nVent Electric plc Ordinary Shares

At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be an answer session. To ask a question during this time, you will need to press star, then 1 on your telephone keypad. If you require any further assistance, please press star, 0. I would now like to hand the conference over to your first speaker today. JC Weigel, please go ahead.

Thank you, Amy, and welcome, everyone, to Inven's first quarter 2021 earnings call. I'm J.C. Weigel, Vice President of Investor Relations, and on the call are Beth Wozniak, our Chief Executive Officer, and Sarah Zawoisky, our Chief Financial Officer. Today, we'll provide details on our first quarter performance and provide an outlook for the second quarter, as well as an update to our full year 2021 outlook. Before we begin, let me remind you that 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 InvenS filings at 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 InvenS' website. References to non-GAAP financials are reconciled in the appendix of the presentation. We'll have time for questions after our prepared remarks. And now I will turn the call over to Beth.

Thank you, JC. And good morning, everyone. Our first quarter performance was ahead of our expectations on sales, earnings, and cash. This was a result of stronger than anticipated demand, as well as channel restocking, both of which were particularly strong in March. Execution was another highlight as we saw good price realization, met increased customer demand while delivering strong productivity, and continued to make progress on our growth initiatives. I am so proud of how well our teams are executing in this challenging environment. Overall, it was a great start to the year. Beginning on slide three, titled Executive Summary, our employee safety and well-being remains our top priority. And we continue to execute on our priority to emerge stronger. We return to growth in the quarter, and our financial results are well ahead of the guidance we provided in February, as well as ahead of the update in early March. We saw particular strength in enclosures, with strong sales within the industrial and infrastructure verticals. For Invent, we saw a pickup in sales globally, reflecting the broader recovery. Return on sales for the quarter was 17.7%, marking an increase of 210 basis points. And we generated $40 million in cash flow. We believe a faster global recovery and our strong execution were the main drivers to our overperformance this quarter. Our adjusted EPS of 43 cents was up 26% year over year. Given the strong start to the year, we are raising our full year guidance. Now on to slide four of our first quarter performance. Sales during the quarter were $549 million, up 5% reported or 2% organically. This was well ahead of the down 9% to down 4% we originally guided you. Incrementals were robust at 56%. We believe a number of factors drove our top-line performance. One of those is the accelerated recovery of the global economy. Recall our expectation was that enclosures would recover first, and that is playing out. Enclosure sales were up 4% organically, and industrial sales within enclosures were up 7% organically. Another factor was channel restocking, where we saw a meaningful improvement in March. We believe that this restocking activity was due to a combination of low inventory levels, the uncertainty around supply chains, and the buy ahead of inflation. While this likely pulled some sales into the first quarter, we still believe the underlying global economy continues to recover and we are optimistic about further strength as we progress through 2021. One more factor driving our strong results is our focus on higher growth verticals around the electrification of everything, where we believe we are one of the best positioned companies to grow with this mega trend. Infrastructure was up mid-single digits, as data center and networking solution sales were up 20%. A number of other sub-verticals saw strong growth, including telecom, 5G, and renewables. Rounding out the vertical discussion, we continue to see weakness in energy, particularly in North America and MRO, which remain on double digits. In commercial and residential, electrical and fastening saw modest growth, and thermal management saw strong growth driven by fire-rated wiring and pipe freeze protection. Turning to our geographical performance, sales within North America were down modestly, although ahead of expectations. Europe continued to improve with sales up almost 4% organically year over year and high teens growth within European distribution, which is a focus area for us. Emerging geographies such as China saw strong double digit growth as they continue to lead the recovery. Looking ahead, we are raising our full year guidance. This reflects the strength we saw in the first quarter and our order momentum. While our outlook is positive, we remain cautious given by chain constraints and the fact that regions of the world are still struggling with COVID-19. Regarding inflation, we've raised our outlook for the year around input costs and are executing well on a number of price increases with strong realization thus far. Over the last several years, we've invested in capacity and resiliency in our supply chain and have been able to respond well to the increased demand. I'm proud to say that due to our new products, strong execution, and product availability, we are converting customers and emerging stronger. I will now turn the call over to Sarah for some detail on our first quarter results and our updated outlook for 2021. Sarah, please go ahead. Thank you, Beth. It is exciting to begin the year with such great performance. Let's turn to slide five to review first quarter performance. Sales of $549 million were up 5% relative to last year, or 2% organically. We saw strong price realization, adding approximately a point and a half to growth. March was our strongest month during the quarter, particularly in enclosures and electrical and fasting. Orders in the quarter turned positive and outpaced sales across all three segments with particular strength and enclosures. Price plus productivity more than offset inflation and we delivered incrementals of 56%. Segment income increased 19% driven by top line strength, good operational execution and productivity from the cost actions we took in 2020. Adjusted EPS of 43 cents increased 26% and was above our original guidance range of 32 to 36 cents. Free cash flow during the quarter was a positive $40 million. In summary, this was another quarter of strong execution and a return to growth. Now please turn to slide six for discussion of our first quarter segment performance. Starting with enclosures, sales of $277 million grew 4% organically. We saw volumes increase, driven by a broad-based recovery in industrial and accelerated growth in infrastructure. In particular, data and networking solution sales returned to strong double-digit growth, and our expanded IEC portfolio grew high single digits. Enclosure segment income increased 19%, with return on end sales expanding 180 basis points to 17.6%. Incrementals of 43% reflected strong operational productivity. Now on to electrical and fastening. Sales of $148 million were up 1% organically, demonstrating the continued strength and resiliency of this portfolio with double-digit growth in industrial, low single-digit growth in commercial, and as expected, modest declines in infrastructure due to difficult comps. Global sales outperformed expectations with strength in Europe and APAC, order growth and power utilities, and data center and networking solutions, all critical areas in the electrification of everything, gives us confidence our infrastructure vertical sales can improve as we progress through the year. Electrical and fasting segment income was up 17%, and return on sales was 26.5%, up 290 basis points relative to last year. Incrementals were very strong at 94%. the team continues to perform at a high level, focusing on fast-growing verticals, new products, channel and contractor conversions, all while improving in return on sales relative to last year. Moving to thermal management, sales of $124 million declined 1% organically. While orders improved sequentially in industrial MRO, sales remained down double digits due to continued spend reductions. Commercial and residential sales were up low double digits with particular strength in fire rated wiring, and we continued to see the benefit from longer cycle projects globally. Thermal management segment income was up 3%, and return on sales expanded 10 basis points, as the structural changes we made last year are reading out. The business continued to see a negative mixed impact to margins due to declines in industrial MROs. On slide seven, titled balance sheet and cash flow, we ended the quarter with a cash balance of $105 million. We have an additional $565 million available on our revolver. We continue to make progress on our working capital goals and we're pleased with robust, positive free cash flow during the quarter versus our typical usage. This was the result of strong operational performance as well as working capital improvement. Turning to slide eight, titled Capital Allocation Update, we exited the first quarter with a net debt to adjusted EBITDA ratio at 2.1 times, which remains at the low end of our target range of two to two and a half times. We completed the bolt-on acquisition of Bankier early in the second quarter, which expands our enclosures portfolio further into infrastructure. We also repurchased $20 million in shares earlier in the quarter to help offset dilution. We believe our strong balance sheet and cash generation puts us in a good position to invest in growth and execute our M&A strategy. Moving to slide nine, titled 2021 Invent Outlook. We are raising our full year guidance for the following reasons. First is our strong sales performance in the first quarter, which reflected a faster recovery, particularly in the industrial vertical. Second, our order book gives us confidence that the global economy continues to recover. Third is our strong operational performance, which we believe is a competitive advantage with our ability to service increased demands. Offsetting some of these positives is an updated view on inflation, which has meaningfully increased. We have successfully executed multiple price increases in enclosures and electrical and fastening. We continue to monitor inflation and evaluate our pricing and productivity actions with a goal of protecting profits. We are off to a strong start and are confident in our team's ability to execute, but it is still early in the year. We now expect to grow sales 8% to 11% versus our prior guidance of 4% to 8%. And now expect adjusted EPS to be in the range of $1.67 to $1.75 versus our original guidance of $1.58 to $1.68. This new guidance reflects earnings growth of 11% to 17% versus 2020. From a segment perspective, we expect the stronger recovery in the industrial verticals to benefit our enclosure segment the most. Strength in infrastructure and industrial is expected to drive electrical and fastening sales with continued resiliency in commercial. For thermal management, we are encouraged given positive order trends in commercial and sequential improvements in industrial MRO and continue to expect this to be a more gradual recovery. On currency, we now expect a two-point tailwind to sales this year. We expect another year of strong cash flow and conversion of adjusted net income at or above 100%. And lastly, we expect corporate costs to increase relative to our initial guidance by approximately $5 million. This is related to higher compensation accruals in response to such a strong start to the year, some temporary costs coming in sooner, along with continued strategic investments. Looking at our second quarter outlook on slide 10, we expect organic sales to be up 14% to 17% as we lap a quarter that was significantly impacted by global shutdowns in the peak of the pandemic. This outlook is supported by high single-digit organic growth in the first quarter with particular strength in March. We expect adjusted EPS to be between $0.36 and $0.40, which at the midpoint reflects 31% growth relative to last year. Recall the second quarter of 2020 included actions around furloughs and salary reductions during the peak of the pandemic, causing a headwind this quarter. Still, we expect margin expansion and attractive incrementals due to strong execution, the benefit of structural actions taken in 2020, and increasing volume. Wrapping up, I'm pleased with our first quarter performance. We executed well to meet strong customer demand. We believe we have a good handle on price cost in this inflationary environment and expect to take the necessary actions to protect profit. With a successful first quarter in order momentum, we believe we are set up for a great year with strong sales growth, margin expansion, and robust cash generation. This concludes my remarks, and I will now turn the call back over to Beth. Thank you, Sarah. Turning to slide 11, I would like to review the progress we've made on our 2021 priorities. Our first priority remains the safety and well-being of our employees. We continue to engage in regular conversations with our employees to ensure they feel safe and supported as we continue to navigate through this crisis. Growth remains a priority for us, both organic and inorganic. We've recently seen a marked improvement in global sales with particular strength in Europe and other global geographies. Our strategic initiative to build stronger relationships with European distributors is paying off with high teens growth during the quarter. We saw 20% plus growth in our focused verticals, such as data networking solutions and rail, as well as high single-digit growth amongst our strategic distribution alliances. We launched nine new products during the quarter across the business. These include connected solutions in thermal management, as well as a universal freestand portfolio of enclosures. We are on track to launch over 50 products this year. Recall, we are tracking our progress by measuring new product vitality, which continues to rise into the high teens. And we are seeing a strong revenue and margin contribution from these products. On the digital front, we continue to launch new capabilities on go-to-market, automation, and digitization of our back office functions and factories. We're expanding our use of data and intelligence, helping us drive insights to support our growth. We also expect this to drive productivity and working capital improvements. On M&A, we completed the Vinci acquisition earlier this month, which strengthens our enclosure segment, providing us with an expanded non-metallic portfolio positioned in high-growth verticals such as solar, utilities, and 5G. We also formed a strategic partnership with Cool IT Systems. They are a leader in cooling solutions for data center and networking, and we see this further strengthening our cooling capabilities. Our M&A strategy is to build upon our great brands, leading positions, and to expand globally. We are very pleased with the successful integration of Eldon and WBT. Both are performing very well with orders up double digits in the quarter. We have robust integration playbooks and believe we are capable of delivering value through acquisitions. We see ourselves competing in a highly fragmented space and have a strong M&A pipeline around the mega trend of the electrification of everything. We believe M&A continue to play a key role to grow our business and create shareholder value. The global recovery is underway and even a little earlier than anticipated. We said we would see the recovery first in enclosures and that is what transpired here in the first quarter. Since SPIN, we have invested in our capacity and improved the planning and management of our supply chain across all segments and believe we are well positioned to meet a continued increase in global demand. We have a healthy balance sheet and continue to look for attractive M&A opportunities that deliver high returns. Over the past year, we've made decisions to put us in a position to emerge stronger. Our first quarter results, as well as our order book, give us the confidence that we are indeed emerging stronger. Our outlook for the year has improved, and we're executing at a high level to deliver both sales and income growth, as well as improved cash generation. Wrapping up on slide 12. We have a strong foundation with many bright growth prospects. Because of the macro trends toward the electrification of everything, we believe we can drive more demand for our products and solutions. With our strong brands, our spark management system, and our momentum on marketing and sales excellence, new products and digital, we believe we are well positioned to benefit from these trends. Our future is bright as we continue to gain traction within high growth verticals, global growth, and strategic and alliances. In addition to growth, we're executing at a high level to deliver margin expansion and strong cash flow generation. We are emerging stronger and are on a path to making Invent a high performance electrical company. With that, I will now turn the call over to the operator to start Q&A.