01—Abstract
Summary
Summary of the 10-K/A filed March 1, 2019. Cited figures are marked; the original filing is the authoritative source.
nVent Electric plc, a leading global provider of electrical connection and protection solutions, filed its Form 10-K for fiscal 2018 after completing its separation from Pentair plc on April 30, 2018.
Net sales for 2018 were $2,213.6 milliona, up from $2,097.9 million in 2017, with organic growth of 4.7% and currency adding 0.8%. Operating income declined to $310.8 million from $316.1 million, and net income fell to $230.8 million from $361.7 million, which was boosted in 2017 by a $84.8 million provisional U.S. tax reform benefit. Diluted EPS was $1.28 versus $2.00 in 2017.
The company recorded $45.0 millionb of separation costs in 2018, compared with $16.1 million in 2017. The company operates three segments: Enclosures (46% of 2018 revenue), Thermal Management (28%), and Electrical & Fastening Solutions (26%). Segment income totaled $424.4 million in 2018.
Cash provided by operating activities was $343.5 millionc, and free cash flow was $306.4 million, compared with $382.1 million in 2017. Total debt was $941.7 million at year-end, following $800.0 million of senior notes issued in March 2018 and a $200.0 million term loan, and the company repaid $52.5 million of the term loan during 2018. Backlog was $279.7 million at December 31, 2018, essentially flat with $280.4 million a year earlier.
Capital allocation included $62.9 milliond of dividends paid in 2018 ($0.35 per share) and $56.0 million of share repurchases. In February 2019, the board authorized an additional $380.0 million repurchase program and declared a quarterly dividend of $0.175 per share. Investors should note the company's Irish incorporation with U.K. tax residency, its exposure to tax-deductibility changes proposed by U.S. Treasury regulations, and the continued reliance on transition agreements with Pentair.
02—Key points
Key Highlights
- Net sales rose 5.5% to $2,213.6 million in 2018, with organic growth of 4.7%, driven by price and volume gains in Enclosures and Electrical & Fastening Solutions.
- Net income declined to $230.8 million from $361.7 million, largely because 2017 included an $84.8 million provisional U.S. tax reform benefit and 2018 included $45.0 million of separation costs.
- Operating income fell 1.7% to $310.8 million, with operating margin of 14.0% versus 15.1% in 2017, reflecting inflation in raw materials, labor and freight.
- Enclosures was the largest segment at $1,019.7 million of net sales (46% of revenue) with segment income of $174.8 million; Thermal Management grew only 0.2% due to lower energy project volume.
- Free cash flow was $306.4 million in 2018 versus $382.1 million in 2017, while total debt stood at $941.7 million after $1.0 billion of new borrowings and $993.6 million of cash paid to Pentair at separation.
- Backlog was $279.7 million at December 31, 2018, nearly unchanged from $280.4 million, and the majority is expected to ship in 2019.
- The board approved a new $380.0 million share repurchase authorization in February 2019 in addition to the $441.0 million remaining under the 2018 program, and declared a $0.175 quarterly dividend.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, nVent Electric kept $0.10.
- Revenue$2.21B100.0%
- Cost of revenue−$1.34B60.4%
- Gross profit$876.1M39.6%
- Operating costs−$565.3M25.5%
- Operating income$310.8M14.0%
- Interest, other & tax−$80.0M3.6%
- Net income$230.8M10.4%
Where FY2018 revenue went
$2.21B- Cost of revenue: $1.34B, 60% of revenue
- SG&A: $519.7M, 23% of revenue
- Net income: $230.8M, 10% of revenue
- R&D: $45.6M, 2.1% of revenue
- Interest, other & tax: $80.0M, 3.6% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2018filed March 1, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.21B$2.10B | +5.5% |
| Cost of Revenue | $1.34B$1.26B | +6.5% |
| Gross Profit | $876.10M$841.90M | +4.1% |
| R&D Expenses | $45.60M$42.50M | +7.3% |
| SG&A Expenses | $519.70M$483.30M | +7.5% |
| Operating Income | $310.80M$316.10M | −1.7% |
| Interest Expense | $31.20M$200K | +15500.0% |
| Net Income | $230.80M$361.70M | −36.2% |
| EPS (Basic) | $1.29$2.02 | −36.1% |
| EPS (Diluted) | $1.28$2.00 | −36.0% |
| Shares Outstanding (Basic) | 178.60M179.00M | −0.2% |
| Shares Outstanding (Diluted) | 180.80M181.20M | −0.2% |
05—Questions
Frequently Asked Questions
How did nVent's 2018 financial performance compare with 2017?
Net sales increased 5.5% to $2,213.6 million from $2,097.9 million. Operating income decreased 1.7% to $310.8 million, and net income fell to $230.8 million from $361.7 million. The 2017 net income included a $84.8 million provisional tax benefit from U.S. tax reform, and 2018 included $45.0 million of non-recurring separation costs. Diluted earnings per share were $1.28 compared with $2.00.
What are the main business segments and how large are they?
nVent operates three segments: Enclosures, Thermal Management, and Electrical & Fastening Solutions. Enclosures generated $1,019.7 million of 2018 net sales (46% of total revenue), Thermal Management generated $623.2 million (28%), and Electrical & Fastening Solutions generated $570.7 million (26%). Segment income was $174.8 million, $154.2 million and $144.5 million, respectively.
How is nVent's balance sheet and debt position?
At December 31, 2018, total debt was $941.7 million and total equity was $2,687.1 million. Cash and cash equivalents were $159.0 million. In March 2018, the company issued $300.0 million of 3.950% senior notes due 2023 and $500.0 million of 4.550% senior notes due 2028, and entered into a $200.0 million term loan and a $600.0 million revolving credit facility, which was undrawn at year-end. The company stated it was in compliance with all financial covenants.
What shareholder returns has nVent provided or authorized?
In 2018, nVent paid $62.9 million in dividends ($0.35 per share) and repurchased shares for $56.0 million in cash. In February 2019, the board declared a quarterly dividend of $0.175 per share payable May 3, 2019, and authorized an additional $380.0 million share repurchase program that expires July 23, 2021, in addition to the $441.0 million remaining under the 2018 authorization.
What key risks does the filing highlight for investors?
The filing highlights exposure to cyclical industrial, energy and commercial markets, sales outside the U.S. representing approximately 40% of net sales, currency and commodity price volatility, and tariff-related trade policy changes. It also flags goodwill and intangibles of $3.4 billion, representing 75% of total assets, and risks from Pentair indemnification obligations. Additionally, it notes that proposed U.S. Treasury regulations on interest deductibility, expected to be finalized by June 2019, could affect the effective tax rate, and that nVent's Irish incorporation and U.K. tax residency carry specific tax risks.
06—Continue