nVent Electric 2026 Q2 Earnings Call

Please go ahead. Thank you, and welcome to nVent's second quarter 2026 earnings call.

On the call with me are Beth Wozniak, our Chair and Chief Executive Officer, and Gary Corona, our Chief Financial Officer. Today, we'll provide details on our second quarter performance, an outlook for the third quarter, and an update to our full-year outlook. All results referenced throughout the presentation are on a continuing operation basis unless otherwise stated. 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 filing 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 your questions after prepared remarks. With that, please turn to slide three, and I will now turn the call over to Beth.

Good morning, everyone. I am pleased to share with you our outstanding second quarter results and cover some key business highlights. We had another tremendous quarter with record sales and earnings well ahead of our guidance. The better-than-expected sales were primarily driven by the infrastructure vertical led by data centers, along with stronger demand in our short-cycle business. This was our fourth consecutive quarter with sales of more than $1 billion, including Systems Protection sales of more than $1 billion for the first time. Our data center business grew across the portfolio in both the gray and white spaces. We had outstanding growth in liquid cooling, cable management, and engineered buildings. We are winning with a wide range of customers, from hyperscalers to neoclouds, multi-tenants, and also through our distribution partners.

We have been investing in new products and our supply chain to be able to scale and respond to customer demand. Today, we announced another new location for further capacity expansion, which I will discuss shortly. In Q2 for total nVent, we continued to have strong orders and backlog. Organic orders growth was broad-based, up low double digits. In addition, backlog remained healthy at $2.5 billion, giving us visibility through the year and into 2027. As we have previously discussed, data center orders tend to be large and lumpy, impacting growth rates quarter-to-quarter. In fact, we've had strong data center orders thus far in Q3. Our free cash flow and balance sheet are strong, and our disciplined capital allocation is focused on growth and returning cash to shareholders for continued value creation.

We are significantly raising our full-year sales and EPS guidance to reflect our outstanding second quarter and expected broad-based growth, including continuing momentum in AI data centers. On to slide four. For a summary of our second quarter performance, sales were up 53% and 47% organically, led by the infrastructure vertical. New products contributed over 30 points to our sales growth, and we launched 14 new products in the quarter. The EPG acquisition continued to exceed expectations, growing sales strong double digits year-over-year. Adjusted operating income grew 61% year-over-year, with return on sales of nearly 22%. Adjusted EPS grew 69%, and free cash flow grew 125% year-over-year. Looking at our key verticals, sales grew across all verticals. Infrastructure led the way with organic sales more than doubling, driven by outstanding growth in data centers and double-digit growth in power utilities.

Commercial resi grew high single digits, industrial was up low single digits. Turning to organic sales by geography, all geographies grew, led by the Americas growing very strong double digits. Europe was up mid-single digits, and Asia Pacific grew double digits. Looking ahead, we believe infrastructure represents our largest long-term growth opportunity, driven by the powerful secular trends of electrification, sustainability, and digitalization. We expect the infrastructure vertical to deliver strong double-digit growth this year, supported by accelerating AI-related data center capital investment. Within infrastructure, data centers remains our most significant growth opportunity. We also see substantial opportunity in power utilities, where increasing electricity demand, grid modernization, and the growing power requirements of AI data centers are creating meaningful long-term tailwinds. Turning to industrial and commercial resi, we expect each to grow mid-single digits for the year, with improving demand trends in our short cycle business.

Moving to slide five. Our portfolio transformation to become a more focused, higher growth electrical connection and protection company is showing up in our results. We have intentionally increased our exposure to the high-growth infrastructure vertical through both organic investments and M&A. Infrastructure made up 12% of sales at spin, expanded to 45% last year, and was nearly 60% in the first half of this year. We have been significantly investing in our data center and power utilities businesses, which are rapidly growing, and more capacity is needed to meet customer demand. Overall, I am proud of our nVent team and how hard everyone is working to deliver these results and support our customers. We are on track for another strong year. This wraps up my opening remarks.

I will now turn the call over to Gary for further details on our second quarter results, as well as our updated outlook. Gary, please go ahead. Thank you, Beth.

We had another excellent quarter, exceeding our guidance with record sales and EPS. Let's turn to slide six to review our results. Sales of $1,471 million were up 53% compared to last year. Organically, sales grew 47%, well ahead of our guidance, driven by very strong data center sales. Acquisitions added $52 million to sales or five points to growth. Sales from EPG after May 1st became part of our organic growth. Foreign exchange was nearly a one-point tailwind. Adjusted operating income was $323 million, up 61%. Return on sales came in ahead of expectations at 21.9%, up 110 basis points versus last year. Price plus productivity offset inflation of more than $50 million, including more than $30 million in tariff impact. We also continued to make investments for growth in data centers and power utilities.

We had record earnings well ahead of the high end of our guidance, driven by exceptional sales growth and execution by the team. Adjusted EPS grew 69% year-over-year to $1.45. We generated very strong cash flow of $167 million, up 125% year-over-year. Please turn to slide seven for a discussion on the second quarter segment performance. Starting with Systems Protection, sales of $1,072 million increased 70%. The EPG acquisition contributed seven points to sales and has performed well. This was Systems Protection's first billion-dollar quarter. Organically, sales grew 62%, led by the infrastructure vertical, which more than doubled due to continued strength in data centers. Industrial and commercial resi were each flat-ish in the quarter. Geographically, Americas grew very strong double digits, while Europe was up mid-single digits. Asia-Pacific grew double digits in the quarter. Second quarter segment income was $248 million, up 81%.

Return on sales of 23.2% increased 150 basis points year-over-year on strong volume and productivity. Moving to Electrical Connections. Sales of $399 million increased 21%. Organic sales were up 18%, and the EPG acquisition contributed two points to sales. Growth was broad-based across all verticals and geographies. From a vertical perspective, infrastructure and industrial each grew strong double digits. Commercial resi was up low teens. Geographically, sales were up high teens in the Americas. Europe was up low double digits, and Asia-Pacific grew double digits. Segment income was $109 million, up 15% versus last year. Return on sales of 27.3% was down 140 basis points year-over-year. The margin performance was impacted by inflation and mix, partially offset by improving price and volume. Importantly, margins improved sequentially back into the high 20s. Turning to the balance sheet and cash flow on slide eight.

We ended the quarter with $256 million of cash on hand and $600 million available on our revolver, putting us in a strong liquidity position. Our debt stands at $1.5 billion, after paying down nearly $70 million of our pre-payable term loan in the quarter. Our healthy balance sheet and strong liquidity position gives us financial flexibility to support our disciplined capital allocation strategy. Turning to slide nine on capital allocation, where we outline how we deploy capital to drive growth and sustain financial outperformance. Our framework has been consistent and is centered on disciplined growth investments and rigorous execution of our M&A strategy while maintaining the balance sheet flexibility to consistently return capital to shareholders. Our capital allocation priority is growth. That starts with reinvesting in the business by funding capacity expansion, innovation, and the capabilities required to win in high growth verticals.