nVent Electric plc (NVT) Q4 2020 Earnings Call Transcript

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nVent Electric plc (NVT 0.99%)
Q4 2020 Earnings Call
Feb 9, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the nVent Fourth Quarter Earnings Conference Call. [Operator Instructions] After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to J.C. Weigelt, Vice President, Investor Relations. Please go ahead, sir.

J.C. Weigelt -- Vice President, Investor Relations

Thank you, Regina, and welcome, everyone, to nVent's Fourth Quarter and Full Year 2020 Earnings Call. I'm J.C. Weigelt, Vice President of Investor Relations. And on the call are Beth Wozniak, our Chief Executive Officer; and Sara Zawoyski, our Chief Financial Officer. Today, we will provide details on our fourth quarter and full year performance and provide an outlook for the first quarter and full year 2021.

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 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.

Beth Wozniak -- Chief Executive Officer

Thank you, J.C., and good morning, everyone. We appreciate you joining us today. 2020 was a year that none of us could have imagined. There was not a playbook for a pandemic. And I could not be prouder of our entire global workforce and what we accomplished. Our number-one priority was the safety and well-being of our employees. We implemented new safety protocols and learnt how to work virtually and with great flexibility. Our second priority was to continue business operations. Our team overcame many challenges and often went to extraordinary measures to serve our customers. At the same time, we improved our quality and delivery performance with our relentless focus on lean and digital. And finally, our third priority was to emerge stronger and we continue to invest in growth and execute on our strategy.

Now, turning to our executive summary on Slide 3. We had a strong finish to the year. We delivered better-than-expected decrementals, executed over $70 million in cost reduction and generated strong cash flow. Fourth quarter sales trends improved sequentially across each segment. Electrical &Fastening had standout performance, with sales about flat organically and strong return on sales at 28%. For nVent, decrementals of 26% improved sequentially, resulting in return on sales in the quarter at 18.6%. We set a record for full-year free cash flow conversion at 120% as our working capital initiatives continue to readout. We broke another record with 53 new products and 40 digital launches in 2020. We expect to see a meaningful contribution from these launches in 2021 and beyond.

On the M&A front, we integrated both Eldon and WBT and are excited about what we're seeing in our funnel. Our top priority for capital allocation is growth. Throughout these challenging times, I've been reminded about something I said early on; where we focus, we win. We have executed and positioned ourselves well to emerge stronger, and I'm confident in our strategy and future growth opportunities.

Now, I would like to turn to Slide 4 for summary of our fourth quarter and full year performance. Sales during the quarter were $521 million, down 8%. Return on sales contracted 60 basis points to 18.6%. Cash performance continued to show strength in the quarter as we converted approximately 175% of adjusted net income. For the full year, sales of $2 billion were down 9% or 13% organically. Since the second quarter, both sales and decrementals improved sequentially and we exited the year with decrementals of 26%, even as some temporary cost returned. Electrical & Fastening finished the year with fourth quarter sales growing 4%, driven by new products, growth in Europe and our acquisition of WBT. Enclosure sales continued to recover and decrementals improved. As expected, we saw a slower recovery in Thermal Management, but are encouraged with sequential improvements.

Looking at some of our key verticals in the fourth quarter. In Infrastructure, we saw a relative strength in Rail and Transit, Utilities and Data Center and Networking Solutions. In commercial and residential, Thermal Management continues to recover with mid single-digit declines. And while Electrical & Fastening also declined, we saw growth in prefab and seismic. Within Energy, longer-cycle projects grew during the quarter; however, not enough to offset continued pressure from a decline in MRO spending. While industrial remained down year-over-year, we continued to see a gradual recovery as demand trends improved sequentially.

Looking ahead, we are issuing guidance for the first quarter and full year. Our outlook is for a gradual global recovery, which we saw exiting the fourth quarter and into January. While uncertainty remains, we are confident in our ability to execute and believe we can grow this year as we emerge stronger. Our end-market expectations for these verticals in 2021 is mixed. But overall, we anticipate growth this year. Specifically, we expect the industrial vertical to return to growth as this historically has been one of the first verticals to come out of the downturn. While we are cautious on commercial, we continue to see pockets of strength in warehouse, education and healthcare. In infrastructure, we are encouraged with the trends we are seeing around data centers, 5G and grid modernization and expect this vertical to grow in 2021. In Energy, we still expect modest declines. However, we expect our business to be off the lows in 2020.

Turning to our geographical performance. Sales within North America were consistent with the third quarter, down low-double digits organically. Europe improved sequentially; however, remained down low-single digits. We saw a marked improvement in sales in emerging geographies such as China and India. In general, there seems to be a high correlation with the region's position on the pandemic recovery curve to that of economic recovery.

Looking back at 2020, we adapted and overcame many challenges. We made strategic investments to drive future growth and we executed well. We believe we entered 2021 with momentum and are well positioned to respond to increased demand trends as the economy recovers.

I will turn the call over to Sara for some detail on our fourth quarter and full year 2020 results and our current outlook in 2021. Sara, please go ahead.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Thank you, Beth. Let me begin by saying I'm incredibly proud of our team's execution. It is because of this that we sit here today in a strong financial position with an outlook of growth and, we believe, a clear path to emerge stronger.

Let's turn to Slide 5 to review fourth quarter 2020 performance. Sales of $521 million were down 8% relative to last year and declined 11% organically. The acquisition of WBT added about a point to growth. Looking at trends, we are encouraged by both orders and sales. Sales improved sequentially across every segment versus the previous quarter, with December our strongest month. Orders in the fourth quarter were down mid-single digits with Electrical & Fastening and Thermal Management orders generally in line with sales, while Enclosures was better. Looking at January for overall nVent, we continue to see orders and trends improve relative to the fourth quarter. Fourth quarter decrementals were 26%, which is slightly better than the third quarter, even as some temporary cost returned. Price was positive, and we delivered strong gross productivity of $26 million, which is driven by many of the cost actions we took earlier in the year. Adjusted EPS of $0.43 was at the high end of our guidance range. Free cash flow continued to improve versus prior year, and our conversion of adjusted net income was 175%. In summary, this was another quarter of strong execution.

Turning to Slide 6 for a quick recap of our full-year 2020 results. We ended the year with approximately $2 billion in sales, which were down 9% and included a four-point contribution from acquisitions. While we continue to navigate through the challenges of this global pandemic, we executed well on costs and decrementals, delivered a record cash conversion of 120% and importantly, continued to make strategic investments for future growth.

Now, please turn to Slide 7 for a discussion of our fourth quarter segment performance. Starting with Enclosures, sales of $230 million declined 10% and 12% organically. While the overall Industrial vertical was down, it continued to slowly recover. We saw a relative strength in Food and Beverage, Rail and Transit, Material Handling and Data Center and Networking Solutions and we expect these trends to continue. Enclosures segment income declined 11%, while return on sales of 15.4% was only down 20 basis points versus prior year. Disciplined cost controls and strong execution in our factories drove 18% decrementals, which was lower than any other quarter of this year.

Now, onto Electrical & Fastening. Sales of $147 million were up 4% and almost flat organically, demonstrating the strength of this portfolio. We continue to see moderating declines in our largest vertical, Commercial, while both Electrical, Infrastructure and Utilities grew nicely in the quarter. Segment income was up 16% and return on sales was 28%, up 290 basis points relative to last year. The team is performing at a high level with new product launches, channel and contractor conversions, improving return on sales and working capital improvements relative to last year.

Moving to Thermal Management. Sales of $143 million, declined 17% organically. Industrial MRO sales remained down double-digits due to continued spend reduction. Longer cycle projects were up in the quarter, led by some larger chemical projects and strength in Europe. Commercial and residential sales, which account for roughly a third of Thermal Management, were down mid-single digits. Segment income was down 29% and return on sales declined 440 basis points, mainly due to lower volume in industrial MRO. Net productivity improved sequentially, although not enough to offset volume declines and a negative mix impact.

On Slide 8, titled balance sheet and cash flow, we strengthened our balance sheet during the fourth quarter. We ended the year with $123 million of cash on hand. We have an additional $565 million available on our revolver after repayment of $100 million in the quarter. Our strong and resilient cash flow enabled us to maintain capex at $40 million, similar to prior year. Great progress in our working capital performance certainly contributed to our cash flow and continues to be a priority for us again in 2021.

Turning to Slide 9, titled capital allocation update. We exited the fourth quarter with a net debt to adjusted EBITDA ratio at 2.1 times, which is at the low end of our target range of 2 to 2.5 times. Our strong balance sheet and cash generation puts us in a good position to invest in growth and execute our M&A strategies. We expect capex to be between $40 million and $45 million in 2021, reflecting our asset-light model and continued investments. After a record year of product launches and digital introductions, we aim to do it again in 2021. We continue to pay a competitive dividend with an attractive yield, which remains a key component of returning cash to shareholders. And we repurchased 43 million of shares during 2020, which helps offset dilution.

Moving to Slide 10, titled full-year 2021 nVent Outlook. We expect sales to grow 3% to 6% organically. We expect a gradual recovery through the year, with weakness in the first quarter followed by strength in remaining quarters and particularly in the second quarter, given the comparisons. From a segment perspective, we expect Enclosures to benefit the most from a strong recovery in the Industrial vertical, while we anticipate more modest growth in Electrical & Fastening driven by strength in Utilities and Infrastructure and gains within the Commercial vertical. The Thermal Management, we also expect modest growth driven by returning MRO spend and growth in commercial and residential sales.

A couple of important items to note for currency and price cost. First, on currency, given recent moves in FX rates, we expect a one- to two-point tailwind to sales this year. On price cost, we are seeing an inflationary environment and particularly, with steel, copper and freight. A couple of things to highlight here. First, we expect to continue driving both productivity and price to offset inflation, as we have consistently demonstrated. Our rolling log programs with many of our metal suppliers provides us with good cost visibility a quarter or so out, which helps us manage our price cost equation. Metal inflation mostly impacts Enclosures and Electrical & Fasting, and we have already executed price increases at the beginning of the year to help offset these costs.

Our outlook for full year adjusted EPS is between $1.58 and $1.68, which represents growth of 5% to 12% relative to 2020. This takes into account the carryover of approximately $15 million in structural actions we took in 2020, which helps offset the return of many of the temporary cost actions.

Overall, we believe each segment benefits from recovering volumes, pricing actions and a productivity funnel deliver -- to deliver expanded margins this year. We expect another year of strong cash flow and cash conversion of adjusted net income at or above 100%. Some other below-the-line items we are calling out are net interest expense of $35 million, a tax rate of 17% to 18% and shares of approximately 169 million. And lastly, we expect corporate costs of $52 million to $55 million.

Looking at our first quarter outlook on Slide 11, we expect organic sales to be down 9% to 4% as pandemic-related challenges continue. By segment, we anticipate sequential improvements in Enclosures and Thermal Management and expect a modest downtick in Electrical & Fastening due to a difficult comparison quarter. We expect price plus productivity to offset inflation in the quarter. We expect adjusted EPS to be between $0.32 and $0.36. At the midpoint, this would be flat relative to last year. We expect flat-to-modest margin expansion during the first quarter, driven by the structural cost actions we took last year.

Wrapping up, I want to emphasize that I'm proud of our execution in 2020. In April, we laid out the scenarios and our plans to manage decrementals and cash. And I'm pleased to say we outperformed on both. All the while, we did not back down on strategic investments for future growth, maintaining our capex levels and setting a record on new products and digital introductions. We have seen steady improvement through the quarter, starting with the second quarter. With this momentum, we believe we are set up for a strong year with a path toward sales growth, margin expansion and strong cash generation.

This concludes my remarks, and I will now turn the call back over to Beth.

Beth Wozniak -- Chief Executive Officer

Thank you, Sara. Turning to Slide 12. You can see our priorities for 2021, which are consistent with our longer-term strategy. I want to walk through them today, and we will expand upon them further at our March 3rd Investor Meeting.

Our first priority remains the safety and well-being of our employees. Today, we operate at world-class safety levels and continue to set goals to improve our safety performance. Last year, our incident frequency rate was 0.6%, which was a 23% improvement over 2019. Another imperative for us is social responsibility, as we are all part of one global community. We continue to make progress and we'll share our plans for driving improvements for people, products and planet during our March 3rd Investor Meeting.

It is certainly an exciting time at nVent as we advance our efforts here that are important to our employees, customers and shareholders. Growth remains a priority for us, both organic and inorganic. We continue to pursue higher growth verticals and expand strategic relationships with channel partners and end users. We remain convinced that our portfolio can benefit from macro trends, such as the electrification of everything, which aligns with our mission to connect and protect.

Looking closer at the trend toward the electrification of everything, we are well positioned. Let me give you some examples. In Enclosures, we continue to build out our Data Center and Networking Solutions portfolio, including liquid cooling. We are expanding our presence in industrial automation with our new IEC portfolio. In Electrical & Fastening, we are well positioned around grid modernization within utilities and electrical infrastructure build-out, with our low-voltage power connections and grounding and bonding solutions.

In Thermal Management, we are tapping into the industrial Internet of Things with our connected control solutions. Throughout last year, we accelerated our digital capabilities to improve the customer experience. From enhanced websites to better configuration in search tool to enriched digital product information. An example of this is the recent launch of our instant quote feature for some nVent HOFFMAN enclosures. This feature enables customers to quickly obtain price and availability information, which has resulted in an uptick in our win rate due to improved velocity in the end-to-end customer journey.

We expect 2021 to be another strong year of product and digital launches. We're planning to introduce approximately 50 new products again this year and continue to strengthen our portfolio, expanding our cooling and smart Enclosures, driving innovation in Electrical & Fasting and building out our connected control solutions. On the digital front, we are investing in our go-to-market capabilities, automation in the digitization of our back office functions and factories. The use of data and intelligence is expanding, helping us drive insights to support our growth. This will also drive productivity and working capital improvements.

M&A is a top priority for us. Remember, we compete in a $60 billion space that is highly fragmented. Our strategy is to build upon our great brands, leading positions and to expand globally.

Wrapping up on Slide 13. We have a strong foundation with many great growth prospects. The macro trend toward the electrification of everything, we believe, 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 are well positioned to benefit from these trends. As we continue to execute on our strategy, we expect to emerge stronger, to grow and to make nVent a high-performance electrical company.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeffery D. Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning, everyone.

Beth Wozniak -- Chief Executive Officer

Good morning.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Good morning.

Jeffery D. Hammond -- KeyBanc Capital Markets -- Analyst

So, good color on the segment kind of outlooks. I think EFS and Enclosures makes a lot of sense. I think, Thermal, I'm just a little perplexed that you're expecting kind of modest growth just given four years of declines and sharp declines in 2020. Just, I mean, talk about easy comps and talk about the backlog and how you see that shipping and just any near-term trends on the MRO piece, which I think one of your competitors started to talk about some improvement there.

Beth Wozniak -- Chief Executive Officer

Yeah. As we've always discussed, Thermal Management is roughly a third residential and commercial, a third MRO and a third projects. And as we stated through last year, our projects have held up. And where we, in commercial, as we look at fourth quarter, started to improve. And I think the biggest driver where we see that in the next year is going to be our MRO spend coming back because that was significantly reduced in 2020. We've already seen that trend of orders improve as we exited fourth quarter and into January. And so, we believe that's where we're going to see the uplift. And as we talked about in Q4, that obviously had a mix on our -- a negative mix impact on our return on sales. So, that's how we see it as it goes into 2021; that it's really that MRO that's going to improve and commercial. So, we're off the lows, I guess I would say, from where we were in 2020.

Jeffery D. Hammond -- KeyBanc Capital Markets -- Analyst

Okay. So from a mix standpoint, you should have some mix-rich recovery, if that MRO recovers?

Beth Wozniak -- Chief Executive Officer

Yes.

Jeffery D. Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And then just -- again, good color on price and productivity versus cost. But 2020 was a heavy productivity year and limited on price. Clearly, we're seeing inflation, as you talked about. Can you just talk about what your -- what you've announced in terms of price increases and what you think the price component is going to be, or what you've built into the guide? Thanks.

Beth Wozniak -- Chief Executive Officer

Yeah. I'll start and Sara can jump in here, too. So, we've already -- As we exited last year, we'd announced some price increases going into 2021. As we started 2021, we've already announced some second price increases. Some of them are under way, some are still to come during the quarter. But that's in response to just what we've seen going on with inflation. And if you recall, in previous years, where we had inflationary environments, we've done multiple pricing increases. And we'll watch that and we're managing the cost side just because of our price locks. You could look at 2018 as -- 2018-2019 as years of how we executed in inflationary environments. We always say we want to get a point of price. But when we're in these inflationary environments, we expect to do a lot better than that. Somewhere between 1% to 2%, depending on the portfolio.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Yeah. And maybe just the only thing I would add to that is, we continue to expect to offset that inflation with price plus productivity. We see that happening in Q1 and we see that happening for the full year. So, in addition to those pricing actions that Beth talked about, we're also driving that productivity, particularly as it relates around productivity in the factory. And with that volume, we do expect to get to some good leverage there as well as underlying productivity, especially as it relates to logistics and some of the digitization efforts that Beth talked about as well.

Jeffery D. Hammond -- KeyBanc Capital Markets -- Analyst

Okay, thank you.

Operator

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

Deane M. Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone.

Beth Wozniak -- Chief Executive Officer

Good morning.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Good morning.

Deane M. Dray -- RBC Capital Markets -- Analyst

I'd like to pick up where we left off there, with Jeff's questions. And I'd be interested in hearing how much in the way of temporary costs came in in the fourth quarter and what the assumptions are, maybe on a percent basis, or you can give us dollars in how they get feathered back in 2021? Can -- Maybe we can start there, please.

Beth Wozniak -- Chief Executive Officer

Okay. So, just bigger picture, we did execute roughly $70 million of cost reductions in 2020 and roughly $30 million of that was temporary in nature. And when we talked about that Q3 to Q4 and some of those costs, temporary costs, returning, think of those in roughly about $5 million mark. As we think about those temporary costs feathering back in, if you will, in 2021, we wouldn't expect all of those to come in day one. And in fact, that's why we're expecting flat to up in ROS in Q1 here, because as you might imagine, no one is traveling as we sit here today in Q1 and we also have the structural cost coming in from a savings perspective.

So from that temporary cost perspective, I would say that roughly a third of that simply relates to T&E. And so, that's going to take time to kind of feather in. Another chunk of that is in discretionary spend and so, you'd expect that to really kind of flow in as that top line recovers. Maybe the only other thing, Deane, I would point out, is from a structural cost. We talked about that $15 million of savings coming in 2021, based on what we did in 2020 on the cost action front. And you'd expect to see that come in really largely in the first half of this year, with a bit trickling into Q3.

Deane M. Dray -- RBC Capital Markets -- Analyst

I appreciate all those specifics. And then over on free cash flow, which I think is one of the success stories for 2020. And Sara, could you just give us some insight here into some of the dynamics on working capital? Do you have specific goals that you're looking for, as a percent of sales? And just confirm whether any kind of one-timers benefiting. I know some companies benefited from the CARES Act, which gave you some relief on tax payment timing. Is there any of those one-timers in your numbers in 2020?

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Yeah. So, we feel great about the free cash flow conversion, really being a record year for us at that 120% mark. Certainly, our working capital performance contributed to that. We saw actually improvement from a DPO perspective, really based on some data-driven work that the teams did, looking across both on harmonizing some of our supplier terms. And the other thing to point out there would be the Electrical & Fastening business. They really improved every metric when it came to working capital and specifically, on the inventory side. What drove that are further advancements in lean, really getting to plan for every part, improvements in demand planning, but also looking at ways we can improve our supply chain efficiencies, looking at long lead-time suppliers and extending that vendor-managed inventory programs to over 20 suppliers. So -- And I would say there is further runway for us from a working capital standpoint. Over time, I could see multiple points of working capital as a percentage of sales improvement. And inventory continues to be our top area that we're focused on.

From an overall timing perspective in what impacted 2020, I would say two things. One, we did see the benefit of some of those deferral of payroll taxes, roughly $10 million in 2020. But I would also say that we also absorbed some of the restructuring cash payment efforts of roughly $20 million as well. So, we had some puts and takes for that overall free cash flow performance.

Deane M. Dray -- RBC Capital Markets -- Analyst

I'm really glad you added that last piece and about the restructuring because a large number of companies are, excluding those from operating results. And that's good quality of earnings for you guys to include it. And then, I just -- I know I shouted -- gave free cash flow a shout out. The other impressive point was all the new product introductions. I just think in a period of COVID to have continued that output on innovation is terrific. That's it from me. Thanks.

Beth Wozniak -- Chief Executive Officer

Thank you, Deane.

Operator

Our next question will come from the line of Nigel Coe with Wolfe Research.

Nigel Coe -- Wolfe Research -- Analyst

Thanks. Good morning, everyone.

Beth Wozniak -- Chief Executive Officer

Good morning.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Good morning.

Nigel Coe -- Wolfe Research -- Analyst

So, I just flip to really -- the framework sort of bodes pretty much with what we had expected. But I'm just curious, how does the outsized trends we saw in EFS margins and obviously, the outsized weakness we saw in Thermal this year, how does that roll into 2021? I'm wondering if we should expect EFS operating leverage to be sort of impacted to the downside and maybe Thermal recovers on MRO? Just any color on that would be helpful.

Beth Wozniak -- Chief Executive Officer

So from a full year 2021, from a margin perspective, we do see our biggest expansion opportunity is really in Enclosures and Thermal. Enclosures, because we expect that industrial recovery to really be the strongest for our overall verticals and that should help from an overall drop through. And Thermal; one, getting back to growth, and two, as we discussed earlier, a lot of that growth coming through that higher margin MRO part of that business. We do still expect expansion in EFS, but as you might expect, it would be just more moderated versus what we're expecting in Enclosures and Thermal.

Nigel Coe -- Wolfe Research -- Analyst

Yeah. EFS is expanding. And then when we think about the price, productivity and raw material inflation impact in 2021, should we take that $15 million of restructuring savings as part of productivity or that is in the separate bucket?

Beth Wozniak -- Chief Executive Officer

No, that's going to be part of productivity.

Nigel Coe -- Wolfe Research -- Analyst

Yeah. Okay, that's helpful. And then just on capital deployment. You've given us share count guidance. I'm just wondering what you got baked in for buybacks in '21.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

I mean, our guidance, overall, really reflects the goal of offsetting dilution. And so, we ended the year with a full-year diluted share count of over 170 million shares. And so that 169 million really just is guiding to offsetting that dilution. So, we may have to do a bit more buyback just to get to that share number. But overall, as we talked about in our prepared remarks, our goal continues to be growth and getting after our overall M&A strategy.

Nigel Coe -- Wolfe Research -- Analyst

Great. Thanks, Sara.

Operator

Our next question will come from the line of Julian Mitchell with Barclays.

Julian Mitchell -- Barclays -- Analyst

Hi, good morning. Maybe just I'm trying to look at the firmwide margin guide. So, it looks like you're dialing in about a 25% incremental margin for the segments on a pre-corporate basis for '21. Just wanted to double-check if that's roughly correct.

And then related to that, looking at Slide 5, I think you'd called out $26 million of gross productivity in Q4. So, that's leaving $10 million for the inflation and investments piece. Just wondered for fiscal ' 21, what does that $10 million number look like?

Beth Wozniak -- Chief Executive Officer

Okay. So, let me -- what was the first part of the question here? Incrementals...

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

On incrementals, OK, yes, so sorry about that. From an incremental perspective, yeah, we are expecting full year incrementals to be in that mid 20s range. And really what that reflects, different than sort of how we were thinking about things in December, is really two things. One, and the majority of it, really is just relates that price cost dynamic. So, as you roll in more inflation and work to offset that by way of price, that just impacts those overall incrementals. But from a pure volume drop-through outside of that, we continue to expect that to get back to that 30% to 40% range. It's really that price cost dynamic that's impacting those overall incrementals for the full year.

And from a overall run rate coming out of Q4, I mean, gross productivity in $26 million. Obviously, that's strong. And we've talked about that being a bit muted in 2021, with the context of some of these temporary cost actions rolling back in. From an inflationary environment, we do expect that inflation number to increase. It will increase modestly in Q1, but we would expect that to ramp in Q2, Q3, Q4. But really looking again, as we talked about earlier, to offset that with price along with productivity, I would say that that dynamic -- that that situation is dynamic. We continue to monitor it. And as Beth talked about, we've already taken multiple price increases here in the context of Q1 and we'll continue to monitor that as we go.

Julian Mitchell -- Barclays -- Analyst

Thank you, that's helpful. And then secondly, it looks like Thermal is in for an OK year, not an easy one. Just wondered, strategically I suppose, how satisfied you've been with Thermal's performance during this downturn and whether there is the appetite to do something more surgical with the portfolio within Thermal, if there are areas that you're trying to kind of reemphasize or de-emphasize as you try and position it better for the next upturn?

Beth Wozniak -- Chief Executive Officer

Yeah, I think as we've -- certainly, our Thermal business was -- that segment was impacted the most as we went into the downturn with the pandemic and also what happened with the price of oil. This is the segment that we also took the most structural cost actions. And so, I think we got on that very quickly from that standpoint. And so, that's part of what you see as we go into next year, how we've repositioned that business. Our view is that because that MRO spend dropped off so quickly, that we're going to see that improve. And like the other segments, we continue to invest in those strategic areas because we have a really large installed base. So, anything that we can do with connected controls as a retrofit opportunity, investing in that commercial side and residential side, also that's kind of been a priority. And as we think about the go-forward, our view is let's ensure we're positioned where the growth is going to be. So, when we think about projects, for example, as we go forward, we know that there is going to be investment in chemicals; for example, in APAC. And so, we're ensuring that our resources and where we're prioritizing or putting our focus is in those areas that are going to grow. So, we believe in resi and commercial, we've got opportunity there; mining installed base, from a MRO standpoint, just because of the millions of controls and sensors and everything that we have out there and heat trace cables to making sure that we're positioned in the right geographies as we go forward.

And I guess, the last part of that question is, we're always looking to optimize our portfolio and what makes sense. And you've seen us as we've done our acquisitions really focus on products that are helping us position for high growth, whether it's data and networking solutions, whether it's industrial automation or whether it's global growth. And we're going to continue to do that.

Julian Mitchell -- Barclays -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Joe Ritchie with Goldman Sachs.

Joe Ritchie -- Goldman Sachs -- Analyst

Thank you. Good morning.

Beth Wozniak -- Chief Executive Officer

Good morning.

Joe Ritchie -- Goldman Sachs -- Analyst

Maybe just starting off on inventory levels. I think you guys sell, maybe, two-thirds of your business through distribution. I'd be curious, any color that you can provide on where you think inventory levels are today? And then, also secondly, the -- on EFS, the kind of downtick that you're expecting in 1Q. How much of that is being influenced by what you're seeing to start the year in that business?

Beth Wozniak -- Chief Executive Officer

So, a couple of things there. As we -- In fourth quarter and as we'd shared in our last earnings call, we expected that inventory levels were really going to sequentially improve to match the demand that the distributors were seeing. And I think that's exactly what we saw. And recall, we talked about the fact that a lot of times in a year, you'll see distributors stock up at the end of the year. And we just didn't expect that to happen because of where they were with respect to rebate programs, etc. But I'd say this, we've seen inventory improve -- like, demand on us improve and it meeting end demand. We've seen that continue into January. So, I think we're still seeing that gradual improvement of inventory levels matching demand. So, still more runway there, I would say, as we go throughout the year.

And then on EFS, I'll let Sara just talk to that.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Yeah. So I would say, Joe, it's really more of a function of comps of a year ago that were guiding to just a modest downtick from that roughly flattish organic growth rate that we saw in Q4. So, no different than what we said more broadly in January for the segment; we see strength here in January overall.

Joe Ritchie -- Goldman Sachs -- Analyst

Okay, great. And then maybe just a longer-term question for Beth. If you look, it's great to see all the investments that you guys are making on the product launches and all the digital launches as well. I'm curious, like, when you're thinking about this as part of the longer-term growth algorithm for the company, how much do you think that can contribute? How quickly do you expect to see some of this growth coming through from all of the launching that you're doing currently?

Beth Wozniak -- Chief Executive Officer

Yeah. On new products, we'd like to see us get about a point of growth from new products every year. And recall, we've talked about getting our new product vitality up to 20% and we're in the mid-teens today. So, that's our expectation; that it's going to drive about a point of growth. On digital, it's somewhat of an enabler. Right? In some cases, it's helping us drive growth. In other cases, it's helping us to drive productivity. So, it builds into that equation of both the growth side and what we see in terms of margin expansion. But I would say what we're tracking really closely is, all these new digital launches, are we getting the returns that we expected as we kind of lay those out as an investment project.

So, I think we're doing a better job than we've ever done in terms of really looking at, are we getting the value from these efforts. And what's nice about the agile approach that we've adopted is that we're very quickly being able to see success or make adjustments as we go. And I think we're only going to get better at that, too.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it, thank you both.

Operator

Our next question comes from the line of Andrew Shlosh with Vertical Research.

Andrew Shlosh -- Vertical Research -- Analyst

Hi, this is Andrew Shlosh on for Jeff Sprague. Thanks for squeezing me in here. Just a quick one on data centers. Could you provide us with more precise growth rate on data centers in the quarter and some of the trends you're seeing there?

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

So yeah, I would say, overall, from a data and networking perspective, where we saw really strong double digits with on the global front and importantly, in orders. Right? So, where we see that growth is in some of the hyperscale. I mean, if you remember, WBT was one of the acquisitions that we did early on in the year. That brought in a whole new cable management tray offering for that space. So, that's something that has grown double digits for us really since we spun and would expect heading into 2021 that, again, it would get back to the double-digit growth rate.

Beth Wozniak -- Chief Executive Officer

Yeah. I think about it this way. We were pre-pandemic. Like, we've grown in data and networking solutions double digits for the last couple of years. And then obviously, impacted pandemic, freight shutdown, integrators can't get on job sites, but we started to see that double-digit borne try to occur again. And we think, as we -- in 2021, there is no reason to believe that we can't continue to have strong growth, especially as Sara said, we've built out the portfolio. So, more around liquid cooling, more around just the complete resolution with cable management. So, we're excited about where we're positioned here and the potential for long-term growth.

Andrew Shlosh -- Vertical Research -- Analyst

Great. Thanks for the color. I'll pass on the baton.

Operator

Our next question comes from the line of Scott Graham with Rosenblatt Securities.

Scott Graham -- Rosenblatt Securities -- Analyst

Hi. Good morning, all, and congrats on a year of only 15% decline in EPS. We'd felt it'd be much worse given what you were in some of the markets you face. I really wanted to ask about the organic, because -- I know that while certainly the first quarter looks a little bit less than what I was thinking in my model. Will the cadence here essentially be sort of your first quarter number and then sort of up low-teens in the second quarter on that easier comp and then sort of plus mid single for the rest -- for the second half of the year? Like, is that kind of the way you're thinking of it?

Beth Wozniak -- Chief Executive Officer

Yeah. So Scott, that cadence sounds about right.

Scott Graham -- Rosenblatt Securities -- Analyst

And then for the second quarter, what would be the big factors that kind of -- I know the biggest one is obviously the comp, but what are the markets that you see is going from sort of this down number to one up low-teens?

Beth Wozniak -- Chief Executive Officer

Well, in that quarter, I -- What we've said is, we all -- historically, we've always seen industrial lead us out of a downturn period and we know that capex was one of those levers that everyone constrained. So, we would expect that industrial vertical to lead the way. As well as, as we mentioned, seeing that double-digit orders growth in data and networking solutions, we would expect that also to be strong as we go throughout the year. Those would be the key areas.

Scott Graham -- Rosenblatt Securities -- Analyst

Okay. Two other quick ones. On the point that you just made, Beth, about the new products, of the goal adding 1%. Would you expect that to be the case this year, in 2021?

Beth Wozniak -- Chief Executive Officer

Yes, we would. Because -- So, if we -- 53 products last year. Extraordinary efforts to get those launched, and I think we've done some contractor conversions. And so -- for example, we've seeded some at OEM. So, we'd expect to see that take place this year. And we'll build upon that with another 50 new products.

Scott Graham -- Rosenblatt Securities -- Analyst

Yes, that's impressive. Thank you. And the last question is around capital. So, Nigel asked a question earlier about share repurchases and you obviously have a very large outstanding authorization. At what point in the year do we get to second quarter or third quarter, if acquisitions don't necessarily manifest the way you were thinking? When does that share repurchase become more than a placeholder -- more than they offset the dilution? What is the trigger there?

Beth Wozniak -- Chief Executive Officer

Yeah. I mean, I think you've seen that we've always -- we're going to do some repurchases based on share dilution. But as we go throughout the year, if -- although we feel very confident in our funnel and the opportunities in front of us, but we've always said we wouldn't just have cash hanging on our balance sheet than we put it to work. So, we're constantly looking at that, Scott, although I do think that we're going to see some opportunity for us over the course of this year to do a couple of acquisitions.

Scott Graham -- Rosenblatt Securities -- Analyst

Great, thanks a lot for your time.

Beth Wozniak -- Chief Executive Officer

Thank you.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Justin Bergner with G Research.

Justin Bergner -- Gabelli & Co. -- Analyst

Good morning, Beth. Good morning, Sara.

Beth Wozniak -- Chief Executive Officer

Good morning.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Good morning.

Justin Bergner -- Gabelli & Co. -- Analyst

Nice delivery on things we're able to control in this environment.

Beth Wozniak -- Chief Executive Officer

Thanks.

Justin Bergner -- Gabelli & Co. -- Analyst

To start, I wanted to ask, in regards to the, I guess, margin guide, which implies modest margin expansion. Is that coming from volume leverage, or is that coming from mixed? Do you expect mix to be neutral to margins or positive to margins?

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

So, I guess the way I would answer that is both. So from an overall volume leverage perspective, clearly that's going to help in 2021. So, it would be one thing. And then two, we would expect mix, particularly in the Thermal business, to help. I mean, you've seen certain outsized negative impacts here in 2020 based on the MRO side of that business, which is highly profitable being down strong double digits. And as that fully recovers, we'd expect that to not only drive the growth but also drive some positive mix impact as well.

Justin Bergner -- Gabelli & Co. -- Analyst

Okay. But some of that would be offset by, I guess, the other segments growing faster than EFS. Right?

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Yeah. Clearly, at a kind of total portfolio basis, you'd have some offsets there. But again, within each one of these segments, mix is going to have a bigger play in Thermal Management. It's the positive than what we might see otherwise in Enclosures and EFS.

Justin Bergner -- Gabelli & Co. -- Analyst

Okay, that's helpful. And then on the Thermal side, do you expect to grow all three portions of that business; the project, the MRO and the commercial and residential in 2021? Or will some of them be more breakeven neutral?

Beth Wozniak -- Chief Executive Officer

So, we expect the most growth in MRO. We expect -- Commercial and resi; resi should have some strength, commercial is expected to have some softness there. But our view is, we always want to outperform how the industry is. So, we'll see how that plays out over the course of the year. And with respect to projects, I think we see that flattish over the course of the year. So, that's kind of how we're viewing. And we'll see -- there is -- we'll see how and when the economy still recovers and that dynamic. But that's why we continue to distemper that, just saying there still is uncertainty how quickly the economy recoveries and where.

Justin Bergner -- Gabelli & Co. -- Analyst

Okay. And then maybe lastly, just thinking about the organic growth. Down materially in 2020, as expected. Bouncing back 3% to 6% in 2021. Do you think getting back to the level of organic growth 2019 is sort of more of a 2022 or more of a 2023 event, recovering that full 13% organic decline in 2020?

Beth Wozniak -- Chief Executive Officer

Well, it may depend on the segment. I'd say -- And it just -- again, it's the timing of how we see the economy recovery around the world. So if you think about it, we think Industrial is the vertical that's going lead first. And I think as we start to see how that recovers, that could take us into 2022. As we think about commercial, it's -- that's expected to be slightly down this year. And so, maybe that recovers into next year; we'll see. And I think the view is that energy is improving. Well, it's going to be tough this year we're going to improve relative to that, but I think that's a slower improvement rate. So, those three different dynamics there. And infrastructure should be strong. So, we call infrastructure includes data and networking solutions and utilities and we expect that to be strong. All those different dynamics for us is by segment. Some likely will recover in 2022 and others may be out into 2023.

Justin Bergner -- Gabelli & Co. -- Analyst

Okay, thank you. That's a very helpful framework. Appreciate it.

Operator

Our next question will come from the line of David Silver with CL King.

David Silver -- CL King & Associates -- Analyst

Yeah. Hi, good morning. Thank you.

Beth Wozniak -- Chief Executive Officer

Good morning.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Good morning.

David Silver -- CL King & Associates -- Analyst

Yeah, great. I was hoping to kind of maybe parse some of your comments about the cost outlook. So, I've heard inflation, I've heard costs of your productivity. But I was hoping to tease out the raw material and logistics elements of your cost expectations for next year. So leave out labor, leave out the temporary cost-outs, but could you maybe talk about where you see the greatest raw material cost pressures. I'm guessing metals, of course. But I'm also thinking of the shortages that have been talked about quite a bit on the Chip and Electrical Components side. So whether it's cost, whether it's availability; how do you assess kind of the ability to continue to operate without disruptions and then to capture or recover the incremental raw material and maybe logistics costs that you anticipate? Thank you.

Beth Wozniak -- Chief Executive Officer

Yeah. Let me start and then I'll -- I'll start by just talking about supply chain resiliency, and then I'll let Sara talk more about the cost side. So recall, as we mentioned, most of our materials are metals. And so, we have great positions in terms of just how we procure our supply into these rolling price locks and so, we feel good about our access there. I would say, we have looked at our supply chains and even in fourth quarter in some areas, looked to ensure that we had the right positioning of components so that we -- as we expected this year and as we saw the sequential improvements, that we would be in a good position to be able to respond. So whether that was on just inventory in part on the supply side, or even our own capacity? Just think we've addressed a lot of capacity requirements in our factories. So I think for us at this point, we see minimal disruptions really and we've -- our supply chain has been robust all of 2020. And so, we're very actively working to ensure that we're in a good position with our own in supply and also working that through with the distribution channel.

So, I think, at this point, we think we've got the supply chain managed fairly well. And again, we'll see how demand goes over the year, but we're going to keep having scenarios to be able to respond to that.

So, I'll let Sara then talk about the cost side.

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Yes. I think your question was kind of around materials overall and how to think about metals specifically. So, materials overall are roughly 30% of sales and metals are less than half of that. And Beth talked about a lot of those metals is going to be steel, copper and a little bit of nickel and we feel really good about the access to that supply and with these locking programs that give us some great kind of lead times and visibility into these inflationary pressures. So, we feel like we've got that dialed in, if you will. It is dynamic and as things progress, as Beth and we alluded to earlier in the Q&A, we're going to continue to monitor that. Right? If inflation continues to increase, we'll look at pricing, we'll look at productivity as ways to manage that.

David Silver -- CL King & Associates -- Analyst

Okay, thank you for that. I'm going to ask you a question maybe about the sequential progression of revenues in the fourth quarter. So, I did go back and overall, your revenue guidance was -- you kind of met or beat your revenue guidance overall. But I was kind of scratching my head and I was saying, if you look at it segment by segment, I mean, there was a sequential decline in two of your three segments, thermal being the exception. And year-to-date, I mean, those have been the stronger performing segments. So, I'm just wondering, was there a surprise there? Not so much overall, but segment by segment in other words, where you surprised that there was a sequential revenue decline for EFS and Enclosures? Thank you.

Beth Wozniak -- Chief Executive Officer

Yes. I would say that was right in line with our expectations. If you just look at the kind of seasonality of our segments, typically, there is a downtick in Enclosures from Q3 to Q4, as well as any of that. So, those were kind of as expected and in line with that seasonal downtick.

David Silver -- CL King & Associates -- Analyst

Okay, thank you for that. And then last question. This is maybe an 80-20 question in other words. Of your 50 plus new products last year, product launches, I mean, are there a couple that you could just call out either for their especially bright prospects due to either their innovative capabilities or just they are hitting the right market at the right time? So, you mentioned a point of growth overall for the company from the new product launches. But are there a handful or one or two that you might cite as kind of being especially -- that your optimism is especially high about? Thank you.

Beth Wozniak -- Chief Executive Officer

Yeah, OK. I mean, maybe I'll give that historic categories. In our Thermal Management business, we've continued to release a lot of connected solutions. So, we're excited about that because we believe that they not only present great value for our customers on a new project perspective, but they're also in MRO opportunities. So as I mentioned, our ability was having the largest installed base, our ability to go back out there and have controllers that can drop in and be replacements for existing products out there to create more value in terms of just monitoring capability and better performance, etc. We're very excited about that and we've been on that journey for a while, and those controls have done very well for us. I'd say in Enclosures, there is a general category around globalizing of IEC portfolio, but as well building out our data and networking solutions capability, particularly around cooling, for example. We're very excited about that. And then, I would say, in our EFS business, maybe there's two categories of products. We've extended what we do with our CADDY portfolio into areas in seismic and prefab and just extending the range. And we've been able to see contractor conversions as a result. And similarly, on the electrical side of our EFS business, we've been launching new products there that we think really position as well as you start to see the utilities, grid build out, anything around our -- we have some differentiated capability in our nVent ERIFLEX portfolio. So, all of those are playing into those electrification trends. So, those are broadly some categories that we have that we're excited about because they -- we believe they're positioned to be able to differentiate and create value for our customers and pointed at higher growth opportunities.

David Silver -- CL King & Associates -- Analyst

That's great. Thank you very much.

Operator

We have no further questions at this time. I will turn the conference back over to management for any further remarks.

Beth Wozniak -- Chief Executive Officer

Well, thank you for joining us this morning. We are pleased with our fourth quarter performance and believe we executed at a high level during 2020 to help set us out for growth and success. We are grateful for all the hard work our global employees put forth to help us emerge stronger. While economic uncertainty remains, we have confidence in our ability to execute on our 2021 priorities and deliver growth. We hope you remain safe and look forward to speaking to you again on March 3rd at our Investor Meeting.

Thanks again for joining us. This concludes the call. Thank you.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

J.C. Weigelt -- Vice President, Investor Relations

Beth Wozniak -- Chief Executive Officer

Sara Zawoyski -- Executive Vice President and Chief Financial Officer

Jeffery D. Hammond -- KeyBanc Capital Markets -- Analyst

Deane M. Dray -- RBC Capital Markets -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Julian Mitchell -- Barclays -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

Andrew Shlosh -- Vertical Research -- Analyst

Scott Graham -- Rosenblatt Securities -- Analyst

Justin Bergner -- Gabelli & Co. -- Analyst

David Silver -- CL King & Associates -- Analyst

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