Q4 2019 Earnings Call

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Ladies and gentlemen, thank you free standing by and welcome to the fourth quarter 2019 results Conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you will need to press star one.

On your telephone.

Please be advised that today's conference is being recorded if we acquire any further assistance. Please press star zero. Thank you.

I would now like to have the conference over to your host Mr., Dan Annemarie Plateau. Please go ahead Sir.

Thanks, operator, good morning, everyone and thank you for joining us I'm joined today by our chairman and CEO, Dave newer and our executive Vice President and CFO Bill Sperry.

No one else its fourth quarter results for 2019. This morning, the press release and slides are posted to the Investor section of our website at Www Dot Hubble Dotcom.

Please note that our comments. This morning may include statements related to the expected future results of our company and our forward looking statements as defined by the private Securities Litigation Reform Act of 1995.

Therefore, please note the discussion of forward looking statements in our press release and considered incorporated by reference into this call. In addition comments May also include non-GAAP financial measures. Those measures are reconciled the comparable GAAP measures and are included in the press release and slides now let me turn the call over to Dave.

All right. Thanks, Dan Good morning, everybody. Thanks for joining us this morning to discuss our fourth quarter and for your results.

If you can see from our press release, there's another quarter of strong free cash flow generation and solid execution across level.

No not just for the quarter, it really step back and looked at our performance over the full year and we're certainly pleased with the way our businesses and our employees executed a navigated through it will really sort of mix that uncertain markets to generate value for shareholders.

I will walk you through the details of the full year results later, but we certainly generated exceptional growth in free cash flow and significantly expanded our full year operating margins. Despite softer volumes across a lot of our key end markets. You know at all this while doubled our investment in restructuring activities.

You know when I reflect on a year ago. You know, we said that we were going to do vps with a midpoint of $8 on an adjusted basis.

And we delivered $8 in 12 cents, we said, we're going to do free cash flow at 95% of adjusted net income.

And we delivered 112% of adjusted net income.

All of that in light of this time last year. The big uncertainty was tariffs what was that going to do.

But we've done a lot of other things along the way we sold the business. We bought a couple businesses, we got a significant pension obligation behind us.

We've had more than we had anticipated.

Restructuring and related costs due to try to drive productivity and cost reduction going forward.

And we've also had some organizational changes so all of that going on and still delivering above what we committed to a year ago.

I couldn't be more pleased with how the organization has responded.

We take all that we remain focused on improving the things that we can control.

And we see continued runway on our self help initiatives, which sets us up for another strong year in 2020, even though we are continued to be cautious about our near term volume.

Longer term, we certainly remain confident in our strategy in our market position. We believe we're well positioned to continue to deliver differentiated returns for our investors.

Before I get into the key takeaways for the quarter I want to highlight that we'll be hosting investor day in March 3rd in New York, you've likely received an invitation a few weeks ago.

But if you're a student attendance contact Dan.

And he can provide you with the details.

We certainly hope to see a lot of you there and look forward to give you some more insight on our overall strategy and all the hard work we've been putting in at how will that position the company for long term success.

You certainly have an opportunity to meet with and here from a broad range of our senior leadership team. Both those who are new to the company had or in new positions you don't on that topic actually want to point out that were also joined today on the call by our President and Chief operating Officer, Gerben Bakker, you'll recall back in June we promoted Durbin from president of our power.

Our segment to his current role.

He has been spent a lot of time digging into our operations, especially in our electrical business over the past several months, bringing a lot of the.

Traits in good experiences that he had that led to a success in their power business to our electrical businesses.

And I think he's looking forward to share in some of those insights with you next month.

So let me turn now to some of the highlights for the fourth quarter and key takeaways and I'll start on page three of the presentation.

Yes, most of you recall recall it was almost two years ago, we discussed a target of generating 500 million a free cash flow by 2020.

We're certainly pleased of essentially delivered on that target a year earlier than we previously anticipated.

I will walk you through some of the drivers of that strong free cash flow a bit later, but the bottom line as we do believe weekend to sustain the strong conversion level into 2022 and expect to continue to grow off of this space as we continue to focus on our working capital.

One of the many benefits of the strong cash flow is that we get to deploy cash to generate attractive returns for investors and we did that through to bolt on acquisitions, those who have followed us for a long time, though that this is a key aspect of our strategy and we're excited to be into market with a strong balance sheet.

No we turn to the end markets trends here remain mixed.

There are transmission and distribution continues to stand out strong growth driven by ongoing investment in our large utility customers in hardening in upgrading the grid.

But on the electrical side trends were soft exiting the year most of which we had expected at contemplated.

And talked about.

Last quarter in our guidance.

But we still dealt with some pockets of weakness and uncertainty, which bill will talk about in a couple of slides.

On the margin front, we remain effective and actively managing price costs across the portfolio, which is driving margin expansion despite accelerated investment in restructuring to optimize the footprint and improve productivity.

We expect this restructuring activity to generate significant productivity savings over the next several years.

And drive ongoing margin expansion.

Finally, we're initiating full year guidance for 2020 will walk you through those details later, but we see another year of solid earnings growth and cash generation on fairly modest end market expectation.

Importantly, the drivers of our performance. This year are mostly within our control. So we havent high degree of visibility and confidence in our ability to achieve our targets.

All other accomplishments in the quarter and our electrical segment.

I'd like to talk about Burndy introduced a new Patriot crimping tool with a new ergonomic design and track trace transmit technology, which uses and onboard GPS chip.

And Bluetooth connectivity to capture and map daytime and location of Accra, while storing the data in the tool and also transmitting it to the cloud to allow customers to generate customer ports and on the commercial industrial businesses. They introduced new family of products called jump charge, which is a kiosk designed for hospitality foodservice niche.

Education markets allow customers the ability to recharged or electrical devices for a rental fee, but what's different is that it's using portable charging devices as of two points of innovation and I think thats an area that you know we look forward to talking more about at Investor day, So with that let me turn it over to build.

To give you some of the details on the fourth quarter in the year. So thank you Dave and good morning, everybody. Appreciate you taking the time to join US here like Dave I'm going to use the slides to guide my comments and I'm starting on page four just the overview of results of 1 billion one of sales.

Operating margin adjusted OEP margin of 14% and.

An increase of 70 basis points adjusted diluted EPS of $1.91, which is a 7% increase over prior year and Dave mentioned, the strong free cash flow hundred 85 million in the quarter and and nearly 500 million for the year.

Let's dig into the markets in the sales performance on page five.

You see at 1 billion, one that's 4% below last year.

I'll remind everyone that when Dave mentioned that we've been selling and buying businesses. So we sold our high voltage test equipment business based in Switzerland, and that that cost us one point.

In sales growth. So the organic is highlighted here at 3% and essentially the lions share of that.

Is the impact of Lightings challenging quarter on volumes and so on balance the rest of the company is actually quite flat and so I'll walk through now kind of the individual end markets and show you that we're really starting to see some bifurcation between our some of our electrical.

Facing markets versus our utility facing markets, so starting with the electrical side and where we're seeing some of the softness.

On the oil end markets, which is where our harsh and hazardous businesses face.

Worse, we saw double digit declines in the quarter on heavy industrial we also saw a high single digit declines there.

And in renovation relied on our lighting business also saw double digit softness there. So those are notable points of weakness and there is quite strong contrast to the electrical transmission and distribution.

End markets, where we're seeing very strong growth.

Transmission, a little bit stronger than distribution right now, we see our customers in those markets continuing to make upgrades and harden their grid in their infrastructure.

And continues to.

Provide a very good underlying source of growth so without organic of minus 3% sales, let's let's turn towards how our earnings performed and I'm going to page six starting with our adjusted operating income you see flat dollars year over year.

Sure.

Supported with a 70 basis point.

Margin expansion to 14% in the fourth quarter.

Really this is the result of two pairs of offsetting drivers that I wanted to walk everybody through.

The first set.

Was a benefit that we earned from Brean granted some tariff exclusions on a very narrow amount of skews.

Those exclusions provided us approximately a one point margin tailwind and we reinvested that one point in incremental restructuring in the quarter, which is going to benefit future earnings through cost take outs.

The second pair of drivers.

We more than offset the decrementals from the lower volumes that we discussed on prior page with highly effective price cost management.

That price cost management has been.

A trend that we've been discussing with you throughout the year.

This this tariff exclusion is a new dimensions. So it's worth a quick comment.

As as Dave described that as we started the year.

We are managing our tariff headwinds primarily through price, but we're also focused on supply chain realignment to as well as vendor management.

And in this quarter, we're able to deploy the tool of approaching the U.S. trade Commission, both directly and through our associations with industry groups.

And got some very specific skews excluded.

From our tariff calculations.

And the result of that.

I was reduction of expense in the fourth quarter that will largely repeat next year and so we'll have comparable tariff expense in 20 versus 19, but will create so for the full year quite a comparable picture.

In the fourth quarter essentially in 19 that benefit was all concentrated in being recognized in one quarter.

On the right side of the page, you'll see our adjusted earnings per diluted share. The dollar 91 is a 4% increase or seven cents over last year.

Higher LP give us a couple pennies and lower effective tax rate and lower interest expense.

Gave us about a nickel tax rate on adjusted basis in the fourth quarter this year of about 21.3%.

Free cash flow that Dave mentioned, helping us reduce our debt that we took on associated with the acquisition of a Clara and is getting us a lower interest expense.

So we'll take those.

That performance in disaggregated into our two segments and on page seven let's start with the electrical segment.

You can see sales down 7%.

This segment is where the divestiture of high voltage test equipment was located.

So the on the organic side, you see roughly 6% decline.

I was $618 million of sales generated.

On the areas of notes of weakness lighting.

Down double digits.

Heavy industrial and the harsh and hazardous serving oil markets.

Those.

That weakness in those three areas really masking some of the growth that we experienced on our connectors and grounding business as well as in our wiring device business.

And on the performing side, we overcame that volume decline with 80 basis points of margin expansion to keep the dollars of LP essentially flat.

And Thats the story that we told of overcoming the volumes in the higher investment in restructuring with.

The tariff exclusion and the price cost benefits.

Page eight talk about to power segment.

And you will see 2% sales growth to $485 million.

And an increase of 20 basis points of margin to 15.4% to drive a 3% increase in adjusted operating income to 75 million I.

I think it's worth Disaggregating, the two components of our power segment between the legacy power systems business that you're all more familiar with where we grew at mid single digits versus a Clara which declined at mid single digits. So you see that add up and an offsetting dampening effect.

On the overall sales growth.

But also of note that 20 basis points of margin expansion.

It was achieved including investing an extra point in higher restructuring and so that price cost manage improving to provide the extra lift to drive that margin expansion I think it's worth a comment on a clara.

Just because of the lumpiness of their business of the quarter at down mid single digits feels out of step with what we've been talking about and so I think adding a little more context is helpful. For the two years now that we've owned a Clara.

The business has grown double digits and it grew mid single digits in 2019, and our outlook is for it to continue to grow healthily in 20 and beyond.

The mid single digit decline is largely.

Attributed to a very difficult compare in Q4, when they had very very strong growth back in the fourth quarter of 2018.

When we look at their sequential sales throughout 2019. It has a quite normal seasonal sequential look I think it's worth commenting as well that beyond volumes had a clara we're quite focused as well on growing specifically the am I in communications portion of that business and it was good sinus.

The order growth in the fourth quarter, there as well as we're seeing some progress with some customers on advancing the future growth of that business that we think has a multi year story to it than we are quite looking forward to.

I think it's also helpful because that fourth quarters got quite a few moving pieces in it to step back and on page nine really look at the full year results.

And you'll see net sales growth of 2%.

And approximately 4.6 billion.

The growers for the full year, our connectors in grounding business, our natural gas business and our power systems business, all up mid single digits on the declining side harsh and hazardous and the lighting business dampening some of that growth a little bit.

I think great to see the operating leverage throughout the business, so 2% sales growth, resulting in 4% operating profit growth driving 5% earnings growth and double digit free cash flow growth.

Those are trends, we'd like to continue.

The operating profit outgrowing sales, obviously coming with margin expansion of 30 basis points. That's all in the gross margin through price cost management.

And of note, you'll see we refer to the restructuring and related spending that we did last year versus this year.

So were day was mentioning kind of the doubling of that investing that we did.

And so able to expand margins and invest in next year's and beyond margins I think.

A really good sign.

On the on the restraint on the restructuring front.

It's just worth commenting that.

The majority of that 37 million was in footprint realignment.

And.

I would say about a quarter of it.

Invested in some head count reductions the fourth quarter softness in sales.

Required us to two reduced head count.

And again invest in next year's earnings.

The result of that we see as ultimately driving.

About $15 million of savings next year from that 37 of spending this year.

Two and a half year payback, we think is attractive paybacks.

An important for us to keep investing there the free cash flows also worth commenting on we obviously had higher opie roughly comparable amount of capex.

And so the higher ARPU was complemented with some working capital management, most notably on the receivables and inventory side.

That cash flow, obviously helps us restore our balance sheet post borrowing for a Clara and page 10, I think is a good outcome of that where you'll see that we'd essentially been.

Digesting and integrating the Eclair acquisition for the past seven quarters and.

As our balance sheet got de lever down to the two times.

Debt to EBITDA neighborhood, I'm very happy that we've been able to.

Jump back into the bolt on acquisition.

Part of our value proposition and just noted here to two acquisitions made in closed in the fourth quarter. The first is Ken Tiga.

Which is inside of our power systems business and asset protection company trades under the name Green jacket. So you can see the pictures there of custom fit covers that helped us substations perform.

Against a wildlife and other environmental incursions.

Off to a really great start really happy with that and the aptly named connector products Inc. fits inside our connectors and grounding.

Business line, you see a picture there of the wedged tap and also do spices.

Noteworthy about the product line is it's easy to install doesn't require any specialized tools, so really complements our existing business. These two businesses both being.

Very high margin above average for Hubble averages and so deploying kind of the sales proceeds from our high voltage business.

Into these high margin business is plus some extra cash flow. We think is good good value creation for the future and you'll see when Dave talks about.

Our outlook, you'll see some contribution from these two deals so with that Dave I'll turn it back to you to cover our outlook for 2020.

Alright, great. Thanks Bill.

I'm on Slide 11 talk first about the end markets and our outlook there.

When we look into next year, so continue to see some mixed trends.

Our end markets few puts and takes.

Netting overall to modest growth.

Starting in the upper right, our electrical TMD continues to be a strong market up 3% to 4%.

Continue to see strong demand in that environment.

With solid growth even off difficult compares.

The residential market.

Up two to four.

Market indicators more recently have gotten positive more positive and we're pretty confident being able to deliver some nice growth you're.

In 2020.

The non residential we've got it at 1% to 2% continue to expect growth in nonresidential construction.

But this section of Pie chart also embeds, what we anticipate the be some continued softness on the resin renovation side and lighting.

Which could last for the first half of the year.

Industrial you know thats, plus or minus 2% market softened through the back half of 2019, particularly on the heavy industrial we havent yet seen signs of a material pickup.

So our base case is plus or minus a couple of points a with the heavy industrial remaining softer.

Light industrial holding up.

On the oil side.

Right now, it's plus or minus two markets are weak throughout 2019, I think oil prices have come down.

We've seen somewhat stable for now off the low levels.

With some smaller project activity, but no signs of an inflection.

So that will continue to be a challenging market gas distribution, plus 1% to 3% market drivers made strong.

We expect some moderation from low single digit growth after a multiyear period of of strong growth.

So turning to slide 12, so all that turns to our guidance, where we expect all of that to contribute net sales growth of 1% to 3% for 2020 bout lie with our expectations for modest end market growth.

The acquisitions that bill talked about on the fruit on the previous page.

Expected the fully offset the divestiture the hopefully high voltage test business next year at least on the volume side.

We expect 2020 adjusted earnings per share to be in the range of $8.50 to $8.80.

And this includes a another 40 cents of restructuring investment.

We're seeing good returns on our footprint projects that we started in 2019.

And we expect to continue to invest here, yeah, I think that next year, maybe with our current footprint of maybe the last year at the 40 cents range obviously.

M&A activity would bump that up.

As we would invest more in in Rightsizing.

New entities coming in.

You know the restructuring that we did this year in fact, Bill mentioned, we expect 15 million of incremental restructuring savings next year ahead of our initial expectations.

And on the free cash flow front spect, another year of strong cash generation.

At 110% of adjusted net income.

As we continue to effectively manage our working capital.

So turning to slide 13, you put all this together in draft form we just talked about the modest contribution from volume growth.

While we also see significant tailwind from our restructuring initiatives in 2020.

We also see some modest TPS tailwind from M&A, despite our expectation for the neutral sales impact as we've traded lower margin business for the higher margin business through our active portfolio management.

Below the line, we see tailwind from lower interest and pension expense, partially offset by a slightly higher tax rate.

And finally is theres a couple of non fundamental headwinds from a couple of sources first as Bill noted the tariff exemption, we received as an ongoing benefit which lowers our run rate cost basis.

But some of that related to cost incurred in 2018 that doesn't repeat small piece, but it's something that were we'll deal with.

Second we made a decision as a company with our board.

To change the timing of our long term incentive grants from the fourth quarter to first quarter really to be a practice more prevalent across the marketplace, we're somewhat out of step and doing it late in the year.

Results what that means is that in the first quarter of 2020, but will be a cost associated with that typically being in the fourth quarter certainly the fourth quarter impact was offset by higher short term incentive so there's really no benefit in the fourth quarter, but instead of having the cost.

Typically would be in the fourth quarter it'll be in the first quarter. This year of a dime, so thats going to affect our calendarization sort of make sure that we had that out there.

So with that.

We're all this is going to net to our midpoint of 7% earnings growth off relatively modest volume equation, which we think is is a good start to the year.

And we look forward to doing you know doing this or better similar to what we saw in 2019.

So with that let me turn it over for some questions.

Operator.

Yes.

Ladies and gentlemen, if you have a question at this time. Please press the star and then there number one.

Telephone if your question if we answered this year with yourself from the can you. Please press the pound.

First question is from Jeff talk from vertical Research partners line is open.

Hi, good morning, everyone or Jeff.

Good morning.

Take a little deeper into the utility side of the equation.

And.

Particularly kind of the a clear versus the base business.

First on Clara Theres been some chatter of kind of am I deployment delays out there I was wondering if that was either part of the issue in the quarter or does that in any way affect your outlook.

And obviously you didnt have a clearer in the organic base last year, but can you give us an idea of the the magnitude of the comp you were going against in this particular quarter.

Yes, Jeff so starting with the comp it actually grew about 50% in the fourth quarter last year, so very dramatic.

Dramatic growth last year in and a testament to some of the lump lumpiness of of the projects that they work on as far as.

The regulatory items.

Not things that affected us in the quarter, we did enjoy some am I order strength in the quarter and does not affect our medium term outlook, either bigger or maybe you want to add some color, yes, good morning and Jeff.

On the question specifically on the am I delays.

You know delays in regulatory approvals are common in the industry.

These are generally very large and complex projects, both technically and commercially.

The degree of regulatory defer those can also very significantly.

Based on the geography as these are often set at state and municipal levels.

So there while they're certainly maybe references in the market to delays, we are really not seeing evidence that the overall regulatory landscape has changed we do encounter delays ourselves in our business.

We don't not see them to be on material for US right now and certainly for US a geographical diversity house, that's dusted multi utility. So we serve both the Io you as well as the co up and municipals and we also serve both electric gas and water. So it so it's pretty.

Spread that can help offset some of these lumpiness that you can see.

With some of these larger products that are subject to regulatory.

Scrutiny.

Could you also speak to the a clear a backlog you had a big starting backlog when you acquired the company have you been able to keep that popped up along the way or.

Are you actually drawing on backlog now.

Yes that backlog was certainly a shift as somebody is larger projects going on and off but fundamentally we still have the backlog sale so little bit short of that billion dollars that we had talked about.

Importantly, though what we look at is de qualified pipeline and that we're actually seeing a growing right now and we feel we're very well position to realize this growth.

We had recent wins with our RF Synergized am I platform, including a major utility coal up as well as a couple of a pilot programs that we've launched with large I'll use and this gives us confidence that we are well positioned to serve the significant opportunity in the next several years really at the IPO you customer.

Up great their first generation am I systems to the next generation.

Great and just one other if I could just in general I am sorry, if I missed it in the.

In the opening remarks, but what are you anticipating in your guidance for to kind of the carryover benefits from the restructuring actions you took in 2019 in any benefit that you might get from the plan 2020 actions.

Yes. So we think we've got 15 million of benefit Jeff of real savings in in 2020 that are coming off the spending that we've done recently in most of that it was from.

Hi investment spend in 19.

Okay, great. Thank you.

Next question from Steve teams that from JP Morgan. Please open.

Hi, Good morning, Dave Good morning, Bill This is actually path and then on for Steve Tusa. Thanks for taking my question, but I'm just curious on on the end markets for the fourth quarter, what did they would it what did they look like from a growth perspective versus the 1% to 3% you expect for 2020 and and then along those lines. How do you expect the profile.

Now to look first half versus second half.

For this year well after the end markets.

Yes, so the end markets.

Net it out X lighting to be very flat in the fourth quarter.

And.

We're expecting that to be a in that 1% to 3% range for next year and so I think you're right to point out that we do anticipate having some easier compares in the second half versus the first half as a result to that.

Is there anything from a first quarter perspective, we should be aware of other than the incentive comp I think you said at the time of peddling anything else for the first quarter, we should be aware.

I don't think Theres anything that stands out specifically.

I do think that so some of this lighting volume can can carry into some softness on the electrical side I think we'd expect a the utility strengths to carry through and so.

I think despite a despite that headwind from the L.T.I. I do think we should be able to eat grow earnings absorb that and grow earnings slightly in the first quarter year over year.

Okay, and then follow up on Jeffs question that I don't think you answered this part of it.

Well I'm not even sure yet, but what's your expectations for Clara growth in 2020 versus.

Core TV business I think you said, 2% to 4% for the end markets. Just curious how those two parts of power shake out versus one another in terms of the guide.

Yeah, we're expecting a clarity to be able to grow mid mid single digits.

Okay. Okay, Great and then one last quick one for me what once prices in the quarter urea contribution to revenue.

Yeah, we got a couple points a of price.

Okay, great. Thanks, a lot.

Okay.

Next question is from Nigel Coe from Wolfe Research Your line is open.

Thanks, guys. Good morning organizer, Yeah, Patrick just most my questions and so.

[laughter].

So going back to the cloud so just to just because obviously you had a very tough comp in a in full too. So you expected growth would be back to growth in one Q and then the comments on the call that backlog still a still up how does the about looking at kind of coverage full 2020 compared to last year thing.

Yes, so there's really two components of the funnel that gerben was referring to write the the very near term is the backlog and then if you go slightly farther back you'll get into the pipeline and so as Durbin was saying the activity at.

A front end of that funnel on pipeline continues to grow and then what enters into qualified backlog.

That can get consumed or added to depending and so I think we're you know that the near term backlog you know is down just a little bit.

But it certainly does in them.

Our expectations.

For 2020 or beyond.

Okay and the one key you think you think back to growth among Q I mean, the put to bed appointment.

I think we've got we've still got a tough comp in the first quarter for class a and then I think the remaining three quarters will be where we see the growth.

Okay and then the performance in electrical during the call with a I think you said Spanish across your markets ex lighting, so lighting, obviously down you know kind of.

Mid teens would that be the right number.

Little bit less little bit less than that but double digits. Yes yep. Okay. Can you just about the impact of channel inventories on not just the lighting, but but across the spectrum that and what's your perspective in terms of where they come you sit visit them levels.

I didn't I didn't understand the what questions what as the channel inventories citizens to what extent that we step in still suffering from channel headwinds.

Imagery headwinds.

Yeah, I mean, I think said that at the beginning part of the year and with some of the tariffs and the pricing that was going in Nigel I think you're right to point out that we thought there was probably some build up in the channel of inventories.

And.

But there is evidence of some of that persisting a little bit but.

That sounds almost like an excuse you know Nigel so I think I think we feel that that's straighten itself out for the most part yeah I think the the other side of that is going into 2019, I think the channel was a little bit more cautious.

And was concerned about a downturn, we had a lot of conversation that no tariffs were going to cause recession, and therefore, they wanted to get their inventory levels down.

And the conversations that I've had with our general partners generally optimistic.

Positive on on 2020.

So I think that that has taken a lot of that pressure.

Paul at least broad.

There's still pockets of of those who might want.

I want to be shifting some of their inventory and getting the same focused on cash flow that.

We have but I don't see anything in there that's meaningful.

Great and is the quick one them pricing two points of principally by strong how does not look in Twain 20, do you think you still get put that price.

I think as it wraps around Nigel it'll taper off.

And so.

We're not not expecting that to be a steady state of two points and price.

Okay. Thanks.

All right.

As a reminder for participants please limit to one question and one follow up to give up the cadence to others. Thank you.

Next question is from Deepa Raghavan from Wells Fargo Securities. Your line is open.

Hey, good morning.

The question on your residential market.

Patients I mean, your expectations at 2% to 4% in market better than fiscal 19.

Yeah, the 1%.

End market as lighting business in there as well why it I mean, just curious how you're thinking about how would how the lighting business trends in Cisco 20 in how residential.

The rest of residential ex lighting actually feedback so that's sort of 4% patients.

Well I think that you first of all the residential component of our business is substantially lighting. So that's that that's the big driver to it as.

As you know a lot of that you know sort of a positive.

Outlook is based on you know housing starts and I think most recently at the.

Homebuilder show, the a really positive sentiment.

On homebuilders.

But for US obviously that has a little bit of a lag do it we're typically a two quarter lag to the starts. So you know I think some of that we'll we'll start to see its way through to the business in the second half.

This year so.

Oh, Hi, so you are expecting lighting to do better.

Okay Alright.

It is my follow up would be on on a you know your price I mean, you said, it's 2% of price guiding Q4 fiscal uncertainty it fades away last year can you got it. Thank you are guiding to 2% of price in most of that was in markets, where I just wanted to 2% did you end markets. So you want.

Im expectation does still flattish within your end market expectation this year versus last year as well is that right.

No I'd say, our end market volume expectations are mostly a volume expectation that encompasses very little price.

Just kind of their app.

Okay got it so it's one of the person in markets does too much comprise well and and that's how to think about it it's not plus 2% price reset pricing wraparound is limited so we're not setting.

Right.

Got it thanks, so much.

Next question is from Robert Mccarthy from Stephens. Please.

Okay.

Hi, good morning, everyone.

About others on the strong execution on cash.

I guess the first question I would have is you know just around lighting more of a broader question. You know clearly this is a business that you've been invested in acquired over the last 20 years, I think starting with L.C.A. back down to.

But you know over the course of time its theres been a lot of promise for the business for a variety of reasons, but right now. It seems you know you've had a competitor sell the business I think you've had some leadership lead the company to run a different lighting business, what's kind of the state of play strategically for that business going forward for you and do.

You think you have to have a higher bar for return profile for a business and would you consider.

Some form of separation or divestment.

In the near term.

A lot in era, but you know we.

We go way back so we share the history on this.

You know certainly a lighting business lighting business is always been challenging and and nothing changes nothing's changed there.

I think we've done some good things too you know continue to improve that business. There is a level of frustration that I certainly have because the market is tough.

But I think that you know some of the things that we've done have strengthened that business and its well position to continue to improve.

I think we've made some some of the management changes or have allowed us to do some things differently.

And I think we're going to be prepared to talk about some of those things next month at Investor Day.

You know, but it certainly you know is is not one of our higher margin businesses, yet, it's still providing a decent return.

And I think it's adding value to shareholders I think you know as with all the businesses, but certainly with the changes going on in the lighting industry.

You know if there was that opportunity to create shareholder value that was.

More valuable for for us than you know running it.

Always has to be considered.

But right now we think it has a lot of you know opportunity to continue to add value and to improve.

And so you know we're going to continue to do that.

Okay, turning to probably a more attractive topic, which would be the solid outlook for you know transmission and distribution spend and you know looking at long term growth rates in growth rates as a whole it sounds like the traditional legacy business is very well positioned.

For continued growth and the more and why smart metering certainly hasn't rate a runway for growth maybe in a market basis, a little bit lower than that it does but I guess from your comments, you're actually suggesting aclaris gonna grow mid single digit. This year now that there was there should be some penetration with some.

So with some I'll use and probably some.

Some secular growth tailwinds with the Clara, but I.

I mean, despite the fact that you already have 3% to 4% growth. There do you think it was even you know upside to that number do you think you could be growing given the trends that you're seeing now in mid to high single digits or a sustainable growth rate over a longer period of time in other words do you see you know the potential for inflection point there for growth.

Growth over over a three or four year period.

Yeah, I, Rob I I say, yes, we do you know remember what Weve said is you know, particularly on the am I, it's a much longer sales cycle its a little lumpier.

Getting the acceptance of you know the am I systems, you don't takes time. The good news is that we've had you know some good success, there and you know with proven capability with them.

Meaningfully sized utilities and that provides a sound basis.

For you know on a run rate basis.

Certainly I think we could see you know mid to high single digits overtime, but you know as Gerber mentioned, it's a lumpy business because it's that Scott that project orientation, you know until you get a broad enough portfolio that makes that you know sort of smoothed out.

We're going to see that but certainly I think there's a really good upside in the future based on the investments being made.

Thanks, Rick.

Okay.

Next question from Josh.

From Morgan Stanley line is open.

Hi, Good morning, guys, Hey, Josh.

Just to follow up on a on Rob's question on on the TNT space or kind of utilities and large.

We've been in this outsized environment I'm wondering how much of this is kind of catch up for years of under investment versus a structural change in the way you tell what do you spend money or kind of view the investment cycle. So is there any way to parse how how much of what you're seeing.

And today is just.

Kind of making up for you kinda decades of under investment versus something it's a little bit more proactive and sustainable.

Well I think it's you know you can't argue that no theres been decades of under investment I mean, that's a fact the question is what are they that when it comes down to investors it investing in replacing legacy products or is it going to the next level.

Of new technology that that's a little harder to split out and identify which way it's going.

I think what is clear is that you know, there's a recognition of a need to invest more.

And that's that's positive then you know it's positive for all parts of our business. So we want to make sure and but honestly that was one of the.

Strategic basis for the Eclair acquisition to give us the opportunity and the capability to participate more effectively on the automation side.

And that's a I would add to what they should I certainly think prior.

Under investment in it but the other thing that's adding to it. It's just the integration of renewables and that's certainly putting a lot of strain on the existing grid. So you know what the utilities are looking for is how to better operating rich.

That they have and maintain and Thats, where somebody aclaris technology and even more importantly, when we bring together the legacy portfolio, where declare a dead. We can help serve that need to modernize the grid and really wrong the grid more efficiently.

Got it that's helpful. And then just one quick follow up for for Bill can you remind us I'm, sorry, if I Miss already how much of the or the the the tariff relief is ongoing versus what was kind of recaptured from earlier in in 18 and 19 in the fourth quarter.

I would describe.

The exemptions as capturing roughly six quarters of activity.

And so you know the majority of that carries forward through 2020, they technically expiring in October. So you. So we'll be recognizing that benefit kind of evenly throughout 2020 and then there's.

About a third of the total that was associated with with that actually happened in 18, so that that would be the nonrecurring piece.

Got it I understood. Thanks.

Next question is from Justin Bergner of Fidelity Research Your line is open.

Oh, Hi, good morning, David Good morning, Bill Good morning.

Just a couple of clarification questions I'm on the transmission and distribution end market view, if aclaris growing mid single digit does that mean that your legacy teen di business. She had the view towards are growing below mid single digit to just sort of average out that three or four three or 4% or am I missing something.

No I mean, you've got it right to the distribution piece. If you. If you unpack. It you know is about two thirds of our volumes and transmission about a third and you know what we've expected that de over the long term has been kind of the grows in GDP lines, I think Josh and and Rob's.

Questions about you know, it's doing stronger than that which is some understanding.

From past and a suburban was saying some some new automation areas. So I think that.

If you disaggregate those pieces you your got it you've got it right.

The T. indeed part of our power segment is significantly larger than than the Eclair piece. So you can't just average the two growth rate you have to apply a higher waiting obviously to the power systems piece.

Okay, great. Thank you and then on the terrorists piece.

I'm just to fully understand it you said it expires in October does that mean that I guess is two and a half cent per quarter benefit that you will enjoy in 2020 will not repeat come 2021.

Well it would be subject to whether or not the exemptions are re grants that are not in.

You know that starts to all fit in the background noise of how we're managing price cost you know.

Gotcha.

Alright, and then lastly on the restructuring side. So it looks like you expected to come in the sheer red 40 cents a restructuring, but you ended up around 50 cents and that offset the 15 cents.

Benefit in the fourth quarter is my math sort of in the right ballpark. Yeah. We spent we spent more than we had planned by about 11 cents.

And that was all happened in the fourth quarter.

Some of which was continued to be footprint realignment that we've been focused on all year and will continue to be focused on and some of which was a little bit shorter term head count related.

That was in response to some soft volumes, we experienced in Q4.

Great. Thanks for taking my questions.

Okay.

I'm showing no further questions at this time I would now like to turn the conference back to Mr. data never plateau.

Thanks, everyone for joining us and I'll be around all day for follow up calls if you need me. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you again for your participation you may now disconnect.

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Ladies and gentlemen, thank you free standing by and welcome to the fourth quarter 2019, with all its conference call.

So I'm all participants' lines are in listen only mode.

After the speakers presentation, there will be a question answer session to ask a question. During this session you will need to press star one on your telephone.

Please be advised that todays conference is being recorded it require any further assistance. Please press star zero. Thank you.

I would now like to have the conference over to your host Mr., Dan and never Adam. Please go ahead Sir.

Thanks, operator, good morning, everyone and thank you for joining us I'm joined today by our chairman and CEO, Dave Norte, and our executive Vice President CFO Bill Sperry.

No one else its fourth quarter results for 2019. This morning. The press released on slides are posted to the Investor section of our website at Www Dot Hubble Dotcom.

Please note that our comments. This morning may include statements related to the expected future results of our company and our forward looking statements as defined by the private Securities Litigation Reform Act of 1995.

Therefore, please note that discussion of forward looking statements in our press release considered incorporated by reference into this call. In addition comments May also include non-GAAP financial measures. Those measures are reconciled the comparable GAAP measures and are included in the press release on slides now let me turn the call over to Dave.

All right. Thanks, Dan Good morning, everybody. Thanks for joining us this.

This morning to discuss our fourth quarter and for your results.

You can see from our press release, that's another quarter of strong free cash flow generation and solid execution across horrible.

Not just for the quarter, it really step back and looked at our performance over the full year and we're certainly plays with the way our businesses and our employees executed the navigated through what really sort of mix that uncertain markets to generate value for shareholders.

I will walk you through the details of the full year results later.

We certainly generated exceptional growth in free cash flow and significantly expanded our full year operating margins despite softer volumes across one of our key end markets.

And all this while double our investment in restructuring activities.

When I reflect on a year ago. You know, we said that we were going to you know do bps with a midpoint of $8 on an adjusted basis.

And we delivered $8 in 12 cents, we said, we're going to do free cash flow at 95% of adjusted net income.

And we delivered 112% of adjusted net income.

All of that in light of this time last year, a big uncertainty was tariffs what was that gonna do but we've done a lot of other things along the way once all the business. We bought a couple of businesses, we got a significant pension obligation behind us.

We've had more than we had anticipated.

Restructuring and related cost to try to drive productivity and cost reduction going forward.

And we've also had some organizational changes so all of that going on and still delivering above what we committed to a year ago.

I couldn't be more pleased with how the organization has responded.

We take all that we remain focused on improving the things that we can control.

And we see continued runway on our self help initiatives, which sets us up for another strong year in 2020.

Even though we are continuing to be cautious about our near term volume.

Longer term, we certainly remain confident our strategy and our market position. We believe we're well positioned to continue to deliver differentiated returns for our investors.

Before I get into the key takeaways for the quarter I want to highlight that we'll be hosting investor day on March 3rd in New York, you've likely undersea limitation, a few weeks ago.

But if you're a student attendance contact Dan.

He can provide you with the details.

We certainly hope to see a lot of you there look forward to give you some more insight on our overall strategy and all the hard work we've been putting in at a level that position the company for long term success.

You certainly have an opportunity to meet with an here from a broad range of our senior leadership team well those who are new to the company or in new positions.

On that topic actually want to point out that were also joined today on the call by our President and Chief operating Officer, Gerben Bakker, you'll recall back in June we promoted Durban from President of our power segment to his current role.

He has been spent a lot of time dig into our operations, especially in our electrical business over the past several months, bringing a lot of the bitrates in good experiences that he had that led to the success in their power business to our electrical businesses.

And I think he's looking forward to share in some of those insights with you next month.

So let me turned out to some of the highlights for the fourth quarter and key takeaways.

And I'll start on page three of the presentation.

Yes, most of you recall recall it was almost two years ago, we discussed the target of generating 500 million a free cash flow by 2020.

We're certainly pleased of essentially delivered on that target a year earlier than we previously anticipated.

I will walk you through some of the drivers of that strong free cash flow a bit later, but the bottom line as we do believe weekend to sustain the strong conversion level into 2022 and expect to continue to grow off of the space as we continue to focus on our working capital.

One of the many benefits of the strong cash flow is that we get to deploy cash to generate attractive returns for investors and we did that through to bolt on acquisitions, those who have followed us for a long time, though that this is a key aspect of our strategy and we're excited to be in the market with a strong balance sheet.

No we turn to the end markets trends here remain mixed.

Our transmission and distribution continues to stand out strong growth driven by ongoing investment on our large utility customers in hardening in upgrading the grid.

But on the electrical side trends were soft exiting the year most of which we had expected at contemplated.

And talked about.

Last quarter in our guidance.

What we still dealt with some pockets of weakness and uncertainty, which bill will talk about in a couple of slides.

On the margin front, we remain effective and actively managing price costs across the portfolio, which is driving margin expansion despite accelerated investment in restructuring to optimize the footprint and improve productivity.

We expect this restructuring activity to generate significant productivity savings over the next several years.

And drive ongoing margin expansion.

Finally, we're initiating for your guidance for 2020 will walk you through those details later, but we see another year of solid earnings growth and cash generation on fairly modest end market expectation.

Importantly, the drivers of our performance. This year are mostly within our control. So we havent high degree of visibility and confidence in our ability to achieve our targets.

All other.

Complishments in the quarter and our electrical segment.

Yes, I would like to talk about Burndy introduced a new Patriot crimping tool with a new ergonomic design and track trace transmit technology, which uses an onboard GPS chip.

And Bluetooth connectivity, the capture and map daytime and location to occur while storing the data in the tool and also transmitting it to the cloud to allow customers to generate customer for us and on the commercial industrial businesses. They introduced new family of products called jump charge, which is a kiosk designed for hospitality foodservice net.

Location markets allow customers the ability to recharged or electrical devices for rental fee, but what's different thats using portable charging devices.

Just two points of innovation and I think thats an area that.

We look forward to talking more about it at Investor day, So with that let me turn it over to build to give you some of the details on the fourth quarter in the year. So thank you Dave and good morning, everybody. Appreciate you taking the time to join us here.

Dave I'm going to use the slides to guide my comments and I'm starting on page four just the overview of results of 1 billion one of sales.

Operating margin adjusted OEP margin of 14%.

An increase of 70 basis points.

Adjusted diluted EPS of $1.91, which is.

Seven cents increase over prior year, and Dave mentioned, the strong free cash flow hundred 85 million in the quarter and and nearly 500 million for the year.

Let's dig into the markets and the sales performance on page five.

See at 1 billion won.

Thats, 4% below last year.

I'll remind everyone that when Dave mentioned that we've been selling and buying businesses. So we sold our high voltage test equipment business based in Switzerland, and that that cost us one point.

In sales growth. So the organic is highlighted here at 3%.

And essentially the lions share of that.

Is the impact of Lightings challenging quarter on volumes.

So on balance the rest of the company is actually quite flat and so I'll walk through now kind of the individual end markets and show you that we're really starting to see some bifurcation between our some of our electrical facing markets versus our utility facing market. So starting with the electrical side.

Right and where we're seeing some of the softness.

On the oil end markets, which is where our harsh and hazardous businesses face.

Worse, we saw double digit declines in the quarter on heavy industrial we also saw high single digit declines there.

And in renovation relied on our lighting business also saw double digit softness there. So those are notable points of weakness and there is quite strong contrast to the electrical transmission and distribution.

End markets, where we're seeing very strong growth.

Transmission, a little bit stronger than distribution right now, we see our customers in those markets continuing to make upgrades and harden their grid in their infrastructure.

And continues to.

Provide a very good underlying source of growth so with that organic of minus 3% sales, let's turn towards how our earnings performed and I'm going to page six starting with our adjusted operating income you see flat dollars year over year.

Sure.

Supported with a 70 basis point.

Margin expansion to 14% in the fourth quarter.

Really this is the result of two pairs of offsetting drivers that I wanted to walk everybody through.

The first set.

Was a benefit that we earned from Brean granted some tariff exclusions on a very narrow amount of skews.

Those exclusions provided us approximately a one point margin tailwind.

And we reinvested that one point in incremental restructuring in the quarter, which is going to benefit future earnings through cost Takeouts.

The second pair of drivers.

We more than offset the decrementals from the lower volumes that we discussed on prior page with highly effective price cost management.

That price cost management.

Has been.

A trend that we've been discussing with you throughout the year.

This this tariff exclusion is a new dimensions, so it's worth.

Quick comment.

As Dave described.

As we started the year.

We are managing our tariff headwinds primarily through price, but we're also focused on supply chain realignment as well as vendor management and in this quarter, we're able to deploy the tool of approaching the U.S. trade Commission, both directly and through our.

Situations with industry groups.

And got some very specific skews excluded.

From our tariff calculations.

And the result of that.

That was reduction of expense in the fourth quarter that will largely repeat next year and so we'll have comparable tariff expense in 20 versus 19, but will create so for the full year quite a comparable picture.

In the fourth quarter essentially in 19 that benefit was all concentrated in being recognized in one quarter.

On the right side of the page, you'll see our adjusted earnings per diluted share. The dollar 91 is a 4% increase or seven cents over last year.

The higher LP give us a couple of pennies and lower effective tax rate and lower interest expense.

Gave us about a nickel tax rate on adjusted basis in the fourth quarter this year of about 21.3%.

Free cash flow that Dave mentioned, helping us reduce our debt that we took on associated with the acquisition of a Clara and is getting us a lower interest expense.

So we'll take those.

Performance and disaggregated into our two segments and on page seven let's start with the electrical segment.

You can see sales down 7%.

This segment is where the divestiture of high voltage test equipment was located so the on the organic side, you see roughly 6% decline.

$618 million of sales generated.

The areas of note.

Weakness lighting.

In double digits.

Heavy industrial and the harsh and hazardous serving oil markets.

Those.

That weakness in those three areas really masking some of the growth that we experienced on our connectors in grounding business as well as in our wiring device business.

And on the performance side, we overcame that volume decline with 80 basis points of margin expansion to keep the dollars of Opie essentially flat.

And Thats the story that we told them.

Overcoming the volumes in the higher investment in restructuring with.

The tariff exclusion and the price cost benefits.

Page eight talk about the power segment.

And you will see 2% sales growth to $485 million.

And an increase of 20 basis points of margin to 15.4% to drive a 3% increase in adjusted operating income to $75 million I.

I think it's worth Disaggregating, the two components of our power segment between the legacy power systems business that draw more familiar with where we grew at mid single digits versus a Clara which declined at mid single digits. So you see that add up and an offsetting dampening effect.

On the overall sales growth.

But also of note that 20 basis points of margin expansion.

Was achieved including investing in extra point in higher restructuring and so that price cost manage improving to provide the extra lift to drive that margin expansion I think it's worth a comment on a clara.

Just because of the lumpiness of their business the quarter at down mid single digits feels out of step with what we've been talking about and so I think adding a little more context is helpful. For the two years now that we've owned Clara.

The business has grown double digits and it grew mid single digits in 2019, and our outlook is for it to continue to grow healthily in 20 and beyond.

The mid single digit decline is largely.

Attributed to a very difficult compare in Q4, when they had very very strong growth back in the fourth quarter of 2018.

When we look at their sequential sales throughout 2019, it hasn't quite normal seasonal sequential look I think it's worth commenting as well that beyond volumes have declara, we're quite focused as well on growing specifically the am I in communications portion of that business and it was good sign.

The order growth in the fourth quarter, there as well as we're seeing some progress with some customers on advancing the future growth of that business that we think as a multi year story to it that were quite looking forward to.

I think it's also helpful because that fourth quarters got quite a few moving pieces in it to step back and on page nine really look at the full year results.

And you'll see net sales growth of 2%.

Approximately 4.6 billion.

The growers for the full year.

Our connectors in grounding business, our natural gas business and our power systems business, all up mid single digits.

On the declining side harsh and hazardous.

And the lighting business dampening some of that growth a little bit.

I think great to see the operating leverage throughout the business, so 2% sales growth, resulting in 4% operating profit growth driving 5% earnings growth and double digit free cash flow growth.

Those are trends, we'd like to continue.

The operating profit outgrowing sales, obviously coming with margin expansion of 30 basis points. That's all in the gross margin through price cost management.

And of note you will see we refer to the restructuring and related spending that we did last year versus this year.

Good day was mentioning kind of a doubling of that investing that we did.

And so able to expand margins and invest in next year's and beyond margins I think.

A really good sign.

On the on the restriction on the restructuring front.

It's just worth commenting that.

The majority of that 37 million was in footprint realignment.

And.

I would say about a quarter of it.

Invested in some head count reductions the fourth quarter softness in sales.

Required us to to reduce headcount.

And again invest in next year's earnings.

The result of that we see as ultimately driving.

About 15 million of savings next year from that 37 of spending this year.

Two and a half year payback, we think is attractive paybacks.

An important for us to keep investing there the free cash flow is also worth commenting on we obviously had higher opie roughly comparable amount of capex.

And so the higher ARPU is complemented with some working capital management, most notably on the receivables and inventory side.

That cash flow, obviously helps us restore our balance sheet post borrowing for a Clara and page 10, I think is a good outcome of that where you'll see that we'd essentially been.

Digesting and integrating the Eclair acquisition for the past seven quarters.

And.

As our balance sheet got de lever down to the two times.

Debt to EBITDA neighborhood, I'm very happy that we've been able to.

Jump back into the bolt on acquisition.

Part of our value proposition and just noted here to two acquisitions made in closed in the fourth quarter. The first is Ken Tiga, which is inside of our power systems business and asset protection company.

Trades under the name Green jacket. So you can see the pictures there of custom fit covers that helped us sub stations perform.

Against Wildlife and other environmental incursions.

Off to a really great start really happy with that and the athlete name connector products Inc.

Fits inside our connectors and grounding.

Business line, you see a picture there of the wedge tap and also do spices.

Noteworthy about the product line is it's easy to install doesn't require any specialized tools, so really complements our existing business. These two businesses both being.

Very high margin above average for Hubble averages and so deploying kind of the sales proceeds from a high voltage business.

Into these high margin businesses, plus some extra cash flow. We think is good good value creation for the future and you'll see when Dave talks about.

Our outlook, you'll see some contribution from these two deals so with that Dave I'll turn it back to you to cover our outlook for 2020.

Alright, great. Thanks Bill.

On Slide 11 talk first about the end markets and our outlook there.

When we look into next year, so continue to see some mixed trends.

Our end markets few puts and takes.

Netting overall to modest growth.

Starting in the upper right, our electrical TNT continues to be a strong market up 3% to 4%.

Continue to see strong demand in that environment.

Good solid growth.

Even off difficult compares.

The residential market.

Two to four.

Market indicators more recently have gotten positive more positive and we're pretty confident and being able to deliver some nice will your.

In 2020.

The non residential we've got to that 1% to 2% continue to expect growth and non residential construction.

But this section of Pie chart also embeds, what we anticipate the be some continued softness on the red renovation side of lighting.

Which could last for the first half of the year.

Industrial.

Thats, plus or minus 2% market softened through the back half of 2019, particularly on the heavy industrial we haven't yet seen signs of a material pickup.

So our base case is plus or minus a couple points with the heavy industrial remaining softer.

Industrial holding up.

On the oil side.

Now, it's plus or minus two markets are weak throughout 2019, I think oil prices come down.

Machine somewhat stable for now off the low levels.

With some smaller project activity, but no signs of an inflection.

So that will continue to be a challenging market gas distribution, plus 1% to 3% market drivers remain strong.

We expect some moderation from low single digit growth after a multiyear period of stronger.

So turning to slide 12, so all that turns to our guidance, where we expect all of that to contribute net sales growth of 1% to 3% for 2020 bout lie with our expectations for modest end market growth.

The acquisitions that bill talked about on the fruit the previous pitch.

Expected to fully offset the divestiture of the hastily high voltage test business texture at least on the volume side.

We expect 2020 adjusted earnings per share to be in the range of $8.50 to $8.90.

And this includes a another 40 cents of restructuring investment.

We're seeing good returns on our footprint projects that we started in 2019.

We expect to continue to invest here, yes, I think that next year, maybe with our current footprint.

Maybe the last year at the 40 cents range obviously.

M&A activity would bump that up.

As we would invest more in rightsizing.

New entities coming in.

The restructuring that we did this year in fact go measure we expect 15 million of incremental restructuring savings next year ahead of our initial expectations.

And on the free cash flow front spect, another year of strong cash generation.

At 110% of adjusted net income.

As we continue to effectively manage our working capital.

So turning to slide 13, you put all those together in draft form we just talked about the modest contribution from volume growth.

While we also see significant tailwind from our restructuring initiatives reporting Tony.

We also see some modest DBS tailwind from M&A, despite our expectation for the neutral sales impact as we've traded lower margin business for the higher margin business through our active portfolio management.

Below the line, we see tailwind from lower interest and pension expense, partially offset by a slightly higher tax rate.

And finally, if theres a couple of non fundamental headwinds from a couple of sources first as Bill noted the tariff exemption. We received is ongoing benefit lowers our run rate cost basis.

But some of that related to cost incurred in 2018 that doesn't repeat small piece, but it's something that were we'll deal with.

Second we made a decision as a company with our board.

To change the timing of our long term incentive grants from the fourth quarter to first quarter really to be a practice more prevalent.

Across the marketplace, you are somewhat out of step and doing it late year.

Results, what that means that in the first quarter of 2020, but we have cost associated with that typically be and in the fourth quarter certainly the fourth quarter impact was offset by higher short term incentive so there's really no benefit in the fourth quarter, but instead of having the costs.

Typically would be in the fourth quarter.

It will be in the first quarter. This year of a dime, so thats going to affect our calendarization sort of make sure that we had that out there.

So with that.

We're all this is going to net to our midpoint of 7% earnings growth off relatively modest volume equation, which we think as is a good start to the year.

And we look forward to doing.

Doing this or better.

Similar to what we saw in 2019.

So with that let me turn it over for some questions.

Operator.

Thanks.

Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one can you on your telephone if your question answered earlier this year with your cellphone Mickey Please press the pound.

First question is from Jeff Rock from vertical Research partners line is open.

Good morning, everyone or a good.

Morning.

Take a little deeper into the utility side of the equation.

And.

Typically kind of the clear versus the base business.

I just want to Clara Theres been.

Some chatter of kind of am I deployment delays out there I was wondering if that was either part of the issue in the quarter or does that in any way affect your outlook.

And obviously you didnt have a clearer than the organic base last year, but can you give us an idea of the the magnitude of the comp you were going against in this particular quarter.

Yes, Jeff so.

Starting with the comp it actually grew.

50% in the fourth quarter last year, so very dramatic.

Dramatic growth last year in and a testament to some of the lump lumpiness of of the projects that they work on as far as.

The regulatory items.

Not things that affected us in the quarter, we did enjoy some am I order strength in the quarter and does not.

Affect our medium term outlook either.

Or maybe you want to add some color, yes, good morning, Jeff.

On the question specifically on the am I delays.

Delays in regulatory approvals are common in the industry.

These are generally very large and complex projects, both technically and commercially.

The degree of regulatory difficult can also very significantly.

So the geography as these are often said state and municipal levels.

So while there are certainly maybe references in the market.

We are really not seeing evidence that the overall regulatory landscape has changed we do encounter the delays ourselves in our business.

We don't not see them to be material for us right now and certainly for us geographical diversity helps us dusted multi utility. So we serve both the IMU as well as to go up and Municipals and we also serves both electric gas and water. So it so it's pretty.

Spread that can help offset some of these lumpiness that you can see what some of these larger products that are subject to regulatory.

Scrutiny.

Could you also speak to the a clear a backlog you had a big starting backlog when you acquired the company have you been able to keep that popped up along the way or.

Are you actually drawing on backlog now.

Yet that backlog was certainly shift as some of these larger projects going on an off but fundamentally we still have the backlog sales a little bit short of that billion dollars that we had talked about.

Importantly, though what we look at SSD qualified pipeline and that we're actually seeing growing right now and we feel we're very well positioned to realize this growth.

We had recent wins with our RF synergize am I platform, including a major utility costs go up as well as a couple of pilot programs that we've launched with large I'll use and this gives us confidence that we are well positioned to serve the significant opportunity in the next several years really the Io you can.

The most up great first generation and mine systems due to the next generation.

Great and just one other if I could just in general I am sorry, if I missed it in the.

In the opening remarks, but what are you anticipating in your guidance for to kind of the carryover benefits from the restructuring actions you took in 2019 and any benefit that you might get from the planned 2020 actions.

Yes. So we think we've got 15 million of benefit Jeff of real savings in in 2020 that are coming off the spending that we've done recently in most of that.

Was from.

Investment spend in 19.

Okay, great. Thank you.

Next question from Steve Kinsey from JP Morgan line is open.

Hi, Good morning, Dave Good morning, Bill This is actually path and then on for Steve Tusa. Thanks for taking my question.

Just curious on the end markets for the fourth quarter, what did they would it what did they look like from a growth perspective versus the 1% to 3% you expect for 2020 and and then along those lines. How do you expect the profile to look first half versus second half.

For this year.

For the end markets.

Yes, so the end markets.

Netted out X lighting to be very flat in the fourth quarter.

And.

We're expecting that to be in that 1% to 3% range for next year, and so I think you're right to point out.

That we do anticipate having some easier compares in the second half versus the first half as a result to that.

Is there anything from a first quarter perspective, we should be aware of other than the incentive comp that could you said at the time of peddling anything else for the first quarter wish dealer.

I don't think Theres anything that stands out specifically.

I do think that.

So some of this lighting volume can can carry into some softness on the electrical side I think we'd expect.

The utility strengths to carry through and so.

I think despite.

Despite that headwind from the LTL.

I do think we should be able to grow earnings absorb that and grow earnings slightly in the first quarter year over year.

Okay, and then follow up on Jeffs question that I don't think you answered this part of it.

Not even sure yet, but what's your expectations for Clara growth in 2020 versus.

PD business I think you said, 2% to 4% for the end markets just curious how those two parts and power shake out versus one another in terms of the guide.

Yeah, we're expecting a clarity to be able to grow mid mid single digits.

Okay. Okay, Great and then one last quick one for me what once prices in the quarter urea contribution to revenue.

Yeah, we got a couple points.

Price.

Okay, great. Thanks, a lot.

Right.

Next question is from Nigel Coe from Wolfe Research line is open.

Thanks, guys good morning.

Morning, either yeah, Patrick just my questions and so.

Okay.

Yes.

So going back to the cloud so just to just because obviously at a very tough comp in the in Fourq. So you expected growth would be back to growth in one Q and then the comments on the corporate backlog still.

How did the about looking kind of coverage, both 2020 compared to last year's thing.

Yes, so theres really two components of the funnel that gerben was referring to right.

The very near term is the backlog and then if you go slightly farther back you get into the pipeline and so as Gerben was saying the activity at the front end of that funnel on pipeline continues to grow.

And then what enters into qualified backlog.

That can get consumed or added too.

Depending and so I think where.

The near term backlog.

Is down just a little bit.

But it certainly does in.

Our expectations.

For 2020 or beyond.

Okay and the one key thing you think back to growth among Q, I mean that put to bed appointment.

I think we've got we've still got a tough comp in the first quarter for Claire and then I think the remaining three quarters will be where we see the growth.

Okay and then the performance in electrical during the quarter I think you said flattish across your markets ex lighting, so lighting, obviously down kind of.

Mid teens would that be the right number.

Little bit less little bit less than that but double digits. Yes, yep. Okay. Can you just talked about the impact of channel inventories.

Not just the lighting, but across the spectrum that and what's your perspective in terms of where they can be sit visiting them levels.

I didn't understand what questions, what Ed channel inventories says well expense that we step in still suffering from channel headwinds.

Inventory headwinds.

Yes, I mean, I think that that at the beginning part of the year and with some of the tariffs and the pricing that was going in Nigel I think you're right to point out that we thought there was probably some build up in the channel of inventories.

And.

There is evidence of some of that persisting a little bit but.

That sounds almost like an excuse Nigel so I think I think we feel that thats straighten itself out for the most part yes, I think the the other side of that is going into 2019, I think the channel was a little bit more cautious.

And was concerned about a downturn, we had a lot of conversation that tariffs were going to cause recession, and therefore, they wanted to get their inventory levels down.

And the conversations that I've had with our general partners.

Generally optimistic.

Positive bond on 2020.

So I think that that has taken a lot of that pressure.

At least broad.

There's still pockets of of those who might.

Want to be shifting some of their inventory and getting the same focused on cash flow that.

We have but.

I don't see anything in there that's meaningful.

Great and is a quick one on pricing two points of price simply by strong how does that look in 22, and you think you still get put that price.

Yes, I think as it wraps around Nigel it'll taper off.

And so.

We're not not expecting that to be a steady state of two points of price.

Okay. Thanks.

All right.

As a reminder for participants please limit to one question and one follow up to give okay.

Thank you.

Your next question.

From Deepa Raghavan from Wells Fargo Securities line is open.

Hey, good morning.

[music].

Question on your residential market expectations, I mean, your expectations at 2% to 4% end market.

Better than this time 19.

That's fair to 1%.

That end market as lighting business in there as well and I mean, just curious how you're thinking about how would how the lighting business trends in fiscal turnkey and how residential.

Rest of residential lakes lighting accurately feedback that sort of 4% expectations.

Well I think that first of all the residential component of our business is substantially lighting. So that's that's the big driver to it as.

As you know a lot of that you know sort of a positive.

Outlook is based on.

Housing starts and I think most recently at the.

Homebuilder show, the a really positive sentiment.

On homebuilders.

But for US obviously that as a little bit of a lag do it we're typically a two quarter lag to the starts so I think some of that we'll we'll start to see its way through to the business in the second half.

Of this year so.

All right. So you are expecting lighting to do better.

Okay all right.

It is my follow up with a.

On your.

Your price I mean, you said, it's 2% of price guiding Q4 fiscal 28 delay launch can you got it. Thank you are guiding to 2% of price in most of that was in markets, where I just wanted to 2%.

Mark So you want me an expectation does still flattish within your end market expectation this year versus last year as well is that right.

No I'd say, our end market volume expectations are mostly a volume expectation it encompasses very little price.

Just kind of their app.

Okay got it so it's one of the puts and end markets dust, which comprise well and.

I don't think about it.

It's not plus 2% price reset pricing wraparound is limited.

That's.

Right.

Got it thanks, so much.

Okay.

Next question is from Robert Mccarthy from Stephens. Please.

These open.

Good morning, everyone.

On the strong execution on cash.

I guess the first question I would have is.

Just around lighting more of a broader question.

Clearly this is a business that you've been invested in acquired over the last 20 years, I think starting with LLC a background too.

But over the course of time its theres been a lot of promise for the business for a variety of reasons, but right now it seems you've had a competitor sell the business I think you've had some leadership lead the company to run a different lighting business, what's kind of the state a place for TG place for that business going forward for you and do you.

Thank you have to have a higher bar for return profile for a business and would you consider.

Some form of separation or divestment.

In the near term.

A lot in there, but you know we.

We go way back so we share the history on this.

Certainly a lighting business lighting business is always been challenging and nothing changes nothing's changed there.

I think we've done some good things to.

Continue to improve that business. There is a level of frustration that I certainly have because the market is tough.

But I think that some of the things that we've done have strengthened that business and its well position to continue to improve.

I think we've made some some of the management changes.

Have allowed us to do some things differently.

I think we're going to be prepared to talk about some of those things.

Next month.

At Investor Day.

You know, but it certainly you know is is not one of our higher margin businesses.

Yet.

It's still providing a decent return.

And I think it's adding value to shareholders.

I think you know as with all the businesses, but certainly with the changes going on in the lighting industry.

You know if there was that opportunity to create shareholder value that was.

More valuable for for us than.

Running it.

Always has to be considered.

But right now we think it has a lot of.

Opportunity to continue to add value and to improve.

And so we're going to continue to do that.

Okay, turning to probably a more attractive topic, which would be the solid outlook for transmission and distribution spend and.

Looking at long term growth rates in growth rates as a whole it sounds like the traditional legacy business is very well positioned.

For continued growth and the more and why smart metering certainly hasn't rate.

Runway for growth, maybe in a market basis, a little bit lower than that it does but I guess from your comments, you're actually suggesting aclaris going to grow mid single digit. This year now that there should be some penetration with some.

So with some I'll use and probably.

Some secular growth tailwinds with a clear up but I.

I mean, despite the fact that you already have 3% to 4% growth. There do you think it was even you know upside to that number do you think you could be growing given the trends that you're seeing now in mid to high single digits or a sustainable growth rate over a longer period of time in other words do you see.

The potential for an inflection point there for growth over over a three to four year period.

Yes, Rob I say, yes, we do.

Remember what Weve said is particularly on a on my it's a much longer sales cycle.

It's a little Lumpier.

Getting the acceptance of.

The am I systems takes time the good news is that we've had some good success, there and with proven capability with them.

Meaningfully sized utilities that provides a sound basis.

For on a run rate basis, you certainly I think we could see mid to high single digits overtime, but you know as Gerben mentioned, it's a lumpy business because it's that Scott that project orientation.

Until you get a broad enough portfolio that makes that you know sort us move out.

We're going to see that but certainly I think there's a really good upside in the future based on the investments being made.

Thanks, Rick.

Okay.

Next question from Josh.

From Morgan Stanley line is open.

Hi, Good morning, guys, Hey, Josh.

Just to follow up on on Rob's question on on the TNT space or kind of utilities and large.

We've been in this outsized environment I'm wondering how much of this is kind of catch up for years of underinvestment versus a structural change in the way utility spend money or kind of view the investment cycle. So is there any way to parse out.

How much of what you're seeing today is just.

Kind of making up for.

Kind of decades of under investment versus something it's a little bit more proactive and sustainable.

Well I guess.

Can't argue that no theres been decades of under investment.

And that's a fact the question is what are they that when it comes down to investors in investing in replacing legacy products or is it going to the next level of new technology that that's a little harder to split out and identify which way it's going.

I think what is clear is that you know, there's a recognition of a need to invest more.

And that's that's positive then you know it's positive for all parts of our business. So we want to make sure but honestly that was one of the.

Strategic basis for the Declara acquisition to give us the opportunity and the capability to participate.

More effectively on the automation side.

And that's a I would add to what they should I certainly thing.

Prior.

Under investment in it but the other thing thats, adding to it it's just the integration of renewable so thats certainly putting.

A lot of strain on the existing grid so.

With that utilities are looking for is how to better operating rich.

That they have and maintain and thats, where so many aclaris technology and even more importantly, when we bring together the legacy portfolio, whether Clara that we can help serve that need to modernize the grid and really wrong that written more efficiently.

Got it Thats helpful. And then just one quick follow up for for Bill can you remind us I'm, sorry, if I Miss already how much of the.

The the tariff relief is ongoing versus what was kind of recapture and from earlier in 18 and 19 in the fourth quarter.

Yes, I would describe.

Exemptions as capturing roughly six quarters of activity.

And so.

The majority of that carries forward through 2020, they technically expiring in October. So you. So we'll be recognizing that benefit kind of evenly throughout 2020 and then there's.

About a third of the total that was associated with.

With that actually happened in 18, so thats that would be the nonrecurring piece.

Got it understood. Thanks.

Next question is from Justin Bergner of Gabelli Research Your line is open.

Oh, Hi, good morning, David Good morning, Bill Good morning.

Just a couple of clarification questions.

On the transmission distribution end market view, if aclaris growing mid single digit does that mean that your legacy teen di business in the view towards growing below mid single digit to just sort of average after that three or four three or 4% or am I missing something.

No I mean, you've got it right to the distribution piece if you if you unpack it.

Is about two thirds of our volumes and transmission about a third and.

We've expected that de over the long term has been kind of the grows in GDP line, So I think Josh and and Rob's questions about.

It's doing stronger than that which is some understanding from past and suburban office and some some new automation areas. So I think that.

If you disaggregate those pieces you your got it you've got it right.

The T. indeed part of our power segment is significantly larger than than the Eclair piece. So you can't just average the two growth rate, Jeff to apply a higher waiting obviously to the power systems piece.

Okay, great. Thank you and then on the terrorists piece.

Just to fully understand it you said it expires in October does that mean that.

I guess this two and a half cent per quarter benefit that you will enjoy in 2020 will not repeat come 2021.

Well it would be subject to whether or not the exemptions are re grants that are not in.

That starts to offset in the background noise of how we're managing price cost.

All right Gotcha.

Alright, and then lastly on the restructuring side. So it looks like you expected to come in this year round 40 cents a restructuring, but you ended up around 50 cents in that offset the 15 cents.

Benefit in the fourth quarter is my math sort of in the right ballpark.

We spent.

We spent more than we had planned by about 11 cents.

And that was all happened in the fourth quarter.

Some of which was continued to be footprint realignment that we've been focused on all year and will continue to be focused on some of which was a little bit shorter term head count related.

It was in response to some soft volumes, we experienced in Q4.

Great. Thanks for taking my questions.

I'm showing no further questions at this time I would now like to turn the conference back to Mr. Daddy Memorandum.

Thanks, everyone for joining us and I'll be around all day for follow up calls if anything thank you.

Ladies and gentlemen.

Today's conference call. Thank you again for your participation you may now disconnect.