Q3 2020 Hubbell Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to <unk> third quarter 2020 results call.

This time well pick some clients in a listen only mode later.

Neither but looking back a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference. Please press star zero on your Touchtone telephone.

As a reminder, this conference is being recorded.

Like how to conference over to Mr., Bill Sperry Executive Vice President and CFO you may begin.

Good morning, everybody. Thank you very much for joining us.

Usually we've got Danny to Morocco, kicking off our call and Dan and his lovely bride decided to go to labor and delivery. This morning to hopefully welcome their first child or and so we're going to we're going to be joined instead this morning Vijay pen.

Jayson its second year with Hubble and he's been leading a at PNM for US here and you may know his name or his voice from is some prior lives. He's had an IR. So so Jay will get us started.

Thank you Bill good morning, everyone and thank you for joining US early this morning, we issued a press release announcing our results for the third quarter 2020, the press release and slides are posted to the Investor section of our website at <unk> Dot com.

I'm joined today by our Chairman, Dave Nord every CEO Gerben Bakker and as you just heard our executive Vice President and CFO Bill sorry.

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 consider it incorporated by reference into this call. In addition comments May also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures is included in the press release and slides.

Now, let me turn the call over to Dave.

All right great. Thanks, Jay.

And Oh, good morning, everybody.

I'm pleased to turn this call over to Gerbrand who's going to lead the earnings call I want to just say a few words to close out my tenure as CEO and officially.

Pass the baton on.

You saw our announcement in the third quarter of our long blend thorough succession process resulted in our board of directors they've been Gerber goes the next CEO of horrible.

Along with the rest of the board I'm highly confident that Gerbrand will continue to build on a long proven track record of success on Hubble.

And lead this company successfully into the future.

Carbon so that added a tremendous amount of value for hubbell over the past 15 months in his role as Chief operating officer.

He's been instrumental in continuing to shape, our long term strategy.

Well also leaving or operational transformation and you're seeing the results of those efforts come through in our recent performance.

Carbons also built a strong strong track record in his prior role leading our power systems business.

You know where he delivered strong financial results for our shareholders strong operational and service results for our customers.

And a really strong performance oriented culture, among the employee base.

He also has played a critical role in building our utility solutions platform through the acquisition of a clearer.

But you know Gerben knows his success in the <unk> and Hubble success is really dependent on the strength of the overall team and certainly we've got a great team and I have to highlight that you know there's some really key people. One that you all are familiar with this bill Sperry Who's a very strong finance.

<unk> and strategic partner and will continue to help guide gerben to future success and I know I can speak highly from my own experience in knowing how valuable that role is and how valuable build has been to that.

Well you know Weve also been active in developing new talent, both internally and externally in our organization.

At all levels, particularly at senior leadership, you recall, our recent appointment.

Pete loud to lead or a unified electrical solutions segment as well as Alexey, Bernard as Chief Technology Officer and.

Katrina Redmond as Chief Information Officer.

We also recently promoted from within Hobble, along time and very talented sales executive Terry Watson as VP of customer experience.

And of course, most of you have met Susan Hooper is over the last couple of years and know how much value is she's added in our operational transformation.

So while I'm, certainly going to miss being CEO of horrible and meeting with all of you every 90 days I thought 61 times over the last 15 years is probably enough.

But I'm proud of the leadership team, we've built and I'm confident in Gerbrand and the rest of the teams ability to lead level into the future. So with that let me turn it over to Gerbrand to talk about our our strong results for the second quarter third quarter. Thanks, guys.

Urban great.

Great. Thank you, Dave or for the kind words and I just want to add how honored I am to take this a new position had horrible.

Good morning, everybody.

You know I've seen first hand that what makes this company special our talented people are reliable products and our long term relationships with our customers.

Look forward to building on the success that we've achieved under your leadership, Dave I'm confident that we have a bright future ahead.

Moving to the third quarter I'm going to start my comments on slide three with a brief summary of what was it was another strong quarter of operating performance and free cash flow generation for Hubbell.

We achieved high single digit growth in our power systems business in the quarter, a secular grid modernization trends continue to drive the need for utilities to investing critical grid infrastructure.

We continue to differentiate ourselves in this space with our unique utility solutions platform as well as our reliability and service and we anticipate C and D markets to remain supportive of growth.

As expected electrical markets remained soft in the quarter we.

We saw steady sequential improvement relative to the second quarter, but most end markets continue to see year over year decline.

With a notable exception in a residential lighting business.

Which grew double digits in the quarter, which strength in ecommerce and retail channels.

Our operational transformation continues to pay dividends, but structural savings on the investments, we're making in footprint optimization.

And we continue to execute on price cost, while benefiting from proactive cost control as well as more temporary lower operating expenses.

We continue to generate strong levels of free cash flow with almost 30% growth year to date.

And this cash flow allows us to pursue a balanced capital allocation strategy and generate attractive returns for our shareholders.

In fact, we closed on a couple of bolt on deals in October following the quarter close.

High margin businesses in attractive markets, and we'll talk a little bit more about them later in the India really show.

Looking ahead.

We are raising our guidance for the full year based on strong performance in the third quarter and a higher levels of visibility through year end, particularly in our utility markets and our execution on cost.

Let's turn to page four to highlight our results for the quarter.

You can see organic sales declined 8%.

With demand for utility CND components in our power systems business remaining strong as our utility customers continue to invest to upgrade modernized and hard into grid.

Outside of the power systems, we continue to experience project delays at Declara and generally soft economic activity across most electrical end markets driven by the COVID-19 pandemic, though demand did improve sequentially in the quarter.

Despite the volume declines and similar to the strong operating execution. We've demonstrated throughout 2020, we achieved another quarter of operating margin expansion.

Our investment in footprint optimization continue to pay off with attractive and structural savings.

We realized positive price cost across the portfolio.

And we continue to manage our cost across hubbell as well as benefit from the more temporary lower operating expenses.

From an operational perspective, we're managing through the challenges of depend dynamic effectively as an essential manufacturer our factories are open and operational and while we experienced some supply chain disruption in the second quarter. These have been resolved and we operate it much more effectively in the third quarter.

Our focus remains on protecting the health and safety of our employees, while continuing to serve the customers with the products they need to operate critical infrastructure.

Finally, you'll see another quarter of strong FY <unk> free cash flow generation.

This cash flow not only supports our strong liquidity position, but also gives us opportunity to reinvest into business and deploy capital to our shareholders and bill will give some more color on that later.

With that let me turn it over to Bill to walk you through our results for the quarter in more detail and I'll come back later to provide some insights on our outlook.

Thanks curve and welcome Here's to your next 61 quarter's.

And good morning, everybody.

I'm starting on page five of the slides you hopefully sounds.

And you see the.

The sales contraction of 8% the Gerben highlighted.

But the good news for US is that represents a sequential growth from the second quarter of about 17%, which was really a good to see both a pick up in demand and also the smoothing out of the supply chain disruptions that we experienced in Q2.

Operating profit down, 5%, but up 60 basis points, I think managing to that 10% decremental ballpark, a very successful execution by the operating team.

See the earnings per share only four cents less than last year at $2.30.

Despite 8% lower profit growth well below the O. P line, we had a little bit of favorability in non op as we had lower interest expense and paid off some debt. We also had some favorable tax as our effective tax rate was about 22.3% in the quarter comparing.

Favorable to 23% last year largely on some provision to return favorability as some of the tax rags got finalizing clarified also.

Also I think importantly on the cash flow you see the quarterly amount, 10% below last year at 135 million, but.

But the yellow box to the right, indicating a 29% improvement year to date.

We typically over last five years, we've shown.

On average to have the second half of the year generate about 70% of the free cash flow. So very backend loaded versus this year, a much more balanced than even a much closer to 50 50.

And so the year year to date numbers is well ahead of last year largely as we are offsetting the lower profit.

With better working capital management, and we'll talk a little bit more about that a couple of pages from now.

[noise] one pack now the performance into our two segments and we'll start on page six with electrical.

You can see the challenging demand environment that we're operating in in Threeq, you as electrical sales were down 14% to 591 million.

That sales decline was quite broad based.

The industrial the heavy industrial markets a were the hardest hit but most of the balance of our electrical markets where off there in the mid teens range.

The one exception was residential largely the lighting products, where they saw double digit gross.

Driven by strengths and people doing more renovation spending while that while they're at home.

I also wanted to point out you'll see the point on a net M&A neutral.

Some small amount of portfolio management happening during the year and you'll recall in the third quarter.

Last year.

We sold the Swiss based high voltage test equipment business called he flea and we've bought.

<unk> connector business fitting in with the Burndy brands.

Those to the sales that we sold versus we acquired offset each other but we acquired at much higher margins and so.

Thats, a net gain through a buying and selling within the portfolio.

You see on the operating profit side, a 20% decline $76 million or 12.9% LP margins.

About a one point decline.

Which was really driven by.

The decrementals of the lower volumes and partially offset by effective price cost management.

As well as footprint rationalization.

Page seven we'll switch to.

See the really strong performance turned in by the utility solutions segment really revealing the strength of our franchise strong brands strong relationships with customers.

Large installed base of high quality components, and being essential to helping our customers powering People's lives.

It's important to disaggregate the segment between our legacy power systems, and Clara and they see that Clara was down 16% behaving more like some of our electrical businesses.

Really a function of lumpiness as most of their demand is on large contracts and installations and the rolling on and rolling off can get a little lumpy. They also had a significant access problems.

As a when you get closer to People's homes and they were.

We were prevented from putting in some of the some of the product there. So.

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At the when you when you put your lens back on the Clara, though for the couple of years, we've owned it it's been a nice mid single digit growth, so and we're anticipating that into the future, but the star of the quarter for US was the power systems business.

Up 9%.

Really three drivers to that.

One was secular market gross yeah.

The other was storms and the third was entering the quarter with an elevated backlog.

I think the secular market growth urban referred to really seeing on the distribution side that last mile.

Grid hardening spending on components and transmission needed by renewable spending that are required to transmit the longer distances to get kept the electricity to the customers the storms.

In the quarter added between three four points.

That really does help sales in LP in the quarter, but I'd argue more importantly, really reinforces the value proposition that we've got in our utility franchise, namely offering those quality solutions that really really critical time to our customers to allow them.

To get there.

The lights turned back on and get their revenues Reengaged. So.

I'm really successful quarter for for power systems.

And as a result, the utility solicit solutions operating profit grew 11% to $105 million and breached a 20% O P margins in the quarter expanding by a couple of points and that's really a function of growth.

Very strong execution on price cost.

Good productivity, but.

But also you see the effect of mix so power outgrowing it Clara is nicks friendly and inside of a Clara.

The piece or the lower margin end of the portfolio, which is the installation side is where there's some access restrictions and so on it the combination is to to healthy positive contributor to margin expansion.

[noise] wanted to show you a margin bridge year over year for the third quarter, because I think it's instructive not just on this quarter, but how were thinking about managing the income statement as we go forward. So.

To see that the picture starts at 15.8% in the third quarter last year.

When you see a negative impact of the volume declines decremental effect, there that has to be overcome in order to expand margins 60 basis points.

I'm going to read the green bars kind of right to left and start with with cost benefits. So that's naturally variable expenses that are.

Proven to be Tailwinds in the Cove, it environment things like T any medical and supplies and that Theres, a natural partial offset there between the volume in those variable expenses net.

Next you see price cost, which is something that we focus very closely on managing here in in your out.

You see favorability in this quarter that was helped by the fact that with volumes down yet commodity prices down but that sequentially. We see volumes pick up we naturally we'll expect inflation in the commodity areas, which means as we get into next year, we're going to have to be focused on getting price to manage.

That price cost equation and you know.

The restructuring and related footprint optimization work.

You can see how important that is to our equity story going forward. We anticipate continuing to have this kind of contribution from restructuring and why we've had a multi year program that we'll we'll keep investing in and keep getting very favorable paybacks.

Huh.

So I hope that's a helpful picture.

How we got the margins to expand and how that can relate to the future as we go forward.

Switched to free cash flow on page nine.

See that 29% improvement year over year.

404 million.

Really improving the balance sheet getting our net debt to cap ratio down to about 34% range.

So very healthy to support investing.

This cash flow performance is essentially where creight, replacing reduced income.

With lower working capital needs the largest contributor to the working capital management as inventory, but receivables has also been source. So we worked very hard to as we saw that conditions. The pandemic rolling through starting in March and April to constrain inventory.

These we've continued to service our customers.

But manage that line item closely and it's really help support the free cash flow, which in turn helps support our capital deployment strategy.

And.

I mentioned during earnings we paid back a little bit of debt and you had lower interest expense. So that was the term loan that we use to acquire aclaris. So thats entirely paid off now.

We also have Durbin described closed on two acquisitions in October post close of the quarter.

One was a small product line.

Inside of power systems.

Very high margin product line that were happy to add in the second which you see a detailed here.

It's called Excel tax, which makes antennas and closures that.

Work inside of.

The wireless world and are creating.

Better connectivity and better performance of wireless networks. So common application is to improve cellular reception inside of the building through distributed antenna systems that that you may be all heard about so it's a chance for us to acquire exposure to high growth a very high margin.

Business says that fits inside of the electrical business.

Besides acquisitions and debt payback you also I hope saw last week.

I'm, an increase in our annual dividend by about 8%.

And we also re authorized share repurchase program at 300 million.

Certainly I'm happy to have that.

The authority to do that.

Probably not.

For you to model in 300 over the course of.

The next year or so.

But I think we'll still be tilting our capital deployment towards.

Toward acquisitions, but good to have that authority of course to make those investments in our own stock.

Page 10, we've got a look at our end markets and how they've performed during the course of the year and maybe how they're leaning as we go forward when it started at five o'clock on the pie.

At gas distribution and similar to some of the.

Clara business Weve seen demand there but.

But a lot of our activity is is near the house and even in the basement and so having restricted access has prevented that business from from growing.

The explosion proof devices, we sell into upstream oil continuing to be weak.

Off of off of a low base on the industrial side, we distinguish a little between the heavier side, where applications would be inside of steel mills or a component tree to assist in locomotive production has examples we've seen that the.

So quite soft little more resilient on the lighter side of industrial space.

Read the a clear area of strength for the year I think as people have spent much more time in their homes and they are used to seeing them doing quite a bit of of Renault spending and making that home space.

A more enjoyable to live in so our revenue lighting for example is seeing a much stronger orders both in big box retail as well as through E commerce channels.

And Nonres, we continue to see contraction in put in place ending.

And have a cautious near term outlook.

As we end the year.

But going around past noon to utility space, you see demand really remaining solid on that on the transmission and distribution components and they really think there.

Four drivers that are really helping us we've got an aged infrastructure that really requires modernization and upgrade.

That's proving to be secular here that need leaning towards renewables is causing to.

Demand for transmission on where that wind or solar is being harvested needs to be transmitted the miles to get to where the users are.

I think as well the environmental impacts.

Quite profound on the grid, whether that's hurricane or an ice storm or a fire depending on where you're located.

Seems we're all exposed in some way to these environmental impacts and Thats, placing an increased.

On demand on utilities hardening their infrastructure to be able to interact in environment more successfully and the fourth driver I'd say that in automation.

Which is really important and leads to major savings to utilities that they maintain and repair their grids. It allows for a collection of data communication of data that can become very important in efficiently running networks and that's everything from.

Meter reading too Rick closures that are clearing faults too.

Maintenance and fault detection.

Products and so I think we've seen those those proved to be secular growth drivers that are powering through.

The pandemic environment, so with that discussion of our end markets I was going to hand, it back to government.

Thanks, Bill and I would like to make a perhaps a couple more comments on what what Bill just stated and this is really something that I'm very excited and optimistic about and that is the continued strength in our utility facing markets driven by the secular grid modernization both.

As the economy continues its transition away from fossil fuels and more things get plugged into the electrical grid. This creates the need for new solutions behind the meter ads.

At the meter at the at the grid edge and in front of them either and we've talked about this in our Investor day.

The leader across the energy infrastructure publish uniquely positioned to solve these problems for our customers.

Looks like protecting the electrical or critical infrastructure.

Enabling the transition to renewable energy.

Building, a more efficient than connected great and increasing the energy efficiency of buildings and homes.

And we can do disrupt products and solutions, which were also committed to doing this as part of a manufacturer to our sustainability initiatives weve.

We've said multi year targets to reduce our water consumption and greenhouse gas emission and.

And we also refreshed our sustainability website with new details on these initiatives, we are undertaking and the expanded disclosures around the operation I.

I encourage you to visit our website and look.

Forward to providing you some additional updates on our efforts as we go forward.

Now, let me turn to page 11 [noise].

For an update on our outlook.

Well the my macroeconomic situation remains uncertain, we're confident in the level of execution, we have demonstrated over the past several quarters.

With increased visibility through the year end.

Continued strength in our power systems business, improving market as well as the execution on cost we are raising our 2020 adjusted earnings per share guidance from a range of seven to 725 up to 745 to 760.

From a volume standpoint, we expect the fourth quarter to continue to show improvements.

We expect a similar theme as we saw in the third quarter with electrical year over year volume declines moderating and our utility market is holding up more resilient.

Within utility, we expect power systems, we achieved another quarter of year over year growth, while the decline to declare are expected to continue but moderating levels projects get restarted.

On margins.

We continue to be bolstered by restructuring savings of about 25 million.

Price Boston has been a positive drug 2020, but these benefits should start to fade going forwards.

We also expect the return of some operating expenses, which have rung below normal levels throughout the condemning but we'll continue to actively manage this trade off relative to improving volumes.

And finally as previously disclosed we had a discrete benefit in the fourth quarter of 2019 related therapy exclusions and digital creates some distortion in this year's fourth quarter margin compare.

On cash we expect to deliver approximately $550 million for the full year, representing double digit growth over 2019. Despite.

Despite the declines in revenue among others.

Let me also provide some comments as we look ahead into 2020.

We will provide guidance when we release a fourth quarter results.

But we're in the middle of our planning process right now.

And we're anticipating a year of modest market growth and 21.

We expect our utility facing end markets to remain solid.

While our electrical market should continue to show steady improvements into 21.

On margins there would be a lot of puts and takes but on net we're planning for a year of modest margin expansion with our operational transformation actions continue to provide tailwinds.

To summarize we are very pleased with how those performance and execution in the third quarter delivering margin expansion strong cash generation and essentially flat year over year earnings per share in what remains a challenging environment.

We are raising our guidance for the balance of the year and we remain confident in our ability to deliver differentiated performance for our shareholders over the near and long term.

This concludes our prepared remarks for the quarter and maybe we can ask the operator to operate the line now for questions.

Thank you ladies.

Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one thing you've touched on telephone.

Again that is star one.

If your question has been answered or you wish to remove yourself from the queue.

Suppressed the bankey.

Your first question comes the line of Jeff Sprague from vertical research. Your line is open.

Thank you good day everyone.

Dave enjoy the joined the retirement, hopefully, we'll see you around and Connecticut here and there.

All right. Thanks, Jeff Yeah, all the best.

I Wonder if you could talk about a clear a little bit more bourbon. So your view that the some of the project delays are starting to to wane.

How do we get confidence in that actually if you know kinda Cove. It is still raging and you know you would seem we still have kind of these access issues. So.

Are your customers you know, taking other precautionary actions or something that would allow them to move forward I'm just a little additional color on how you expect this to play out.

Into Q4, and then maybe what the set up is for a Clara into 2021, given you know the comps that you're going to have here.

Right Good morning, Jeff and Yeah. It's it's I think you used to work caution and that's.

Still very much what were seeing with our customers. If you think there's really two phases of of US activity again one is.

Right resuming projects that were put on hold and there is enormous pressure on utility companies to resume there's a lot of fixed cost that they have one to deploy these projects and when you come to a stop like this you don't eliminate all those costs. So certainly utility customers that are in the middle of deployment feel the pressure.

To restart dose so were doing that right now.

I would say, we're doing it pretty successfully but but with a lot of precautions to make sure that you know certainly don't in fact, our own people and the people that that Oh, we go into the homes.

The second area is if your utility and you haven't started the project yet.

There is a tendency to not start for that same reason right. Because once you get started there's a lot of cost that you're deploying and you want to make sure that you don't get interrupt that a a month later so that's why we're seeing a little bit of projects continuing to move to the right. The positive base that we're continuing to see the projects we are continuing to quote on.

Projects.

Our backlog continues to be strong.

So we believe that this is a move to the right as opposed to demands slowing show. So as a result, we do see the sector fourth quarter, improving and we see 21, improving a further.

And separate unrelated can you speak to channel inventories.

You know we heard from Schneider that there is a rebuild going on across their channels, obviously, they're much broader and globally diverse et cetera, but what is going on with the channel and maybe as part of that you know you you noted kind of that price cost will start to narrow.

But are you out with are planned to be out with kind of pricing as you look into the new calendar year.

Yeah, Jeff I think we did see during the second quarter, some destocking happening in the channel and.

I'm not sure we have lots of evidence that that everything's been restock so as current.

Urban I've been meeting with our customers I think there is a.

General Cautiousness, and I think they're happy to have some.

Some of their inventories lower and they're happy to put demands on us to make sure. We can deliver things you know on time.

Especially in vendor managed inventory situation so.

I don't think we've seen a big restock, a yet that has offset the destocking that happened I think we're everyone's kind of playing to see how volumes unfold and.

Ah, yes, yes on the pricing side, you know sequentially.

Certainly I think copper kind of bounced first Jeff right, but steel aluminum coming.

And so I think we felt very.

Very successful through for example, the tariff period working with our customers on on price and I think this will be a new phase, where we have to get it and you're right that that's not that doesn't happen in a week you know that that takes.

Usually.

Several weeks of conversation and planning and working with customers to get that figured out so that there's a process on that underway across various parts of the company.

Great. Thanks, a lot I'll pass the baton.

Your next question comes from the line of Steve Tusa from JP Morgan Your line is open.

Hi, good morning.

What do you see.

Congrats to a cigar again and congrats to Dave as well.

Thanks, Dave Thank you.

So just on the cash flow for next year is it is this year a good base for growth or are there certain things you know that that were you know they're kind of unsustainable in a you know been in a been a down revenue environment, a volatile revenue environment here, yes.

Yeah, I think Steve the two things that I I think it's a difficult level to grow from.

And so I think 19 level is much more.

So the way to think of the right pace. So.

One of the factors that contribute to that the fact that we've had some tailwind from the carriers haul now payroll taxes.

Labels, we suffered slat switches next year tailwind to a headwind.

And the balances or the relationship between as ramp volume back up there.

Requirements, you invest in working capital most <unk> inventory and so the incumbent upon us to kind of manage because they lost huge but but it's.

I don't think of this year's level good point to grow I think we'll be growing offshore to try to try to the leach.

Okay that makes sense and then just lastly on some of these deals and you know kind of carryover and any other kind of carryover puts and takes into next year. I know you guys just talked about price cost of it but any other moving parts next year I'm just that are there may be more mechanical for for the for the deal.

Yeah, I think Gerben mentioned the distortion in the fourth quarter from some of the tariff exemptions that kinda were lumpy as they came through there you know the storms that happened in Q3, it's always storm season. This happened to be an active year.

Hard to know how much of that repeats, but but kinda typical put puts and takes I would say Steve units. So yeah, we'll be glad to that on the opposite side of that is our continued work on the footprint realignment and that should data provide some tailwinds for us into the right ones Mike right. Okay. Thanks, guys.

Yeah.

Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is now open.

Thanks, Good morning.

Again, congratulations David.

Congratulations and enjoy their time and so I think we're all quite jealous about them.

[laughter], Thanks, Nigel [laughter] deftly done your tour of duty them, So I want to come back to price cost because I'm not sure. If the margin bridge is to scale, but it looks like it's pretty well north of the points of price cost benefit. This quarter. So maybe just comment on that and then you know as we go into 2020.

You Wanna feels like steel and aluminum inflation. This is kind of hitting that of my time and that's at the end of the year because of the new year. When you told me put through some price increases. So do you think you can be more proactive on the pricing discussions than you have been a little broader than you wouldn't say 2018, and then on freight you know it's about the same discussion do you normally surcharge free.

To your distributors, if I'm just because of the freight rate so you're running quite hot right now.

Yes, so let's let's talk about you had a couple of pieces to that Nigel so price cost in the quarter.

ER was favorable your order of magnitude is is reasonable.

You had kind of the two effects of we were getting price plus commodities were a tailwind, which that's kind of that happens, but but it's an unusual arrangements so that.

That will be moderating you know obviously as we move forward I think your point on steel aluminum is is exactly right.

And I totally agree with your timing point that.

It's good to be able to have that come up a at the end of the year because a lot of in particularly a lot of the power systems is done.

On blankets and.

And that happens around this time of year, so you're relying on doing that.

I think certainly as tariffs you know roiled us in 2018, we learned a lot.

About how to have the pricing conversations with our customers.

We learned how to share that information make sure they understood where we were coming from an important we really aren't.

In the you know that you have you have to ask and I think we had of traceable experience managing through that.

That tariffs I think we'll apply all that Marty and no cure faith points. Yeah. We typically do not gets reimbursed freights unless there are occasions, a inside of some small in business for example that would be.

Rushed that then maybe customer would pay that typically we do and so it was interesting coming out of some of the disruptions Nigel second quarter I think we found ourselves in the third quarter, you know doing more expedited freight.

Having inefficient mode usage, so maybe maybe a little more LTL rather than truckload, a little too much parcel a little too much express.

Because we are kind of coming out of a disruptive quarter and to keep customer service at adequate levels. So.

I think that as within freight we're looking to kind of re get that mode shift back to favorable mix is thatll come out of it you.

No more normal supply chain smoothly writings by June.

Okay. That's great great color and then my follow on would be that you obviously the outlook for full power systems and 21 beyond looks looks pretty good are you getting from D.C. on on what a stimulus bill might look like and how that might benefit smoking investments and you know specifically how it benefit double any.

Any color there.

Yeah, I don't know that we do have any unique insights to.

Two how stimulus bill.

Might specifically effect I think it will be interesting to see how the next week and what what do we have policy wise rolling down and all of us.

Maybe just just I would add to that.

Good that the independent perhaps a policy there's definitely investment.

In in this area and I would say almost you know neutral of of.

You know what party is Ah is.

In charge, but.

You know, where we believe this business is really well positioned for the check like go grow trenching in renewables and but.

But the but the upgrade and modernization of the grid.

So so we're very optimistic about this this area over the next few years independent pharmacy.

Great. Thanks, guys.

Your next question comes from the line of deeper Ragavan from Wells Fargo Security.

Hi, Good morning, how does your Das <unk>, Hey, first of Dave Good luck and thanks to the leadership officially congratulate broomstick Durbin [laughter] tanks, there looking forward yeah.

Two questions one for government one for Bill Gavin and can you talk to trends in the quarter. A July August September and generally talk through how to better has shaped up so far but.

But also touch upon if any where decode disappointed you based on what you are expecting 90 days ago.

And then I have a follow up about.

Yeah, we certainly are seeing true that periods strengthening and I think that was one of the reasons why we narrowed our guidance range with more visibility and we don't we increased.

Our guide and so I would say some markets have been stronger than others and that I think.

The industrial market, specifically the light industrial markets, we've seen some pretty nice.

Nice rebounds.

Over that period, the one that we continue to be most concerned about even though we have seen.

Sequential improvement as well as on the Nonres.

ER side, so I don't know that I would say that any have surprised or disappointed to us in the quarter.

But perhaps to a smaller magnitude that Ah the granularity of how we look at it but overall, we've definitely seen a.

Improvement in and the reason why not only the comments for the fourth quarter and the full year, but but our view our early view for 2021 and I'll just.

You know steady good that there's still a lot of uncertainty and you know the next three months for US were really engaged with with our teams with our customers to fully understand what 21 could bring with but at this point, we see a slight Ah groats for 21.

Got it thanks built given all the cost actions taken this year should we expect some of your typical annual restructuring of 20 cents, where it should that be lower next year or do you think it continue it. So you can offset some of the temporary costs that potentially could come back next year.

Yeah, I think deep a it's a good question since everyone's congratulated everybody, but me I feel like the booby prize winner here [laughter]. It is.

But I think the cost actions.

You know if you go back to our Investor day, which feels deep a like a lifetime ago. When we were together in New York in the first week of March.

You know our expectation was that there could be some tapering in our restructuring spending you know starting next year. So maybe going from 40 cents down you know to 30 cents maybe.

And I think what we've seen is the spending this year you know we're trying to keep on track to spend the 40 cents.

Some of the actual footprint work is hard to do with people on furloughs you don't have the resources in you know to get the work done and then some of the.

Collars were shifted towards good old fashioned headcount realignment, which has really quick pay off so rather than having that tapering that I think we talked about in March I.

I would anticipate and we don't have our operating plan to present to you all yet we'll do that in January, but but I didn't anticipate a restructuring spending to be more flat next year, because I think there's some.

Projects from this year that we won't get a chance to finish and we're going to want to do them anyway, because they have really nice returns and.

So I think I think our spending.

Well kind of probably maintain that I would think next year.

[noise] maintain a then 40 cents similar to this year, our 20 cents, which is your normalized.

Our 30 sounds like you said no I'm sorry, just one is it yeah, I'm, saying 30 million or 40 cents, which is what we're trying to do this year, yeah and maintain that next year.

Got it the rather than a buyback 20 recur yet.

Got it thanks, so much.

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is now open.

Hi, good morning, all.

Morning, Josh HM let.

Let me just first echo some of the the congratulations out there for off the day and carbon and then Bill I want you to feel left out [laughter] really body in shell. So I appreciate it.

[laughter].

Couple of questions for me not to put too fine a point on it but I think you know the earlier comment on expecting some margin expansion next year, yeah, maybe if I can just get one letter one additional slice on it is.

That is a function of operating leverage or that op margin expansion in a vacuum kind of before the impact of growth.

Yeah, no the growth will be important part of that Josh. So that's why I wanted to show you that.

That margin slide even though it's only for the quarter I think it's instructive. So I think the way we get some margin expansion is.

The Red bar on volume that from now on you know slips to green.

Or some of those cost benefits see any furloughs and temporary action stuff like that that will flip back to read but net of those two.

You know you should be okay, and that leaves you to manage price cost, which was I think two of the question here is were getting at and we agree how important that topic is as as we're at the point in watching.

Materials Reinflate here in as well we've been highlighting the just getting that the restructuring benefits of continued projects. This year. So I think that picture is how how we accomplish it but getting getting volume is a is a good part of the <unk>.

Important part of the story or at least at eliminating you know the red Red and negative.

Got it and then just to follow up on I think you know Nigels earlier question on the lighting made.

Maybe broadening a little bit there can you just remind us you know kind of regardless of anything that happens.

You know on me on the Legislative partner any incentives what do you think the penetration looks like on L.E.D. today and to the extent that we you know we've seen past actions like A.R.A. I think it was like a decade ago is there anything in there on by American and that would necessarily yeah.

Advantage hobble relative to peers, if you were to see kind of the similar.

You know kind of shall for you know for climate or energy efficiency based you know incentives on.

Yeah.

With it given election outcome.

Yeah, I think to the first point on penetration I think we're at a very high level now and you know we're sort of I think in that 85 ish percent range of you know El <unk> sort of the new norm now I would say and in terms of how our supply chain.

As organized versus other lighting manufacturers I don't think there's really much advantage or disadvantage to.

To anybody vis-a-vis.

Terrorists or any trade policy or buying their two site I think I think we would all Ben said, there's a push towards more energy efficient buildings and more clean buildings, you know people spending more on only make the stations, we live and work and you know clay.

Leaner and more efficient I think that would just be more component sales in retrofit work, but.

But but not I don't think any.

Competitive advantage or disadvantage based on supply chain structure yeah.

Maybe just a comment after that well while the L.A.D. penetration certainly has a deep I think an area of growth for this market is lighting controls.

And it's hard to make that Ellie do you like that that are now in buildings and structures.

More more efficient and more effective so that's certainly an area that we're but we're seeing the growth.

In our own business.

Understood appreciate the color thanks, guys.

Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line Snow open.

Thanks, Good morning, everyone and happy 61st days.

[laughter] [laughter], <unk> 59, but I'll be more careful.

We were there for the first one so that's [laughter] [laughter] I had a question on your non res exposure, how you're thinking about the mix of new construction versus.

Maintenance and Renault and you know operating in a downturn the your demand for indoor space, New construction might see some sustained pressure, but maybe the Renault maintenance has some you know tactical tailwinds coming in I'm, just thinking of the range of outcomes may be your content.

Plating for non res markets.

Yeah, Chris I think if you if you took our non resin exposure you can kind of cut it in half.

And half of it is is lighting commerciality lighting product and the other half is.

Wiring and some connector type product so.

I think if you were to start with lighting.

They really gone you know more than 50 52, the rent side and.

And there are some interesting national account drivers of own large and Rob creators of real estate.

Think of quick service restaurants, or big box retailers.

And they can turn on and off large programs all of Renault.

And that can kind of.

You know uncouple I see from some of the.

Non red Dana So there's opportunity and some of that were that to switch on say specifically in waiting on the others see an eye products I think that skews less from Holland or construction and at the same time.

[noise].

That's.

That's I think theres, a still an emphasis on how we sell the product for trying to find those final opportunities and make sure you're getting your share or more than your share you know of that work either by getting to Specifiers right being part of it gets.

Specked in rather than and just waiting to top shelf.

Yeah, Thanks, Bill and I had a follow up on a player you had a you know may be around 80 90 million this year, but prior to co. But I think you were expecting you know some growth after the tough first quarter comp and backlogs hanging in there.

Maybe utilities adapt a little with Cove, it on a quarter to quarter, I mean could that kinda unleashing.

Kind of put up you know very very nice growth next year is that a scenario that's reasonable.

I'd say, it's a possible scenario I think we'll be able to when we give you our outlook in or on our next call will be more explicit about what we see there I think what you're describing is possible yes.

And maybe just a one other comment to add to that is clear.

Clearly, we're seeing the projects move.

To the right there is a constraint in labor availability to put all this in a so so you know I agree my builder there is definitely growth.

Into next year, and there's there's a desire by utilities to continue to invest in this area limiting factor is how quickly can they.

With these systems.

Great. Thanks, a lot.

Yeah.

Your next question comes from the line of Chriss Snyder from U.B.S. Sterling Snow open pit.

Hey, Thanks for the time guys. So my first question just following up on on the <unk>. The comments I'm just previously around Declara. So you guys said you see this is kind of a mid single digit secular growth business and you know my by my math, it's running down double digits. This year. So you know if you could kind of unpack that maybe like 15 ish.

Percent or higher disconnect you know in terms of what we should expect next year how much of that do you think it's really been pushed to the right and how much of that is maybe you know kind of lost or will come on maybe some of your post 2021.

Yeah, I'm, describing a couple of years of ownership, where we had some big ears, right and so that combining with this year to get us to to mid singles and so I think that went when you can get or the installers in two.

And near buildings.

I think you're going to see that return to that level of growth.

I, absolutely think in our conversation with our customers that.

The role of smart meters and communication devices and grid monitoring products that acclaris cells are in quite quite high demand that we're seeing on the components side you.

You know of our business utilities, where it where it's in the infrastructure backbone and they don't have access issues, they're actually willing to spend and to upgrade so.

I think that's taken us to 11 o'clock and.

You know Dan usually comes on at this time and says please call me all up and down.

Dan won't be around so I'm, hoping you can wait a day or two for Dan if there's something burning that you need to follow up on Jay and I will figure out how to how to get back to you. It just may not be as responsive.

And cycle time, but I appreciate your understanding there.

Well. Thank you everyone for joining us on the call today that will conclude today's call. Thank you operator.

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

[noise] [noise].

[music].

Oh.

[music].

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[music].

Ladies and gentlemen, thank you for standing by and welcome to <unk> third quarter.

<unk> results call.

At this time.

Lights in the listen only mode later.

Leader.

I Didnt answer session and instructions will follow at that time.

If anyone should require assistance during the conference.

Its press Star zero.

Telephone.

As a reminder, this conference is being recorded.

I'd now like the conference over to Mr., Bill Sperry Executive Vice President and CFO you may begin.

Good morning, everybody. Thank you very much for joining us.

Usually we've got Danita marotta kicking off our call and Dan.

Dan is lovely bride decided to go to labor and delivery. This morning to hopefully welcome their first child.

And so we're going to we're going to be joined instead this morning Vijay.

Jayson its second year with Hubble and he's been leading a penny for us.

Sure and you May know his name or his voice from is some prior lives. He's had an IR. So so Jay will get us started.

Thank you Bill good morning, everyone and thank you for joining us.

Earlier. This morning, we issued a press release announcing our results for the third quarter 2020.

Press releases like a post to the Investor section of our website at <unk> Dot com.

I'm joined today by our Chairman, Dave Nord every CEO of every Doctor and as you just heard our executive Vice President and CFO Terry.

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, they consider it incorporated by reference into this call.

In addition comments May also include non-GAAP financial measures.

Measures are reconciled to the comparable GAAP measures included in the press release and slides now.

Now, let me turn the call over to Dave.

All right great. Thanks, Jay.

And Oh, good morning, everybody.

Before I turn this call over to Gerbrand, it's going to lead the earnings call I wanted to say a few words the close out my tenure as CEO and officially.

But Todd on you saw our announcement in the third quarter of our long planned thorough succession process resulted in our board of directors neighboring Gerber does the next CEO of horrible.

Along with the rest of the board I'm highly confident that Gerben will continue to build on a long proven track record of success at all.

And lead this company successfully into the future.

Carbon so that added a tremendous amount of value for hubbell over the past 15 months in his role as Chief operating officer.

He's been instrumental in continuing to shape, our long term strategy.

Well also leaving our operational transformation and you're seeing the results of those efforts come through in our recent performance.

Carbons also built that drove strong track record in his prior role leading our power systems business.

Where he delivered strong financial results for our shareholders strong operational and service results for our customers.

Really strong performance oriented culture, among the employee base.

Also played a critical role in building our utility solutions platform through the acquisition of a clearer.

[noise], but you know gerben knows his success and they and Hubble success is really dependent on the strength of the overall team and certainly we've got a great team.

And I have to highlight that you know there's some really key people. One that you all are familiar with as Bill Sperry, who is a very strong financial and strategic partner and will continue to help guide gerben.

To future success, and I know I can speak highly from my own experience at knowing how valuable that role is and how valuable bill has been to that.

Well you know Weve also been active in developing.

Developing new talent, both internally and externally in our organization.

At all levels, particularly at senior leadership, you recall, our recent appointment of Pete loud to lead our unified electrical solutions segment.

Well as Alexey, Bernard as Chief Technology Officer.

And Katrina Redmond, as Chief Information Officer.

We also recently promoted from within novel, a long time, and very talented sales executive Terry Watson SVP of customer experience.

And of course, most of you have met Susan Hooper is over the last couple of years and know how much value. She is added in our operational transformation.

So while I'm, certainly going to miss being CEO of horrible and meeting with all of you every 90 days I thought 61 times over the last 15 years is probably enough.

But I'm proud of the leadership team, we built and I'm confident in Guerbet in the rest of the teams ability to lead level into the future. So with that let me turn it over to Gerbrand to talk about our our strong results for the second quarter third quarter. Thanks, guys.

Urban.

Great. Thank you Dave for the kind words, and I just want to add how honored I am to take this new position at hobble. Good morning, everybody. Yeah, I've seen first hand that what makes this company special our talented people are reliable products and our long term.

Relationships with our customers.

I look forward to building on the success that we've achieved under your leadership, Dave I'm confident that we have a bright future ahead.

Moving to the third quarter I'm going to start my comments on slide three with a brief summary of what it was another strong quarter of operating performance and free cash flow generation for Hubbell.

We achieved high single digit growth in our power systems business in the quarter.

Secular grid modernization trends continue to drive the need for utilities to investing critical grid infrastructure.

We continue to differentiate ourselves in this space with our unique utility solutions platform as well as our reliability and service and we anticipate seeing the markets to remain supportive of growth.

As expected electrical markets remained soft in the quarter.

We saw steady sequential improvement relative to the second quarter, but most end markets continue to see year over year decline would.

With a notable exception in our residential lighting business.

Which grew double digits in the quarter, which strength in ecommerce and retail channels.

Our operational transformation continues to pay dividends, but structural savings on the investments, we're making in footprint optimization and.

And we continue to execute on price cost, while benefiting from proactive cost control as well as more temporary lower operating expenses.

We continue to generate strong levels of free cash flow with almost 30% growth year to date.

And this cash flow allows us to pursue a balanced capital allocation strategy and generate attractive returns for our shareholders.

In fact, we closed on a couple of bolt on deals in October following the quarter close high margin businesses in attractive markets and we'll talk a little bit more about them later in the India really share.

Looking ahead.

We are raising our guidance for the full year based on strong performance in the third quarter and a higher levels of visibility through year end.

Particularly in our utility markets and our execution on cost.

Let's turn to page four to highlight our results for the quarter.

You can see organic sales declined 8%.

Demand for utility CND components, and our power systems business remaining strong as our utility customers continue to invest to upgrade modernize and hard into grid.

Outside of the power systems, we continue to experience project delays that declara and generally soft economic activity across most electrical end markets driven by the COVID-19 pandemic, though demand did improve sequentially in the quarter.

Despite the volume declines and similar to the strong operating execution. We've demonstrated throughout 2020, we achieved another quarter of operating margin expansion.

Our investment in footprint optimization is continuing to pay off with attractive and structural savings.

We realized positive price cost across the portfolio.

And we continue to manage our cost across hubbell as well as benefit from the more temporary lower operating expenses.

From an operational perspective, we're managing through the challenges of the pandemic effectively as an essential manufacturer our factories are open and operational and while we experienced some supply chain disruption in the second quarter. These have been resolved and we operate it much more effectively in the third quarter.

Our focus remains on protecting the health and safety of our employees.

Continuing to serve the customers with the products they need to operate critical infrastructure.

Finally, you'll see another quarter of strong free cash flow generation.

This cash flow not only supports our strong liquidity position, but also gives us opportunity to reinvest in the business and deploy capital to our shareholders and Bill will give some more color on that later.

With that let me turn it over to Bill to walk you through our results for the quarter in more detail and I'll come back later to provide some insights on our outlook.

Thanks Urban welcome Here's your next 61 quarters.

And good morning, everybody.

Starting on page five of the slide you hopefully sounds and you see.

The sales contraction of 8% that urban and highlighted.

But the good news for US is that represents a sequential growth from the second quarter of about 17% which was really.

Good to see both a pickup in demand and also the smoothing out of the supply chain disruptions that we experienced in Q2.

Operating profit down 5%.

But up 60 basis points, I think managing to that 10% decremental ballpark.

The successful execution by the operating team seeing.

See the earnings per share only four cents less than last year at $2.30.

Despite 8% lower profit growth well below the O. P line, we had a little bit of favorability in non op as we had lower interest expense and paid off some debt. We also had some favorable tax as our effective tax rate was about 22.3% in the quarter comparing.

Well, the 23% last year largely on some provision to return favorability as some of the tax Reg Scott finalizing clarified.

Also I think importantly on the cash flow you see the quarterly amount, 10% below last year at $135 million.

But the yellow box to the right, indicating a 29% improvement year to date.

We typically over last five years, we've shown.

On average to have the second half of the year generate about 70% of the free cash flow. So very backend loaded versus this year, a much more balanced than even a much closer to 50 50.

And so the year year to date numbers is well ahead.

Of last year, largely as we are.

Offsetting the lower profit.

With better working capital management, and we'll talk a little bit more about that a couple of pages from now.

We'll unpack now the performance into our two segments and we'll start on page six with electrical you can see the challenging demand environment that we're operating in in Threeq you.

As electrical sales were down 14% to $591 million.

That sales decline was quite broad base.

The industrial the heavy industrial markets, where the hardest hit.

But most of the balance of our electrical markets were off there in the mid teens range.

The one exception was residential largely the lighting products, but where they saw double digit gross.

Driven by strength in people doing more renovation spending while while they're at home.

I also wanted to point out you'll see the point on a net M&A neutral.

Some small amount of portfolio management happening during the year.

And you'll recall in the third quarter.

Last year we.

We sold the Swiss based high voltage test equipment business call, Hey fleet and we bought.

Hi, a connector business fitting in with the Burndy brands.

Those to the sales that we sold versus we acquired offset each other but we acquired at much higher margins and so that's a net gain through.

Buying and selling within the portfolio.

You see on the operating profit side.

20% decline.

$76 million or 12.9% LP margins.

About a one point decline.

Which was really driven by.

The decrementals of the lower volumes and partially offset by effective price cost management.

As well as footprint rationalization.

Page seven we'll switch to.

See the really strong performance turned in by the utility solutions segment really revealing the strength of our franchise strong brands strong relationships with customers.

Large installed base high quality components, and being essential to helping our customers powering People's lives.

It's important to disaggregate the segment between our legacy power systems, and Clara and they see that Clara was down 16% behaving more like some of our electrical businesses.

Really a function of lumpiness as most of their demand is on large contracts and installations and the rolling on and rolling off can get a little lumpy.

They also had a significant access problems.

As.

When you get closer to People's homes in that.

There were.

We were prevented from putting in some of the some of the product there. So.

At the when you when you pull your lens back on the Clara, though for the couple of years, we've owned it it's been a nice mid single digit growth, so and we're anticipating that.

Into the future, but the star of the quarter for US what is the power systems business.

Up 9%.

Really three drivers to that.

One was secular market growth.

The other was storms and the third was entering the quarter with an elevated backlog.

I think the secular market growth urban referred to really seeing on the distribution side that last mile.

Grid hardening spending on components and transmission aided by renewable spending.

Our required to transmit the longer distances to get get the electricity to the customers the storms.

In the quarter added between three four points.

That really.

It does help sales in LP in the quarter, but I'd argue more importantly, really reinforces the value proposition that we've got in our utility franchise, namely offering those quality solutions that really really critical time to our customers to allow them to get there.

He likes turned back on and get their revenues.

Engage so.

I'm really successful quarter for for power systems.

And as a result, the utility solar solutions operating profit grew 11% to $105 million and breached a 20% operating margins in the quarter expanding by a couple of points and Thats really a function of.

Very strong execution on price cost.

Good productivity, but.

But also.

See the effect of mix, so power outgrowing it Clara is nicks friendly.

Inside of a Clara the.

The piece the lower margin end of the portfolio, which is the installation side is where there is some access.

Restriction so.

The combination is to help the.

Positive contributor to margin expansion.

Wanted to show you a margin bridge year over year for the third quarter, because I think it's instructive.

Not just on this quarter, but how were thinking about managing the income statement as we go forward. So you'll see that the picture starts at 15.8% third quarter last year.

Then you see the negative impact of the volume declines decremental effect, there that has to be overcome in order to expand margins 60 basis points I'm going to read the green bars kind of right to left.

Start with with cost benefits. So that's naturally variable expenses that are proven to be tailwinds in the cove, it environment things like T any medical and supplies.

And that Theres, a natural partial offset there between the volume in those variable expenses.

Next you see price cost, which is something that we focus very closely on managing hearing in your out.

You see favorability in this quarter that was helped by the fact that with volumes down yet commodity prices down, but thats sequentially, we see volumes pick up we now.

Actually will expect inflation in the commodity areas, which means as we get into next year, we're going to have to be focused on getting price to manage that price cost equation.

The restructuring and related footprint optimization work.

You can see how important that is to our equity story going forward and we anticipate continuing to have this kind of contribution from restructuring and why we've had a multi year program.

That will well keep investing in and keep getting very favorable paybacks on.

So I hope that's helpful picture or how we got the margins to expand and how that can relate to the future as we go forward here.

Switched to free cash flow on page nine.

See that 29% improvement year over year to.

404 million.

Really improving the balance sheet getting our net debt to cap ratio down to about 34% range.

So very healthy to support investing.

This cash flow performance.

Is essentially where creight, replacing reduced income.

With lower working capital needs the largest contributor to the working capital management as inventory, but receivables has also been source. So we worked very hard to.

As we saw the condition.

The pandemic rolling through starting in March and April to constrain inventories.

We've continued to service our customers.

But manage that line item closely and it's really help support the free cash flow, which in turn helps support our capital deployment strategy.

In men's.

I mentioned during earnings we paid back a little bit of debt and we had lower interest expense. So that was the term loan that we use to acquire Clara So thats entirely paid off now.

We also.

Have durbin described closed on two acquisitions in October post close of the quarter.

One was a small product line.

Inside of power systems.

Very high margin product line that were happy to add in the second which you see detailed here is called excel tax, which makes antennas and closures.

That work inside of the.

The wireless world and are creating.

Better connectivity and better performance of wireless networks. So common application is to improve cellular reception inside of the building through distributed antenna systems that that you may be all heard about so there's a chance for us to acquire exposure to high growth a very high margin.

Business that fits inside of the electrical business.

Sides acquisitions and debt payback.

So I hope saw last week.

An increase in our annual dividend by about 8%.

And we also re authorized share repurchase program at 300 million.

[music].

Certainly I'm happy to have that.

The authority to do that.

Probably not.

For you to model in 300 over the course of.

The next year or so.

But I think we'll still be tilting our capital deployment towards.

Toward acquisitions, but good to have that already of course to make those investments in our own stock.

Page 10.

We've got a look at our end markets and how they performed during the course of the year and maybe how they're leaning as we go forward.

I started at five o'clock on the pie.

At gas distribution.

And similar to some of the.

Clara business Weve seen demand there but.

But a lot of our activity is near the house and even in the basement and so having restricted access has prevented that business from from growing.

The explosion proof devices, we sell into upstream oil continuing to be weak.

Off of off of a low base.

On the industrial side, we distinguish a little between the heavier side, where applications would be inside of steel mills or.

Ponant tree to assist in locomotive production has examples we've seen that the.

So quite soft little more resilient on the lighter side of industrial space.

Read the a clear area of strength for the year I think as people have spent much more time in their homes and they are used to seeing then doing quite a bit of of rental spending and making that home space.

More enjoyable to live in so our revenue lighting for example is seeing a much stronger orders both in big box retail as well as through E commerce channels.

And Nonres.

We continue to see contraction and put in place pending.

And have a cautious near term outlook.

As we end the year.

But going around pass new to the utility space you see demand really remaining solid on that on the transmission and distribution components.

And they really think there are.

Four drivers that are really helping us we've got.

And aged infrastructure that really requires modernization and upgrade.

That's proving to be secular here that need.

The leaning towards renewables is causing demand.

Demand for transmission on where that wind or solar is being harvested needs to be transmitted the miles to get to wherever users are.

I think as well the environmental impacts.

Quite profound on the grid, whether that's hurricane or an ice storm or fire, depending on where you're located.

Seems where all exposed in some ways is environmental impacts and thats, placing an increased.

On demand on utilities hardening their infrastructure to be able to interact environment more successfully and the fourth driver I'd side is in automation.

Which is really important and then leads to major savings to utilities that they maintain and repair their grids.

It allows for a collection of data and communication of data that can become very important in efficiently running networks and that's everything from meter reading too Rick closures that are clearing faults too.

Maintenance and fault detection products and so I think we've seen those those proved to be secular growth drivers that are powering through.

The pandemic.

So with that discussion of our end markets I was going to hand, it back to government.

Great. Thanks, Bill I.

I would like to make a perhaps a couple more comments on what what Bill just stated and this is really something that I'm very excited and optimistic about and that is the continued strength in our utility facing markets driven by the secular grid modernization both.

As the economy continues its transition away from fossil fuels and more things get plugged into the electrical grid. This creates the need for new solutions behind the meter ads.

At the meter at the at the grid edge and in front of them either and we've talked about this in our Investor day.

The leader across the energy infrastructure publish uniquely positioned to solve these problems our customers.

Looks like protecting the electrical.

Medical infrastructure.

Enabling the transition to renewable energy.

Building, a more efficient than connected grid and increasing the energy efficiency of buildings and homes.

And we can do disrupt products and solutions with we're also committed to doing this as part of a manufacturer struck sustainability initiatives.

We set multi year targets to reduce our water consumption and greenhouse gas emission.

And we also refreshed our sustainability website with new details on these initiatives, we are undertaking and the expanded disclosures around their operation.

Encourage you to visit our website and look.

Forward to providing you some additional updates on our efforts as we go forward.

Now, let me turn to page 11.

For an update on our outlook.

While the macroeconomic situation remains uncertain.

Confidence in the level of execution, we have demonstrated over the past several quarters.

With increased visibility through the year end.

Continued strength in our power systems business, improving market as well as the Executional costs. We are raising our 2020 adjusted earnings per share guidance from a range of seven to 725 up to 745 to 760.

From a volume standpoint, we expect the fourth quarter to continue to show improvements.

We expect a similar theme as we saw in the third quarter with electrical year over year volume declines moderating and our utility market is holding up more resilient.

Within utility, we expect power system to achieve another quarter of year over year growth, while the decline to declare are expected to continue but moderating levels projects get restarted.

On margins.

We continue to be bolstered by restructuring savings of about 25 million.

Price Boston has been a positive drugs 2020, but these benefits should start to fade going forwards.

We also expect the return of some operating expenses, which have rung below normal levels throughout the NAMIC, but we'll continue to actively manage this trade off relative to improving volumes.

And finally as previously disclosed we had a discrete benefit in the fourth quarter of 2019 related therapy solutions and this will create some distortion in this year's fourth quarter margin compare.

On cash we expect to deliver approximately $550 million for the full year, representing double digit growth over 2019. Despite.

Despite the declines in revenue in lunch.

Let me also provide some comments as we look ahead into 2020.

We'll provide guidance when we released our fourth quarter results.

But we're in the middle of our planning process right now.

And we're anticipating a year of modest market growth in 21.

We expect our utility facing end markets to remain solid.

While our electrical market should continue to show steady improvements into 21.

On margins there will be a lot of puts and takes but on net we're planning for a year or a modest margin expansion with our operational transformation actions continue to provide tailwinds.

To summarize we are very pleased with how those performance and execution in the third quarter delivering margin expansion strong cash generation and essentially flat year over year earnings per share and what remains a challenging environment.

We are raising our guidance for the balance of the year and we remain confident in our ability to deliver differentiated performance for our shareholders over the near and long term.

This concludes our prepared remarks for the quarter and maybe we can ask the operator to operate the line up for questions.

Thank you ladies.

Ladies and gentlemen, if you have a question at this time. Please press the Star then the number one on your touched on telephone.

Again that is star one.

If your question has been answered or you wish to remove yourself from the queue.

Suppressed the bank.

Your first question comes the line of Jeff Sprague from vertical research. Your line is open.

Thank you good day everyone.

Dave enjoy them join the retirement, hopefully, we'll see you around Connecticut here and there.

Alright, Thanks, Jeff, Yes, all the best.

I Wonder if we could talk about a clear a little bit more.

Urban so your view that some of the project delays are starting to wane.

How do we get confidence in that actually if you know kind of Cove. It is still raging and.

It would seem we still have kind of these access issues. So are your customers you know taking other precautionary actions or something that would allow them to move forward.

Just a little additional color on how you expect this to play out.

Into Q4, and then maybe what the set up is for a Clara into 2021, given the comps that you're going to have here.

Right.

Good morning, Jeff and yes, it's it's I think you used to work caution and Thats still.

Still very much what were seeing with our customers. If you think there's really two phases of of US activity again one is.

Resuming projects that were put on hold and there is enormous pressure on utility companies to resume there's a lot of fixed cost that they have one to deploy these projects and when you come to a stop like this you don't eliminate all those costs. So certainly utility customers that are in the middle of deployment feel the pressure.

To restart dose so were doing that right now.

I would say, we're doing it pretty successfully but but with a lot of precautions.

To make sure that certainly don't in fact, our own people and the people that that.

We go into the homes.

A second areas if your utility and you haven't started the project yet.

There is a tendency to not start for that same reason right. It was once you get started there is a lot of cost that you're deploying and you want to make sure that you don't get interrupted a month later, so thats why were seeing a little bit of projects continuing to move to the right. The positive is that we're continuing to see the projects we are continuing to quote on.

Projects.

Our backlog continues to be strong.

Strong.

So we believe that this is a move to the right as opposed to demands slowing show. So as a result, we do see a.

The second to fourth quarter, improving and we see 21, improving Florida.

And separate unrelated can you speak to channel inventories.

We heard from Schneider, that's a result rebuild going on across their channels, obviously, they're much broader and globally diverse et cetera, but.

What is going on with the channel and maybe as part of that.

You you noted kind of that price cost will start to narrow.

What are you out with our plan to be out with kind of pricing as you look into the new calendar year.

Thanks, Jeff I think we did see during the second quarter, some destocking happening in the channel and I'm.

I'm not sure we have lots of evidence that that everything's been restock so as current.

Urban Ivan meeting with our customers I think there is a.

General Cautiousness.

And I think they're happy to have some.

Some of their inventories lower and they're happy to put demands on us to make sure we can deliver things on time.

Especially in vendor managed inventory situation so.

I don't think we've seen a big restocked, yet that has offset the destocking that happened I think we're everyone's kind of playing to see how volumes unfold and.

Yes, yes on the pricing side.

Quinn Shirley.

Certainly I think copper kind of bounced first Jeff right, but steel aluminum coming.

And so I think.

We felt.

Very successful through for example, the tariff period working with our customers on on price and I think this will be a new phase, where we have to get it and you're right that that's not that doesn't happen in a week you know that that takes.

Usually.

Several weeks of conversation and planning and working with customers to get that figured out so there's process on that underway across various parts of the company.

Great. Thanks, a lot I'll pass the baton.

Your next question comes from the line of Steve Tusa from JP Morgan. Your line is now open.

Hi, good morning.

Morning, Dave.

Congrats to to grow again and congrats.

Dave as well.

Thanks, Steve Thank you.

So just on the cash flow for next year is this year a good base for growth or are there certain things you know that that were.

They're kind of unsustainable in a.

And I've been a down revenue environment, a volatile revenue environment here.

I think Steve the two things that I think it's a difficult.

Level to grow from.

And so I think 19 level is much more.

So the way to think of the right pace. So.

One of the factors that contribute to that the fact that.

We've had some tailwind from the careful now payroll taxes.

David we suffered so that switches next year.

Tailwind to a headwind.

And the balance is the relationship between as ramp volume back up.

Requirements, you invest in working capital most notably.

And so the incumbent upon us to kind of manage those they lost huge but but.

I don't think of this year's level good point to grow I think we'll be growing also try to the leach.

Okay that makes sense and then just lastly on some of these deals.

You know kind of carryover of and any other kind of carryover puts and takes into next year. I know you guys had talked about price cost of it but any other moving parts next year.

Just that are there may be more mechanical for for the for the view.

Yes, I think Gerben mentioned the distortion in the fourth quarter from some of the tariff exemptions that kind of were lumpy as they came through there.

The storms that happened in Q3 is always storm season. This happened to be an active year hard to know how much of that repeats, but but kind of typical put puts and takes I would say Steve units. So can you maybe add to that on the opposite side of that is our continued work on the.

For realignment and that should provide some tailwinds for us into the right one.

Right. Okay. Thanks, guys.

Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is now open.

Thanks, Good morning.

Hi, guys congratulations David.

David.

Congratulations and enjoy for time and so I think we're all quite jealous by them.

[laughter]. Thanks, Thanks Nigel.

Tour of duty them.

So I'd say.

When it comes back to price cost because I'm not sure if the margin bridge.

It's a scale, but it looks like it's pretty well north of the points of price cost benefit. This quarter. So maybe just comment on that and then as we go into 2021, it feels like steel and aluminum inflation is just kind of hitting that for my time and thats at the end of the year because of the new year. When you put through some price increases. So do you think you can be more prone.

Active on the pricing discussions than you have been probably wouldn't say 2018, and then on freight probably seemed discussion do you normally surcharge rates.

Youre a distributor of just because of the freight rate so you're running quite hot right now.

Yes, so let's let's talk about you had a couple of pieces to that Nigel so.

<unk> costs in the quarter was favorable your order of magnitude is is reasonable.

You had kind of the two effects of we were getting price plus commodities were a tailwind which is that's kind of a it happens, but but it's an unusual.

Our arrangements so.

That will be moderating obviously as we move forward I think your point on steel aluminum is exactly right.

And I totally agree with your timing point that.

It's good to be able to have that come up.

At the end of the year.

Because a lot of in particularly a lot of the power systems is done.

On blankets and that happens around this time of year. So your line than doing that I think certainly as tariffs roiled us in 2018, we learned a lot.

About how to have the pricing conversations with our customers.

We learned how to share that information make sure they understood where we were coming from and important we recently earned.

In the you know that you have you have to ask and I.

I think we had a charitable experience managing through that.

Thats fair. So I think we'll apply all that learning and no to your fate points.

We typically do not gets.

Reimbursed rates.

Unless there are occasions inside of some smaller business for example that would be.

Josh that that maybe customer would pay that typically we do and so it was interesting.

Coming out of some of the disruption Nigel second quarter I think we found ourselves.

Third quarter.

Doing more expedited freight having.

Having inefficient mode usage, so maybe maybe a little more.

LTL louder than truck load a little too much part.

Arsenal will too much express.

Because we are kind of coming out of a disruptive quarter and you too cheap customer service at adequate levels. So.

I think that as.

Within freight we're looking to kind of re get that mode shift back to favorable mixes.

That will come out of cash.

No more normal supply chain smoothly running supply chain.

Okay Thats, great Great color and then my follow on would be that obviously the outlook for power systems, and 21 and beyond looks looks pretty good.

Are you getting from D.C. on on what a stimulus bill might look like and how that might benefit.

Smoking investments and specifically, how it benefit Hubble and any any kind of yes.

Yeah, I don't know that we do have any unique insights.

Two how stimulus bill.

Might specifically effect I think it will be interesting to see how the next week and.

What what do we have policy wise rolling down and all of US Yeah, maybe just to add to that.

Good that independent perhaps a policy there's definitely investment.

In this area and I would say almost.

Almost.

We don't neutral of of.

You know what party is.

Is.

In charge, but.

You know, where we believe this business is really well positioned with secular growth growth trenching in renewables and but.

With the with the upgrade in the modernization of the grid.

So so we're very optimistic about this this area over the next few years independent of policy.

Great. Thanks, guys.

Your next question comes from the line of Depot Ragavan from Wells Fargo Security.

Okay.

Hi, good morning.

Hey, first of Dave Good luck and thanks to the leadership.

Officially congratulate drumstick Durbin [laughter], Oh, they're looking for that yet.

Two questions one for Gerbrand, one for Bill given it can you talk to trends in the quarter. A July August September and generally talk through how Tilbury has shaped up so far but.

But also touch upon if any where decode disappointed you based on what you are expecting 90 days ago.

And then I have a follow up the bill.

Yeah, we certainly are seeing through that.

That period, strengthening and I think that was one of the reasons why we narrowed.

Narrowed our guidance range with more visibility and we don't we increased.

Our guidance, so I would say some markets have been stronger than others and that I think.

The industrial market, specifically the light industrial markets, we've seen some pretty nice.

Nice rebound.

Over that period, the one that we continue to be most concerned about even though we have seen a sequential improvement as well as on the non rash.

Side, So I don't know that I would say that any have surprised or disappointed to us in the quarter.

But perhaps to a smaller magnitude that Ah that granularity of how we look at but overall, we've definitely seen.

Improvement in and the reason why not only the comments for the fourth quarter and full year, but but our view our early view before 2021 and I'll just.

You know steady, but theres still a lot of uncertainty in the next three months for US were really engaged with what our teams with our customers to fully understand what 21 could bring with but at this point, we see a slight growth.

For 21.

Got it thanks.

Bill given all the cost actions taken this year should we expect some of your typical annual restructuring of 20 cents, where it should that be lower next year or do you think it continue it. So you can offset some of the temporary costs that potentially could come back next year.

Yeah, I think deep, but good question since everyone's congratulated everybody about me I feel like the booby prize winner here [laughter].

But I think the cost actions.

You know if you go back to our Investor day, which feels like a lifetime ago. When we were together in New York in the first week of March.

You know our expectation was that there could be some tapering in our restructuring spending yes.

Starting next year, so maybe going from 40 cents down to 30 cents maybe.

And I.

I think what we've seen is the spending this year you know we're trying to keep on track to spend the 40 cents. Some of the actual footprint work is hard to do with people on furloughs you don't have the resources in you know to get the work done and in some of the dollars were shifted tour.

George Good old fashioned headcount realignment, which has really quick pay off so.

Rather than having that tapering that I think we talked about in March.

I would anticipate and we don't have our operating plan to present to you all yet we'll do that in January, but but I anticipate our restructuring spending to be more flat next year, because I think there are some.

Projects from this year that we won't get a chance to finish and we're going to want to do them anyway, because they have really nice returns and so.

So I think I think our spending.

We'll kind of probably maintain that I would think next year.

We maintain a then 40 cents similar to this year, our 20 cents, which is your normalized.

Our third it sounds like you said no I'm, sorry, which one is it yeah, I'm, saying 30 million or 40 cents, which is what we're trying to do this year, yeah and maintain that next year.

Got it rather than a buyback 20 recur yes, yes.

Okay got it thanks, so much.

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is now open.

Hi, good morning, all.

Morning, John Josh.

Let me just first echo some of the congratulations out there for off the day and carbon and then Dale I want you to feel left out [laughter] really funny DHL. So I appreciate it.

[laughter].

Couple of questions from me not to put too fine a point on it but I think the earlier comment on expecting some margin expansion next year.

Maybe if I can just get one letter one additional slice on.

That is a function of operating leverage or that op margin expansion in a backend kind of before.

The impact of gross yeah.

Yeah, no the growth will be important part of that Josh. So that's why I wanted to show you that.

That margin slide even though it's only for the quarter I think it's instructive. So I think the way we get some margin expansion is the red bar on volume incremental slips to green.

Or some of those cost benefits see any furloughs and temporary action stuff like that that will flip back to read but net of those two.

You should be okay, and that leaves you to manage price cost, which was I think two of the question here is were getting at and we agree how important that topic is as as we're at the point in watching.

Materials Reinflate here.

Yeah, and as well as highlighting just getting that restructuring benefits of continued projects. This year. So I think that picture is how how we accomplish it but getting getting volume is a is a good part of this important part of the story.

At least at eliminating.

The red Red and negative.

Got it and then just to follow up on I think Nigels earlier question on the lighting.

Maybe broadening a little bit.

Can you just remind us kind of regardless of anything that happens.

On me on the legislative partner on the incentives what do you think the penetration it looks like on that we do today and to the extent that we we've seen past actions like A.R.A. I think it was like a decade ago is there anything in there on by American that would necessarily.

Advantage Hubble relative to peers, if you were to see kind of the similar.

Shall for for climate or energy efficiency based.

No incentives on.

With.

With a given election outcome.

Yes, I think to the first point on penetration I think we're at a very high level now and you know are sort of I think in that 85 ish percent range of the leidy sort of the new norm now I would say and in terms of how our supply chain.

As organized versus other lighting manufacturers I don't think there's really much advantage or disadvantage to.

Anybody vis-a-vis.

Our store any trade policy or buying their two site.

I think I think we would all Ben said Theres, a push towards more energy efficient buildings and more clean buildings you know.

People spending more on components to make the stations, we live and work in cleaner.

Cleaner and more efficient I think that would just be more components sales in retrofit work.

But but not I don't think any.

Competitive advantage or disadvantage based on supply chain structure.

Maybe just a comment that while while the L.A.D. penetration certainly has a deep I think an area of growth for this market is lighting controls.

And it's hard to make that LG lights that are now in buildings and structures.

More more efficient and more effective so that's certainly an area that we're but we're seeing the growth.

On our own business.

Understood appreciate the color thanks, guys.

Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line is now open.

Thanks, Good morning, everyone and happy 61st did.

[laughter].

59, but I'll be more careful.

We were there for the first one so [laughter] [laughter].

I had a question on your non res exposure how are you thinking about the mix of new construction various.

Maintenance and Renault and you know.

Operating in a downturn the demand for indoor space, new construction might see some sustained pressure, but maybe the Renault maintenance has.

Some tactical Tailwinds coming in I'm, just thinking of the range of outcomes, maybe you're contemplating for non res markets.

Yeah, Chris I think if.

If you if you took our nonresi exposure you can kind of cut it in half.

And half of it is is lighting, a commercial lighting product and the other half is wiring and some connector type products. So I.

I think if you were to start with lighting.

We've really gone.

More than 50 52, the rent side.

And there are some in.

Interesting national account drivers.

Of own large and we're operators of real estate think.

Think of quick service restaurants, or big box retailers.

And they can turn on and off large programs all of Renault.

And that just kind of.

You know uncouple I see from some of the.

Non res data so that theres opportunity some of that were that to switch on say specifically in lighting on the others see an eye products I think that skews less from them now and more construction and at the same time.

Yes.

That's I think theres.

Still an emphasis on how we sell the product for trying to find those final opportunities and make sure you're getting your share or more than your share.

Of that work either by getting to Specifiers right will be part of getting specked in rather than.

And just waiting to be plucked off the shelf.

Thanks, Bill and I had a follow up on a Clara yes.

We had a.

Maybe your US 80, 90 million this year, but prior to co, but I think you are expecting some growth after the tough first quarter comp and backlogs hanging in there.

Maybe utilities adapt a little with kogut on on a quarter to quarter, I mean could that kinda unleashing kind.

Kind of put up very very nice growth next year is that a scenario that's reasonable.

I'd say, it's a possible scenario I think we'll be able to when we give you our outlook in or on our next call will be more explicit about what we see there I think what you're describing is possible.

Maybe just one other comment to add to that is clear.

Clearly, we're seeing projects move to.

Right there is a constraint.

Being the labor availability to put all this in a so so you know I have regional builder there is definitely growth in.

The next year and there is there is a desire by utilities to continue to invest in this area limiting factor is how quickly can they.

With these systems.

Great. Thanks, a lot.

Yeah.

Your next question comes from the line of Chriss Snyder from UBI Esterline's now open.

Hey, Thanks for the time guys. So my first question just following up on on the comments just previously around Declara. So you guys said you see this is kind of a mid single digit secular growth business and you know kind of by my math, it's running down double digits. This year. So you know if you could kind of unpack that maybe like 15 ish.

Per cent or higher disconnect you know in terms of what we should expect next year how much of that do you think it's really been pushed to the right and how much of that is maybe you know kind of lost or will come on maybe some of your post 2021.

I'm, describing our couple of years of ownership, where we had some big ears, right and so that combining with this year to get us to a mid singles.

And so.

I think that went.

When you can get a the installers in two and near buildings I think you're going to see that return to that level of growth.

It absolutely taken our conversation with our customers that.

The role of smart meters and communication devices and grid monitoring products that occurs cells are.

In quite quite high demand and as we are seeing on the component side.

Of our business utilities, where it where it's in the infrastructure backbone and they don't have access issues. They are actually willing to spend and to upgrade so.

I think that's taken us to 11 o'clock.