nVent Pricing Spineometer: 5 of 5 Vertebrae
nVent, a provider of enclosures, electrical and fastening, and thermal management solutions, had a positive Q3 2023. Revenue rose 15% to $859 million and earnings before interest and taxes rose 29% to $156 million over the same period last year.
A review of nVent’s 27 October earnings call and financial report provided insight regarding the importance of pricing on performance.
Beth. A Wozniak, the CEO of nVent, spoke on nVent’s role in the “electrification of everything”. Her strategy calls for investing in high-growth verticals, acquisitions, geographic expansion, and new products. This strategy implies a need for a wide variety of pricing experts and skills.
As performance metrics, nVent appears to focus on revenue and return on sales, also known as operating margin. Given a focus on return-on-sales and revenue, we would expect pricing’s contribution to be measured partially via price-volume-mix analysis of both revenue and operating margin. Pleasingly, nVent reports both.
Beth Wozniak praised the ability of her team to manage price. “I think the team has done an incredible job of managing that price/cost equation,” she said. She continued with a proactive stance on pricing stating: “… you’ve seen every quarter that we’ve had strong price… we’ve had some price increases in Europe and I think as we look into next year, we still expect that we will be positive when it comes to price.”
Sara Zawoyski, CFO of nVent, repeatedly pointed to pricing as a driver of success. Early in the earnings call, she stated, “Organically, sales were up slightly, with price contributing 4 points to growth and volumes down 3 points.” Drilling down into specific segments, she stated in reference to electrical and fastening, “Return on sales was a notable 32.3%, up 320 basis points relative to last year and solid price/cost, favorable mix and productivity.”
If you are a CEO, CFO, or any other C-level executive, take note of the fact that nVent increased operating margin by 320 basis points and attributes this improvement to pricing. How many other capabilities can do that for a company? Pricing departments may not be big, but they have impact.
In examining nVent’s operations, we can identify some specific capability requirements.
Approximately 70% of nVent’s revenues are based in North America. Europe contributes another 20% and the rest of the world a final 10%. Across the globe, nVent sells through channel partners. Every country is likely to benefit from having a distinct set of channel incentives and negotiation practices.
The geographic footprint and channel management factors imply that nVent should have pricing professionals working with their peer commercial professionals across the globe but primarily in the States. As nVent expands globally, its non-U.S. pricing team will expand as well.
nVent’s market is undergoing rapid change. Utilities, one of nVent’s market segments, are transforming and growing with the need for distributed generation, increased electrical loads, and higher needs for transmission. Even buildings require more power and data to improve productivity. All of these secular trends increase demand for nVent’s offerings.
In the first three quarters alone, nVent launched 64 new products, well ahead of their scheduled 50 for the entire year.
The market dynamics coupled with the frequency of new product launches imply that nVent would benefit from having pricing professionals working with peer product managers to quantity the value of their new product development efforts, both before development and prior to launch.
These business factors imply a strong need for pricing experts at nVent.
- Industry benchmarks would suggest nVent should have 6 to 30 people dedicated to pricing.
- The industry turbulence and market dynamics would put a premium on being in the upper end of this range.
- The pricing team would have different team foci including transactional price management, list pricing, commercial policy, pricing of newly acquired company’s offerings, and possibly even work on the implementation and sustainment of profit-based incentives.
Research into the investment by nVent in pricing yielded highly encouraging results. The pricing team size easily met industry expectations. Geographic placement and responsibilities matched expectations as well. There were professionals focused on data analysis, strategy, and global sales. Most were near the Minneapolis headquarters, but professionals were identified in France, Belgium, and Poland as well.
Our research did not identify the full breadth of responsibilities expected, and, given the impact of pricing, we were surprised that it has not been elevated to a VP role. There is always an opportunity for improvement.
Given the importance and capability of pricing at nVent as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of January 2024.
nVent Pricing Spineometer: 5 out of 5 Vertebrae.
NVT (nVent Electric Plc.) rose from 46 the day prior to their earnings call to 50 one week later. FY 2022 revenue of $2.9 billion with a 15% operating margin and P/E ratio near 21.
For FY 22, a 1% improvement in price would yield a 6.6% improvement in operating profits holding all else constant at nVent.