01—Abstract
Summary
Summary of the 10-K filed February 25, 2020. Cited figures are marked; the original filing is the authoritative source.
nVent Electric plc, a leading global provider of electrical connection and protection solutions, reported 2019 net sales of $2,204.0 milliona, down 0.4% from $2,213.6 million in 2018, with operating income rising 7.2% to $333.1 million and net income of $222.7 million versus $230.8 million a year earlier.
The company operates three segments: Enclosures (47% of 2019 revenue), Thermal Management (27%), and Electrical & Fastening Solutions (26%). Management attributed the sales decline primarily to unfavorable foreign currency effects and a slowdown in industrial capital spending, partly offset by the Eldon acquisition, which contributed $30.6 millionb of sales after its August 2019 close for $127.8 million net of cash acquired. Cash generation and capital returns were central to the year.
Net cash from operating activities was $336.3 millionc and free cash flow was $303.8 million, compared with $306.4 million in 2018. The company repurchased 9.0 million shares for $232.7 million under its 2018 authorization, leaving $588.3 million available across the 2018 and 2019 authorizations. Quarterly dividends totaled $0.70 per share for 2019, and the board declared a further $0.175 quarterly dividend on February 25, 2020.
Total debt rose to $1,064.6 milliond, and the company stated it was in compliance with all financial covenants. Investors should note several items: goodwill and intangibles totaled $3.4 billion, or 74% of total assets, and the filing identifies a $27.3 million pension mark-to-market charge in the fourth quarter of 2019.
Restructuring costs rose to $24.2 million from $7.7 million. The company also disclosed that it is centrally managed in the United Kingdom with U.K. tax residency, and that Deloitte & Touche LLP issued an unqualified audit opinion with an emphasis-of-matter paragraph on Pentair expense allocations before the April 30, 2018 separation.
02—Key points
Key Highlights
- Net sales of $2,204.0 million in 2019, down 0.4% from $2,213.6 million in 2018, with currency cited as a 1.6% negative impact.
- Operating income of $333.1 million, up 7.2%, with operating margin of 15.1% versus 14.0% in 2018.
- Net income of $222.7 million, or $1.29 diluted EPS, compared with $230.8 million and $1.28 in 2018.
- Segment mix: Enclosures $1,033.8 million (up 1.4%), Thermal Management $590.6 million (down 5.2%), Electrical & Fastening Solutions $579.6 million (up 1.6%).
- Free cash flow of $303.8 million, supported by operating cash flow of $336.3 million, with $235.7 million in share repurchases and $120.7 million in dividends paid.
- Backlog of $299.8 million at December 31, 2019, up 7.2% from $279.7 million, with Thermal Management backlog up 32.1%.
- Eldon Holding AB acquisition for $127.8 million net of cash, with $30.6 million of sales since closing; a further WBT LLC cable tray acquisition for approximately $30.0 million closed February 10, 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, nVent Electric kept $0.10.
- Revenue$2.20B100.0%
- Cost of revenue−$1.34B60.7%
- Gross profit$865.8M39.3%
- Operating costs−$532.7M24.2%
- Operating income$333.1M15.1%
- Interest, other & tax−$110.4M5.0%
- Net income$222.7M10.1%
Where FY2019 revenue went
$2.20B- Cost of revenue: $1.34B, 61% of revenue
- SG&A: $484.5M, 22% of revenue
- Net income: $222.7M, 10% of revenue
- R&D: $48.2M, 2.2% of revenue
- Interest, other & tax: $110.4M, 5.0% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 25, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.20B$2.21B | −0.4% |
| Cost of Revenue | $1.34B$1.34B | +0.1% |
| Gross Profit | $865.80M$876.10M | −1.2% |
| R&D Expenses | $48.20M$45.60M | +5.7% |
| SG&A Expenses | $484.50M$519.70M | −6.8% |
| Operating Income | $333.10M$310.80M | +7.2% |
| Interest Expense | $44.70M$31.20M | +43.3% |
| Net Income | $222.70M$230.80M | −3.5% |
| EPS (Basic) | $1.30$1.29 | +0.8% |
| EPS (Diluted) | $1.29$1.28 | +0.8% |
| Shares Outstanding (Basic) | 171.60M178.60M | −3.9% |
| Shares Outstanding (Diluted) | 173.00M180.80M | −4.3% |
05—Questions
Frequently Asked Questions
Why did nVent's net sales decline in 2019 despite the Eldon acquisition?
Net sales fell 0.4% to $2,204.0 million. Management cited unfavorable foreign currency effects and a slowdown in industrial capital spending, which reduced organic sales by approximately 1.5% in the industrial business. These were partly offset by $30.6 million of Eldon sales and about 1.0% organic growth from the commercial and residential business.
How is nVent returning cash to shareholders?
In 2019 nVent repurchased 9.0 million shares for $232.7 million and paid $120.7 million in dividends. At year-end $588.3 million remained available under its 2018 and 2019 repurchase authorizations, which expire July 23, 2021. The board declared a $0.175 quarterly dividend on February 25, 2020, payable May 8, 2020.
How leveraged is the company and is it in compliance with its debt covenants?
Total debt was $1,064.6 million at December 31, 2019, up from $941.7 million a year earlier, including $134.6 million drawn on the revolving credit facility. The company stated it was in compliance with all financial covenants, including a maximum consolidated debt to EBITDA ratio of 3.75 to 1.00 and a minimum EBITDA to interest expense ratio of 3.00 to 1.00 under its Senior Credit Facilities.
What risks are most significant for nVent investors?
Key risks include cyclical end markets such as energy and industrial capital spending, approximately 40% of net sales generated outside the U.S. with currency exposure, and goodwill and intangibles representing 74% of total assets, which could be impaired. The company is also incorporated in Ireland with U.K. tax residency, and changes in tax law or residency status could raise its effective tax rate.
06—Continue