Jeff Hammond: Maybe just to go out to organic growth a different way, it looks like you lowered your guide from four to six to three to four. I’m just wondering if that’s simply kind of the destocking effects or if there’s anything else that’s driving that change.
Beth Wozniak: That’s basically it. We — as we’ve noted, some of our channel partners we think are through that inventory adjustment and then some have indicated they’re going to continue that through Q4. So just in light of that and it’s sort of being choppy, we just that — that was our view, that we would see improvements from Q3 to Q4, but we did lower it just because that inventory adjustment is going to continue into that fourth quarter.
Jeff Hammond: Okay. Great. And then just on liquid cooling, it seems like a lot of other companies are talking about liquid cooling and maybe just update us on competitive landscape, emerging competitors. I don’t know if these products are maybe complementary or different or if you’re seeing kind of new competition and new capacity investments.
Beth Wozniak: Well, a couple of things. We’ve been at this for a long time, even free spin, working with some of these big leading customers. And over the course of the last five years have developed some solutions that took a while to really optimize the manufacturing supply chain capability and they’re really ramping. So as I mentioned, it takes two years to test. So I think for some it takes time and there are some startups and others, but it takes time to get to scale in manufacturing. So I think we’re in a good position and we’re accelerating. I think there’s a lot of interest here, clearly with AI, and we’re expanding from what have been more solutions for hyperscalers into solutions that we can sell through distribution channels or to enterprise accounts.
And we think that’s where over the next several years we’re really going to start to see more scale adoption. So I feel from the standpoint that we have several partnerships, so whether it’s — we actually from the — whether it’s a coal plate or immersion, we have the manifolds, we’re doing the distribution units. We’ve got solutions that are liquid to air, liquid to liquid. I mean, we’ve got a variety in our portfolio. So I think it’s going to be an area of strong growth and I think we’ve got a good start on it.
Jeff Hammond: Great. Just last one on ECM, I think when you announced the deal, I think the margin structure was kind of in line with the overall nVent may be well below EFS, but it sounds like maybe it’s coming in a lot higher. And do we need to kind of adjust our expectations for kind of margin contribution from that.
Beth Wozniak: Yes. So out of the gate, Jeff, we had said that ECM would be accretive to overall nVent and just given the margin profile of EFS would be a bit dilutive there out of the gate. But I would say mean, I think that ECM margin profile is a couple things. Like I said, it’s the mix profile that we do believe that as that growth accelerates, it’ll probably revert back a little bit to the prior kind of margin profile. But two, we’re going to continue to execute on our cost synergies, and that should accelerate over time. And I think the third piece to keep in mind too is the investment. So I think what you’re seeing right now is great execution by the team, very good price/cost management, and some early cost synergies. I think what you think — something to think about as you think about Q4 and into next year is just the increased investments that we plan on making to really ramp the top-line even more and capture some of those sales synergies.
Operator: Thank you. And the next question comes from Scott Graham with Seaport Research.
Scott Graham: Hey, good morning, all, and very nice strength and never get tired of saying that with you people.
Beth Wozniak: Thank you, Scott.
Scott Graham: So Beth, just to maybe ask you to elaborate your comment on 2024, sorry, when you said growth, do you mean organic or earnings or both?
Beth Wozniak: Well, I was specifically talking about overall growth, but I mean both. We expect to grow organically, inorganically, obviously with these acquisitions and to grow EPS.
Scott Graham: Very good. Thank you. And one for you, Sara. The dropdown in incremental margin in the fourth quarter from the third quarter, is that because the gap in positive price/cost peaks — has peaked in the third quarter and kind of narrows a little bit in the fourth quarter?
Sara Zawoyski: Well, here’s what I would say, there’s nothing different in terms of price/cost on performance first half, second half. We came into the second half expecting that to narrow. At the same time, though, Scott, I would say the productivity is ramping. I think one thing to keep in mind is if you look at the cadence of last year, Q4 was our best return on sales expansion that we had last year, roughly 300 basis points and that’s when it began to kind of turn that’s when some of our pricing actions were coming into play. And so it’s one of our most difficult comps, I think Enclosures expanded return on sales for like, over 600 basis points in the quarter. So I would just come back to in Q4, if you look at it just from a year-over-year standpoint, despite the difficult comp, we’re planning on growing organically.
We’ve got a good line of sight to another quarter of margin expansion across nVent, and then you roll in the positive impact of acquisitions. So it’s coming up to a really nice kind of year-over-year earnings per share as we end the year.
Scott Graham: Got it. Thank you. Last one, if you don’t mind. Just wanted to understand your capital allocation thinking, given the sort of the higher for longer mantra that we continue to hear from the Fed. Does that slow things down for you guys? I know you’ve got the great opportunity. Understand that, get that just that, are you thinking that maybe you have to pause a little bit here, or does your criteria get stricter? What’s changing if anything, in that environment?
Beth Wozniak: Well, look, I think we’ve always fundamentally been very strategic and disciplined in how we look at our capital allocation. And we’ve always said first, we want to support growth. And so you’ve seen that in the M&A that we’ve done in the investments in, new products, digital, expansion, right, for Data Solutions, pay a competitive dividend and make sure we offset dilution. And I think that still remains our position. And as we look at things like growth, we’re always looking for good returns and that we can execute within our framework. So I don’t think it’s giving us any different perspective in how we think about our priorities.
Operator: Thank you. This concludes the question-and-answer session. Now I would like to return the call to Beth Wozniak for any closing comments.
Beth Wozniak: Thank you for joining us today. I’m very pleased with our performance in Q3. We believe nVent is a top tier, high performance electrical company, well-positioned for the Electrification of Everything, sustainability, and digitalization trends. Thanks again for joining us. This concludes the call.
Operator: Thank you. And as mentioned, the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.
