted EPS range to $3.22 to $3.30, up 5% to 8% versus our original guidance of $3.17 to $3.27. We now expect segment income to grow 10% to 12% for the year versus 8% to 11% previously. This raised guidance reflects the strong start to the year. All other modeling assumptions for the full year remain unchanged. Looking at our second quarter outlook on Slide 10, we expect organic sales to be up 3% to 5%.
For segment organic sales growth we expect Enclosures to lead with high single-digit growth, electrical and fastening to be similar to Q1 and thermal management to turn positive. We expect adjusted EPS to be between $0.81 and $0.83 which at the mid-point reflects a 6% growth relative to last year. Wrapping up, I am pleased with our first quarter performance. We delivered strong growth, margin expansion and robust cash flow and are well positioned for another great year. This concludes my remarks, and I will now turn the call back over to Beth.
Beth Wozniak: Thank you, Sara. Turning to Slide 11. I would like to provide an update on our Data Solutions business. The acceleration of AI greater data consumption, rising heat densities and growth in edge-computing are all drivers of demand for our data solutions offerings. We have a broad and innovative portfolio that includes liquid cooling, smart power distribution, cable management, enclosures, racks and cabinets and leak detection and sensing solutions. We believe we are well positioned to grow with the significant data center infrastructure investments driven by the acceleration of AI. Today, only 5% of data centers are liquid cooled. With the technology shift to the new AI chips, liquid cooling is an imperative. In addition, liquid cooling can provide up to 50% energy savings and reduce power consumption.
We estimate liquid cooling will grow 3 times faster than conventional air cooling and represent roughly 25% of data center cooling by 2028. We believe we are a leader in this space and are able to provide a broad range of solutions, be it liquid to air, air to liquid or liquid to liquid for both greenfield and retrofit. We have offered liquid cooling solutions for over 15 years starting in industrial applications. We have developed technical application expertise and manufacturing and supply chain capabilities. Today, we are partnering with major data center players. Our innovative solutions, along with our ability to manufacture and scale positions us to win in this rapidly growing space. We are also building on a portfolio of standard products to drive broader adoption and scale through distribution channels.
We view cooling and power to be the fastest growing areas, which now make up 50% of our data solutions business. In the first quarter, we completed the move of our distribution center in Minnesota to a new location, bring up that space to expand our liquid cooling capacity. We expect this new space to come online in Q3 and give us the ability to expand capacity four-fold. Lastly, we continue to expect our Data Solutions business to be over $500 million this year. Please turn to Slide 12, titled 2023 Sustainability Report. At nVent, we are building a more sustainable and electrified world. Our commitment to sustainability is integral to how we operate, and we took measurable steps to improve our impact in 2023. Last month, we published our latest Sustainability Report that highlights the significant progress we've made across our people, products and planet pillars.
Our people pillar focuses on inclusion, diversity, employee engagement, safety and integrity. In 2023, we increased global representation of women in management by 4 percentage points improving diversity of leadership. Safety of our employees is a key priority. And in 2023, we improved our total recordable incident rate by more than 20%. We believe our people and culture are a differentiator, and our efforts are focused on making Invent a great place to work. Our products pillar focuses on developing highly innovative solutions that deliver efficiency, safety and reduced resource consumption, creating a more sustainable future. In 2023, 85% of products in our new product introduction funnel had a positive ESG impact and we are on track to get to greater than 90% by 2025.
We set a new goal to eliminate single-use plastics from our product packaging by 2030. Through our innovative products and solutions, we are helping our customers build a more sustainable and electrified world. For example, our electrical connection solutions, which include grounding and bonding -- grounding and power connections add resiliency to critical electrical systems. Our solutions include flexible bus bars with the bending radius much smaller than that of cable, which enables space and material savings. Alongside benefits of easier installation, these higher current density conductors allow renewable energy and utility customers to meet the demand of increasingly complex applications. Our planet pillar focuses on responsible energy, waste and water management to help protect our natural resources.
In 2023, we reduced total greenhouse gas emissions by 9%, increased renewable energy consumption to 15% and increased energy-efficient LED lighting in our facilities to 89%. These are measurable steps and to further demonstrate our commitment to environmental stewardship, we set a new goal to reduce water consumption by 25% by 2030. And I'm very proud that we've been recognized for our efforts. We were awarded a goal sustainability rating from EcoVadis, placing us in the top 3% of companies assessed in our industry. And in the 93rd percentile of all companies assessed. We were also recognized as one of America's Greenest companies by Newsweek. We were named for the first time to the Fortune Best Workplaces in manufacturing and production list.
And most recently, nVent was recognized as one of the world's most ethical companies by Ethisphere. Our sustainability efforts are key to our strategy and how we operate. I'm very proud of everything we have accomplished and the journey we are on. Wrapping up on Slide 13. We are off to a strong start to the year with record Q1 sales and adjusted EPS. We have made significant progress on our ESG goals. And we believe we are well-positioned with the electrification of everything, sustainability and digitalization trends. I am proud of our team's performance. Our future is bright. With that, I will now turn the call over to the operator to start Q&A.
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