nVent Electric PLC (NVT) 2018 Q4 法說會逐字稿

Good morning.

My name is Amy, and I will be your conference operator today.

At this time, I would like to welcome everyone to the nVent's Q4 Earnings Conference Call.

(Operator Instructions)

I would now like to turn the conference over to Mr. J.C. Weigelt.

Please go ahead.

Thank you, and welcome to nVent's fourth quarter and full year 2018 earnings call.

We're glad you could join us.

I'm J.C. Weigelt, Vice President of Investor Relations, and with me today are Beth Wozniak, our Chief Executive Officer; and Stacy McMahan, our Chief Financial Officer.

On today's call, we will provide details on our fourth quarter and full year performance as well as our first quarter and full year 2019 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 included here 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 can be found in the Investor 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 our prepared remarks.

And now I will turn the call over to Beth.

Thank you, J.C. Good morning, and thank you for joining us.

This morning, we will walk through fourth quarter and full year 2018 performance and outline our thoughts on 2019 guidance.

The fourth quarter was highlighted by accelerating organic sales growth, segment income grew -- growth of 7% and robust cash generation.

Beginning on Slide 3 of the earnings presentation, sales of $568 million grew over 6% organically, which was above the top end of our guidance.

For the quarter, return on sales expanded 40 basis points to 19.1% and adjusted EPS was $0.45.

Our return on sales was driven by a 70 basis point expansion in Enclosures, as we continued to execute on our plan to drive margin.

Segment income for the quarter was $108 million, up over 7% versus last year or up 3%, excluding corporate and other costs.

We generated approximately $150 million of free cash flow during the quarter and repurchased approximately $60 million in shares.

Reflecting on full year 2018, we met our objectives of standing up nVent delivering strong organic sales growth, improving the margin profile of Enclosures in the back half of the year and generating strong free cash flow of over $300 million.

At the same time, we managed through some unforeseen headwinds, such as the introduction of tariffs and a highly inflationary environment.

Sales of $2.2 billion grew almost 5% organically, which was above the high end of our guidance of 3% to 4% organic growth.

Whilst full year return on sales of 19.1% was slightly below prior year, we exited the fourth quarter with 40 basis points of margin expansion, reflecting contributions from growth, price and productivity.

Adjusted EPS of $1.74 was within our updated guidance range as corporate expenses, net interest expense and tax rate were all in line with our guidance.

In 2018, we returned approximately $120 million to shareholders through dividends and repurchases.

Turning to Slide 4 titled nVent's strategy.

While I intend to provide a more detailed update about our strategy during our February 27 Institutional Investor and Analyst Day at our Thermal Management location in Redwood City, California, I can say we made great strides in our first 8 months as nVent.

Our strategy is around key verticals, global growth, new products and having a market-backed approach to customers and channel.

Our strategies are working as sales growth accelerated 1 point each sequential quarter during the year.

Turning to Slide 5, our focus on key verticals, such as data and networking solutions, rail and transit and commercial is based on the opportunity we saw to win with our mission to connect and protect.

These verticals are large, growing and we have a winning product portfolio to increase sales.

In 2018, we put teams in place to manage these verticals with dedicated commercial teams and incentives to sell across our entire portfolio.

And succeed they did as these teams delivered mid-teens digit sales growth in 2018.

In addition, we are launching new products across all 3 segments, including connected solutions, such as our ELEXANT controllers and differentiated offerings, such as our new seismic fasteners positioning us to grow globally.

With results like these, I'm confident that we are focused in the right areas and that where we focus we can win.

In total, sales within our enterprise initiatives grew high single digits this year and we are in the early stages of a broader and longer-term strategy, built to sustain organic growth above industry rates.

I look forward to walking you through these in more detail on February 27.

Turning to Slide 6. Our focus on growth is paying off, as fourth quarter sales grew over 6% organically.

Segment income of $108 million grew 7% or 3%, excluding corporate and other costs as price and productivity were able to offset about $17 million of inflation during the quarter.

While we are happy with our progress on organic growth, we are disappointed it did not translate into better operating leverage and are working to improve this in 2019.

Cash flow during the fourth quarter was seasonally strong and we generated about $150 million of free cash flow in the quarter.

Turning to Slide 7. Full year organic sales grew 5% and adjusted segment income grew at about 5%, which excludes corporate and other costs as these were allocated costs for a portion of the year ahead of the spin.

If you look at Slide 8, which shows our balance sheet and cash flow, we generated approximately $301 million of free cash flow in 2018, we returned approximately $120 million to shareholders in our first 8 months through dividends and share repurchases.

For 2019, we expect to target a free cash flow conversion of 95% to 100% of adjusted net income, which accounts for some digital and capacity expansion investments.

It is important to remind everyone about the seasonality of our free cash flow with usage of cash in the first quarter followed by stronger cash generation as the year progresses.

Now please turn to Slides 9 and 10 for a discussion of our fourth quarter and full year segment performance.

Starting with Enclosures.

This segment grew about 9% organically for the fourth quarter and 8% organically for full year 2018.

This marks the fifth quarter in a row with high single-digit organic sales growth, and it continued to be broad-based across verticals and geographies.

Our One nVent approach and focus on key verticals enabled us to grow above the industry in 2018.

Segment income was up 13% in the fourth quarter, driven by growth, price and productivity.

Turning to margin.

Fourth quarter Enclosures' return on sales expanded 70 basis points year-over-year.

Price was a strong driver during the quarter, which more than covered material inflation.

Productivity also contributed to margin expansion as we stabilized operations and supply chain investments began to pay off.

We were encouraged by the return on sales improvements within Enclosures during the second half of the year.

Heading into 2019, we expect to continue to drive margin expansion through end-to-end supply chain improvements and pricing.

Thermal Management.

Sales of $179 million continued to trend in the right direction, with organic sales growth growing 3%.

Our longer cycle energy business remained down year-over-year, while commercial and industrial MRO continue to perform well.

We remain optimistic in the outlook for the longer cycle energy business.

Orders during the fourth quarter were up low double digits and backlog was up modestly.

For 2018, full year sales of $623 million were relatively flat versus 2017, which was in line with our guidance.

In the fourth quarter, this business delivered return on sales of 27.1%, down approximately 130 basis points year-over-year.

We were expecting a drop in return on sales during the quarter and ended the year at 24.7%, up 100 basis points, which was within our updated guidance range.

A positive mix to our higher margin commercial and industrial MRO businesses were the main drivers for return on sales expansion during the year.

Now onto EFS.

Sales trended higher throughout the year with fourth quarter sales marking our fastest growing quarter this year.

Sales of $139 million increased 5% or approximately 6% on an organic basis, driven by both volume and price.

For full year 2018, sales of $571 million grew approximately 5% on an organic basis.

This was above the original guidance we provided of 2% to 4% for the year.

In the fourth quarter, return on sales of 23.8% contracted approximately 90 basis points.

This marked our highest contribution from growth and price this year.

However, it was not enough to offset productivity challenges.

Full year return on sales was 25.3%, which was a decline of approximately 70 basis points relative to 2017.

This is lower than our guidance for flat year-over-year return on sales.

We were challenged by a slow start to the year, tight labor markets and inefficiencies in the way we service demand.

We view 2019 as an opportunity to expand margins with continued price and productivity offsetting inflation.

Now I would like to move to the topic of tariffs, which we have discussed on the past few calls.

As you know, the situation keeps evolving, and while there have been few developments since we spoke in October, I thought it would be helpful to repeat our past commentary as it relates to the expected impact in 2019.

We see the full direct tariff impact in 2019 to be $6 million to $8 million.

This does include the List 3 escalation to 25% from 10%.

The delay in executing List 3 moves the impact toward the lower end of the range.

For reference, we had about $2 million in direct tariff expenses during 2018.

This concludes our prepared remarks on the fourth quarter and full year 2018.

I will now turn the call over to Stacy to outline our first quarter and full year 2019 outlook.

I will then conclude our prepared remarks talking about our priorities for 2019.

Stacy, please go ahead.

Thank you, Beth, and good morning, everyone.

Please turn to Slide 11 titled full year 2019 nVent outlook.

We expect full year organic sales growth for nVent to be 2% to 4% following a strong growth year.

We expect our verticals to continue to grow in 2019, and we are modeling a full year negative currency headwind of 1 to 2 points on sales.

This has skewed more towards the first half of the year as we expect a negative first quarter currency impact of roughly 3 points to sales.

I will now walk through the full year organic growth we expect in each of our 3 segments beginning with Enclosures.

Within this segment, we expect organic sales to grow 2% to 4%.

Key drivers are expected to be increased sales growth within data centers and networking solutions, new product launches and continued success in our industrial vertical.

Turning to Thermal Management.

We anticipate this business growing organic sales by 2% to 6% in 2019.

While there is some uncertainty in the timing of projects in the longer cycle energy business, we expect this part of the business to accelerate and expect low- to mid-single digit growth in commercial and industrial MRO.

Key new product introductions and growth within key verticals are expected to be the larger contributors to Thermal Management growth this year.

For EFS, we expect organic sales to grow 2% to 4% with contributions from our One nVent strategy and within the commercial and industrial verticals as well as new product launches across the portfolio.

Now I would like to review our guidance for overall segment margin.

We expect to expand return on sales 40 to 60 basis points this year through productivity, strong price realization and volume leverage.

This takes into account a negative impact from currency in the range of 20 to 30 basis points, which is again more weighted towards the first half of the year.

Our guidance for return on sales expansion also factors in an increased impact from inflation due to items such as tariffs, higher material freight and labor.

Again, most of this is weighted towards the first half of the year due to how inflationary pressure impacted 2018.

Looking at the middle of the income statement, we expect corporate expenses to be higher than the $50 million in 2018, as we build out our enterprise digital capabilities.

We expect net interest expense to be approximately $41 million, which is above the $37 million in 2018, as our base year of 2018 included allocations that were lower than our current run rate.

Our current assumption for a 2019 effective tax rate is 18%.

We are closely following proposed tax regulation issued in December that could cause upward pressure on our tax rate.

We expect the proposed regulations to be finalized during June or July of this year.

These proposals would impact the tax benefits related to the deductibility of interests.

Given the nature that these are still proposed regulations, the ultimate outcome is not specifically known at this time, and we are simultaneously reviewing a variety of strategies to offset the potential impact from these proposed regulations.

Our adjusted EPS guidance for the year is $1.80 to $1.90, which represents 3% to 9% growth when compared to pro forma EPS of $1.74 in 2018.

On a constant currency basis, the adjusted EPS guidance would reflect 5% to 10% growth as currency is expected to be a headwind of approximately $0.02.

This assumes diluted shares of approximately 177 million shares.

We will continue to evaluate retiring shares in our own company versus bolt-on M&A and this capital allocation may change based on opportunities or bolt-on M&A and our own share price.

Turning to Slide 12 titled First Quarter 2019 nVent Outlook.

Looking at the first quarter, we expect organic sales to grow approximately 2% to 4%.

We expect continued sales acceleration in Thermal Management along with solid growth in Enclosures and EFS.

Our guidance for adjusted EPS in the first quarter is between $0.36 and $0.40 per share, which includes a higher year-over-year impact from inflation as well as a $0.01 headwind from currency.

Recall, the prior year comparative quarter also had allocated net interest expense.

I will now turn the call back over to Beth to walk you through our 2019 priorities.

Thank you, Stacy.

I will begin on Slide 13 titled 2019 Priorities.

As we enter 2019, I want to share with you our top priorities to meet our 2019 goals as well as our 5-year strategic goals.

Our first priority remains a focus on organic growth.

About a year ago, we shared with you our growth strategy.

We have executed on the early phases of that strategy and have realized positive results, with organic sales growing approximately 5% in 2018.

As we look at 2019, we expect to accelerate our One nVent initiatives, continue to drive key vertical growth and launch some exciting new products.

We expect this year to be another solid year of organic growth that outperforms GDP.

Our second priority this year is margin expansion.

Productivity was a challenge in 2018.

We saw a tight labor market and significant inflation in materials and freight.

In 2019, we plan to drive price and productivity to offset inflation.

We are increasing capacity, improving our logistics and distribution and driving end-to-end supply chain efficiencies to deliver an expected 40 to 60 basis points of margin expansion and offset currency headwind.

Our third priority is capital allocation.

We expect to return 50% of free cash flow to shareholders in the form of dividends and share repurchases at a minimum.

On M&A, we see a number of attractive assets that could add to our top line, while being accretive to earnings.

I will not get into specifics regarding our pipeline.

However, these assets are anywhere between $50 million to $100 million in sales.

Turning to Slide 14, let me give an update on capital allocation.

We are pleased to disclose that we repurchased approximately $60 million of shares in the fourth quarter.

We love the quality of our underlying business, and we are encouraged by the progress we made in 2018.

Despite this, our shares trade about a 7% free cash flow yield.

As such, we felt retiring shares in the fourth quarter was an attractive use of our shareholders' capital, and we will look to continue to use our significant free cash flow to prudently increase shareholder value.

Our strong balance sheet along with a $600 million revolver gives us capacity and balance sheet optionality as we look at ways to deploy capital.

We are excited about 2019, where we expect organic sales to grow 2% to 4% and adjusted EPS to grow approximately 3% to 9%.

Our priorities for 2019 are to deliver organic growth, margin expansion and effective capital allocation to create value for shareholders.

With that, I will now turn the call over to the operator to start Q&A.

(Operator Instructions) Your first question today comes from the line of Joe Ritchie of Goldman Sachs.

So Beth, it was nice to see the price cost productivity formula improve in the fourth quarter.

For the year, it's still down $20 million.

And so maybe you can touch on what initiatives you have in place in 2019 to help mitigate some of the productivity challenges that you saw specifically in EFS?

And how should we expect that number to trend in 2019?

Okay.

As we looked at how we executed our growth at the back half of the -- back end of the -- back quarter of the year, we were just very inefficient in how we were managing our labor, with lots of overtime, with lots of shipments from a freight standpoint.

And as we go into 2019, a couple of things: across-the-board, we see logistics and freight, and optimization of our end-to-end supply chain as a big opportunity for us, not only in EFS, but I would say in Enclosures as well, it's a significant focus for us.

We also see that we have opportunities to get momentum on some of the projects we put in place around some of our factory optimization.

We're continuing that in Enclosures.

And we've made some changes within our structure in EFS that I think are allowing us to operate more effectively, adding capacity where we had bottlenecks.

So we've got a significant number of things that we're driving and momentums in some of our segments that will follow-through in 2019.

Okay.

That's helpful, Beth.

And then, if I can follow-on there.

And just thinking about the Enclosures growth guidance for the year, you called out data centers as continuing to be strong.

I think you even highlighted high single-digit growth in 2019.

What are some of the offsets to drive to that 2% to 4% number because it seemed a little bit lower than we expected just given trends and what we're seeing in the end markets?

Yes, I think as we looked at 2019, we see it's going to be another good growth year.

The macro indicators have indicated it will be slower perhaps than 2018.

And there's been uncertainty, as we know, in global growth and with trade and tariffs, et cetera.

So we decided to take a view of calling it 2% to 4%.

And certainly, as we did in 2018, as we gain momentum and confidence, we would raise guidance over the course of the year if things progress well.

I think as we exited 2019 (sic) [2018], we continued to see good orders growth in Enclosures.

And really I think as we focus in different verticals, and more broader industrial, we expect that to continue.

But we are just being cautious.

Got it.

And then, if I could ask one, Stacy, you put out the 40 to 60 basis point margin expansion target.

If you can maybe just talk about that target by segment, whether you expect the segments to be above or below that range and why?

So yes, I can.

You're right.

The 40 to 60 basis points of margin expansion and I've just want you know that this extends across all segments from negative currency impacts, probably most pronounced in our Thermal segment as it's the most global of all of our segments.

We're now focusing specifically on our largest segment Enclosures.

We see in -- the 2019 guidance factors in that price and productivity, covers inflation by the end of the year and leaves a level of room for margin expansion there.

The first half in Enclosures will be challenged with some heavier inflation lapping the lower inflation we saw in the first half of 2018.

And overall, for Enclosures, we see 1 or 2 points in price and maybe another couple of points in productivity there.

So that's actually the summary for Enclosures and we move on to Thermal Management.

When we put guidance in place there, we expect that the margin expansion there would moderate a bit versus 2018, but we would still get some expansion.

And this is due to the anticipated project mix for EFS related to margins there.

Again, margin expansion, we'll, again, moderate a little bit of our expectation due to the heavier inflation we expect.

Price largely will cover costs, as it has through this year and productivity, will recover.

So we will get some margin expansion and recovery there.

Your next question today comes from the line of Jeffrey Sprague of Vertical Research Partners.

Just a little bit maybe following up on a similar topic.

If I think about the margin improvement that you anticipate around kind of productivity and supply chain and other things, how much of that is kind of firmly in place with some visible traction happening in Q4 versus kind of on the common needs that would still be implemented here in 2019?

I guess I would characterize it this way.

When you look at our Enclosures business, we've been improving margins throughout the back half of the year.

So I think that momentum continues and so that's where the recovery as we had implemented a new distribution center and a factory closure.

So I think Enclosures is well on that trajectory for that margin expansion.

And EFS, as I commented, fourth quarter, we had some inefficiencies and so I think that's very recoverable, and I think we'll continue to see some momentum there.

And the other area that I mentioned previously was across the entire organization looking at distribution and freight and logistics.

Over the course of 2019, we intend to implement a transportation management system.

We'll start to make progress over multi-years with a Warehouse Management System.

So that is really effort that is going to continue through '19 and into '20.

So I'd say, that's an area where we know we're going to get traction, but we're early days there.

On the pricing side, are you probably get it -- you're trying to deal with the cost-push inflation with price.

You're seeing any resistance to kind of the price moving up to the next level?

Any indication of any demand response or I don't know, perhaps a negative substitution as a result of pricing moving up?

At this point, we have not.

We exited 2019 (sic) [2018] with another price increase in our EFS business.

We started this year with a price increase in our Enclosures business and we have not seen any moderation as a result of that.

And then maybe just finally, can you ballpark this tax thing for us?

I think Pentair is in the neighborhood of 150 bps, I think.

If you do nothing, is that kind of the sort of headwind we'd be thinking about as this tax comes through as expected?

At this point, Jeff, this is only proposed and it's even still out for comment.

So as I said, we expect it to be finalized midyear.

But as currently proposed and our best understanding as well as before any offsets, it could be up to a 300 basis point tax headwind.

However, I wanted to stress that we are working on strategies to offset that impact and are early in this process.

So in the final offering, if it is finalized as written, we would expect to have offsets to that.

We just can't quantify those now.

Your next question comes from the line of Deane Dray of RBC Capital Markets.

Hey, on the free cash flow guidance for the year, the 95% to 100%, you called out some incremental investments, I think, you said, digital and for equipment, expansion.

Can you just size those just put it in context of what you'll actually be spending on?

What kind of returns?

Any metrics there would be helpful.

Yes, so on the digital side, I think we've got about a $5 million investment there.

And we started a couple of years ago, invested more significantly in digital such that at the end of the year, we were -- we really have 98% of all our core products with all the product information and key attributes digitized.

As we go forward this year, we're continuing to invest to allow us to have more rich product data as well as capability across the entire enterprise to have more efficiencies, right?

So that's a key focus for us.

In addition, we've got some CapEx in total that's probably between $50 million to $55 million, so that's running a little higher than we have been, but that's because we know in some of our plants where we've seen some very high demand, we've got equipment that we want to increase in.

And we also have some capacity in China that we're looking to expand.

So that's what -- how it gets us to the 95% to 100%.

Got it.

And then, it was encouraging to see the capital allocation, there it was, M&A.

I know you had deferred any discussion about M&A at the outset, wanting to focus to grow on what you own.

Now M&A is one of the levers that you can pull.

And we're not to talk about the actual names and sizes and end markets in the funnel, but on your update slide, it was interesting that target ROIC you want to hit greater than the whack in 2 years.

And we find for the multi-industry names, they are more -- companies are more apt to be a little wider in that timeframe, like, 3 years for bolt-on acquisitions.

So why would you have a higher hurdle here?

And does that also reflect the potential higher returns in the funnel of what you're looking at today?

Thanks for the question, Dean.

I would say that we put that 2-year threshold mark in place during our first year of operations, when we were deliberately restrictive on M&A activity and there is room to move that.

So where would you go with that?

We would go in places that really fits our value creation model, which is talking about those solutions that are mission-critical, where cost of failure is high and where we can save time and money in installation and operating costs.

We look for those screens in value creation and it would expand our return's capability, but really look for accretion within 12 months still.

Got it.

And then, just lastly, was there anything on government shutdown of any significance for you guys?

No, there really wasn't.

How about the cold weather?

We like cold weather because we do have a segment called Thermal Management.

So we just need it to stay close even longer.

And I say that as we had a 50-degree wind chill in Minneapolis, and I think we're the coldest place in the country.

I did see that and that's what I was making a reference to, and so stay warm.

Your next question comes from the line of Scott Graham of BMO Capital Markets.

I wanted to maybe if you'd mind, I kind of have a price cost question but -- in a couple of subparts here.

Slide 6 and 7, I was hoping you would disaggregate for us within inflation, materials versus essentially everything else for both the quarter and the year, is that doable?

So let me give you some color on that.

Materials inflation for Q4 was roughly $10 million or $11 million.

And for full year, it was $37 million.

So that can give you a sense of where we landed on that versus the price that we were able to get in the quarter and full year.

Right.

That actually -- and that progression makes a ton of sense as well.

So you said that you increased prices in the fourth quarter, I think you said in EFS and then in the first quarter recently in Enclosures.

Is one in thermal coming or do you need to see a little bit more visibility in the oil and gas side?

Well, we did a price increase in Q4 in thermal as well.

Oh, okay, I missed that.

Very good.

And on -- and maybe this is a little bit of a digression from what I said.

The oil and gas side of thermal is kind of remaining stubbornly flattish, I guess, I'd say.

Could you kind of tell us what your exposures there, maybe, whether it's a little bit more upstream?

Is it a little bit more U.S. upstream, in particular?

And just, I guess, I would have thought that we would have seen some response to sales in that business on higher capital spending that we saw in '18 from DOEs?

Okay.

Well, thermal is our most global business and when you look at where we play in that energy business, one, we're seeing very high MRO growth, right?

So we're seeing that capital spend there in the MRO growth.

The project pipeline is coming back and that's how we've looked at our forecast in -- and given our guidance for 2019.

Recall that these are often multiyear projects and some of the heat trace and thermal components are at the latter phases of those projects.

So -- hence, we've seen the spend early in MRO, and we expect that to flow into longer projects or longer cycle projects starting in '19.

Got you.

So...

Scott, I would -- Scott, I just would add one thing that, that this represents about 1/3 of the thermal business, which is about 10% of nVent.

Right, right.

I do get that.

I just thought that we would have seen something a little bit more vigorous by now.

And actually, I just thought of a final question, if you don't mind.

Stacy, I know that you would be very hard at work if the regs start to move against you on the tax thing.

I know Jeff asked a question of if you did nothing, but I guess my question would then be, what if you did something?

I'm sure we wouldn't see 300 basis points.

Do you have any idea what you can hammer that down to?

At this point, I couldn't say because we're in motion right now looking at opportunities to do that, but we have multiple ideas about how to do that, and we will give you more color as that situation develops.

Is there any reason why you think that the guys across The Street are a little bit more definitive in thinking that it's going to happen?

Is that maybe just they're being too conservative and without visibility, just any thoughts?

Scott, I won't comment on what they are doing as I just don't have any insight into that.

Your next question comes from the line of Julian Mitchell of Barclays.

Could you just talk about the breakdown between volume and pricing in your 2019 organic sales growth guide?

Sure.

What we see in 2019 is that we would have -- out of this 2% to 4% organic growth, we'd have roughly point a price and a couple of points in volume.

Got it.

And then, in thermal orders, I could -- Q3 growing high single digits.

How did they trend in Q4?

There were also high-single low-double-digit orders in thermal.

Okay.

And then, just taking a step back for the total company, what is the key ends of operating margin expansion through 2019 as it relates to that 40 or 60 bps for the full year?

Most of that margin expansion we're going to see in the second half.

And the reason for that is because we've got higher inflation that we're having to manage through the first half of the year.

Your next question comes from the line of Jeff Hammond of KeyBanc Capital Markets.

Just wanted to come back to Joe's question about kind of segment margins and you gave a lot of good qualitative color.

But do any of the segments see margin expansion outside of that 40 to 60 range or are they all kind of bucketed in that?

It sounds like maybe thermal would be a little bit lower based on mix.

And I know there's been a lot you're doing on the Enclosures side, but maybe just speak to any outliers?

We expect most of the margin expansion to come from Enclosures as we still see that they have some running room there.

And then I'd say that you'd see some recovery in EFS.

And thermal really comes back to -- we've thought -- as projects come back a little bit of that mix, that plays into it.

Okay.

So just on Enclosures, I mean, the margins were a little bit light.

I know year-on-year it was up, but you had an easy comp.

Just any kind of noise there?

And then, I think as you say Enclosures, is there any way you think you get the most margins, but you're cautioned about first half, and so just give me the confidence that we're at that higher end?

Yes, I think, with Enclosures as we've discussed a lot about, some of the operational improvements, we really are seeing it, we're seeing the momentum there.

I think with just higher freight and some of the materials challenges, that's why it's taking longer to fully realize it, and we're building through the year.

And I think that's what you're going to see in 2019.

Okay.

And then, just a couple of housekeeping items.

First, what buyback do you have in your guide, if any?

And then, just can you give us a better sense of what that corporate expense number is going to look like?

I don't know if I missed that.

I think you just said it was higher, just given this is the full year as nVent?

Yes.

So if you -- for the guide, right, we're assuming that we're returning our excess cash to shareholders and that's reflected in that 177 million share count.

Having said that, as we see opportunities in M&A, we're always going to look at what's the best return for shareholder value.

So that may change.

But that is what is in the guide currently.

And I'll let Stacy talk about corporate expense.

Yes, the corporate expense is driven by that roughly $5 million of investment in digital that Beth mentioned earlier in the call.

So corporate expense is going to be up $5 million?

Yes.

Around there.

And there are no further questions in queue at this time.

I'll turn the call back to the presenters.

All right.

Thank you for joining us this morning and your interest in nVent.

2018 was a big year for us.

We executed on a number of initiatives during the year to stand up nVent as an independent public company, while driving organic growth above the top end of our guidance range.

As we embark on 2019, our growth strategy is working and we look forward to executing on initiatives put in place last year while driving margin expansion through productivity and price.

We believe we are focused in the right areas and saw plenty of evidence last year showing that where we're focused we can win.

Our 2019 plan builds upon work done in 2018.

We expect our sales to grow above GDP and for our team to execute on a number of initiatives to drive margin expansion.

We also expect to strategically deploy cash this year to share repurchases and potential M&A enabled by a strong balance sheet, cash generation and capacity.

We look forward to spending more time with many of you on February 27 at our Institutional Investor and Analyst Day.

Thank you, again, for your support.

Operator, you may now conclude the call.

This concludes today's conference call.

You may now disconnect.