Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Strong orders in Transmission & Distribution, with customers queuing up for 2025 deliveries, and book-to-bill above one in grid infrastructure for the first time since early 2023, indicating improving demand and fading destocking effects.
- Confidence in pricing power, with the company expecting to pass on price increases to customers, supported by constructive discussions with customers and distributors.
- Growth rate expected to improve throughout 2025, with stronger growth in later quarters, following normal seasonality, indicating potential acceleration in performance.
- Exposure to Potential Tariffs on Mexican Manufacturing Operations: Hubbell has confirmed that a significant portion of its cost of goods sold comes from Mexico, estimated to be in the mid-teens percentage range. Potential tariffs or changes in trade policy affecting Mexican imports could increase costs, and while the company plans to react with pricing actions, this could impact demand or margins.
- Softness in Meters and AMI Business: The company is experiencing a slowdown in its meters and Advanced Metering Infrastructure (AMI) segment, expecting the first quarter of 2025 to be similar to the fourth quarter of 2024, which saw declines. This ongoing weakness could negatively affect overall growth projections.
- Limited Pricing Power Moving Forward: Pricing contributed less than 1% to growth in the fourth quarter, with slightly more in Electrical than Utility. Management does not anticipate significant pricing increases going forward unless driven by external factors like tariffs , potentially limiting a lever for margin expansion.
| Metric | YoY Change | Reason |
|---|---|---|
Utility T&D Components | **Low single-digit decrease in unit volumes ** | This decline was driven by channel inventory normalization from previously elevated ordering patterns and was partially offset by strong price realization, reflecting easing supply chain pressures and more predictable lead times. |
Electrical Solutions | **Mid single-digit decline in unit volumes ** | The reduction was primarily due to customer inventory management in commercial markets and a continued shift from the prior period’s constrained supply environment to more stable manufacturing and delivery conditions. |
Communications & Controls | **Increased volumes YoY ** | Improved semiconductor availability and better supply chain reliability allowed for higher throughput compared to the previous period’s constraints, positioning this segment for continued growth as the market stabilizes. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Organic Growth | FY 2025 | no prior guidance | 4% to 5% | no prior guidance |
Utility Solutions Segment Growth | FY 2025 | no prior guidance | 4% to 6% | no prior guidance |
Electrical Solutions Segment Growth | FY 2025 | no prior guidance | 3% to 5% | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $17.35 to $17.85 | no prior guidance |
Free Cash Flow Conversion | FY 2025 | no prior guidance | At least 90% of adjusted net income | no prior guidance |
-
Tariff Exposure and Impact
Q: What is your exposure to tariffs on Mexico, Canada, and China?
A: Hubbell has significantly reduced its Chinese tariff exposure by disposing of certain businesses, resulting in a very small impact from Chinese tariffs. Regarding Mexico and Canada, the situation is fluid. Mexico is our #2 sourcing location after the U.S., but we haven't quantified the exact percentage of COGS from Mexico. We are preparing to navigate any potential tariff impacts through pricing and productivity measures. -
Electrical Segment Margins
Q: Are the over 20% Electrical margins sustainable for 2025?
A: The Electrical segment achieved margins over 20% for the first time in Q4 2024. We anticipate continued margin expansion in this segment through high-margin product growth, efficiency initiatives, and favorable mix. We believe reaching these margin levels is sustainable for the full year 2025. -
Utility Segment Growth Outlook
Q: What is the growth outlook for the utility segment in 2025?
A: We expect the utility segment to return to growth in 2025 as inventory levels normalize. Destocking pressures are fading, and we're seeing positive signs with a return to order growth. We anticipate grid automation to slightly grow for the full year, despite challenges in meters and AMI. -
Inventory Destocking Impact
Q: How is the inventory destocking situation evolving?
A: The destocking issue is gradually improving. Inventory levels are starting to normalize, particularly among our VIP customers. While it's not a sudden change, we expect a positive trend into 2025 as inventories reach typical levels. -
Pricing Power and Price Realization
Q: How are you approaching pricing given potential tariffs and cost pressures?
A: We're prepared to act swiftly on pricing if tariffs are implemented, working closely with customers to time adjustments appropriately. We've developed stronger pricing capabilities over recent years, enabling us to navigate cost pressures effectively. In Q4 2024, pricing contributed a little over 1% overall, with slightly higher impact in Electrical than Utility. -
Operating Margin Outlook
Q: What is the operating margin outlook for 2025?
A: We anticipate modest operating margin expansion in 2025, driven by volume growth and efficiency initiatives. While adjusted margins increased around 90 basis points in 2024, we're expecting approximately 50 basis points of increase in 2025. This reflects continued investments in growth and productivity with good payback expectations. -
Order Trends and Demand Visibility
Q: Are you seeing true demand improvement or tariff-related pre-buying?
A: It's challenging to distinguish tariff-related pre-buys from true demand, but we closely monitor order patterns to prevent excessive pre-buying ahead of potential tariffs. Current order trends are positive, with book-to-bill ratios returning above 1, indicating underlying demand improvement. -
Telecoms Business Outlook
Q: How is the telecoms business performing, and are you rightsizing it?
A: The telecoms business saw significant declines in 2024 due to strong prior-year comparisons. We've been rightsizing the business throughout 2024 to align with current volumes, reducing our cost structure. We aim to grow the business profitably without sacrificing margins. -
M&A Pipeline and Recent Deals
Q: What is your outlook on M&A activity?
A: We're actively pursuing M&A opportunities and have a robust pipeline across both segments. We recently closed a $70 million bolt-on acquisition in our Electrical segment, enhancing our wireless network capabilities. We remain well-positioned financially to invest in strategic acquisitions. -
Earnings Seasonality
Q: How should we think about earnings seasonality in 2025?
A: We anticipate first-quarter earnings to contribute in the same low 20% range of total annual EPS as in 2024. Growth in Q1 2025 may be slightly below the full-year expectation of 4–5% due to seasonality, with stronger growth expected in subsequent quarters.