Q4 2020 Hubbell Inc Earnings Call

February 2, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Hubbell incorporated fourth quarter 2020 results call. At this time all participant lines are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

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Like to hand, the conference over to Dan and Amaretto. Thank you. Please go ahead.

Thanks, operator, good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our results for the fourth quarter and full year 'twenty and 'twenty. The press release and slides are posted to the investors section of our website at www Dot Hubbell Dot com.

I'm joined today by our President and CEO, Girvin Bakr, and our executive Vice President and CFO Bill Sperry. Please note that our comments. This morning may include statements related to the expected future results of our company and are forward looking statements as defined by the private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward looking statements and our.

This release and consider it incorporated by reference into this call. Additionally comments May also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides now let me turn the call over to Garvin.

Good Thanks, Dan and.

Good morning, everyone and thank you for joining us to discuss Hubbell fourth quarter results on the Snowy Tuesday morning.

And I suppose if there is such a thing as a positive from Covid is that most of US are still at home and don't have to brief snowing and and difficult commutes at this time.

But before we get to the results for the quarter.

Want to take a few minutes to reflect on our strong performance for the year.

And I recognize all our employees, who made that possible through their tireless efforts and dedication.

The COVID-19 pandemic presented us with considerable and market.

Operational as well as personal challenges.

Our employees consistently rose to the occasion, delivering exceptional performance for our customers and shareholders.

Our first priority through their spend dynamic has always been the health and safety of our employees.

And we implemented a series of safety protocols to protect employees and our plants warehouses and in the field.

We also recognized our frontline workers with bonus appreciation pay for their efforts and provide a generous paid leave policies for all employees.

Our next priority was to continue serving our customers with the essential products necessary for the safety and reliability of critical infrastructure.

Our employees again drove to be flexible and adaptable and maintaining high levels of productivity, while continuing to deliver best in class quality and service that the hubbell brands are known for.

Yeah.

Our next priority was to operate with discipline and maintain strong liquidity for our shareholders and despite considerable and market and operational headwinds as a result of this pandemic. The company achieved full year adjusted operating margins were essentially flat to prior year.

As well as free cash flow generation of $560 million, reflecting 12% growth over 2019 levels.

We accomplish this by focusing on what we could control, including a rigorous drive on productivity along with different disciplined operating expense and working capital management.

<unk> ongoing operational transformation and footprint optimization investments are producing sustainable savings and we expect to continue providing significant future benefits.

While this pandemic is not yet behind us I am confident and our organizational ability to continue to deliver on our promises and commitments to our customers and shareholders.

Now moving onto the results for the quarter and starting on page three.

We see solid performance and our utility solutions segment.

With continued strength and demand for grid modernization and renewables investments driving mid single digit growth and power systems business and the quarter.

As expected, our electrical and market volumes remained soft.

But we saw a steady pickup and momentum exiting the fourth quarter and continuing into January which gives us confidence. These markets are beginning to improve.

Our operational transformation continues to provide structural savings and drive our margin performance, while also contributing to strong free cash flow.

This allows us to invest organically and through acquisition and we'll walk you through some of the ways. We are deploying our capital to increase shareholder value later.

And finally, we're providing guidance for 'twenty and 'twenty, one today and.

And we will take you through that and more detail during this call.

But the overall takeaway and instead, we're anticipating a return to growth while remaining focused on our operating discipline and.

<unk>, managing our cost structure and investing and future growth.

Okay.

Turning now to page four with financial highlights for the quarter.

You can see organic sales declined 7%.

Demand for utility T&D components, and our power systems business remains strong.

Our utility customers continued to invest to upgrade and modernize and hard and critical grid infrastructure.

While our Clara still experienced COVID-19 related project delays.

The electrical markets improved, particularly exiting the fourth quarter.

And.

Adjusted operating margins of 13, 4% declined 60 basis points year over year as a result of lower volumes and the non repeat of a benefit from tariff mitigation and the fourth quarter of 2019, which we previously disclosed.

Excluding the impact of this prior year benefit we would've expanded adjusted operating margins once again and the fourth quarter as our restructuring program and cost controls continue to offset lower volumes.

Finally, we achieved another quarter of strong free cash flow generation to cap off a year of double digit growth through disciplined working capital management.

With this let me turn it over to Bill to walk you through our financial results and more detail Bill. Thanks, Kurt Good morning, everybody. Thanks for joining us we're aware there's a number of calls this morning and.

I'm going to start my comments on page, five which will underscore a couple of points that <unk> made.

You'll see the 6% decline and sales were.

And we're electrical was relatively weaker and power are much more resilient.

And as Gavin noted.

Very significant to us to see the inflection in orders and so really starting in December we started to see orders pick up and turn positive and allowed us to finish a year and with an increased backlog and are encouraged to see the order strength through the month of January.

And where we had orders up double digits.

So.

Really welcome the growth that that.

Predict for this coming year.

And SEDAR sales expands.

<unk> commented on the margins and the impact of the tariff refund from last year.

And also you see earnings per share are.

Down at 8% less and down the.

And the operating profit amounts driven.

Driven by some favorability on the non op side, including some favorable tax interest expense and pension tailwind that helped and.

And helped us a little bit I think on the cash flow side.

The story is in the year, rather than the quarter and.

And we had a 12% increase and the full year $560 million.

Our typical seasonality over the last five years is to have.

About 30% of the cash flow collected and the first half and 70% and the second half this.

And this year was much more balanced at $50 50, So you see.

Negative compare and the fourth quarter, but very good increase for the year.

So I'd like to unpack the results and discuss the two segments and we'll start with electrical solutions on page six.

You see sales down 10%.

Quite broad based across the segment.

Some of the harder hit areas of electrical and included the harsh and hazardous area as the oil economy continues to struggle C&I lighting as well as heavy industrial, whereas we had relative stronger performance out of resi lighting, our wiring device and our connector.

<unk> business.

The order inflection that I described for the whole company was also experienced and within electrical so their December.

Showing and inflection to the positive and then strength.

And to January so good to see a change and the wins for electrical demand.

The margins declined.

<unk> declined to about 10% there at $55 million of O P.

Two thirds of that decline.

Explained by the tariff.

Refund distortion that curve and I had mentioned so about 20% decrementals without this impact.

I did want to draw your attention to the.

And the 1%.

Sales growth that came from acquisitions.

Just because I think it's illustrative of our capital deployment program.

This is a company called connectors products, Inc. CPI and area that we like a lot strong markets and high margins, we acquired it last year.

At a trailing EBITDA valuation of 12 times.

And we own it this year on 2020 numbers at five times.

So quite a good illustration of us, adding a nice bolt on business use our sales force to push the growth and be able to take.

And make costs much more efficient underneath our ownership. So just an illustration there of that of that one point to the acquisition.

Page seven.

And we will look at the utility solutions segment.

And you see a 1% decline and overall sales to $479 million.

If you unpack that.

Our legacy power systems business increased mid single digits that was driven largely by transmission projects, which continue to have.

Some support from the renewables area and the distribution side was strong as well as grid hardening and upgrades to the aging infrastructure continue to be secular trends that are defined.

And the cycle.

<unk> was down double digits continues to have installation delays as their access issues continuing on their projects.

And the Clara business, we're coming up on our three year point of ownership.

They have been a mid single digit grower for us during that three year time, and we see it maintaining that mid single digit growth through 2021.

Excellent performance on the operating profit line, you'll see a 12% increase all driven by margin expansion.

And of about two points to 17, 5% level.

Very strong price cost management.

And the growth dynamics are friendly margin friendly to us as power systems contribute high margins and the parts of a clearer.

The installation side or the lower side. So we've got a mixed friendly growth dynamic there so.

And continuing to see really really strong performance from the utility part of our business and we'll talk later about how it continues to be and area of focus for.

For our investment dollars.

Also wanted to share the full year of 2020 for you on page eight.

And you can see.

Sales down 9%.

Same theme with electrical softer utility and more resilient and theres been steady improvement from the quarters.

And with the real shock from the second quarter third quarter was better than that fourth quarter better than third and now as we said, we're seeing disorder inflection that we think terms as to relative growth next year now this year.

The operating profit margins.

Roughly comparable at 14, 5%.

And we think are managing to the 15% Decrementals that you see indicated.

Shows successful cost management, and we also had benefits from our restructuring efforts, which continue to reward us with savings each year.

And we also had incrementals from power systems growth, which helped us achieve that 15% decremental results.

The free cash flow I had mentioned before at 12% increase from 560 million.

Important thing about that enables us to support our Capex program.

We spent about 88 million on capital this year.

Really important too.

Our productivity efforts and as we'll talk about and our plan is cash.

Cash flow, allowing us to increase the amount of capital, we invest and the business next year also supports the restructuring program.

You'll notice we invested.

About three extra cents and the program then and we had initially thought.

There was some opportunities for us.

And to push and.

And pull some things forward and get ahead and get some cost savings going into next year. So we've bumped up that restructuring effort here in 2020.

With.

And we think were some very good projects and also supported the acquisition program.

And in the fourth quarter.

We closed on three acquisitions totaling $236 million of investment on our October call. We had mentioned the first of those three which was excel texts and Youll recall that was exposed.

It's a company with.

And that makes enclosures and antenna mounts.

Exposed to the <unk> trend and building staying connected very happy with that acquisition and how it's doing but I want to turn to page nine and talk about two additional acquisitions that we closed in the utilities segment I'll start on the far right column with armour cash.

<unk> and enclosures business that sells into the electric cellcom and water utility area.

It's a high growth business higher than average.

And has potential with higher margins.

So and area that we've been successful on and on our platform and we have the opportunity to extend the reach of that.

Platform and.

And and closed on armor casts.

The second area of note is the vertical area of distribution automation and.

Other area that we think can outgrow the utilities segment in general.

It stands.

And in between really.

And the backbone and where our legacy Hubbell power system business sits and the edge, where it clarus hits.

And deals with the grid automation and controls and between those two areas. We've started a business unit dedicated and this area, we're investing and new product development and we were very pleased that we had the opportunity to invest inorganically and.

And the acquisition of Beckwith also done in December.

<unk> had been a previous partner of ours, where we'd been coordinating between hubbell hardware Clare.

Clara Communications technology, and Beckwith with their controls to create new products and we're really pleased now to have back within the hubbell utility family.

And again, we think a high growth high margin areas. So.

And we're quite pleased that the.

The free cash flow, we generated was able to be invested.

$236 million and the fourth quarter and when we get to share our guidance will show you, how that's creating some important lift to our financials for 2021.

So I wanted to turn back to <unk>.

And to talk about our ESG program.

Great Thanks, Bill and indeed.

Upload a great acquisitions to bolt onto the utility franchise here and the fourth quarter.

Before I take you through our 'twenty, one outlook I want to take a minute to highlight our ESG strategy and hubbell and some of the progress that we've made recently using page 10.

From a portfolio perspective, our businesses are strategically aligned around electrification and grid modernization.

Both of which we view as important clean energy Megatrends, where we are well positioned by a leading role.

As the economy continues its transition away from fossil fuels and more things get plugged into the electrical from it it creates the need for new solutions behind the meter and front of the meter and at the edge of the grid.

And with our leading position across each of these spaces publish uniquely positioned to solve these critical infrastructure problems.

A good recent example that I want to highlight.

And the products that we're supplying to construct one of the U S is largest wind farms and Oklahoma starting construction later this year.

Not only are we supplying transmission materials from our utility segment, but also grounding connectors and enclosures products across our electrical segment.

In terms of what we're doing internally and demonstrate our commitment to ESG I would like to highlight a couple of areas today.

First we have established multiyear goals to reduce our water consumption and greenhouse gas emissions by 10%.

We also placed a high value and ensuring the safety of our employees and we have been effective and making multiyear improvements, including a reduction of about 40% and both the number and severity safety incidents and the past five years.

And further improvements to come.

We've also recently launched a new sustainability website with details on the initiatives, we are undertaking and expanded disclosures around their operations.

We encourage you to visit this website and I look forward to continue to update you on our ESG journey going forward.

Now to our 2021 outlook on page 11.

Starting with our end market Pie chart on the left.

We expect continued growth and our utility markets.

We see our T&D components market, providing solid 2% to 4% growth and note. This growth is coming off of a relatively difficult comparison.

As these markets grew consistently throughout the pandemic and 'twenty one.

Evidence that the drivers are more secular in nature.

Modernization and renewable energy and integration.

You'll also note from our press release this morning that beginning in the first quarter 'twenty. One we will be reporting results from gas distribution business within the utility solutions segment.

This is reflected within our C and D component markets from this page.

This realized operating structure reflects our comprehensive offerings and utility components.

The patient solutions across common electric water and gas utility customers.

We expect utility communications and control markets rebound in 'twenty and 'twenty, one and strengthened as the year progresses and regional economies open up more fully with existing projects restarting and new ones launching.

We note that even with the declines experienced in 'twenty, one arc narrow business has grown revenues at mid single digits. Since we acquired and we expect to maintain that trajectory at 4% to 6%.

On the electrical side of the pie starting at six spot and we expect industrial markets to return to growth.

3% to 5%.

As Bill noted we are already seeing evidence of this and light industrial which is shorter cycle and typically the first vertical and picked up.

And then we expect heavy to improve as 'twenty one progression.

We expect residential markets remained strong and contributed 3% to 5% as housing markets retail and E. Commerce trends remain supportive of continued growth.

On the nonresidential markets.

And they tend to be later cycle, and we anticipate continued softness into 'twenty, one as new construction spending patients further decline.

Renovation and retrofit activity should provide some support and offset.

Remember that our nonresidential exposure is balanced and about 50 50 between new construction and renovation.

Overall with the new segment reporting structure that we announced earlier last year, we see a nice 50 50 balance of electrical utility markets, representing a strong positions across the energy infrastructure, both behind and in front of them.

In terms of financials on the right hand side of this page.

We expect total sales growth of 6% to 8% with acquisitions, contributing 3% and organic growth from volumes and price contributing another 3% to 5%.

We expect we expect adjusted earnings per share.

$8 and 10 to $8.50 and we will walk you through the drivers of that from the next page.

And then importantly, we are driving free cash flow conversion and 110% of adjusted net income, which at the midpoint of our earnings per share guidance gets us back to about 500 million from a few years for the full year.

This while we invest and working capital to meet improved demand and continue our journey of improving working capital efficiency. So Lee.

Now I'll turn it back to bill to give you some more context and the moving parts that make up the guidance.

And so I just wanted to walk everybody through two bridges and.

Page 12 is a bridge that shows.

The guidance that Durbin, just gave and and disaggregate some of the pieces.

And then I wanted to show you a two year work on the next page. So four here you see a starting at $7 58.

Growing roughly 10% to get to that range and they tend to $8 50.

The first driver is the very welcome return of volume.

And so we've got as Durbin was highlighting at 6% to 8% sales growth.

And where acquisitions are providing about three of that so three to five organic but with one of price which is over to the right. So this is that balance of of.

Two to four of volume dropping through at 30% to 40% and again very welcome to see that very happy to see the order book supporting that growth and as we start the year.

And the acquisition.

We've got about 25 here in the acquisition bucket.

You all had five already as we had talked about <unk> back in October.

Two new deals and we closed in December and providing an additional incremental 20.

And then on restructuring.

And we're anticipating.

Lower investment by about $10 million and incremental savings from what we invested last year create a really important a lift to our earnings profile and.

And we get to price cost productivity.

Anticipating a year of strong price realization.

And we've already been to the market and.

There's not obviously, one simple unilateral lever on price. It's it's brand by brand business by business. We have started already pulling those levers and January and throughout the first quarter.

Inflation has continued to persist.

And so it's a very organic process, but we'll need to keep revisiting and make sure we pull price to the extent that we need to.

As we realize the commodity inflation and you see listed next.

Also and this productivity area and cost area is the return.

The temporary benefits that we enjoyed in 2020, namely items like furlough savings.

<unk> and medical savings and some of the tariff refunds and exclusions that roll off as well as other investments that we want to make in the business and.

On the non operating side.

We see the tailwind of pension and interest expense, partially being offset.

By a small increase and taxes.

To get to a range of 810 to $8 50 for the year.

And I also wanted to flip to 13 and show you how 2019 walks 2021.

For us it.

And was interesting.

To note that our volumes in 'twenty, one will still be lagging the levels. They were at in 2019, and so you see.

The income loss with that volume and that first bar, but what was really important to us and how we manage the financial performance of the company because we see the incremental acquisitions continuing to be and.

And adder, and we see the restructuring program, taking out fixed costs simplifying our footprint.

Being in.

And our control and something that's really providing a positive lift to the story very careful management of price cost productivity.

So certainly there are times when the inflation can be persistently steep where we can get behind by three months and six months, but through a two year cycle, we will certainly catch up and be ahead.

And so we thought this picture was helpful to show, how even with less volume we think we've got.

Both the investing capability and the execution capability to drive earnings above the 2019 level. So that concludes our prepared remarks, and we're happy to take questions operator.

As a reminder to ask a question you will need to press star, Although they want and then your telephone keypad, Okay, and then a smaller one to be telling you a question just press the pound key.

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

Thank you good morning, everyone.

Hey, just wanted to understand a little bit and the bridge I think Bill you said the underlying incrementals you're expecting.

Part of the bridge is 30% to 40%.

It looks like that would be exclusive of the restructuring and other benefits, but wanted to confirm that that's a very.

Very strong number.

Lee relative to kind of the Decrementals, we experienced it in 'twenty and 'twenty and 'twenty.

Yes, I think what we're talking about.

Is this the strict drop through on the volume.

We'll be in that range the decrementals.

Driven by offsets from.

Things like the restructuring savings as well as the fact that power systems was actually growing and providing incremental so.

But that drop through we think just purely on the volume can be and that 30% range plus.

And on on price cost just isolating on that.

You said price up 1% does that fully cover the commodity and place and that you anticipate.

Or are you a little bit upside down on price costs. Yeah, we're gonna have to see ultimately what happens in commodities. So it's a little hard to see how persistent and they will be for example, I think theres. One view that says that steel capacity can come back online and the second half which would moderate some.

Of the increases.

But it's possible copper keeps going just to pick two big ones for us Jeff. So I think we're gonna have to be very nimble and continue to revisit price with our customers continually and watch you know that cost that those commodity costs really really carefully and <unk>.

And maybe just two.

<unk> commented that I think the timing of the commodities going up you know late last year was actually good for us because thats the time at which we're naturally going out with price increases.

So we did that unfortunately commodities have continued to spike.

December into January and as Bill stated and we absolutely need to be nimble, we're already going out with more price increases here and the first quarter I think the positive is that the price increases that we enacted last year starting in January 1st half generally stock well.

So and that gives us confidence that the that these next tranches of price increases should do opinions and all that.

But definitely an area of focus for us this year.

And I'm sorry, just one other one from me I'm surprised me Clara guide is not a little stronger, but I guess, you're basically assuming that business stays negative even probably certainly and the first quarter and maybe even lagging into the second quarter is that correct well I'd say for the first quarter, yes, Jeff, but I think we could see it.

Rebounding.

By Q2.

Okay, great. Thank you guys.

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

Hey, guys, good morning, Morningstar and Steve.

And good execution on the on the margin front, some I agree with Jeff on the Incrementals.

Are these deals that youre doing and I I don't know it looks to me like day around.

And like the <unk>.

And 10 times EBITDA, what would what are what are some of the multiples youre seeing here for the 230 million Bucks you spent in the fourth quarter. Yeah. We spent 10 five times trailing Steve So that's in a pandemic here. So I'm, hoping by the time, we own them for a year and operate them you know, we'll own them at south of that for that for our first year of owners.

But but on a trailing basis 10 five times.

And so so I guess when you look out and the pro forma a couple of years down. The road. I mean is that are these things growing like mid to high single digits or what what kind of growth do you expect a couple years out yes mid mid to high <unk> for the areas that we've been investing and right. So that's a double digit return that you're getting on that capital that you're deploying exactly.

Yes.

This Steve is it's difficult utility business stuck in where we're and the other nice thing from it as we get those synergies.

Pretty quickly.

Within the first couple of years, we'll see though so.

You know margins kind of and within the first few years in line with the rest of the utility business. So it's a really right down the center for us.

Yes, that's quite a differentiator versus.

These guys that are.

And the drag and a bit with the 20 times plus multiples.

And hopefully got that plans to try and pivot that way but.

And and and then on the on kind of a little more color on the first quarter anything unusual to kind of call out there I know you have a tough it's obviously, the toughest comp, but and anything that day.

And we kind of have to be aware of when you look at consensus.

No I think that act amongst the most important thing is as you point out. It's it's the last tough compare of the year and Q2 becomes you know the easiest.

I think that as we look at.

At and.

Historically, you know, Steve and if all we did is kind of seasonally behave normally based on where we exited Q4 there'd be about three points of growth embedded just and things playing out. So that's that's not even with much.

Recovery and I.

I think the other guide I'd point out is.

And you know a few sort of look at our first quarter, we tend to get.

About a 20% contribution to the year something like that so.

If you expect the year to improve a little bit maybe maybe it would be even a little less and that this year, but those are just the considerations I think for Q1, okay. Great. Thanks for the color.

Yeah.

Your next question comes from the line of Tommy Moll from Stephens. Your line is now open.

Good morning, and thanks for taking my questions.

Good morning, Tom Hi, Tommy.

I wanted to double back to the bridge you gave us there on slides 12, and 13, specifically on price costs, which has generated.

More than a little attention and I think in recent weeks and maybe months.

Bill, that's maybe asking too much but.

Could you frame, maybe and and pennies or nickels and dimes per share.

And the price and cost impact there is distinct from the the cost benefits that you'd call out or if you can't give us the.

A number maybe just orders of magnitude here to help us track that as we go forward I think what we're trying to pull and the actions that we've entertained as to get a point of price.

As we sit here starting the year and as you know Jeff was asking we just going to have to monitor.

Commodities closely to see how adequate that has arisen to see ultimately if we're going to need to do more but there are a lot of pieces that we're not going to get super granular on in that bucket, you know Tommy including some investments that we want to make and including the return of some cost.

And that that left last year as a result of working from home and all of that.

Okay. So I think that the anchor you want us to be aware of that is it.

Embedded in that EPS headwind, it's it's a point of price on a full year basis, that's a working assumption and am I hearing that correctly, that's right Tony Okay.

And then moving to non res and.

And I appreciate the and market.

Outlook, you gave us with some specific data points to anchor to but but on the non res side.

So 50 50, new construction versus R&R.

What additional.

Anecdotes or insight can you give us on how that market has progressed, maybe on a month by month or quarter by quarter. It's something that folks are trying to track and real time, you've done a great job, giving us and outlook for the year. What is the potential progression look like there yeah. I think if you stick with the new construction side, you know it would be worse.

And then our guide would be our expectation.

And yet we think the MRO piece can be a little bit better and.

And maybe the only anecdote that I'd add.

And for you Tom is just thinking about.

There's theres a significant.

<unk> amount of National account business, that's in the MRO piece as whether it's a quick serve restaurant or convenience stores or others.

Our large box retailers kind of manage their own real estate and upgrade and and you know.

And those those projects are are frankly, nice to have not must have and and.

So that's kind of can contribute and help the MRO and other words, you don't need a lot of decision makers to say hey, let's.

Let's get back to make and our space look better.

Get that MRO piece REIT Regrowing again, so maybe that's maybe that's anecdotes and I'd add France, and maybe maybe won't comments to add there is as we think to 'twenty 'twenty, one and we look at the two piece of that 50%, that's new construction and 50% that's right now we're thinking of.

Along the lines of that new construction is down and down high single digits.

Correlating that.

But the others are saying, what we're seeing and some of the data and then the Rancho beat and up GDP ish.

Single digit and that's kind of how we get them out and market.

And our projection.

Very helpful. Thanks, carbon thanks, Bill I'll turn it back.

Yeah.

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

Oh, Thanks, good morning, everyone and.

And I don't want from.

Just wanted to pick up on a thread of non res will be sold to put in place data pool and uplift and full queue and just wondering if you saw that.

Deterioration as well.

I know, what the Eaton electrical and Oracle business sort of step back and school team. So just curious how non res track.

And so about 10% down in for Tim.

Yeah, I think Nigel that we did experienced that on the new construction side. So that's definitely the software piece of our exposure there for sure.

Okay, and then the clinical expense.

And then some cool part and leverage.

Come and stuff, that's pretty impressive anything to think about it from a mixed perspective impacting us and in 'twenty and 'twenty one it doesn't sound like there is but I'm just wondering how we should think about a plethora of mix you know I've got stuff accelerates from Q2 onwards.

And maybe some of the lots of mix impacts as well.

Yeah.

Yeah, I don't know that there's anything terribly noteworthy and mix I do think youre right.

That.

And if power Outgrows, you know that's mixed friendly.

And as C&I lighting, which would be in this non res area that you're talking about.

And lower margin part of our portfolio so that.

That lagging.

It is not the biggest contributors to growth so I'm not sure those pieces are there, but I'm not sure. It's super notable to to how we're thinking of the year.

Thanks, Bill and cooked.

Fabrication and the class credit you you booked and pool cute and 19, obviously clearly a very tough comp for you and cookie 'twenty was that a one timer with a more receipts and in 2020, just wondering if Q2 'twenty the sorry, 'twenty and 'twenty is a clean comp hasn't gone 21, Yeah, 2000, twenty's not a clean comp so there was <unk>.

Refund that was chunky and the fourth quarter of 19, but then there were also exclusion throughout the year that rolled off.

And so our net tariff rate in 'twenty, one will be higher than 20. So that's just something else that we have to manage with with price and productivity as part of the part of the package, but that's contemplated in that P. C. P bar that you see and the guidance.

Thanks Bill.

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

Hey, Thanks, Good morning, guys Hi, Chris.

And he wanted to talk.

Talk about that with for a minute.

It's interesting to see the power systems controls get getting developed there I'm, just wondering where exactly and the grid architecture does that.

And you know how are you looking at moving more upstream with control systems versus that the kind of assembly or sub assembly level and do you touch on distributed energy resources at all.

And get incorporated into the.

Grid to point out so to speak.

Yeah, I think youre right on your assessment of that this this this is right.

And distribute we call distribution automation and and this is a business that even before we acquired a clara and when.

And I ran that let you tell ambitions, we talked about investing is we actually broke out a group to focus on that we developed products and re closure products. For example, what was that.

So we've actually been looking at backward for for a number of years already but the dishes controls for distribution automation with the nice thing about it is and.

And on that slide that bill talked about on the organic development you see actually a controller that controls a three phase repos or which we recently launched with Beckwith control. So it's it's distribution automation that are beckwith supplies.

And it fits really well with the components. The other distribution components that we have on the grid.

Okay and.

And then wanted to take a longer term view of lighting a little bit.

And going challenges with competition and and stuff, but are you seeing any prospects for wholesale form factor shifts like to swim for instance.

Or do you think blocking and tackling will be and effective way to run this business long term.

I think that.

And.

I wouldn't say that we've seen.

Evidence of of near term form factor changes like.

Ultimately lighting some day may be piece of film you know on and on the ceiling or something and that doesn't feel to be.

Around the corner per se.

And so you know our approach is to continue to make sure we invest and our product line and make sure we have the proper.

Breadth of quality product, we keep.

Investing in the front and to make sure we got the right agents.

And us and get to market and and we keep taking cost out of the backend.

So of that restructuring for example, one of the projects.

Is consolidating our lighting facility into a lower cost.

Facility that we've got so we think we can keep doing doing better with what's there.

We were quite encouraged that.

The the lighting industry is asking for price increases.

In early January it's too early Chris for me to say, how much that sticks, but.

You know the our major competitors.

Mongst conglomerates, where we're all recognizing the need to ask for price and so.

That's kind of a good sign I think and.

And.

So that's that's how we looking at and where we're keen to focus on margin. There. We don't want to chase volumes that might have unattractive margins attached to it. So we're not focused per se just on growth for growth's sake, and Thats, how we will keep that's how we'll keep running the business and maybe to add.

And you know very recently as we are engaged with one of our large customers.

Results of the electrical.

Segments consolidation and that coming together I was part of a very robust discussions about how we could increase our light and it's Paul here and with this company.

So I think that's it.

We're seeing some of the benefits of that and electrical segment coming together and I think we'll see some of the benefits there and lighting as Bill stated, we want and profitable growth and this business for sure.

Thanks appreciate the story I just had a clarification gerber and at the beginning you said something about double digit orders, maybe that was the December comment, but I didn't quite catch it yeah. It was around we saw the orders inflect, Chris in December and as January has unfolded, we've got a month and the books.

With a double digit order book and you know there's questions as to is that sustainable for the year, we're not predicting so there can be reasons why.

And maybe customers are restock, and a little bit and and and maybe they didn't chase.

Chase volume they might've been managing their inventories and December so there can be reason for it to be a little bit above sustainable level, but we're encouraged to see.

See that after the first.

30 calendar days.

Of the year.

Yeah for sure thanks for the clarification.

Okay.

Your next question comes from the line with Josh from Chris Lynskey from Morgan Stanley. Your line is now open.

Hey, good morning, guys good morning, Josh.

Hey, Bill just to follow up on that last question, maybe ask it a bit of a broader one I'm thinking about price versus some of the nuance and the environment route right now relative to kind of past periods of inflation.

Yeah, you got this kind of secular shift and T&D investment going on lighting is certainly kind of at a different business profile and has already seen and good about a compression and so you know maybe not as much of a structural headwind does that much. There you mentioned that you know folks want to reload on inventories or are we starting to so day.

And that should help the discussion but.

Do you see yourself and that's kind of a better.

You know kind of board and front of you in terms of some of those exogenous factors that may help price yield relative to you know maybe when we were you know a few years ago going through this the last time.

Yeah, I think the last shock that we really had to manage that that created a sharp inflection point was was the introduction of tariffs and we felt really good about during the course of a couple of years, how that was managed.

Through price and so this is the next one and.

And would I say that we feel better set up.

To get price now than we did then.

You know it might be.

And it might be a little more equal footing in the sense that somebody might have had a different supply chain and tariffs could have affected different supply chains differently versus you know this is really being driven by.

Commodities that we all put into our products and.

You know as a LIFO company, we recognize the higher cost soon is there a FIFO company that that can delay and that all gets squeezed out over the course of a and inventory turn rates. So.

I think maybe marginally the fact that we're all facing the pressures makes and certainly the early behavior and January of competitors on price.

Suggests that it's it's broader based and just hubbell trying to you know.

Forced force it through so I think the setup.

It feels okay, but we got to keep watching where commodities go and you know you always end up worrying about price elasticity, ultimately and do you affect demand by adding small increments to the price, but but I think it feels like a decent set up to us.

And maybe one comment to add to that particularly and under utility business and.

And again from experience, having run that generally we look and a little bit longer cycles and that business, both with getting and given price long term relationships with our customers. So we just land up in January.

We're not going to be able to wait until you know the natural renewal of contracts. Here later this year, but that that probably will tend to lag a little bit more then on the electrical side, but but we're clearly on top of it and going after it.

Got it that's helpful. And then just on the the timing of when I guess, it is pent up demand and acquirer with not being able to get out there and the field.

And how long does it take to kind of unwind that that's something that just takes a couple of quarters is that a full year given that you know there'll be kind of pent up for what will be a full year by the end of the day.

Gerber and how do you how do you see that kind of unfolding.

If I if I understand the question correctly. It is is the pent up demand going to create some increased future demand and I think that there is pent up demand.

I'm not sure, though that it will lead necessarily to a big spike because one of the things with these projects to put them in as a labor requirements.

And labor from the utility labor from the suppliers.

And that's hard to just make up and a short time, but I do believe that that you know there's positive growth beyond what would be normally expected and growth given this a slowdown but it will.

Bill for multiple yes, I think it was spread out Josh gradually and three to four quarters to get it to get it all out there so maybe between what Youre asking.

Perfect Alright, thanks for the color guys. Good luck.

Yeah.

Your next question on constant the line of Justin Bergner from Gabelli Research. Your line is now open.

Good morning, Jeremy and good morning, Bill Good morning, Justin.

My first question relates to the sort of medium term outlook for utility T&D component I guess, you mentioned you were lapping.

And reasonably strong 2020, and then it looks like the organic growth and my average the quarters was slightly over 3% and you're sort of forecasting something along the lines at the same versus you know the.

Strong numbers that we.

We deliver and 18 19 do you see sort of this 3% and electrical as sort of the.

Medium term outlook, even with the secular tailwind for utility T&D or do you think we could see a week from Asia.

Looking beyond.

And next couple of quarters.

Maybe with infrastructure spending or what have you yes.

I think you're generally along the right path.

The 3% to 4% and.

Only a few years back we would've been a static with what that kind of growth and and the utility business.

You could see it it may be a little bit lumpy and and that's mostly related to our transmission portfolio that we have but you're thinking along the right lines of that you know.

Three 4% growth.

On a secular basis.

Okay, Great and then just two quick ones and the restructuring benefit is that the $15 million to $20 million of savings plus another $10 million for lower spend and then are all the all the M&A revenue anticipated 2021 already acquired or are you anticipating more to come.

Yeah. The that revenue has already acquired for the M&A piece and yes on the R&R you got both levers working we anticipate spending a little less and then we're gonna get savings after 43 cents that.

We spent this year. So those two are combining for that green bar there.

Great. Thanks for taking my questions.

Thank you.

And your last question comes from the line of Chris Snyder from UBS Your line and smelting.

Thank you for squeezing me in.

You talked about all the big lighting players and introducing price increases early 'twenty 'twenty, one obviously, there's a looming.

Inflation kind of headwind.

Have you observed any price improved price discipline from from the many smaller low cost players who compete on the lighting side and then I guess just kind of following up on and what gives you kind of confidence that the price increases can stick them. You know historically, it's obviously been a very price competitive market and now we're in the middle of share earnings of a downturn.

Yeah. So if you if you lengthen the lens.

There had been a period of price competitiveness that for the last couple of years actually there and had been.

And some decent push back on that and a curtailment of that and we've seen a couple of years of actually getting price and lighting. So bill.

The last quarter or two has been kind of a slip back and so it's a good question as to why we would be confident that that would be arrested after half a year.

And the reason is really because of the behavior that we saw amongst.

The players so, but you're right to raise the question that we'll need time needs to prove how much of that will stick.

And you're asking about kind of the international entrance and I don't think we'd expect them.

To be as disciplined as the group that I was referencing and who've asked for price.

And appreciate all of that and then just last one following up on the acquirer discussion you. It seems like this has historically been at like I say mid single digit growth business, and we're coming out of a year, where acquire with down 15%. So you know I think you guys said and maybe that pent up demand and get the unwound over.

Four quarters.

But you know if the business is kind of running maybe 20% below you know where where it would be you know if there was never a pandemic could that 20 per cent be unwound over four quarters or is it you know it.

Was there a piece of that that's maybe just even further pushed to the right and will take longer to come back.

Yeah, and I think the way we're planning this is more akin to the last thing that you said.

And yet if you're asking is it possible that it is a lumpier business than we're used to with power systems.

And so it is possible that things get pulled forward, but I think urban was highlighting one of the important parts of this which is that.

It's not really exclusively a demand question. There's also the installation process and having the people to do that and the crews and the time and so we're just anticipating that that.

[noise] comes off its not just someone pushing a button and ordering something that's got to be installed and so that's why we're thinking it's going to be maybe a little smoother than what you're saying which is.

Couldn't it jump up to double digits for a year and then taper back to five.

And how I'm interpreting your question and I, just I, just think it'll be a little smoother than that.

Appreciate all the color. Thanks for the time guys. Okay. Thank you.

Yeah.

Speakers I'm showing no further questions and to keep please continue.

Alright, Thanks, operator, and thank you for everybody for joining us and I'll be around all day for questions. Thanks.

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

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Ladies and gentlemen, thank you for standing by and welcome to the Hubbell incorporated fourth quarter, 'twenty and 'twenty myself to call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.

Please be advised that today's conference is being recorded and give you require any further assistance. Please press star zero and I'd like to hand, the conference over to Dan and then morado. Thank you. Please go ahead.

Thanks, operator, good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our results for the fourth quarter and full year 2020, the press release and slides are posted to the investors section of our website at Www Hubbell Dot com.

And I'm joined today by our President and CEO of <unk> Bakr, and our executive Vice President and CFO Bill Sperry. Please note that our comments. This morning may include statements related to the expected future results of our company and are forward looking statements as defined by the private Securities Litigation Reform Act of 1095. Therefore, please note the discussion of forward looking statements and our press release.

<unk> and consider it incorporated by reference and so this call. Additionally comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides now let me turn the call over to Garvin.

Good Thanks, Dan and good morning, everyone.

And thank you for joining us to discuss Hubbell fourth quarter results on the Snowy Tuesday morning.

And I suppose if there is such a thing as a positive from Covid.

Most of US are still at home and don't have to brief.

And and difficult commutes at this time.

But before we get to the results for the quarter.

Want to take a few minutes to reflect on our strong performance for the year.

And I recognize all our employees, who made it possible for their tireless efforts and dedication.

The COVID-19 pandemic presented us with considerable and market.

Operational as well as personal challenges.

Our employees consistently rose to the occasion, delivering exceptional performance for our customers and shareholders.

Our first priority through this pandemic has always been the health and safety of our employees and.

And we implemented a series of safety protocols to protect employees and our plants warehouses and in the field.

We also recognized our frontline workers with bonus appreciation pay for their efforts and provide a generous paid leave policies for all employees.

Our next priority was to continue serving our customers with the essential products necessary for the safety and reliability of critical infrastructure.

Our next priority was to operate with discipline and maintain strong liquidity for our shareholders and despite considerable and markets and operational headwinds as a result of this pandemic. The company achieved full year adjusted operating margins, which were essentially flat.

Prior year.

As well as free cash flow generation of $560 million, reflecting 12% growth over 2019 levels.

We accomplish this by focusing on what we could control, including a rigorous drive on productivity along with different disciplined operating expense and working capital management.

<unk> ongoing operational transformation and footprint optimization investments are producing sustainable savings and we expect to continue providing significant future benefits.

While theres been demick, theres, not yet behind us I am confident and our organizational ability to continue to deliver on our promises and commitments to our customers and shareholders.

Now moving onto the results for the quarter and starting on page three.

And we see solid performance and our utility solutions segment.

And with continued strength and demand for grid modernization and renewables investments driving mid single digit growth and power systems business and the quarter.

As expected, our electrical and market volumes remain soft.

But we saw a steady pickup and momentum exiting the fourth quarter and continuing into January which gives us confidence. These markets are beginning to improve.

Our operational transformation continues to provide structural savings and drive our margin performance.

And I'll also contributing to strong free cash flow.

This allows us to invest organically and through acquisition and we will walk you through some of the ways. We are deploying our capital to increase shareholder value later.

And finally, we're providing guidance for 'twenty and 'twenty, one today and will take you through that and more detail during this call.

But the overall takeaway and instead, we are anticipating a return to growth while remaining focused on our operating discipline and.

Actively managing our cost structure and investing and future growth.

Turning now to page four with financial highlights for the quarter.

You can see organic sales declined 7%.

Demand for utility T&D components, and our power systems business remains strong.

Our utility customers continued to invest to upgrade modernize and hard and critical grid infrastructure.

And while our Clara still experienced COVID-19 related project delays.

The electrical markets improved, particularly exiting the fourth quarter.

Finally, we achieved another quarter of strong free cash flow generation to cap off a year of double digit growth through disciplined working capital management.

With this let me turn it over to Bill to walk you through our financial results and more detail Bill. Thanks, Kurt Good morning, everybody. Thanks for joining US we're aware of Theres a number of calls this morning.

And then start my comments on page, five which will underscore a couple of points that Durbin made.

See the 6% decline and sales.

And we're electrical was relatively weaker and power and much more resilient.

And as Durbin noted and I was very significant to us to see the inflection in orders and so really starting in December we started to see orders pick up and turn positive.

Loud us to finish a year and with an increased backlog and.

And encouraged to see the order strength through the month of January where we had orders up double digits. So really welcome the growth that that.

Predict for this coming year.

And SEDAR sales expands curbing commented on the margins and the impact of the tariff refund from last year.

Also you see earnings per share.

Down at 8% less and down the.

And the operating profit amounts driven.

Driven by some favorability on the non op side, including some favorable tax interest expense and pension tailwind that helped.

It helped us a little bit I think on the cash flow side.

The story is in the year rather than quarter and.

And we had a 12% increase and the full year $560 million.

Our typical seasonality over the last five years is to have.

About 30% of the cash flow collected and the first half and 70% and the second half this.

And this year was much more balanced at $50 50, So you see.

Negative compare in the fourth quarter, but very good increase for the year.

So I'd like to unpack the results and discuss the two segments and we'll start with electrical solutions on page six.

You see sales down 10%.

Quite broad based across this segment some of the harder hit areas of electrical included are the harsh and hazardous area as the oil economy continues to struggle C&I lighting as well as heavy industrial, whereas we had relative stronger performance out of rescue lighting.

And our wiring device and our connectors business.

The order inflection that I described for the whole company was also experienced and within electrical so their December.

Showing and inflection to the positive and then strength.

And to January so good to see.

James and the wins for electrical demand.

The margins declined.

<unk> declined to about 10% there at $55 million of op.

Two thirds of that decline.

Explained by the tariff.

Refund distortion that curve and have mentioned, so about 20% decrementals without this impact.

I did want to draw your attention to the.

And the 1%.

Sales growth that came from acquisitions.

Just because I think it's illustrative of our capital deployment program.

And this is a company called connectors products, Inc. CPI and area that we like a lot strong markets and high margins, we acquired it last year.

At a trailing EBITDA valuation of 12 times.

And we own it this year on 'twenty and 'twenty numbers at five times.

So quite a good illustration of us, adding a nice bolt on business use our sales force to push the growth and be able to take.

And may cost much more efficient underneath our ownership. So just an illustration there of that of that one point to the acquisition.

Page seven.

And we'll look at utility solutions segment.

And you see a 1% decline and overall sales to $479 million.

If you unpack that.

Our legacy power systems business increased mid single digits that was driven largely by transmission projects, which continue to have.

Some support from the renewables area and the distribution side was strong as well as grid hardening and upgrades to the aging infrastructure continue to be secular trends that are defined.

And the cycle.

<unk> was down double digits continues to have installation delays as their access issues continuing on their projects.

And the Clara business, we're coming up on our three year point of ownership.

They have been a mid single digit grower for us during that three year time, and we see it maintaining that mid single digit growth through 2021.

Excellent performance on the operating profit line, you'll see a 12% increase all driven by margin expansion.

Of about two points to 17, 5% level.

Very strong price cost management.

And the growth dynamics are friendly margin friendly to us as power systems contribute high margins and the parts of a clearer.

The installation side or the lower side. So we've got a mixed friendly growth dynamic there. So again continuing to see really really strong performance from the utility part of our business and we'll talk later about how it continues to be and area of focus.

For our investment dollars.

Also wanted to share the full year of 2020 for you on page eight.

And you can see.

Sales down 9%.

Same theme with electrical softer utility and more resilient theres been steady improvement from the quarters, starting with the real shock from the second quarter third quarter was better than that fourth quarter better than third and now as we said, we're seeing disorder inflection that we think terms us to read.

<unk> growth next year.

Now this year.

The operating profit margins.

Roughly comparable at 14, 5%.

We think managing to the 15% Decrementals that you see indicated is shows successful cost management. We also had benefits from our restructuring efforts, which continue to reward us with savings each year.

And we also had incremental from the power systems growth, which helped us achieve that 15% decremental results.

The free cash flow I had mentioned before at 12% increase from $560 million.

Important thing about that enables us to support our Capex program.

We spent about 88 million on capital this year.

Really important too.

Our productivity efforts and as we'll talk about and our plan is cash flow, allowing us to increase the amount of capital we invest and the business next year also supports the restructuring program.

You'll notice we invested.

About three extra cents and the program then and we had initially thought.

There was some opportunities for us to.

To push.

And pull some things forward and get ahead and get some cost savings going into next year. So we've bumped up that restructuring effort here in 2020.

With.

We think were some very good projects and also supported the acquisition program.

Yeah.

And in the fourth quarter.

We closed on three acquisitions totaling $236 million of investment on our October call. We had mentioned the first of those three which was excel texts and Youll recall that was exposed.

It's a company with.

I think that makes enclosures and antenna mounts.

Exposed to the <unk> trend and building staying connected very happy with that acquisition and how it's doing and I want to turn to page nine and talk about two additional acquisitions that we closed in the utility segment I'll start on the far right column with armour cash.

Cash and enclosures business that sells into the electric telecom and water utility area.

It's a high growth business higher than average.

And has potential with higher margins.

So and area that we've been successful on and on our platform and we have the opportunity to extend the reach of that platform and.

And and closed on armor cast.

The second area of note is the vertical area of distribution automation and.

Another area that we think can outgrow the utility segment in general.

It stands.

And in between really.

The backbone and where our legacy Hubbell power systems and business sits and the edge, where it clarus hits.

And the acquisition of Beckwith also done in December.

<unk> had been.

Our previous partner of ours, where we had been coordinating between the Hubbell hardware Clare.

Clara Communications technology, and Beckwith with their controls to create new products and we're really pleased now to have back within the hubbell utility family.

And again, we think a high growth high margin areas. So.

We're quite pleased that the.

The free cash flow, we generated was able to be invested.

$236 million and the fourth quarter and when we get to share our guidance will show you, how that's creating some important lift to our financials for 2021.

So I wanted to turn back to girvin.

And to talk about our ESG program.

Great Thanks, Bill and indeed.

Right the acquisitions to bolt onto the utility franchise here and the fourth quarter.

Before I take you through our 'twenty, one outlook I want to take a minute to highlight our ESG strategy is hubbell and some of the progress that we've made recently using page 10.

From a portfolio perspective, our businesses are strategically aligned around electrification and grid modernization.

Out of which we view as important clean energy Megatrends, where we are well positioned by a leading role.

And as the economy continues its transition away from fossil fuels and more things get plugged into the electrical grid and creates the need for new solutions behind the meter and front of the meter and at the edge of the grid.

And with our leading position across each of these spaces publish uniquely positioned to solve these critical infrastructure problems.

The good recent example that I want to highlight.

As the products that we're supplying to construct one of the U S is largest wind farms and Oklahoma starting construction later this year.

Not only are we supplying transmission materials from our utility segment, but also grounding connectors and enclosures products across our electrical segment.

In terms of what we are doing internally demonstrate our commitment to ESG I would like to highlight a couple of areas today.

First we have established multiyear goals to reduce our water consumption and greenhouse gas emissions by 10%.

We also plays and a high value and ensuring the safety of our employees and we have been effective and making multiyear improvements, including a reduction of about 40% from both the number and severity safety incidents and the past five years.

With further improvements to come.

We've also recently launched a new sustainability website with details on the initiatives, we are undertaking and expanded disclosures around their operations.

Courage you should visit this website and I look forward to continue to update you on our ESG journey going forward.

Now to our 'twenty and 'twenty one outlook on page 11.

And starting with our end market Pie chart on the left.

We expect continued growth and our utility markets.

We see our T&D components market, providing solid 2% to 4% growth and note. This growth is coming from the top of relatively difficult comparison.

And as these markets grew consistently throughout the pandemic and 'twenty one.

Evidenced that the drivers see are more secular in nature.

Grid modernization and renewable energy and integration.

You'll also note from our press release this morning that beginning in the first quarter 'twenty. One we will be reporting results from gas distribution business within the utility solutions segment.

This is reflected within our T&D component markets from this page.

This realized operating structure reflects our comprehensive offerings.

Utility components and communications solutions across common electric water and gas utility customers.

We expect utility communications and control markets rebound from 'twenty, 'twenty, one and strengthened as the year progresses and regional economies open up more fully with existing projects restarting and new ones launching.

We note that even with the declines experienced in 'twenty. One are narrow business has grown revenues at mid single digits. Since we acquired and we expect to maintain that trajectory at 4% to 6%.

On the electrical side and the pie starting at six spot, we expect industrial markets to return to growth.

3% to 5%.

As Bill noted we are already seeing evidence of this and light industrial which is shorter cycle and typically the first vertical and pick up and.

And then we expect heavy to improve as 'twenty one progression.

We expect the residential markets can remain strong and contribute 3% to 5% as housing markets retail and E. Commerce trends remain supportive of continued growth.

On the nonresidential markets.

Tend to be later cycle, and we anticipate continued softness and into 'twenty, one as new construction spending patients further decline.

While renovation and retrofit activity should provide some support and offset.

Remember that our nonresidential exposure is balanced and about 50 50 between new construction and renovation.

In terms of financials on the right and inside of the stage.

We expect total sales growth of 6% to 8% with acquisitions, contributing 3% and organic growth from volumes and price contributing another 3% to 5%.

We expect we expect adjusted earnings per share.

$8 and 10 to $8 50.

And we'll walk you through the drivers and that next phase.

And then importantly, we are driving the free cash flow conversion and 110% of adjusted net income, which at the midpoint of our earnings per share guidance gets us back to about 500 million per Q, yet for the full year.

This while we invest and working capital to meet improved demand and continue our journey of improving working capital efficiency.

So let me now turn it back to Bill to give you some more context from the moving parts that make up the guidance and so I just wanted to walk everybody through two bridges and.

Page 12 is a bridge that shows.

The guidance that Durbin, just gave and and disaggregate some of the pieces.

And then I wanted to show you a two year work on the next page. So four here you see a starting at <unk>.

$7 58.

Growing roughly 10% to get to that range and <unk> 10 to 850.

The first driver is the very welcome return volume and.

And.

So we've got as Durbin was highlighting at 6% to 8% sales growth.

Where acquisitions are providing about three of that so three to five organic but with one of price which is over to the right. So this is that balance of of <unk>.

And two to four of volume dropping through at 30% to 40% and again very welcomed to see that very happy to see the order book supporting that growth as we start the year.

The acquisition.

We've got about 25 here in the acquisition bucket you all had five already as we had talked about <unk> back in October.

And two new deals and we closed in December and providing an additional incremental 20.

And then on restructuring.

We're anticipating.

Lower investment by about $10 million.

And incremental savings from what we invested last year create a really important lift to our earnings profile and.

And we get to price cost productivity.

And anticipating a year of strong price realization.

And we've already been through the market and.

Theres not obviously, one simple unilateral lever on price. It's it's brand by brand business by business. We've started already pulling that those levers and January and throughout the first quarter.

Inflation has continued to persist.

And so it's a very organic process, but we'll need to keep revisiting and make sure we pull price to the extent that we need to.

As we realize the commodity inflation that you see listed next.

Also and this productivity area and cost area is the return.

The temporary benefits that we enjoyed in 2020, namely items like furlough savings.

<unk> and medical savings and some of the tariff refunds and exclusions that roll off as well as other investments that we want to make in the business and on the non operating side.

We see the tailwind of pension and interest expense, partially being offset.

By a small increase and taxes.

To get to a range of eight and 10 to $8 50 for the year.

And I also wanted to flip to 13 and show you how 2019 walks 2021.

For us.

Was interesting.

To note that our volumes in 'twenty, one will still be lagging the levels. They were at in 2019, and so you see.

And adder, and we see the restructuring program, taking out fixed costs and simplifying our footprint.

Being.

And our control and something that's really providing a positive lift to the story.

Careful management of price cost productivity.

So certainly there are times when the inflation can be persistently steep where we can get behind by three months and six months.

But through a two year cycle, we will certainly catch up and be ahead.

And so we thought this picture was helpful to show, how even with less volume we think we've got.

Both the investing capability and the execution capability to drive earnings above the 2019 level. So that concludes our prepared remarks, and we're happy to take questions operator.

As a reminder to ask a question you will need the breast bar, although they want and your telephone keypad again and a smaller one to be talking a question just press the pound key.

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

Thank you good morning, everyone.

Hey, just wanted to understand a little bit and the bridge I think Bill you said the underlying incrementals you're expecting.

Part of the bridge is 30% to 40%.

It looks like that would be exclusive of the restructuring and other benefits, but wanted to confirm that that's the <unk>.

Very strong number.

Lee relative to kind of the Decrementals, we experienced it in 'twenty and 'twenty and 'twenty.

Yes, I think what we're talking about.

Is this the strict drop through on the volume.

We'll be in that range the decrementals.

Driven by offsets from.

Things like the restructuring savings as well as the fact that power systems was actually growing and providing incremental so.

But that drop through we think just purely on the volume can be and that 30% range plus.

And on.

And the price cost just isolating on that.

I think you said price up 1% does that fully cover the commodity and place and that you anticipate.

Or are you a little bit upside down on price costs, Yes, we're gonna have to see ultimately what happens in commodities. So it's.

Little hard to see how persistent and they will be for example, I think theres. One view that says that steel capacity can come back online and the second half, which would moderate some of the increases.

But it's possible copper keeps going just to pick two big ones for us Jeff. So I think we're gonna have to be very nimble and continue to revisit price with our customers continually and watch that cost that those commodity costs really really carefully.

Jeff maybe just to add a comment to that and I think the timing of the commodities going up late last year was actually good for us because thats the time at which we're naturally going out with price increases.

So we did that unfortunately commodities have continued to spike.

So that gives us confidence that the.

And that these next tranches of price increases should do okay, as well, but but definitely an area of focus for us this year.

I'd say for the first quarter, yes, Jeff, but I think we could see it rebounding.

By Q2.

Okay, great. Thank you guys.

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

Hey, guys, good morning, Morningstar and Steve.

Good execution on the on the margin front I agree with Jeff on the Incrementals.

Are these deals that youre doing and I I don't know it looks to me like day around.

And like <unk>.

10 times EBITDA, what what are what are some of the multiples you are seeing here for the 230 million Bucks you spent in the fourth quarter. Yes. We spent 10 five times trailing Steve. So that's in a pandemic years, so I'm, hoping by the time, we own them for a year and operate them, we will own them at south of that from it for our first year of owners.

But but on a trailing basis 10, and a half times.

Right. So so I guess when you look out and the pro forma a couple years down the road. I mean is that are these things growing like mid to high single digits or what what kind of growth do you expect a couple of years out yes mid to high <unk> for the areas that we've been investing and so that's a double digit return that you're getting on that capital that youre deploying exactly.

Yes.

This Steve is difficult utility business stuck in where we're and the other nice thing from it as we get the synergies.

Pretty quickly.

Within the first couple of years, we'll see though so.

You know margins kind of within the first few years in line with the rest of the utility business. So it's a really Joe right down to channel for us.

Yes, that's quite a differentiator versus.

These guys that are.

And Jason the dragging a bit with the 20 times plus multiples.

And hopefully you got that plans to try and pivot that way but.

And then on the.

And kind of a little more color on the first quarter anything unusual to kind of call out there I know you have a tough it's obviously the toughest comp but.

And anything.

We kind of have to be aware of when you look at consensus.

I think that at the moment. The most important thing is as you point out. It's it's the last tough compare of the year and Q2 becomes you know the easiest.

I think that as we look.

And at historically, Steve if all we did it.

It is kind of seasonally behaved normally based on where we exited Q4 there'd be about three points of growth embedded just and things playing out. So that's that's not even with our much recovery and.

I think the other guide I'd point out is.

And if you sort of look at our first quarter, we tend to get.

About a 20% contribution to the year something like that so.

If you expect the year to improve a little bit maybe maybe it would be even a little less and that this year, but those are just the considerations I think for Q1, okay. Great. Thanks for the color.

Your next question comes from the line of Tommy Moll from Stephens. Your line is now open.

Good morning, and thanks for taking my questions good.

Good morning, Tommy and Tommy.

I wanted to double back to the bridge you gave us there on slides 12, and 13, specifically on the price cost which is generated.

More than a little attention and I think in recent weeks and maybe months.

Bill, that's maybe asking too much but.

Could you frame, maybe and and pennies or nickels and dimes per share the the price and cost impact there is distinct from the the cost benefits that you'd call out or if you can't give us a and.

Number maybe just orders of magnitude here to help us track that as we go forward.

Yes, I think what we're trying to pull and the actions that we've entertained as to get a point of price.

As we sit here starting the year.

And as you know Jeff was asking we just going to have to monitor.

Commodities closely to see how adequate that is or isn't to see ultimately if we're going to need to do more but there are a lot of pieces that were not going to get super granular on in that bucket, Tommy including some investments that we want to make and including the return of some cost.

That left last year as a result of working from home and and all of that.

Okay. So I think that the anchor you want us to be aware of that is embedded in that EPS headwind. It's a point of price on a full year basis, that's the working assumption and about here and that correctly, that's right Tony.

Okay.

And then moving to non res.

And appreciate the and market.

Outlook, you gave us with some specific data points to anchor too, but on the non res side. So.

So 50 50, new construction versus R&R.

And what additional anecdotes or insight can you give us on how that market has progressed and maybe on a month by month or quarter by quarter. It's.

Something that folks are trying to track and real time, you've done a great job, giving us and outlook for the year. What is the potential progression look like there, yes, I think if you stick with the new construction side.

It would be worse than our guide would be our expectation.

And yet we think the MRO piece can be a little bit better and maybe the only anecdote that I would add.

For you Tom is just thinking about.

There's.

There's a significant amount of national account business. That's in the MRO piece as whether it's a quick serve restaurant or convenience stores or others or large box retailers kind of manage their own real estate and upgraded and and you know those those.

<unk> are frankly, and nice to have not must have and and.

So thats kind of can contribute and help the MRO and other words, you don't need a lot of decision makers to say hey, let's.

Let's get back to make and our space look better.

To get that MRO piece Regrowing again, so maybe that's maybe that's anecdote that I would add France, and maybe maybe one comment to add there is as we think June 'twenty 'twenty, one and we look at the two piece of that 50%, that's new construction and 50% that's right now we're thinking.

And along the lines of that new construction is down.

And in that high single digits.

And we're correlating that with.

And what others are saying, what we're seeing and some of the data and then the ran Ob and up GDP ish.

Single digit and that's kind of how we get and what end markets.

Projection.

Very helpful. Thanks, carbon thanks, Bill I'll turn it back.

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

Oh, Thanks, good morning, everyone and.

John Mike Tom.

I just wanted to pick up on a spread of non res.

We saw it to put in place data falling off a cliff and <unk> and just wondering if you saw that.

Deterioration as well.

And now with the Eaton and electrical and Oracle business also spoke took a step back and forth. So just curious how inbound racetrack.

And so about two 4% down and for Q.

Yeah, I think Nigel that we did experience that on the new construction side. So that's definitely the software piece of our exposure there for sure.

Okay and then.

Core operating leverage.

Just come in and that's pretty impressive anything to think about it from a mix perspective.

Impacting us and in 'twenty and 'twenty one it doesn't sound like there was but I'm just wondering how we should think about a cloud mix you know I've got Tom accelerates from Q2 onwards.

And maybe some of the less of a mix impact as well through.

Yeah.

Yes, I don't know that Theres anything terribly noteworthy and mix.

I do think Youre right.

That.

And if power Outgrows, you know that's mixed friendly.

And as.

As C&I lighting, which would be and this non res area that youre talking about.

And lower margin part of our portfolio so that.

That lagging.

It is not the biggest contributors to growth so I'm not sure those pieces are there, but I'm not sure. It Super notable to to how we're thinking of the year.

Thanks Bill.

That's the case and that the tax credit you booked and pool COVID-19, obviously created a very tough comp for you and cookie 'twenty was that a one timer with a more receipts in 2020, just wondering if <unk> to 'twenty, the sorry, 'twenty and 'twenty is a clean comp hasn't gone to 21 2020 is not a clean comp. So there was <unk>.

Refund that was chunky and the fourth quarter of 19, but then there were also exclusion throughout the year that rolled off.

And so our net tariff rate and 21 will be higher than 20. So that's just something else that we have to manage with with price and productivity as part of the part of the package, but that's contemplated in that PCP bar that you see and the guidance.

Thanks Bill.

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

Hey, Thanks, Good morning, guys Hi, Chris.

And he wanted to talk.

And talk about Beck with for a minute.

It's interesting to see the power systems controls get getting developed there I'm, just wondering where exactly and the grid architecture does that.

And you know how are you looking at moving more upstream with control systems versus that the.

Kind of assembly or sub assembly level and do you touch on distributed energy resources at all.

Does get incorporated into the.

Grid to point out so to speak.

Yes, I think youre right on your assessment of that this is right.

Dom distributed we call distribution automation and this is a business that even before we acquired a clear and when I ran that let you tell admissions, we talked about investing and we actually broke out a group to focus on that we developed products and re closure products. For example, what was that.

So we've actually been looking at backward for a number of years already but the dishes controls for distribution automation with the nice thing about it is.

And on that slide that bill talked about on the organic development you see actually a controller that controls a three phase III closure, which we recently launched with Beckwith control. So it's it's distribution automation that beckwith supplies.

And it fits really well with the components. The other distribution components that we have on the grid.

Okay and.

And then wanted to take a longer term view of lighting a little bit.

Ongoing challenges with competition and stuff, but it.

Are you seeing any prospects for wholesale form factor shifts like to swim for instance.

Or do you think blocking and tackling will be and effective way to run this business long term.

I think that.

And.

And I wouldn't say that we've seen.

Evidence of near term form factor changes like.

Ultimately lighting some day may be piece of film you know on and on the ceiling or something and that doesn't feel to be.

Around the corner per se.

And so you know our approach is to continue to make sure we invest and our product line and make sure we have the proper.

Breadth of quality product, we keep.

Investing in the front and to make sure we got the right agents.

Helping us get to market and and we keep taking cost out of the backend.

So of that restructuring for example, one of the projects.

Is consolidating our lighting facility into a lower cost.

Facility that we've got so we think we can keep doing doing better with what's there.

And we were quite encouraged that.

The the lighting industry is asking for price increases.

And early January it's too early Christmas for me to say, how much that sticks, but.

Our major competitors amongst the conglomerates, we're all recognizing the need to ask for price and so.

That's kind of a good sign I think.

And.

So that's that's how we looking at and where.

We're keen to focus on margin there, we don't want to chase volumes that might have unattractive margins attached to it. So we're not focused per se just on growth for growth's sake, and Thats, how we will keep that's how we'll keep running the business and maybe to add.

And here very recently as we are.

<unk> engaged with one of our large customers as a result of the electrical.

Segments consolidation and that coming together.

Part of very robust discussions about how we could increase our light and exposure and with this company.

And I think it's bill.

We're seeing some of the benefits of that and electrical segment comments together and I think we'll see some of the benefits there and lighting as Bill stated, we want and profitable growth and this business for sure.

Thanks I appreciate the story I just had a clarification gerber and at the beginning you said something about double digit orders, maybe that was the December comment, but I didn't quite catch it yes. It was around we saw the orders inflect, Chris in December and as January has unfolded, we've got a month and the book.

With a double digit order book and you know that.

There's questions as to is that sustainable for the year, we're not predicting so there can be reasons why.

And maybe customers are restock, and a little bit and and maybe they didn't chase.

Chase volume they might've been managing their inventories and December so there can be reasons for it to be a little bit above sustainable level, but we're encouraged to see.

See that after the first.

30 calendar days of the of the year.

Yeah for sure thanks for the clarification.

Yeah.

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

Hey, good morning, guys.

And Josh.

Hey, Bill just to follow up on that last question, maybe ask it a bit of a broader one.

Thinking about price versus some of the nuance in the environment right now relative to kind of past periods of inflation.

Yeah, you got this kind of secular shift and T&D investment going on lighting is certainly kind of at a different business profile and its already seem to get about a compression. So you know maybe not as much of a structural headwind does that as much. There you mentioned that you know folks want to reload on inventories or are we starting to so dairy.

That should help the discussion but.

Do you see yourself kind of a better.

You know kind of board and front of you in terms of some of those examples and as factors that may help price yield relative to you know maybe when we were a few years ago going through this and the last time.

Yes, I think the last shock that we really had to manage that that created a sharp inflection point was was the introduction of tariffs and we felt really good about during the course of a couple of years, how that was managed.

And through price and so this is the next one and.

And would I say that we feel better setup.

To get price now than we did then.

You know it might be.

Commodities that we all put into our products and.

As a LIFO company, we recognize the higher cost soon is there a FIFO company that that can delay and the and that all gets squeezed out over the course of a and inventory turn right. So.

I think maybe marginally the fact that we're all facing the pressures makes and certainly the early behavior and January of competitors on price.

Just that it's it's broader based and just hubbell trying to you know.

<unk>.

Force it through so I think the setup.

Feels okay, but we got to keep watching where commodities go and you know you always end up worrying about price elasticity, ultimately and do you affect demand by adding small increments to the price, but but I think it feels like a decent setup to us yes.

And maybe one comment to add to that particularly on the utility business and.

And again from experience, having run that generally we look and a little bit longer cycles and that business both with getting.

Getting and given price long term relationships with our customers. So we just land up in January.

We're not going to be able to wait until the natural renewal of contracts. Here later this year, but that probably will tend to lag a little bit more then on the electrical side, but but we're clearly on top of it and going after it.

Yeah.

Got it that's helpful and then.

Just on the the timing of you know what I guess, it is pent up demand and acquirer with not being able to get out there and the field.

How long does it take to kind of unwind that that's something that just takes a couple of quarters is that a full year given that there'll be kind of pent up for what will be a full year by the end of the day.

Carbon how do you how do you see that kind of unfolding.

If I if I understand the question correctly. It is is the pent up demand going to create some increased future demand and I think that there is pent up demand.

I'm not sure, though that it will lead necessarily to a big spike because one of the things with these projects to put them in as labor requirement.

And labor from the utility labor from the suppliers.

And that's hard to just make opt and a short time, but I do believe that you and others positive growth beyond what would be normally expected and growth given this.

The slowdown so there'll be able from multi yes, I think it was spread out Josh I mean, three to four quarters to get it to get it all out there. So maybe between what you are asking.

Perfect Alright, thanks for the color guys Bill.

Yeah.

Your next question on cost of the line of Justin Bergner from Gabelli Research. Your line is now open.

Good morning, Gordon and good morning, Bill Good morning, Justin.

My first question relates to the sort of medium term outlook for utility T&D component I guess, you mentioned you were lapping.

Reasonably strong 2020, but it looks like the organic growth and my average the quarters was slightly over 3% and you're sort of forecasting something along the lines at the same versus the strong numbers that would.

We delivered and 18 19 do you see sort of this 3% and electrical as sort of the.

Medium term outlook, even with the secular tailwind for utility T&D or do you think we could see a weeks duration.

Looking beyond.

And next couple of quarters.

Maybe with infrastructure spending or what have you yes.

You're generally along the right of that the 3% to 4% and only a few years back.

And we would've been a static with what that kind of growth and in the utility business.

You could see it it may be a little bit lumpy and and that's mostly related to our transmission portfolio that we have but youre thinking along the right lines of that.

Three 4% growth.

On a secular basis.

Okay, Great and then just two quick ones and the restructuring benefit is that the $15 million to $20 million of savings plus another $10 million for lower spend and then are all the is all the M&A revenue anticipated 2021 already acquired or are you anticipating more to come.

Yes.

And that revenue is already acquired for the M&A piece and yes on the R&R you got both levers working we anticipate spending a little less and then we're going to get savings after 43 that.

And that we spent this year so those two are combining.

For that Green bar there.

Great. Thanks for taking my questions.

Yeah.

And your last question comes from the line of Chris Snyder from UBS. Your line is now open.

Thank you for squeezing me in.

And you talked about all the big lighting players introducing price increases early 'twenty 'twenty, one and obviously, there's a looming.

Inflation kind of headwind.

Have you observed any price improved price discipline from from the many smaller low cost players who compete on the lighting side and then I guess just kind of following up on that and what gives you kind of confidence at the price increases can stick.

Historically, if there's obviously been a very price competitive market and.

And now we're in the middle ish innings of a downturn.

Yes, so if you if you lengthen the lens.

And there had been a period of price competitiveness that for the last couple of years actually there and had been.

Some decent push back on that and a curtailment of that and we've seen a couple of years of actually getting price and lighting. So the last quarter or two has been kind of a slip back and so it's a good question as to why we would be confident that that would be arrested after.

For half a year.

And the reason is really because of the behavior that we saw amongst.

The players so but you're right to raise the question that we will need time needs to prove how much of that will stick.

And you're asking about kind of the.

International entrance and I don't think we would expect them.

To be as disciplined as the group that I was referencing and who've asked for price.

Appreciate all that and then just last one following up on the acquirer discussion.

It seems like this has historically been that like I say mid single digit growth business, and we're coming out of a year, where acquirer was down 15%.

So you know I think you guys said and maybe that pent up demand gets unwound over four quarters, but.

But you know if the business is kind of running maybe 20% below where it would be if there was never a pandemic.

Could that 20 per cent be unwound over four quarters or is it you know it.

Was there a piece of that Thats, maybe just even further pushed to the right and will take longer to come back.

Yeah, and they think the way we're planning this is more akin to the last thing that you said.

And <unk>.

And yet if you're asking is it possible that it is a lumpier business than we're used to with power systems.

And so it is possible that things get pulled forward, but I think urban was highlighting one of the important parts of this which is that.

It's not really exclusively a demand question and there's also the installation process and having the people to do that and the crews and the time and so we're just anticipating that that.

It comes off its not just someone pushing a button and ordering something that's got to be installed and so that's why we're thinking it's going to be maybe a little smoother than what you're saying which is couldn't.

Couldn't it jump up to double digits for a year and then taper back to five.

How I'm interpreting your question and I, just I, just think it'll be a little smoother than that.

I appreciate all the color. Thanks for the time guys. Okay. Thank you.

Yeah.

Speakers and I'm seeing no further questions and to keep please continue.

Alright, Thanks, operator, and thank you for everybody for joining us and I'll be around all day for questions. Thanks.

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

Q4 2020 Hubbell Inc Earnings Call

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