nVent Electric plc (NVT) Q4 2021 Earnings Call Transcript

nVent Electric plc (NVT 1.90%)
Q4 2021 Earnings Call
Feb 08, 2022, 9:00 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] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, chief financial officer, Sara Zawoyski. Thank you.

Please go ahead.

Sara Zawoyski -- Chief Financial Officer

Thank you. And welcome to nVent's fourth quarter earnings call. Here with me today is Beth Wozniak, our chief executive officer; and I would also like to introduce Tony Riter, our new vice president of investor relations. I know many of you already know him from his time at 3M, and we are thrilled to have him join the nVent team.

With that, I will turn the call over to Tony.

Tony Riter -- Vice President, Investor Relations

Thank you, Sara. And good morning, everyone. I'm excited to be here at nVent, and look forward to working with all of you. Today, we'll provide details on our fourth quarter and full year performance and outlook for the first quarter and full year 2022.

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 on the investors section of nVent's website.

References to non-GAAP financials are reconciled in the appendix of the presentation. We will have time for your questions after our prepared remarks. With that, please turn to Slide 3, and I will now turn the call over to Beth.

Beth Wozniak -- Chief Executive Officer

Thank you, Tony, and good morning, everyone. It's great to be with you today to share our fourth quarter and full year results. 2021 was an outstanding year. We grew sales 23% and delivered 31% adjusted EPS growth.

We exited the year with orders up 37% in the fourth quarter and record backlog. I could not be more proud of our nVent team and what we accomplished. We executed on our strategy, had record growth and navigated many challenges to deliver for our customers. We made great progress with new products and our digital transformation.

We completed two acquisitions to strengthen our portfolio and expand our offerings in high-growth verticals, and we made significant progress on our ESG priorities. We had a goal to emerge stronger and our results demonstrate we have. Slide 4 summarizes our Q4 and full year performance. Fourth quarter sales were up 28%, with broad-based growth across all segments and verticals.

Adjusted EPS grew 16% year over year, and we generated $101 million of free cash flow. Our fourth quarter results were solid. Looking at some of our key verticals in the quarter. Industrial continued to lead the way with particular strength in automotive, food and beverage, and material handling.

Infrastructure had strong growth in data and networking solutions and power utilities. Commercial and residential continued its trend of double-digit growth across all segments. And finally, in energy, we continue to see a nice recovery, particularly in MRO. Looking at our geographical sales performance.

North America was exceptionally strong, led by enclosures, Europe was also up double digits with ongoing strength in electrical and fastening and developing regions grew over 40%, led by China with particular strength in thermal management. For the full year, we had recorded $2.5 billion, an increase of 23% or 18% organically. Adjusted EPS was up 31% and up 10% from 2019. For the full year, we generated $334 million of free cash flow.

Let me share a few highlights for the year. We launched a record 58 new products, which generated a point and a half of sales growth and increased our new product vitality to 18%. Our digital efforts are supporting growth, improving the customer experience and driving productivity in our operations. Acquisitions are strengthening our positions in high-growth verticals.

Vynckier and CIS Global expanded our offerings in solar and data networking solutions. The execution of our strategy to develop new products, invest in high-growth verticals and make acquisitions is accelerating nVent's growth trajectory. We recently announced a new strategy and business development role and are thrilled to have Nitin Jain join the nVent team. Nitin will be leading our efforts in strategy, M&A, partnerships and alliances, and identifying new growth platforms and technologies to further enhance nVent's growth.

Looking at trends entering 2022, we anticipate ongoing supply chain and inflationary challenges, particularly in the first half of the year. We remain confident in our ability to manage these headwinds and deliver for our customers. We also expect strong demand for our products and solutions with the electrification of everything. I am proud of our team and the results we delivered in 2021.

We made strategic investments to drive future growth and executed well. We believe 2022 will be another year of strong growth and value creation. I will now turn the call over to Sara for some detail on our results, as well as our 2022 outlook. Sara, please go ahead.

Sara Zawoyski -- Chief Financial Officer

Thank you, Beth. Let's begin on Slide 5 with our fourth quarter results. Sales of $669 million were up 28% relative to last year, and grew an impressive 24% organically. Strong volume and price each added 12 points to the top line, while acquisitions added another 5 points of growth.

Fourth quarter segment income was $110 million, up 14%, while return on sales of 16.5% was down 210 basis points. As you may recall, our Q4 guidance reflected a margin decline year over year, including growth investments and the lapping of onetime temporary cost reductions. With the stronger-than-anticipated sales, we saw increased cost pressures related to a very tight supply chain and higher inflation. Still, price more than offset the stepped-up inflation of $58 million in the quarter.

As a reminder, we talked about these costs as total inflation, including materials, wages and freight and logistics. Q4 adjusted EPS was $0.50, up 16% and above the high end of our guidance range. Free cash flow performance was also strong with conversion of 120%. Now please turn to Slide 6 for a discussion of our fourth quarter segment performance.

Starting with enclosures. Sales of $332 million increased 44% and 35% organically. Growth was broad-based across all verticals and geographies, and acquisitions continued to perform very well, adding 11 points to growth. Enclosures' fourth quarter income was $43 million, up 22%.

Return on sales was 13%, down 240 basis points. As a result of this very strong growth, we saw higher-than-anticipated costs and overall inflation. We also made investments in capacity. These impacts were partially offset by solid price realization of 11 points.

Sequentially, we expect return on sales to improve with better price cost and productivity. Electrical and fastening sales of $171 million increased 17% organically, with growth across all verticals and strong double-digit growth in North America and Europe. Electrical and fastening segment income was $45 million, up 9%. Return on sales was a solid 26.3%, down 170 basis points as we lap the onetime temporary cost actions of a year ago.

Overall, return on sales was better than expected and price offset inflation in the quarter. It's worth noting that electrical and fastening expanded return on sales 120 basis points for the full year on top of solid margin expansion in 2020. Thermal management grew 16% organically with sales of $166 million, driven by continued strength in industrial, and commercial and residential. High-margin industrial MRO growth was strong for the third consecutive quarter, up 34%.

Backlog grew sequentially and year over year, reflecting an improving trend in longer cycle projects. Thermal management segment income was up 30%. Return on sales expanded 290 basis points to 26.4%, driven by volume and positive mix contribution from industrial MRO. Now turning to Slide 7.

This gives us a recap of our full year 2021 results. We ended the year with sales of $2.5 billion, up 23% and 18% organically. Strong volume contributed 11 points to sales growth, while price added 7 points, nearly offsetting total inflation. Notably, we finished 12% above 2019 pre-pandemic levels.

For the full year, segment income of $436 million was up 25%. We expanded return on sales by 30 basis points to 17.7%. Adjusted EPS for the full year was $1.96, up 31%, and I'm particularly pleased with our free cash flow performance of $334 million, up 9% versus prior year and 100% conversion of adjusted net income. In summary, our 2021 performance puts us on a great trajectory to deliver on the long-term targets we set out in our investor day last March.

On Slide 8, titled balance sheet and cash flow, you'll find we exited the year with $50 million of cash on hand and $493 million available on our revolver. Our recent debt refinancing, coupled with our strong cash generation provides ample capacity heading into 2022. Slide 9 gives us an update on our capital allocation priorities. We exited the year with a net debt to adjusted EBITDA ratio of two times at the low end of our target range of two to two and a half.

Our robust balance sheet and cash generation puts us in a great position to invest in growth and execute on our M&A strategy. We continue to make investments in new products in digital and plan to launch another 50 new products in 2022. We added over $100 million in annualized sales from two acquisitions, and these acquisitions are on track to generate great returns like Eldon and WBT both of which we delivered greater than 10% returns in Year 2. We returned approximately $230 million to shareholders in 2021, including a competitive dividend and share repurchases of $112 million.

We will continue to deploy capital to drive growth and attractive returns for shareholders. Now moving to Slide 10 and our 2022 outlook. We expect organic sales growth in the range of 6% to 9%. This assumes higher volumes along with price realization in that 4- to 5-point range.

Growth is expected to be stronger in the first half given comparisons. And from a segment perspective, we expect strong growth in enclosures, and electrical and fastening with more modest growth in thermal management. Our outlook for full year adjusted EPS is between $2.10 and $2.20, which represents growth of 7% to 12%. A couple of important items to note.

First, our outlook assumes supply chain challenges and inflation persists, particularly in the first half. We anticipate margin performance to improve as we move through the year. Second, we expect price, plus productivity, to more than offset inflation for the full year. Third, we will continue to invest in new products, digital and our supply chain.

And lastly, we expect another year of strong free cash flow performance with conversion of approximately 100% as we execute on our working capital initiatives. Some 2022 below-the-line item assumptions we'd like to call out include net interest expense of $30 million to $35 million, a tax rate in the 17% to 18% range, and shares of approximately $170 million. Additionally, we anticipate corporate costs of $75 million to $80 million and capex of $50 million to $55 million. Now moving to our first quarter outlook on Slide 11.

We expect organic sales growth in the range of 10% to 12% and adjusted EPS in the range of $0.42 to $0.44. Several items to note for Q1. First, margin performance year over year is expected to be similar to that in Q4, reflecting higher costs related to supply chain challenges. Second, we expect price to largely offset inflation in the quarter.

Keep in mind, last year, we had very favorable material locks as we began the year. Lastly, while we anticipate corporate costs to be similar to each of the last three quarters, they are expected to impact margins by 120 basis points due to the prior-year comparisons. We see margin performance improving sequentially through the year with easing price cost pressures and better productivity. In closing, our team delivered outstanding results in 2021, and I'm very pleased with our cash flow performance.

I believe we are well-positioned for another strong year. With that, I will turn the call back over to Beth.

Beth Wozniak -- Chief Executive Officer

Thank you, Sara. On Slide 12, I'd like to provide our assumptions for our key verticals in 2022. Looking at the industrial vertical. We believe the trends in digital and automation will continue to drive investments and strong demand for our products across all sub verticals.

In commercial, we anticipate another year of solid growth. The U.S. nonresidential recovery is forecasted to be up mid-single digits. And in Europe, the construction PMI remains expansionary.

The infrastructure vertical is expected to benefit from continued strength in the 5G rollout, data center spending, power utilities and renewables. In energy, capex is anticipated to increase, particularly in North America. In summary, all of the verticals where we play are expected to grow. Turning to Slide 13.

We have executed well on our strategy with a laser focus on growth and serving our customers. We made progress in all areas and continue to see significant runway for growth and value creation. Let me share a couple of examples of where we are well-positioned and winning with the electrification of everything. With our Eldon acquisition and our global IEC enclosures portfolio, we recently won a multimillion dollar deal for protection solutions in the food and beverage industry.

We were able to provide the same solution in Europe and the U.S. selling globally and serving locally. With infrastructure investments in universal broadband and fiber-to-home, we won a key project with one of the largest rural Internet providers in the U.S. providing outdoor protection systems.

With increased data demands and reliability in data centers, we won a multimillion dollar project, providing a highly resilient connection solution. With the move to renewables, we've won dozens of biofuel upgrade projects with our thermal management heat trace offerings. Now turning to Slide 14. Data and networking solutions is a great example of how multiple growth elements of our strategy come together.

At spin, we decided to focus on this high-growth vertical and established a new commercial team. We developed new innovative products, in particular, liquid cooling solutions and expanded our offerings with acquisitions. We built strategic alliances with technology companies to expand our capabilities. Today, we provide some of the most innovative and energy-efficient solutions in the industry and are winning new customers.

Recently, we were awarded a large multimillion dollar project for one of the world's largest software companies with our advanced liquid cooling solutions. Since spin, we have more than doubled these sales to over $200 million annually and expect to continue to grow high double digits. Now turning to Slide 15. I'm very pleased with the progress we are making on ESG goals, which are an integrated part of our nVent strategy.

As a reminder, we focus on three pillars: people, products and planet. At nVent, we believe our culture and our people are a differentiator. Attracting and retaining talent in today's environment is critical. We have increased the representation of women in management globally and racially diverse professional employees across our U.S.

workforce. We are honored to be named to the 2022 Bloomberg Gender-Equality Index, making us one of only 418 companies across 11 sectors and 45 countries to be included. Around products, we integrated ESG into our New Product Introduction process, and developed baseline metrics and long-term goals. And we had great results in our planet pillar, increasing our renewable energy usage and reducing our CO2 emissions.

We received a Silver medal for social responsibility from EcoVadis in 2021, ranking nVent in the top 13% of companies reviewed in our industry. We look forward to publishing our 2021 ESG report this summer and are committed to driving further progress of our goals in 2022 and beyond. Turning to Slide 16. I will leave you with some key points.

2021 was a year of outstanding performance, and we entered this year with great momentum. The macro trends with the electrification of everything are expected to drive demand for our products and solutions. We believe nVent is one of the best-positioned companies to grow with these secular trends. We are executing well on our strategy and are changing the growth trajectory of nVent.

We are a stronger company today, and our future is bright. With that, I will now turn the call over to the operator to start Q&A.

Questions & Answers:

Operator

[Operator instructions] Your first question is from the line of Deane Dray.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone. And special welcome to Tony, a great addition to the nVent team. 

Beth Wozniak -- Chief Executive Officer

Good morning, Deane.

Sara Zawoyski -- Chief Financial Officer

Good morning, Deane.

Deane Dray -- RBC Capital Markets -- Analyst

The first question is, I had to do a double take on how significantly above our expectations organic revenue growth was in the quarter, a very pleasant surprise. Can you talk about the cadence in the quarter organically, top line? How did it play out and versus your expectations?

Beth Wozniak -- Chief Executive Officer

I think, coming out of Q3, where we talked about the strength in our orders, we just saw that growth consistent across all three months of the quarter. So backed up by that strong orders. And I think, we were very pleased just with -- as the orders came in just that it was broad-based across all of our segments and all of our verticals, which reinforce the work that we're doing around our strategy in these high-growth verticals. So just on every level, we just saw strong growth across the business.

Deane Dray -- RBC Capital Markets -- Analyst

All right. Great to hear. And the second question relates to price, 2021 was really strong for you in terms of price realization. Expectations for '22, how many price increases do you think you'll need? And then, on the flip side, on the input costs, maybe give us some insight on to the second derivative, just real time, what's happening, steel, nickel, freight, just -- have they plateaued, you're seeing any relief there? Thank you.

Beth Wozniak -- Chief Executive Officer

Well, I think, this was a -- 2021 was a year unprecedented with inflation. And so, we were having price increases in different parts of our -- at different segments or different regions continually throughout the course of 2021. And when we exited 2021, we had announced some price increases already for 2022. So I think, we will look at how inflation plays out over the course of this year, and we'll take whatever action we need to in terms of ensuring that we get out in front here.

And I'll let Sara add some more cover on the inflation side of things.

Sara Zawoyski -- Chief Financial Officer

Yeah, maybe a couple of things to point out here is just we talked about this a little bit in our prepared remarks, but we do expect strong carryover pricing in that 4- to 5-point range. I think, the second piece in terms of inflation, a couple of things to note here. Total inflation was significant for us in 2021. No doubt it was in total, roughly, $145 million.

As we look into 2022, we do see another year of significant inflation, I would say, a bit more broad-based. We are seeing it across broader input costs, components, freight, logistics, wages. So we're going to continue to stay in front of it. I think, as we've been very vigilant doing through the course of 2021 in terms of managing that price, plus productivity, more than offsetting inflation for the year.

I think, the other thing I would point out is just kind of this first half, second half dynamics. We do expect first half inflation higher and then that easing in the second half.

Deane Dray -- RBC Capital Markets -- Analyst

That's really helpful. Thank you.

Operator

Your next question is from the line of Julian Mitchell.

Julian Mitchell -- Barclays -- Analyst

Hi, good morning.

Beth Wozniak -- Chief Executive Officer

Good morning.

Julian Mitchell -- Barclays -- Analyst

Maybe I just wanted to circle back on that sort of price volume aspect because you're sort of relatively rare multi-industry company and that you're guiding for higher growth in Q1 than you are for the year, which is a sort of welcome linearity. But if we think about sort of the price versus volume within that number, is there anything to sort of call out as you go through 2022? Or it's just a similar development whereby price and volume both start the year stronger than in the second half?

Sara Zawoyski -- Chief Financial Officer

Yeah, well, I mean, maybe a couple of things to point out there. I think, one, that organic growth rate of 10% to 12%. Q1 outlook really reflects the strong momentum that we're seeing. So I'd point that out first.

Number two, it does include both price and volume, more skewed toward price. I mean, simply, the math is as we exit the year at 11% and that carries over into Q1 of next year, we would expect a lot of that price carryover to benefit mostly in that Q1 time frame.

Julian Mitchell -- Barclays -- Analyst

Got it. But if we look at say the volume piece of the guide, is that expected to be kind of steady year on year, say, first half and second half?

Beth Wozniak -- Chief Executive Officer

Well, the volume is going to be stronger in the first half than the second half, simply because of our comparisons, right? So if you look at our growth rate in as we proceeded through the year, I mean, obviously, Q2 of this year because that was the lowest quarter a year before, but you look at Q3 and Q4, we had really strong growth. So some of that is just the comparisons that we have in the back half.

Julian Mitchell -- Barclays -- Analyst

That makes sense. Thank you. And then, just a quick follow-up around the sort of margin progression for 2022. I think, you mentioned on revenues that thermal's growth rate would lag the other two divisions.

Just wondered if there was any sort of margin color year on year for 2022 as a whole across the three segments?

Sara Zawoyski -- Chief Financial Officer

Yeah, so from a full year perspective, we do expect, again, another year of margin expansion despite that inflationary pressures and some of the supply chain challenges that we're seeing in the first half. We would expect margin expansion across all three segments, albeit a bit higher in enclosures. Thermal, we expect to continue to benefit from that recovery, as well as that industrial MRO strength continuing. And I think, electrical and fastening is where we're seeing -- expecting to see maybe a bit more of a muted margin performance there kind of year over year.

But keep in mind, that business has expanded ROS 180 basis over the last two years. So good growth on the top and bottom line there in electrical and fastening, just more modest on the margin side.

Julian Mitchell -- Barclays -- Analyst

That's great. Thank you.

Operator

Your next question is from the line of Joe Ritchie.

Joe Ritchie -- Goldman Sachs -- Analyst

Hi, good morning, everyone. And welcome, Tony. 

Tony Riter -- Vice President, Investor Relations

Good morning, Joe.

Beth Wozniak -- Chief Executive Officer

Good morning.

Joe Ritchie -- Goldman Sachs -- Analyst

So I wanted to pick up on that last point you just made around EFS, I -- because I historically kind of thought about the EFS segment is still being where the opportunity exists from a margin perspective longer term. So maybe just expand on that. Is that changing at all? Where you kind of see kind of longer-term entitlements across those different businesses just based on the trends that you've seen in the last few quarters?

Sara Zawoyski -- Chief Financial Officer

Yeah, I would say nothing's changed in terms of us continuing to see margin compression -- or margin expansion in the longer term in electrical and fastening. We've talked about that in terms of bringing more lean enterprise within electrical and fastening, bringing more automation, as well as digital factoring some of the investments we're making on the factory automation side of things. So nothing's changed there. I think, it's simply two things.

One, reflective of this, 180-basis-point expansion since 2019. But I think, the other piece is just price cost. We are not back yet to what I would say more normalized historical incrementals are in that 30%-plus range. Electrical and fastening is definitely part of that given their strong margins.

And so, I think we're just seeing that in the context of another year of significant inflation, even as we offset that with price and productivity, that is having an impact on incrementals, as well as just absolute ROS.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it. That makes a lot of sense. And maybe -- I'm sorry if I missed this earlier, but the pricing this quarter was tremendous. I'm just thinking through kind of the environment that we're in right now with some steel cost curves are coming down.

I'm just curious like if we get into some of your raw materials actually deflating as the year goes on, how does that impact the price cost equation for you guys? Do you have to give back price in certain businesses, like how do you think that will kind of play out for you guys?

Beth Wozniak -- Chief Executive Officer

One of the things as we think about pricing, and we continue to drive differentiation and value in our solutions and offerings. So we like to be able to hold that price. And I also would say that we're seeing a very highly inflationary environment. So even if we see raw materials going down, we still expect there to be inflation in electronics, there's still going to be inflation in wages and freight and energy cost.

I mean, there's multiple dynamics here. So I believe as we go through the year, we're going to continue to manage -- to hold that price. And I'll let Sara just comment a little bit more on the margin side.

Sara Zawoyski -- Chief Financial Officer

Yeah, I think, your question was more around the steel, and maybe I'd offer up a couple of things. One is material costs in total are roughly 30% of sales and metals account for more than 40% of this. But that, what that means is there are other input costs, right, in relation to the overall COGS, as Beth just commented upon. I think, the other piece I would say is, clearly, if costs go down, that will help, but that's not something that we're counting on.

And again, we're going to stay very vigilant on managing that price, plus productivity, offsetting inflation for the year.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it. That's super helpful. Maybe if I could just sneak one more in. Just on the thermal margins this quarter, can you maybe just kind of parse out -- really, really good margins this quarter, is that margin kind of sustainable going forward? Like any color on like parsing out what drove that really strong margin in 4Q.

Sara Zawoyski -- Chief Financial Officer

Well, maybe I would say a couple things. The biggest drivers of that margin performance in the quarter was, first, the tremendous growth, right, the thermal management had. I mean, they're still working back in terms of recovery to the 2019 levels. So that was helping.

I think, the other piece is just the strength on the industrial MRO. That sort of has an outsized impact on ROS performance last year. And we are seeing that come back strongly this year. And I think, the other piece I would call out is just that team continues to do a really nice job with price cost.

They don't necessarily see the magnitude of the material inflation as the other two businesses, but they've been very good on managing that price cost equation. We see that improving as we go into this year.

Joe Ritchie -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

Your next question is from the line of Jeff Sprague.

Jeff Sprague -- Vertical Research Partners -- Analyst

Thank you. Good morning, everyone.

Beth Wozniak -- Chief Executive Officer

Good morning, Jeff.

Jeff Sprague -- Vertical Research Partners -- Analyst

A couple of questions, and I'm sorry I got on late. How much price is embedded in the 6% to 9% organic growth guidance for 2022?

Sara Zawoyski -- Chief Financial Officer

Yes. So we talked about that carryover pricing in that 4- to 5-point range.

Jeff Sprague -- Vertical Research Partners -- Analyst

So what's interesting, and maybe you could address this, right, although your price, I think, surprised all of us here in the quarter. When I actually look at it, it's "only 200 or 300 basis points above what I forecast." What sort of is jumping out actually is the volumes, right? Everybody is dealing with inflation. But in a lot of these calls, we're hearing inflation and supply constraints, and therefore, we can't deliver and sales are came in light, etc., from a volume standpoint. You actually didn't experience any meaningful from my vantage point anyhow volume constraint.

I'm sure there were some. But the question really is, are you now at some kind of capacity constraint that it's going to be difficult to drive volumes much higher than here? I mean, if there's literally 4, 5 points of price in 2022, I would think you've got the prospect of some decent volume upside this year from what's embedded in that guide.

Beth Wozniak -- Chief Executive Officer

So from a volume standpoint, one of the things we're very pleased with is just how our supply chain has performed. And as you look at Q4, there was a cost to that because certainly in our enclosures business having over 30% organic growth with constraints of labor and just even having to go get materials on the spot market, etc., all of that, we were -- you're inefficient. But I think, as we go forward, what we've been doing, and we started even throughout the year is investing in capacity. We do think labor is still going to be a constraint.

We think there's still some constraints around electronics. We think we're managing through the commodity materials and getting access there. So it's not -- so there's inefficiencies there. And I would say, as we started this year with Omicron.

I mean, that created some labor issues for us. But we feel good about the orders and so we exited the year with 37% orders' growth. And so, when I talk about the momentum going into 2022, we would expect that we're going to have some nice volume growth. Now as we look at the back half of the year, remember with some of these strong organic growth rates, the comparisons get a lot harder, right? This quarter being over 20% of organic growth, it gets harder to get some of that volume on that.

But we do feel very good where we're positioned, and we believe our strategy and what we're seeing with the focus on high-growth verticals and all the other things we're doing is positioning us well.

Jeff Sprague -- Vertical Research Partners -- Analyst

Great. And I just wonder if I could sneak one more in. If we think about the segment income bridges that you gave us for Q4 and for 2021. I just wonder if you could give us a little more color on kind of the -- I mean, you spoke through inflation, but kind of the productivity and investment buckets that underpin what the headwinds might be in 2022 relative to the price and volume coming in on the other side?

Sara Zawoyski -- Chief Financial Officer

Yeah, I mean, I'll give you a couple points here. I mean, we talked about kind of that price carryover in that 4 to 5 points. On that net productivity bucket, I mean, obviously, it was a net negative this year of $155 million for the full year, $145 million of that being inflation, and $10 million net headwind on productivity investments. We would expect that productivity to turn positive.

Really as the supply chain challenges ease in the back half. And importantly, as we also drive that underlying productivity, I mean, we're doing a lot around automation, bringing digital in the factories and optimizing on the logistics side. So we would expect that productivity demand bar to turn positive. And I think, the other piece is on the growth side.

I mean, clearly, that growth bar was a solid green for us as we lapped the year of COVID there in 2020, and we would expect it to be green again here in 2021, just not to that magnitude. But I think, I would end by just saying we expect another strong growth on top of the 18% organic growth that we saw here in 2021, along with margin expansion driving to that EPS growth.

Jeff Sprague -- Vertical Research Partners -- Analyst

Right. I'll leave it there. Thank you.

Operator

Your next question is from the line of Nigel Coe.

Nigel Coe -- Wolfe Research

Thanks. Good morning, and congrats to Tony on the new role. I think, this is the third time I'll talk to one person on two companies in the quarter. So some kind of record.

I wouldn't normally start off with corporate expenses, but it is quite a bit above my number, and it's been trending higher. So just wondering, is that just comp? Or is there something else driving corporate expenses higher? And are we at a good run rate here going forward?

Sara Zawoyski -- Chief Financial Officer

Yes. So we see two things in Q4 there. One, and we talked about this even going into the year is we are going to make some digital investments, including migration to the cloud. And so, that's been included in those corporate costs.

I think, the other piece I would just call out in Q4 in terms of that sequential bump, that did include some comp accruals. And so, as we look at that in the context of 2021 in that $75 million to $80 million range, that really just simply reflects kind of that underlying run rate in that Q2 to Q4 range of the prior year.

Nigel Coe -- Wolfe Research

OK. And then, maybe a follow-on to that would be the R&D, obviously, a big theme at IR day this year was investing in products, etc., R&D increase. And so, just curious where R&D finished this year and what's baked in for 2022?

Beth Wozniak -- Chief Executive Officer

Well, with R&D, I would say that one of the things we continue to increase our investment there as we go forward. But the one thing I want to say, I'm very pleased with is just the effectiveness of our R&D. So we look at our investments between digital and R&D and sometimes they go hand in hand. But when I step back and look at, we're launching more new products, our cycle times are going down and we are having more of an impact.

And some of that's just our approach with Agile and just better marketing and understanding customer needs. So the output that we're getting on the R&D side is better than the goals that we set for ourselves. So I think, we still have runway to continue to invest there. We somewhat prioritize a little bit more on the digital investment side than we have R&D.

Nigel Coe -- Wolfe Research

And a quick follow-on, if I can. You called out Omicron as a factor behind the productivity headwinds. Are we now moving beyond that impact on the labor side either from your perspective or from your supply chain?

Beth Wozniak -- Chief Executive Officer

Well, I think, January was very tough. You just need to look at case loads and look at the news around the world. So January was tough with absences. And I'd like to think that we're getting better, but who knows, right? We've always said there's no playbook for a pandemic.

But I think, with the volumes that we've seen, labor is going to be -- it's inflationary, and I think, it's going to continue to be a challenge for a while. Now having said that, we've done everything that we can to serve our customers. It's been a big theme of ours and you've seen that in our volume growth. But I think, we're just going to see some inflationary pressures there as we go forward.

Nigel Coe -- Wolfe Research

Great. Thank you very much.

Operator

Next question is from the line of Jeff Hammond.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning. Thanks for putting me in.

Beth Wozniak -- Chief Executive Officer

Good morning.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

We covered a lot on price cost, etc. Just a clarification on price. Is that four to five carryover? Or does that include kind of your Jan 1 pricing as well?

Sara Zawoyski -- Chief Financial Officer

That carryover basically includes these pricing actions that we had in the context of Q4.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

OK, OK. Great. And then, just on -- you made the comment that you kind of outgrew a point and a half on the new products. Just -- I want to understand better, one, how you're measuring that? And two, maybe differentiating the new product outgrowth versus just your outgrowth from maybe being able to supply better than some of your comps in this environment?

Beth Wozniak -- Chief Executive Officer

When we look at -- I give a number of 18% new product vitality. So that says products we've released, what's the revenue of these new products over the last five years. And so then, we look at those new products and we look at what percentage of our revenue was generated in the course of a year, and that's where we came up a point and a half. And I think that, I mean, new products are fundamental as we look at how we're driving growth, where we're going with liquid cooling solutions, for example.

When we're looking at some of these trends around the electrification of everything and are we driving more resilient, labor-saving connection systems that's positioning us well for some of these new growth verticals. So we have a really good way of measuring the value that we're creating. And any time we launch new products, we look at margins. And if they're differentiated, they should launch with higher margins.

So I think, we have a really robust process there, and it's very important to our growth as we go forward.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

And do you see that that point and half points is kind of a stable number as you can kind of continue to improve? Or is that something that you think can move up over time?

Beth Wozniak -- Chief Executive Officer

Well, we target to get over a point of growth. And I think, in a strong year like we saw this year, a point and a half, certainly, if we have -- this year is another good year. So I'd say we expect to get above a point again. So that's kind of our general target.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

OK, thanks so much.

Operator

Your final question is from the line of David Silver.

David Silver -- C.L. King and Associates -- Analyst

Yeah, hi, thank you. Hi, good morning. So my question, I think, would be on the financing activity that was undertaken this quarter. And I was kind of looking at your debt structure with a -- and I noticed that this quarter, you paid, I think, a $15 million prepayment issue.

There was maybe $3 million of costs. And I was just kind of scratching my head, but this kind of has the feel of restructuring your debt -- sorry, reworking your debt structure in service of a broader corporate strategy. But could you discuss maybe your thinking about why you chose to do a significant refinancing here? And what that I'll just say, $18 million, but the prepayment and the issuance costs, like what does that buy you either in terms of lower interest expense or covenant relief? I mean, what -- maybe if you could provide some background on that decision, that would be great. Thank you.

Sara Zawoyski -- Chief Financial Officer

Yeah, so I mean, I would start off by saying we feel really good about what we did in the context of 2021, both on the revolver, as well as that $300 million bond tranche. And it really was in advance of the maturities that were slated for April of 2023. So kind of right within that window. It really did two things for us.

One, it gave us an opportunity, given sort of the favorable backdrop and market conditions to take advantage of some of those lower rates. And I think, the other thing, too, is it really set us up well from a balance sheet and maturity perspective. So it took that $300 million bond tranche and put it out 10 years. So as you look at our maturity ladder, we feel really good about where that stands.

From a cash perspective, we had an in and an out there. Clearly, we had the $15 million kind of takeout premium, if you will, on those bonds, but we also had roughly a $10 million benefit on that treasury rate lock. So net, it was closer to that $3 million mark. But importantly, we feel really good about that refinancing, and we believe it just puts us in a great position on the maturity ladders as we look forward and taking advantage of some of the favorable interest rate conditions here in 2022 or here in 2021.

David Silver -- C.L. King and Associates -- Analyst

Yeah. And I think -- and just to follow up, but I mean, I think that particular notes issue that was taken out dates back to when your company was first set up independently. So I'm just wondering if there's any meaningful covenant relief for any kind of flexibility that you think is -- that was gained that you think is noteworthy? Thank you.

Sara Zawoyski -- Chief Financial Officer

Yeah, I would say nothing really to note. I mean, we launched and spun as a company with, I think, some very good elements around both the revolver, as well as on the bond issuance side, and those we see continuing with their debt refinancing.

David Silver -- C.L. King and Associates -- Analyst

OK, great. Thank you very much.

Operator

There are no further questions. I will turn the call back over for any closing remarks.

Beth Wozniak -- Chief Executive Officer

Well, thank you, and thank you for joining us this morning. We are incredibly proud of our strong fourth quarter and full year 2021 performance, and believe we are well-positioned for continued growth and success going into 2022. I'm grateful for the outstanding work our global employees put forth during the year to help us continue to meet customer demand and execute on our growth strategy. Thanks again for joining us.

This concludes the call.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Sara Zawoyski -- Chief Financial Officer

Tony Riter -- Vice President, Investor Relations

Beth Wozniak -- Chief Executive Officer

Deane Dray -- RBC Capital Markets -- Analyst

Julian Mitchell -- Barclays -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

Jeff Sprague -- Vertical Research Partners -- Analyst

Nigel Coe -- Wolfe Research

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

David Silver -- C.L. King and Associates -- Analyst

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