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    Hubbell Inc (HUBB)

    Business Description

    Hubbell Incorporated is a global manufacturer specializing in electrical products and utility solutions, catering to a diverse range of customer and end-market applications. The company operates through two main segments: Utility Solutions and Electrical Solutions, providing products for electrical distribution, transmission, substation, telecommunications, building operators, and industrial customers . Hubbell's offerings include components like arresters, insulators, connectors, smart meters, wiring devices, lighting fixtures, and industrial controls, which are used in industrial, commercial, and institutional facilities . The company emphasizes innovation and quality, focusing on both "In Front of the Meter" and "Behind the Meter" applications related to energy transmission and consumption .

    1. Utility Solutions - Focuses on products for electrical distribution, transmission, substation, and telecommunications, including components like arresters, insulators, connectors, and smart meters .

      • Electrical Distribution - Provides components for the distribution of electricity.
      • Transmission and Substation - Offers products for the transmission of electricity and substation applications.
      • Telecommunications - Supplies components for telecommunications infrastructure.

    2. Electrical Solutions - Provides components for building operators and industrial customers, such as wiring devices, lighting fixtures, and industrial controls, with applications in light industrial, non-residential, and heavy industrial markets .

      • Wiring Devices - Manufactures devices for electrical wiring applications.
      • Lighting Fixtures - Produces lighting solutions for various settings.
      • Industrial Controls - Offers controls for industrial applications.

    Q2 2024 Summary

    Initial Price$415.62April 1, 2024
    Final Price$359.14July 1, 2024
    Price Change$-56.48
    % Change-13.59%

    What went well

    • Margins in the Utility Solutions segment are expected to improve in the second half of the year, driven by increased organic volumes and stable pricing, signaling a positive outlook for profitability.
    • Transmission and substation markets are experiencing strong double-digit organic growth, indicating robust demand in high-margin areas and contributing significantly to Hubbell's performance.
    • End-market demand in the Utility segment remains strong, with utility customers increasing capital expenditure budgets and continued investment, particularly in transmission and substation projects, despite some destocking in distribution channels.

    What went wrong

    • Weakness in the Utility segment: Organic sales in the Utility segment were down 6% in the quarter, impacted by a 40% decline in the Telecom market and ongoing customer inventory destocking in utility distribution, which is lasting longer than anticipated and creating headwinds for growth.
    • Book-to-bill ratio below 1 indicating weak demand: The company acknowledged that the book-to-bill ratio for the Utility segment is not yet back to 1, suggesting that orders are not exceeding shipments, potentially signaling weak demand and future sales challenges.
    • Margins pressured by acquisitions: The acquisition of Systems Control, while contributing to sales growth, is dilutive to margins as it operates at margins slightly below mid-20%, creating a headwind for overall Utility segment margins.

    Q&A Summary

    1. Full-Year Guidance and Margin Outlook
      Q: What drove the uplift in full-year guidance despite lower sales?
      A: We adjusted our margin guidance upward to reflect an expected increase of 10 to 50 basis points. This improvement stems from better-than-anticipated performance in the first half and operational efficiencies, even though we've slightly trimmed our sales outlook.

    2. Telecom Segment Performance
      Q: What's the updated Telecom sales expectation for the year?
      A: After Telecom sales were down 40% in both Q1 and Q2, we've adjusted our full-year expectation to be down approximately 25%. The downturn lasted longer than expected, but we believe we're at the bottom and anticipate gradual improvement moving forward.

    3. Utility Margins and Pricing
      Q: Any color on Utility margins and impact from pricing?
      A: We expect Utility margins to improve in the second half due to returning organic volume. Despite fluctuations in steel and copper prices, we're not facing pressure to reduce prices and continue managing costs like labor and transportation effectively.

    4. Utility Inventory Destocking
      Q: Where do we stand on inventory destocking in Utilities?
      A: Destocking in the utility distribution side lasted longer than anticipated but shows signs of improvement. It's uneven across product lines, but where destocking has ended, demand is picking up. Strong end demand is supported by growing utility CapEx budgets and continued customer investment.

    5. Transmission and Substation Growth
      Q: Is transmission and substation growing double-digit, including Systems Control?
      A: Yes, transmission and substation are growing at double-digit rates organically. Systems Control is also growing at a similar pace compared to last year. Its margins are attractive, just below the mid-20s, adding positively despite slight mix-related margin dilution.

    6. Second Quarter Electrical Operating Profit
      Q: Why did Electrical op profit grow more than revenue sequentially in Q2?
      A: The increase was due to favorable mix from strong growth in data centers and renewables—high-margin areas—as well as productivity improvements and cost control. The absence of the residential lighting business also contributed to higher margins.

    7. Steel Prices and Margin Tailwinds
      Q: Will lower steel prices provide margin tailwinds?
      A: While steel prices have declined, other costs like copper, labor, and transportation have fluctuated, offsetting potential benefits. Overall, these factors are balancing out, and we're mixing back to our plan without significant margin tailwinds from steel.

    8. Aclara Backlog and Visibility
      Q: What's the outlook for Aclara's backlog and orders into 2025?
      A: We're seeing increased pipeline activity and have secured projects that will ship next year. While it's early to discuss 2025 in detail, we're actively bidding on projects to fill our pipeline and observe customer appetite for continued investment.

    9. Second Half Seasonality Expectations
      Q: How should we think about earnings seasonality in H2, particularly Q3 vs. Q4?
      A: Typically, Q2 and Q3 are our strongest quarters, forming the "head" of the year, with Q4 seeing a seasonal step-down. We expect this pattern to continue in 2024, with earnings potentially flattening in Q3 and then declining in Q4.

    10. General Industrial Demand Trends
      Q: Is general industrial demand solid outside of key verticals?
      A: Yes, general industrial demand, including distribution and MRO, remains particularly solid. This excludes high-growth verticals like data centers and renewables.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Utility Solutions781.6830.8837.9811.43,261.7894.0926.5933.1
    - Grid Infrastructure-----612.8654.5654.2
    - Grid Automation-----281.2272.0278.9
    - Utility T&D Components615.1631.2618.2-----
    - Utility Communications and Controls166.5199.6219.7-----
    Electrical Solutions503.8535.1537.9534.42,111.2505.1526.0509.5
    - Electrical Products204.0213.0214.4202.2833.6211.5223.1232.1
    - Connection and Bonding153.9165.7165.6167.1652.3175.5192.3-
    - Industrial Controls93.9109.1112.3122.9438.296.9110.6-
    - Retail and Builder52.047.345.642.2187.121.200
    - Commercial and Industrial--------
    - Heavy Industrial--------
    - Residential and Retail--------
    - Construction and Energy--------
    - Lighting--------
    - Power Systems--------
    - Aclara--------
    Electrical Segment--------
    Power Segment--------
    Total Revenue1,285.41,365.91,375.81,345.85,372.91,399.11,452.51,442.6
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States1,179.3786.6796.52,164,922.41,287.4879.7887.0
    International106.144.241.4258.8450.5111.746.846.1
    - Canada and UK--------
    - Switzerland--------
    - Brazil--------
    - Mexico--------
    Total Revenue1,285.4830.8837.92,418.85,372.91,399.11,452.51,442.6
    KPIs - Metric (USD Millions)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Unsatisfied Performance Obligations **[0001628280-23-002875_hubb-20221231.htm:85]**300260240200-15010080

    Executive Team

    NamePositionStart DateShort Bio
    Gerben W. BakkerChairman, President, and CEOMay 4, 2021Gerben W. Bakker has been with Hubbell since 1988, starting as a manufacturing engineer. He became Chairman, President, and CEO on May 4, 2021, after serving as President and CEO from October 2020 .
    William R. SperryExecutive Vice President, CFOMay 2020William R. Sperry has been the Executive Vice President and CFO since May 2020. He previously served as EVP, CFO, and Treasurer from June 2019 to May 2020, and as SVP and CFO from 2012 to 2019 .
    Jonathan M. Del NeroVice President, ControllerJanuary 15, 2021Jonathan M. Del Nero became Vice President, Controller on January 15, 2021. He was previously Assistant Controller from June 14, 2014, to January 15, 2021 .
    Alyssa R. FlynnChief Human Resources OfficerFebruary 2022Alyssa R. Flynn has been the Chief Human Resources Officer since February 2022. She was previously VP, Compensation, Benefits & HR Systems from 2014 to February 2022 .
    Gregory A. GumbsPresident, Utility Solutions SegmentJuly 1, 2023Gregory A. Gumbs started as President of the Utility Solutions Segment on July 1, 2023. He was previously President and CEO of Bosch Rexroth from September 2020 to June 2023 .
    Katherine A. LaneSenior Vice President, General Counsel, and SecretaryMay 2021Katherine A. Lane has been SVP, General Counsel, and Secretary since May 2021. She served as VP, General Counsel, and Secretary from June 2019 to May 2021 .
    Mark E. MikesPresident, Electrical Solutions SegmentJuly 1, 2023Mark E. Mikes became President of the Electrical Solutions Segment on July 1, 2023. He was previously Division President of Hubbell Power Systems and Enterprise Operational Excellence from July 2022 to June 2023 .
    Garrick J. RochowDirector (elected to the Board of Directors)November 19, 2024Garrick J. Rochow was elected as an independent director on November 19, 2024, and appointed to the Board's Audit and Finance Committees .

    Questions to Ask Management

    1. You mentioned that destocking in the Utility Distribution market is lasting longer than initially anticipated due to limited visibility into end customer demand. Can you provide more specifics on how this prolonged destocking is impacting your sales and when you expect it to normalize?

    2. In the Utility Solutions segment, weakness in the telecom market has been a significant headwind. Given the ongoing challenges, what strategic actions are you taking to mitigate the impact of a weak telecom market on your overall utility business?

    3. Despite strong performance in certain areas, there was an indication that margins in the Systems Control business are slightly below the mid-20s and creating a headwind quarter-over-quarter. Can you elaborate on why these margins are lower than expected and what measures you're implementing to improve profitability in this area?

    4. You've raised your full-year adjusted earnings per share outlook but have slightly trimmed your full-year sales guidance. With no changes to margin guidance, what factors are driving the expected EPS growth despite lower sales, and how confident are you in achieving these targets?

    5. Given the strong growth in data center and renewables markets within Electrical Solutions, how sustainable do you view this growth trajectory, and what risks do you see that could potentially slow down the momentum in these high-growth verticals?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateOctober 21, 2022
    End Date/DurationOctober 2025
    Total additional amount$300 million
    Remaining authorization amount$270 million
    DetailsThe program aims to return value to shareholders and manage the company's capital structure. Repurchases may be conducted through open market or privately negotiated transactions, subject to market conditions and alternative uses of cash.

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Earnings Per Share (EPS): Raised to a range of $16.20 to $16.50 .
      2. Sales Growth: 7% to 8% for the full year, with approximately 3% organic growth .
      3. Adjusted Operating Margins: Expected to be between 21% to 21.5% for the full year .
      4. Free Cash Flow: Target of $800 million for the year .
      5. Utility Segment: Improved levels of organic growth and a return to year-over-year adjusted operating margin expansion in the second half .
      6. Seasonality: Second half to account for approximately 48% to 49% of the full-year EPS .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full Year 2024 Outlook: Double-digit adjusted operating profit growth at the midpoint .
      2. Electrical Segment: Organic growth expected to be up 3% to 4% for the full year .
      3. Utility Margins: Expected to be reasonably flat year-over-year, with margins up in Q2 and Q3, and declining in Q4 .
      4. Telecom Business: Anticipated to be down double digits for the full year .
      5. Free Cash Flow: On track to deliver $800 million .
      6. Restructuring Investments: Increased expectations from $0.25 to $0.35 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Sales Growth:
        • Organic Sales Growth: 3% to 5% .
        • Total Sales Growth: 8% to 10%, including 5% net from M&A activities .
      2. Operating Profit Growth: 10% .
      3. Earnings Growth: 6% earnings growth to the midpoint of $16.25 .
      4. Free Cash Flow: Approximately 90% of net income .
      5. Capital Expenditures: Continued increase .
      6. Interest Expense: Increase of about $40 million .
      7. Seasonality: Normal seasonal pattern, with Q1 and Q4 below Q2 and Q3 .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information about the Q3 2024 earnings call for Hubbell, so the guidance from that specific earnings call is unavailable.