Q2 2021 Hubbell Inc Earnings Call

Yes.

[music].

Good day, Thank you for standing by and welcome to the Hubbell of second quarter earnings call. At this time, all participants are in listen only.

Mode. After the speaker presentation, there will be question and answer session to ask.

And during the assertion of didn't need the restaurant and 1 on the telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would've liked to hand, the conference over to speaker today than Inamorato. 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 second quarter 2021, the <unk>.

Press release and slides are posted to the investors section of our website at Hubbell Dot com.

And today by our chairman President and CEO of <unk> Bakr, and our executive Vice President and CFO Bill Sperry.

Note that our comments. This morning may include.

The 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 $19.95.

Please note the discussion of forward looking statements and our press release and considered incorporated by reference to 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.

Great. Thanks, Dan and good morning, everyone and thank you for joining us on this busy day to discuss Hubbell second quarter results.

I'm going to start my comments on page 3 with some key takeaways.

For the quarter.

As you can see from our results and our press release. This morning. It was a quarter of strong growth for hubbell with revenues and earnings each up over 20%.

We are seeing broad based growth across both our electrical and utility segments and within each of our major and.

As anticipated our operating margins declined year over year, and the second quarter due to the lapping of prior year cost actions as well as inflationary headwinds, which we are actively mitigating through price and productivity.

Operationally, our second quarter results are.

Consistent with our prior guidance, but we are now raising our full year adjusted earnings per share expectations at the halfway point.

We will walk you through our guidance in more detail later, but at a high level, we see stronger market growth and and modestly lower full year tax rate relative to our prior.

Our concerns.

And while inflationary headwinds are greater than initially anticipated, we are proactively driving incremental price and productivity to offset.

And we'll give you some more context around each of these dynamics throughout this morning's presentation.

Turning to page 4.

And your guide to provide some more details on the results.

Quarter sales were up 26% and organic growth was up 21% year over year as markets and customer demand were strong across both segments.

And electrical solutions, we saw broad based inflection.

4 across end markets with light industrial continuing to lead the recovery.

And heavy industrial and nonresidential markets beginning to improve as well.

We notice coming out of the first quarter that electrical orders have turned positive.

And this trend accelerated in the second quarter.

And as demand remains strong and electrical orders continued to exceed shipments.

Looking ahead, we expect our electrical markets to benefit from these recoveries and industrial and nonresidential markets as well as longer term trends towards increased electrification.

<unk> and utility solutions, we continued to see strong demand for T&D components, driven by aging infrastructure and grid modernization trends.

Recall that despite the economic impact of the COVID-19 pandemic, our power systems business remains very resilient and grew revenues in 2020.

Electric utility customers are actively investing to upgrade and modernize the grid.

These investments are driving attractive growth over the near and long term, including on our gas distribution business, which is effectively serving the growing need from gas utilities, the heart and the upgrade critical infrastructure.

<unk> as anticipated communications and controls markets returned to growth and the quarter as project deployments, which faced pandemic related delays have steadily the returns.

Operationally adjusted operating margin of 14, 5% were down year over year.

As <unk> previously communicated we took a series of temporary cost actions and salary reductions and the second quarter of 2020.

Which resulted in a onetime benefit of approximately $20 million.

And we lap that benefit this quarter.

We also continued to face significant inflation from materials.

8 and labor as the impact of tight supply chains across the industrial economy drives higher input costs.

However, we are being aggressive and our response.

We continue to utilize the strength of our brands to lead most of our markets and frequency pace and magnitude of price increases.

And we achieved.

Freight and price realization in the quarter of 3.5%.

With increasing traction into the second half.

We also continued to realize significant savings from our prior investments and restructuring actions, particularly within the electrical solutions segment, where you are already seeing the productivity benefits of unifying that.

The segment under a common leadership structure come through and our results.

We will give you some more granular color on our outlook section at the end of this presentation and our expectations for the second half.

And we're managing through a dynamic environment aggressively and proactively and we now expect to deliver stronger full.

Straws and from where we said a few months ago.

Let me now turn it over to Bill to give you some more context around our financial results starting on page 5.

Good morning, everybody.

No how busy you all are so I appreciate you taking time with us page 5 and Scott from graphical representation.

And with <unk>.

And walked through so you see the 2006 per.

<unk> sales growth to $1 billion $1.92.

That's kind of.

4 points of acquisition and it and it's got to about 3.5 points of price.

And on tax too.

Electrical growing and about 28% and utility and about 23.

So quite a broad base.

And I think fair to describe this is a V shaped inflection for us.

Comparing against.

Second quarter last year.

Where we.

We were down just a little over 20% and total a little more skewed towards the electrical as curve and the highlighted utility was a little more resilient and last year.

So.

I think the other thing.

The from then on about the sales growth and about $2 billion 192 is sequentially.

And the pickup from the first quarter is better than typical hubbell seasonality. So.

Not just as the V shape feel like it's rebounding.

The comp from last year's dip, but it also feels like.

Building some momentum.

And some improvement from first quarter to second quarter.

The op line.

$173 million, an increase of 15% year over year.

Gerber and highlights.

Highlighted the.

In fact that this V shape.

The recovery is bringing with it.

A significant amount of inflation.

And so we're working.

Hard to get our pricing up.

To that level and we're making.

Quite good progress.

Dress on that and we'll talk about that a little bit more and.

Our segment discussions.

And.

As you look at earnings per share on the lower left of page 5 you'll see an increase of 26% to $2.36.

A.

Okay.

A nice.

The increase that's in line with the sales level.

To get there we had some help from the non op areas.

Notably from tax.

Some discrete items.

The allowed us to have.

Of and effective tax rate and the quarter and the mid eighteens.

Which would cause our full year tax rate to come down to that 'twenty..1 'twenty 2 range from what we started to expect of 'twenty 2 to 'twenty 3 second contributor too.

On the non op side as interest expense a little bit lower this quarter, we mentioned last quarter, we had refinanced.

$300 million of bonds had about 130 basis points and lower interest rates. So we're getting the benefit of that lower interest rate here in the second quarter.

And the free cash flow.

The $131 million.

It's important to think about what the right comparison and context for that 131 million is Lee.

Last year as of strange compare and the second quarter of 2020.

We were certainly reacting to the sharp contraction and demand.

And we're harvesting the working capital section of the balance sheet collecting receivables.

Not building or investing and inventories.

And this quarter this year.

As of 100.

The 80 to that you basically have.

Gone from the contraction to the expansion and so we're investing heavily and receivables and inventories. So I think looking back to 2019 is actually pretty instructive.

We've got a full year target this year.

<unk> of getting to $500 million of free cash flow, which is around the level we achieved in 2019.

And at the halfway point of 2021.

The 131, plus the first quarter gets us to about 170.

First half cash flow, which compares.

Favorably to where we were in 2019 so feels.

It feels on track and I think <unk>.

Got a story of quite strong revenues and continuing to navigate the inflationary environment as we work to get our margins.

And to where they were last year.

I think it's instructive, though to unpack the enterprise results into the 2 segments because they are.

Performing a little bit differently.

And we'll start with the electrical segment on page 6.

You see.

28% growth rate to $603 million of sales.

That includes 1%.

<unk> from acquisitions, you will remember I was talking about the <unk> acquisition and really good.

The investment made by the segment and the <unk> and tenant space.

<unk>.

Theres about 4 points of price and that organic growth of <unk>.

The 6%.

And so youll note that thats, a little bit ahead.

Of the average for the company of 3 and a half.

We're finding that.

The EDI channel.

And all.

It's quite receptive to these price increases.

And we find that there.

Passing that along the channel to the end user and installers.

And most of what we're selling we're finding selling through.

And.

Not any kind of pre buy situation that we're noticing and the channel.

The broad based nature of this recovery is certainly.

The notable.

The electrical segue.

Segment was.

Down about 26% of full year ago. The next quarter is down about 14, the next quarter about 10.

And then flat and now up so quite a noteworthy inflection and.

And quite broad based.

And I'd say, if anything leaning to the.

And Austria.

Side, as kind of leading leading us and the V shape rebound.

Certainly light industrial.

And our strongest and market.

Selling connectors grounding wiring device type products and to that.

That and market and experiencing attractive growth.

But the heavy heavy side is showing.

The positive signs as well.

Our harsh and hazardous business, which has been quite oil and gas based.

And we've worked hard to diversify the end markets they serve with explosion proof.

Devices, and and they've returned to growth, which is quite welcome as well as heavy industrial components, which are serving.

Factories steel Mills rail transportation and alike also.

Showing good signs.

On the non res side, we had started the year a little bit cautious on non res we are anticipating some contraction there.

We've been experiencing growth.

And.

Interest.

Interesting.

I think to be led at this point by the Reno and retrofit.

Side of the business I think new construction the.

Early indicators of the leading indicators are looking positive there as well. So certainly we have a brighter outlook for non res then.

Started the year.

Inside of there.

We've got not only wiring devices, but our commercial and industrial lighting.

Which grew over 20% in the quarter.

And the resi business.

Was it continues to be strong.

And then.

And the.

The sort of was strong all through last year. So they will have harder comps to lap and the second half.

But still showing some some decent resilience there so.

The team did a great job of getting margin.

To expand the 13, 4%.

The 41% growth.

And operating profit to $81 million.

The higher volumes are important.

The restructuring work the carbon mentioned at the beginning.

<unk>.

Quite important.

We have been and.

Investing.

The money as you followed us here.

The years ago, we spent about $37 million on restructuring last year about $31 million anticipating the spend about 20 of this year and.

And that you're getting both of the tapering effect of that spending but also the benefits from the projects, we did last year, creating.

And some good lift and those were substantial enough to help us overcome the headwinds from the inflation.

We're facing.

I think it may be worth just to comment on pulling the lens back on restructuring.

Continue to feel.

And quite good.

The program.

We've taken out by.

By our analysis.

About $1 million.

5 square feet from our manufacturing footprint and so.

Over 15%.

And we continue to see opportunity both on the manufacturing side.

Ultimately on the warehouse side as well and.

And as carbon described in his opening comments the.

And.

And the ability to take the segment and compete collectively.

Under a unified leadership rather than have 3 different vertical businesses. We think is opening up good opportunities to share warehouses to share factories.

<unk> and become more efficient and we see continued runway there.

Would comment that in the first half of the year.

We didn't spend half of.

The $20 million, we anticipated I'd say a lot of our engineering focus was on capacity.

City, and making sure we had production to service our customers' needs.

And so the back half outlook for electrical will contain and.

And increase in R&R spending compared to the first half, but we anticipate the demand to be strong they start the second half with the big.

And <unk>.

And.

The pricing actions continued to increase as commodities continue.

To increase most notably.

Steel, we've seen copper and aluminum is starting to show signs of maybe flattening out Steve.

And still showing signs through the third quarter of increasing until hopefully it looks like some of.

Our rollover and.

And ultimately in the fourth quarter.

And we continue to price for that I think we've also had to expand our definition I think those of you who followed us know.

We try to maintain of parity between price and commodity cost and and then use productivity to offset inflation and non commodity areas. We're finding.

And that the inflation and areas like transportation and.

Some labor costs.

Are such that.

Natural.

Productivity levels are insufficient and so we're starting to sweep those other items into the bucket that need to be covered by price and.

And again, we've been encouraged by the channels reaction and will continue to.

And to offset those and and to get to.

Get get back our margins.

And.

On the utility side on page 7.

And you see <unk>.

23% growth to $589 million.

There are 6 points of acquisition inside of that utility growth number and 3 points of price.

<unk>.

And to the.

Of the 4 points of price and electrical so.

Utility customers, moving a little bit more deliberately than.

And then the EDI channel serving the electrical side those.

Of those acquisitions.

To remind you included in.

And.

The enclosure area for electric utilities water utilities and telecoms.

That business is high growth high margin.

We also bought that company is called the armor cast.

Beckwith is wrapping around here with which is controlling.

The infrastructure.

And maybe also of note.

We sold a very small line of business from within of Clara the customer engagement business.

That didn't fit well.

With our set of solutions and.

<unk> was worth more to someone else than it was to us so.

It has no material impact on on.

On our sales of op going forward, but we feel we can use the proceeds from that to invest and areas with with the better fit.

Unpack the sales here and the utility solutions between the components and the communications.

The components of both electrical.

Electrical T&D the old legacy Hubbell power systems.

<unk>, the resilient and last year continuing to grow.

Very very nicely.

And we this year the grid modernization trend.

<unk> trend and renewables trends continue to push spending there we've noted a little better strength and distribution and transmission this quarter that can go back and forth.

And the gas distribution components.

This go into the last mile.

Of natural gas distribution had been Youll recall slightly held back by some site access issues and happy to see those conditions, improving seeing nice growth and nice margins out.

And the gas distribution business.

On the comms business and of Clara.

We had also had site access issues, there and as those of improved.

We see that returning to growth so again broad based situation.

Of of healthy demand inside of utility solutions.

$93 million of operating profit as comparable to last year and.

And at lower margin than last year.

The price cost.

Area continues to.

The.

A source of drag here and the second quarter.

Our 3 points of price is up from about a point and the first quarter.

We've had our fourth increase already announced which will influence the second half.

So I think an unprecedented number.

Of increases.

And we feel we're certainly leading the market as we announce those price increases.

But.

We continue to be very confident that we will catch up.

As the.

This inflation from the commodity starts to level out.

That will catch up and restore our margins.

There's 2 other factors worth mentioning here and the margin profile.

First is the armor cast acquisition that I mentioned.

And that's low.

Weighted and southern California and.

And and are we closed on the.

Very early January so we've had it for about 6 months.

And I would say Dave.

Endured significant labor turnover and having a hard time.

Okay, daffing the facilities and that geography.

It's not been contributing much though on the <unk>.

<unk> line.

And.

And so we are working hard and we're very excited about the acquisition and we are.

Confident we'll have a better second half and.

And set up well for a better 'twenty 2.

I think the third driver I'd mention to you is inside of the Clara.

The call Theres 3 lines of business there of the communications the meters and the install.

On the install business is.

And the lower end of profit.

Stability of the 3 lines of business Thats, where the access.

Had been constrained and that was loosened we saw the install area of be the largest level of growth.

And therefore being mix on friendly and so those pieces conspired to.

Profit result, and flat Opie for utility.

And I think that describes the 2 segments and where they are as we think about the outlook for utility.

We feel great about the backlog and starting the second half the.

The demand feels broad based and.

<unk> solid.

Perhaps of note the chip shortage that we're all reading so much about the.

And the place that would affect hubbell, it's more on the of Claire on the communications side and we will.

Sort of watching those supply chain situations.

And the guidance is contemplating some of those some of those risks.

Turn it back curve and to you to talk through the outlook in general.

Great. Thanks Bill.

Let's turn to our 2021 outlook and on page 8 and starting with our end market Pie chart on the left with the first half behind.

But our guests and increasing visibility into the unfolding economic recovery our markets overall are trending above expectations that we had at the beginning of the year.

Most notably as Bill indicated industrial markets have strengthened throughout the year and we now expect these market to be up high single digits on average with light.

Hi, industrial verticals, leading the way and heavier industries expect that to continue recovering and the second half.

We're also more optimistic on nonresidential markets, where we're expecting modest decline a quarter ago and now see modest growth.

While new construction activity remains mostly.

The software now we expect to see a recovery here heading into 2020.2 as major leading indicators of rebounded strongly in recent months.

Near term, our incremental optimism and nonresidential is driven by Reno and retrofit markets, which have been solid as the economy has reopened.

On the utility half of our business, we are sticking with our prior and market guidance for approximately mid single digit growth for the full year with communications and controls outgrowing components, primarily due to prior year comparison dynamics.

This all adds up to mid single digit market growth for the full year.

And we are now anticipating high single digit organic growth as we drive approximately 4 points of price realization.

And then when we layer on the contributions from acquisition, we now anticipate total sales growth of 11% to 13% for the full year.

We've also tightened.

And raised our adjusted earnings per share guidance by <unk> 25.

At the midpoint versus our prior range.

And continue to expect approximately $500 million of free cash flow for the full year.

I'll give some more context on the drivers of this guidance range at the next page, but with half of the year behind US we are confident.

And our ability to deliver on these raised expectations.

Now turning to page 9 for a year over year EPS bridge.

We've shown this earnings bridge throughout the year and we think it is a helpful way to summarize the various moving parts of our guidance.

At a high level, what has changed relative to our prior guidance.

Instead, we now expect stronger volume growth.

Stronger incremental price realization and some non operating tailwind from a lower tax rate.

All of which is more than offsetting inflationary headwinds, which have also turned out to be more significant than contemplated in our initial guidance.

The net impact of these dynamics allows us to raise the full year guidance to now reflect mid teens adjusted earnings per share growth.

A couple of other points of note on this page before we turn it over to Q&A.

Restructure and continues to be a key driver of our financial model with ongoing investments generate.

General and a strong strong savings throughout this year.

We continue to include restructuring investment and our adjusted earnings framework and are still targeting investments consistent with our prior guidance of approximately 30.

We now expect this investment to be more weighted to the second half as bill highlighted.

As our operational efforts over the first half is focus more on increasing our production capacity to meet the strong demand from our customers.

We still have a multiyear pipeline of footprint optimization products to drive incremental savings well into the future.

On price and material.

And as we've reiterated consistently throughout the first half we are highly confident and our ability to manage this equation to net favorability over the course of the cycle.

Although inflation and material as well as freight and labor have persisted throughout the second quarter, we have taken aggressive pricing and productivity actions.

And that will accelerate and the second half and generate wraparound tailwind going into 2022.

As is typical of our financial model tends to operate with 1 to 2 quarter lag between commodity cost and price capture.

So while we anticipate catching up the net positive on price material across the.

Action by the fourth quarter. This will continue to be of headwinds on a full year basis.

To conclude we are raising our full year adjusted earnings per share guidance to a range of $8.50 to 880.

We remain confident and our ability to deliver on these commitments and we are focused on serving the critical.

And infrastructure need of our customers, while continuing to actively manage our cost and deliver value for our shareholders.

With that let me now turn it over to the Q&A section.

And as a reminder, you can ask the question you read the press star.

And on the telephone quest.

Question from Japan, Please standby.

Interest income from Tom the Q&A and Ross.

First the question is from Jeff Sprague from vertical research your line is open.

Thank you good morning, everyone.

Morning, John and Jeff.

Hey, Lauren.

And on.

A couple from me.

First just on maybe where.

Where you closed durbin with kind of getting.

The net neutral on price cost I assume I assume that comment was just on.

The raw materials or are you talking relative to the broader scope that bill was talking about trying to get the labor and the logistics inside.

Inside of that construct also.

Yes.

And I'm talking about getting the material piece covered.

And we're we think we've got the actions lined up and already asked but as we've been through our reviews with everybody, we keep showing and those other chunks, Jeff and so.

I think we've got to.

Keep pushing on this and making sure that.

There is other forms of and plate inflation outside of commodities that we have got a sweep up into our pricing.

And then maybe add a comment on that.

And.

And much lower inflationary periods, we generally adopted the strategy of.

Price for commodities, and then we're driving productivity and our business to offset.

The more general inflation in this environment, where we're seeing the steep inflationary.

Sure.

And we think and around our pricing strategy more than just a commodity but think inflation more broadly so a lot of our app.

Actions are with broader cost inflation in mind.

On the understood and then.

And on restoring the.

The.

Power margins.

Could you just clarify kind of.

When and the kind of what level you were talking.

And about restoring.

Yes, I think Jeff if you look at the utility segment March from 18, 19 and into 'twenty you saw a nice healthy couple of hundred basis points of margin expansion there.

And so we are definitely catching the the utilities segment.

Segment here.

The off off of a nice high watermark.

And even specifically it's interesting thinking about the third quarter of last year when the.

And I actually rebounded nicely from the second quarter and I actually had some factory closures with with Covid and the second.

<unk>.

And they still had.

Some favorable price cost going such that that day.

They had real nice margins and so we've got some tough comps not only and the and the second half of 'twenty, 1, but looking back and yet as we continue to grow.

And manage price cost we think we can.

<unk>.

We're hoping that 2022 kind of.

And it recovers a lot of that margin that we face the.

Headwinds on this year and.

And what you should expect to see of sequentially improvement.

And on that margin as we go through the balance of this year.

Okay, Great and then just 1 last 1 from me just on a clear.

Obviously, the comp was super easy and the growth and the quarter doesn't really stand out relative to that comp I assume there was still.

Access and other issues, but could you just give a little.

The more specific color on how you see things playing out there over the balance of the year.

Yes, I think that the access will be even despite some of these variance.

Still feels like access is better.

I think in terms of.

And demand.

And.

Of the backlog plus the blanket orders continues Jeff to be healthy and as she is higher than last year.

And so.

And the Lumpiness of the business makes it a little tricky to be.

And to predictive to you.

Narrowly but certainly what we're looking for is the comms and meters business to be the drivers of the growth not the install side right. So we sort of need that to stabilize.

But again I would say.

The pipeline and the backlog.

And all looks where we want it and so if you take out.

Quarter to quarter distortions I think we.

We still see and.

Of this medium term outlook for us is mid single digit growth there.

But with with margin expansion.

Great. Thanks, a lot guys.

Your next question is from Steve Tusa from Jpmorgan. Your line is open.

Good morning, Steve of course, Steve.

Okay.

Steve if you're talking we can't hear you.

I don't know if youre on mute or maybe got dropped.

Maybe taken a question Tom you move to the next question in case there.

And as a problem of Steve's line.

Your next question is from Tommy Moll from Stephens. Your line is open.

And thanks for taking my questions Hey, Tom.

Thanks, Tony.

So in terms of your end market strength, you've you've talked about a V shaped and inflection versus last year also.

Pointed out some momentum.

And the quarter over quarter comparisons.

And then obviously raise your full year outlook.

As you look across the business.

And it as we start to think about next year I know, we're not going to get guidance today, but.

Do you of any sense of the duration.

Also of momentum.

Pockets of your business where.

Where you can start to see.

A more normalized rate of change or or is it just yeah. I think it's I think tammi the.

The first piece, that's hard and you are right to point out is.

Okay.

And of the thing of second quarter, when last year, we were down 21% this quarter.

Okay.

That's hard to describe that as normal.

And so we took a decent amount of enthusiasm from the sequential from <unk>.

<unk> to see that behave and a better than normal seasonal fashion.

And not by a lot, but when we look at orders the orders did improve by a lot.

And so that suggest to us the demand profile is improving.

I think the.

The cloud and our Crystal ball comes when if you told us that.

Customers were anticipating price increases and the choppy supply chain that would be a little bit of irregular and delivering customer service.

And.

That could lead to.

You know earlier buying the needed so.

We keep watching what's selling through and the channel versus whats out our doors and so far through the first half our sense is that everything is.

It's kind of moving.

Whether the end user is doing a little bit stockpiling is hard for me to see or to know.

But I think we're going to get past the down the and.

Of the here and the second and start to have.

A slightly more normal looking second.

Half of <unk>, when we start to do of VP wide basis on the top line. So.

I think I think the units versus price will be interesting to keep looking at theres going to be quite of bit of price.

And the second half.

And you think about.

US anticipating of full year at 4 points of price Tommy and we had of first quarter of 1 point and in the second quarter of about 3 and a half.

You can see that we're anticipating the second half.

Over 5.

So that will be.

That'll be on top of units and so we'll have to keep our eye on sort of those organic pieces and.

And make sure we track the units as well.

And then maybe just a couple of comments today I would say what gives us.

<unk> confident with our guidance going into the second half is what bill just indicated we build backlog.

In the first half so we have that going into the second half. We also have not seen meaningful restocking and the first assets that's certainly.

It gives us confidence that we can deliver.

Correct.

Pulling that land side, a little further going into.

2000, and trying and even beyond I would say and the scenario that we've talked about the around some of the secular growth trends and our and our industries right. So whether you look at renewables or grid reliability of those those are areas that we feel are setting us up.

And the set of longer term to continue to enjoy growth of course of course, the comps get tougher.

Spike up like this but.

We're still very optimistic about our growth going forward and as we think about Tommy stimulus.

And any kind of infrastructure package that gov.

Warehouse he may be behind.

It's certainly too early for us to see any impact of that obviously and it's not even clear.

And where 2022 might be impacted there. So we think the demand we're seeing is some.

And as solid and.

And we're pretty confident and that.

Thank you both that's very helpful. I wanted to follow up on capital allocation.

And taking care of your near term maturity.

Your leverage appears to be well under control so.

And what would you offer to help frame up.

Government.

The M&A.

The shareholder returns and the areas of increased.

And then you've got it.

Yes, I would say Tom if you think about.

If you think about us generating and order of magnitude 600, or so of operating cash flow and.

I would anticipate there being a couple of hundred million of dividends.

$100 million of Capex.

That dividend.

Is meant to be at a relatively.

On.

Around that 45%.

Net.

Net income payout ratio so as our net income kind of structurally gets better and anticipate increasing dividend payout in relation to that.

The $100 million of Capex is order of magnitude a couple of points.

And of our sales.

<unk> and <unk>.

And we're finding that that's adequate to handle capacity plus productivity needs.

Our share repurchases tend to be.

And that 40 ish range 50 ish, a year, which we really at the starting.

And I would think about.

Offsetting dilution rather than per se trying to shrink the shares outstanding and that that leaves about 250 of acquisitions.

And.

We continue to think Thats a.

Point Tom.

And would be a nice amount for a given year to be able to spend that and does.

Is that in.

And in new acquisitions armour cash started the year at his first day was new and.

So we're eager to.

To get back and close some acquisitions.

And we've got a nice pipeline of opportunities there.

Say the market.

It is a little bit hot if youre on the buyer side I'd say valuations are tending up.

The processes move fast.

And so.

That'd be mindful as we are on the buy side here to make sure.

We can find good things like the good values and we're confident that we'll continue to do that.

Sure.

Thanks, Bill that's helpful and I'll turn it back.

Your next question is.

And from Christopher Glynn from Oppenheimer. Your line is open.

Thank you and good morning.

Good morning, Chris Thanks, Greg.

Morning, Joe.

More good numbers and topline from utility.

And you broke out the 19% the T&D, 90% for Clara organic curious.

And how you peg the market growth there because I think he kind of of the legacy of doing a little bit better.

Yes, the inside of T&D.

I think our perception is that we maybe have been share.

The share gaining a little bit of of share.

And.

But it's.

Maybe hard for me to prove that to you, but it feels to us like we are on Chris.

Okay.

Is there any way you benchmark the of Clara side of the house.

Yes, I mean, certainly there are a.

A couple of.

Public comps.

And who report sales growth.

From the meters income side, and as we looked at them quarter and quarter out over our ownership period I would say it feels like we've outpaced them a little bit.

And probably on the meter side.

But again.

We continue to see that and that's a good mid single digit kind of a long term grower and.

A couple of decent public comps that we can track ourselves too to make sure. We're yes, we're growing with the March yes, it's strictly easier on on.

That side of the.

Communication side, where you have some public companies to compare it and on the legacy power side, where where there is less or the there within larger companies. So it's very hard to get.

To get to that and.

The numbers.

Okay, and then on electric Bill Curie.

You could do any day.

Deeper dive on the book to Bill and then within non res and the particulars of what's improving.

And there if it's kind of bifurcated and your product categories or not.

Yes, I mean, the book to Bill was over $1.15 and that name.

And so.

Recent bookings.

And and.

And non res.

We had higher performance on the Reno retrofit side than we did on the new construction side. So.

Something that.

Like C&I lighting, Chris that's become.

More dependent on the Reno and retrofit I think.

Benefit and it was interesting to see them grow at over 20% and the quarter.

Tom.

But the.

The leading indicators on on new construction of the non res or.

Neighborhood leaning favorable too so despite the fact that we started the year of little cautious on non res. It's it's proved to be.

Stronger than we were predicting back back in January.

Alright, and then just.

Clarify I think you said lower tax.

I'm not sure if you gave us the level of model if you could comment there.

And also would.

I'm not sure what's driving that but would we expect just kind of a normalized tax rate back in.

'twenty 2.

So.

So I would say our normal tax run rate has been and that 22.

The money 3 range.

In the second quarter.

And I was down and around 18, 5 ish and.

And so that will cause kind of a 1 point reduction and the full year 'twenty, 1 'twenty 2 rather than 'twenty 2 'twenty 3 so.

On the discrete items and the quarter don't repeat and don't reverse they just help.

And create a little bit of tailwind and the second quarter and that gets kind of smoothed out over the full year.

Understood. Thank you.

Your next question is from Josh.

Crazy Wilkie from margin.

Your line is open.

Hi, good morning, guys.

Good morning, Josh.

Bill just a follow up on on some of the price cost commentary and kind of the broader definition that you're using.

What would the expectation.

And maybe some of the.

The the material side of the equation starts to level off but.

Maybe things like freight or labor or other logistics costs remain high and I guess.

Is that something that you feel like you can go to the market with price with the or the customers really want to be able to circle of chart with steel prices and tie back of that a little bit better.

Yes, and I think we're trying to position that conversation and the broader sense and you've captured the 2 biggest drivers that we're going to throw in the bucket, which is transportation costs and labor costs. So.

We certainly owe our customers.

Every effort at us having.

Productivity.

And I would say.

And to expect that productivity to give us a.

A couple of points.

Off the cost base is realistic right and in an inflationary environment like this.

You just kind of just those 2 items, you mentioned transport and labor and going to outstrip what productivity can do so.

We feel the more surcharge and the discussion is Josh right, where youre just pulling out of graph of.

Here's steel copper aluminum.

That's 2 that feels like Youre, just surcharge and for the metal.

And and.

As Mrs.

On the part of the quote conversation that we think is important and which is.

Overcoming.

So the.

And that's.

Sort of of a new.

Initiative and drive of ours and the.

Corbett and I spent.

Last week and operations reviews, and really met with all of our key.

On the U and P&L.

And flat answers and.

They are all pushing for that definition of of.

And what price needs to cover so.

We're going to keep we're going to keep driving here and the second half yes.

Yes.

Maybe just to add to that is we're.

We have definitely evolved and pricing and the businesses both how we organize.

<unk> as well as our approaches we're doing it.

More aggressively and I would say, we're doing it with more and analytics around it and organization around it so.

I fully agree with Bill Com and it is less about indexing and surcharge and then it is looking at pricing across your entire portfolio.

Around <unk> and where can you get price.

And and where do you need price and I think we're managing both of those probably better than we've ever managed it and I think you'll see that by price realization commodities have continued to go up throughout this year right and it's now and steel as an example.

Portfolio of our highest users and a year ago that was sitting at about 6700 of <unk> at 2000 and done and so and it's sitting at a high right now so.

Will that eventually level off will that come down.

Who knows the thing that we can't control is the actions we take.

Which is pricing and we're going after the really aggressively.

Got it that's helpful. And then just on the utility side for your garden.

Obviously, a lot of especially on the legacy.

The power systems business.

Moving on and the marketplace, whether it's some of the energy transition and.

And Thats 1 of the renewables grid.

Great Modern day soon but I also note the theirs.

From heightened kind of near term activity with places like Texas and California.

Your sense of kind of what is going on there that you would say is a bit more kind of of secular and forward thinking on the part of your customers versus.

Stuff from the stuff, that's more reactionary and the here now and I.

My guess would be its all of the above book.

On a little further.

Yes.

And as you asked the question because it is and it's I would say, it's bill I see it very much consistent with how we've communicated that and there is absolutely some.

Ocular drivers and this market that will continue to set us up.

Very aged infrastructure that with the <unk>.

Push for renewable switches, which is real I mean that this is happening is putting a ton more stress on the system. So I think there is a desire to retire.

On <unk>.

Sufficient.

Assets and to put on more of a pension which is which is the renewables and we benefit from that very secular and I think and that there is a heightened realization of how fragile. This grid is and thats, where youll see the upgrading of the grid.

Get the reminders of that Thunder storms.

And Theres fires.

But I'd say those 2 kind of go hand in hand.

And we are very bullish on this over the next few years, but as you point out it's not necessarily 1 thing.

But but it's positive for us and I also say that there is.

Generally good support from regulators on these types of investment and the public utility commissions are <unk>.

Recognizing the need for this as well so I think theres a lot of momentum here.

Great I appreciate the color thanks, guys.

Your next question is from Chris Snyder.

UBS Your line is open.

Thank you and I wanted to follow up on and Chris on some of the Mackay has been won and are on some of the commentary around you know raw material inflation could you remind us of how significant raw material consumption is as a percentage of the cost of goods sold in a normal year.

We can put some math around the Q4 price cost neutral comments, which it sounds like it's reflecting price up and the 5% kind of plus range.

Yes, Chris your math and like the way Youre doing the math I would put our raws.

And the order of magnitude of the low 40%.

<unk> of sales.

And.

A little bit more than half of Cogs.

And so there is a mathematical equation between.

And what you need on the top line and price versus.

The inflation, you're getting and the raws.

I think about it exactly the way you are.

Okay I appreciate that and then for.

For the second 1 of the lots of follow up.

And particularly on the non res business and then within that specifically the new construction side, which feels like it's beginning to turn could you.

Just remind us.

And where you sell into the.

New construction.

Lifecycle and I know lightning is quite late stage.

And maybe more on the electrical side I am just so we can clear feel for how you realize that recovery yes.

Yes, I would say the rough in electrical is fairly mid.

Mid cycle to the construction so think of <unk>.

Boxes that wood.

And B.

Inside of the wall.

But then some of the receptacles and and.

Getting and poke throughs and the floors those would all be quite late cycle. So.

Kind.

The mid to late and.

Skewed towards the late in the timing of that.

I appreciate that thank you.

Curt.

Your last question is from Justin Bergner from G Research Your line is open.

Good morning, and good morning Bill.

Good morning.

2 quick questions on the grid side, the T&D side.

What is the potential upside from bearing electrical bearing power lines for example, and California.

And then on the utility infrastructure.

So we are of the bipartisan bill cash is.

Looking at the medium term do you see that as sort of extending this 5% to 6% organic growth rate environment.

Your T&D business are actually Inc.

Creasing that growth rate.

So Justin let me take the first part and now.

Bill.

Bill the SEC.

Quite so the first 1 on on the on the grid T&D the Po.

Taking your question was around underground.

I think you probably saw recently a large IOU utility is talking about.

Perhaps doing this.

I'd say our portfolio Lee.

Bill more to the overhead side, but if you think about transmission infrastructure and the distribution grid.

Most of the U S actually as overheads, except when you go into the neighborhoods.

We do have a presence and the underground and I would also say that 1 and as you look at the investments.

<unk> required to Bury this it's your monitor so it's generally of at least 10 X or more of the cost I think many utilities don't find the economics to be able to do this and I don't see it as a.

A threat to our to our franchise truthfully, but.

<unk> and <unk>.

And in certain situations can happen and we can surf materials for it as well.

Yes, I think the second half on the infrastructure.

I think areas like.

Renewables can really be.

The quite favorable to where hubbell as exposed.

Solar and wind components, both on both sides of our segments, we would have utility benefits as well as some of the the grounding and component elements inside of electrical anything on grid reliability.

Liability certainly would be favorable there's talk on on telecom reliability.

And just making buildings.

<unk>.

Moore and energy efficient for our behind the meter piece of our business.

And there's a lot of inside of that that ultimately.

I think could contribute to.

Maybe what I'd call a stimulated period of demand that would be a little bit more than sort of our normal level if that if that comes to pass.

And gets spent over who knows period of 5 years or so so it would be.

Certainly on the topline and it would be have bullish implications I would say.

Great. Thank you I'll take my other questions offline I appreciate the color.

Okay, great. Thank you.

There are no questions over the phone and the turn the call back to Dan you know morado.

Alright, thanks, operator, thanks, everyone for joining us I'll be around all day for questions.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

[music].

[music].

Good day, Thank you for standing by and welcome to the Hubbell second quarter.

<unk> earnings call at this time, all participants are in listen only mode. After the speaker presentation. There will be question and answer session to ask the question. During the session. All can read the press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star.

Zero I would like to hand, the conference over to your speaker of today, Dan Inamorato. 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 second quarter 2021.

The press release and slides are posted to the investors section of our website at Hubbell Dot com.

I'm joined today by our chairman President and CEO of Girvin, Parker, 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 press release and considered 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 great.

Great. Thanks, Dan and good morning, everyone.

And thank you for joining us on this busy day to discuss Hubbell second quarter results.

I am going to start my comments on page 3 with some key takeaways for the quarter.

As you can see from our results and our press release. This morning. It was a quarter of strong growth for hubbell with revenues and earnings each up.

And 20%.

We are seeing broad based growth across both our electrical and utility segments and.

And within each of our major end markets.

As anticipated our operating margin declined year over year, and the second quarter due to the lapping of prior year cost actions as well as inflows.

And over generic headwinds, which we are actively mitigating through price and productivity.

Operationally, our second quarter results are consistent with our prior guidance, but we are now raising our full year adjusted earnings per share expectations at the halfway point.

We will walk you through.

Inflation and some more detail later, but at a high level, we see stronger market growth and and modestly lower full year tax rate relative to our prior guidance.

And while inflationary headwinds are greater than initially anticipated, we are proactively driving incremental price and productivity to offset.

Our guidance.

We will give you some more context around each of these dynamics throughout this morning's presentation.

Turning to page 4 to provide some more details on the results second quarter sales were up 26% and organic growth was up 21% year over year.

Set as markets and customer demand were strong across both segments.

And electrical solutions, we saw broad based inflection across end markets with light industrial continuing to lead the recovery.

And heavy industrial and nonresidential markets beginning to improve as well.

Year, we notice coming out of the the first quarter that electrical orders have turned positive and.

And this trend accelerated in the second quarter as demand remained strong and electrical orders continued to exceed shipments.

Looking ahead, we expect our electrical markets to benefit from these recoveries and industrial and nonresident.

The residential markets as well as longer term trends towards increased electrification.

And the utility solutions, we continue to see strong demand for T&D components, driven by aging infrastructure and grid modernization trends right.

Recall the despite the economic.

Well of the COVID-19 pandemic, our power systems business remains very resilient and grew revenues in 2020 as our electric utility customers are actively investing to upgrade and modernize the grid.

These investments are driving attractive growth over the near and long term, including on our gas.

Gas distribution business, which is effectively serving the growing need from gas utilities, the heart and the upgrade critical infrastructure.

As anticipated communications and controls markets returned to growth and the quarter as project deployments, which faced pandemic related delays have steadily.

And the returns.

Operationally adjusted operating margins of 14, 5% were down year over year.

As previously communicated we took a series of temporary cost actions and salary reductions and the second quarter of 2020, which resulted in a onetime benefit.

Approximately $20 million.

And we lap that benefit this quarter.

We also continued to face significant inflation from materials freight and labor as the impact of tight supply chains across the industrial economy drives higher input costs.

However, we are being aggressive and a rich.

Fit of the.

We continue to utilize the strength of our brands to lead most of our markets and frequency pace and magnitude of price increases and we achieved strong price realization in the quarter of 3.5% with increasing traction into the second half.

We also continue to realize significant.

Bond and savings from our prior investments and restructuring actions, particularly within the electrical solutions segment, where you're already seeing the productivity benefits of unifying the segment under a common leadership structure come through and our results.

We will give you some more granular color on our outlook section at the end of this presentation.

Significant and our expectations for the second half.

But we are managing through a dynamic environment aggressively and proactively and we now expect to deliver stronger full year results, then from where we said a few months ago.

Let me now turn it over to Bill to give you some more context around our financial results starting on page 5.

Good morning, everybody.

And how busy you all are so I appreciate you taking time with us.

<unk> 5 and Scott from graphical representations of what drove and walked through so you see the 2006.

On a percent sales growth to $1 billion $1.92.

Yes.

And <unk>.

4 points of acquisition and it.

And it's got to about 3.5 points of price.

And on tax too.

Electrical growing and about 28% and utility and about 23.

So quite a broad base.

That's good.

And I think fair to describe this is a V shaped inflection for us.

<unk> and against the second quarter last year.

Where.

We were down just a little over 20% and total a little more skewed.

Base towards the electrical as curve and the highlighted utility was a little more resilient and last year.

So.

I think the other thing to comment on about the sales growth and about $2 billion 192 is sequentially the.

Pick up from the first quarter.

Skewed is better than typical hubbell seasonality so.

Not just as the V shape feel like it's rebounding from last year's Tim but it also feels like.

Building some momentum.

And some improvement from first quarter 2.

Second quarter.

On the LP and line.

Third $73 million, an increase of 15% year over year.

<unk> and highlighted the.

And this V shape recovery is bringing with it.

A significant amount of inflation.

And so we're working.

Hard to get our pricing up.

To that level and we're making.

Quite good progress on that and we'll talk about that and a little bit more.

And our segment discussions.

And.

As you look at earnings per.

Share on the lower left of page 5 you'll see an increase of 26% to $2 and 36.

A.

A nice a nice.

And I see increased its in line with the sales level.

To get there we had.

Some help from the non op areas.

Most notably from tax.

Some discrete items.

Allowed us to have and effective tax rate and the quarter and the mid teens.

And which would cause our full year tax rate to come.

Down to that 'twenty, 1 'twenty 2 range from what we started to expect of 'twenty 2 to 'twenty 3.

And contributor too.

On the non op side as interest expense a little bit lower this quarter, we mentioned last quarter, we had refinanced.

$300 million of bonds at about 130 basis points from lower interest rates and we're getting the benefit of that lower interest rate here and the second quarter.

And the free cash flow.

$131 million.

It's important to think about what the right comparison and content.

And just for that $131 million is.

Last year as of strange compare and the second quarter of 2020.

We were certainly reacting to the sharp contraction and demand.

And we're on.

Harvesting the working capital section of the balance sheet.

Collecting receivables.

And not building or investing and inventories.

And this quarter this year.

As of 180 to that basically half.

Gone from the contraction to the expansion and so we're investing heavily and receivables and inventories.

Content. So I think looking back to 2019 is actually pretty instructive.

We've got a full year target this year of getting to $500 million of free cash flow, which is around the level we achieved in 2019.

And at the halfway point of.

<unk> and 'twenty 1.

The 131, plus the first quarter gets us to about 170 of.

First half cash flow, which compares.

Favorably to where we were the 2019 so feels.

<unk> on track and I think you got a story.

2000, and quite strong revenues and continuing to navigate the inflationary environment as we work to get our margins.

To where they were last year.

I think it's instructive, though to unpack the enterprise results into the 2 segments because they are.

Yeah.

Performing a little bit differently.

We'll start with the electrical segment on page 6.

You see 28% growth rate to $603 million of sales.

That includes 1% from.

<unk> from acquisitions.

And remember I was talking about the <unk> acquisition and really good.

Investment made by the segment and the <unk> and tenant space.

And just about 4 points of price and that organic growth of 26%.

And so youll note that thats.

That's a little bit ahead.

Of the average for the company of 3 and a half.

We're finding that.

And the EDI channel.

It's quite receptive to these price increases.

And we find that their.

Passing that along the channel.

And the user and installers.

And most of what we're <unk>.

Selling and we're finding selling through.

And.

Not any kind of pre buy situation that we're noticing and the channel.

Yes.

And the broad based.

Nature of this recovery is certainly.

Notable.

On the electrical <unk>.

<unk> was down about 26% of full year ago. The next quarter is down about 14, the next quarter about 10.

And then.

And flat and now up so quite a noteworthy inflection.

And quite broad based.

I'd say, if anything leaning to the industrial.

Side as kind of a leading leading us and the V shape rebound.

Certainly light industrial.

<unk> has been our strongest and market.

Our selling connectors grounding wiring device type products and to that and market and experiencing attractive growth.

But the heavy heavy side is showing.

Positive signs as well.

Our harsh and hazardous business, which has been <unk>.

Oil and gas based.

We've worked hard to diversify the end markets they serve with explosion proof.

Devices and.

And they returned to growth.

Which is quite welcome.

As well as heavy industrial components, which are serving <unk>.

Factory Steel Mills rail transportation and the like also showing good signs.

On the non res side, we had started the year a little bit cautious on non res we're anticipating.

Some contraction there.

We've been experiencing growth.

And.

Interesting.

I think to be led at this point by the Reno and retrofit.

Side of the business I think new construct.

Struction the.

The early indicators of the leading indicators are looking positive there as well. So certainly we have a brighter outlook for non res than we started the year.

And inside of there.

We've got not only wiring devices, but our commercial and industrial lighting.

Which grew over 20% in the quarter.

And the resi business.

And was.

It continues to be strong.

And the.

And they sort of was strong all through last year. So they will have harder comps to lap and the second half.

But still showing some some decent resilience there so.

The team did a great job of getting margins too.

To expand the 13, 4%, 41% growth and on.

Operating profit to 81 million.

And.

The higher volumes are important.

The restructuring work the carbon mentioned at the beginning.

Quite important.

We have been.

Investing on.

Money as you followed us here.

A couple of years ago, we spent about $37 million on restructuring last year about 31 million and anticipating the spend about 20 of this year and.

Is that youre getting both of tapering effect of that spending but also the benefits from the projects. We did last year, creating some good lift.

And those were substantial enough to help us overcome the headwinds from the inflation.

We're facing and.

And I think it may be worth.

The comment on pulling the lens back on restructuring.

We continue to feel.

Quite.

Good.

The program.

We've taken out by <unk>.

By our analysis.

About $1.5 square feet from our manufacturing footprint and.

It's over 15%.

And we continue to see opportunity.

And on the manufacturing side.

Ultimately on the warehouse side as well and as curve and described in his opening comments the.

On the ability to take the segment and compete collectively.

Under a unified leadership.

The book rather than have 3 different vertical businesses. We think is opening up good opportunities to share warehouses to share factories and become more efficient and we see continued runway there.

Would comment that in the first half of the year.

We didn't spend half.

Of the $20 million, we anticipated I'd say a lot of our engineering focus was on capacity and making sure we had production to service our customers' needs.

And so the back half outlook for electrical will contain.

And.

And on R&R spending compared to the first half, but we anticipate the demand to be strong they start the second half with the big backlog.

And the.

And the pricing actions continued to increase as commodities continue.

And England to increase most notably.

Steel, we've seen copper and aluminum is starting to show signs of maybe flattening out.

Steel is still showing signs through the third quarter of increasing until hopefully it looks like some.

Rollover and.

And ultimately in the fourth.

So we continue to price for that I think we've also had to expand our definition I think those of you who followed us know.

We try to maintain of parity between price and commodity cost and.

And then use productivity to offset inflation and non commodity.

The quarters, we're finding that the inflation and areas like transportation and some labor costs.

Are such that.

Natural productivity levels are and sufficient so we're starting to sweep those other items into the bucket that need to be covered by price.

And again, we've been in.

Areas of interest by the channels reaction and we will continue to.

Offset those and and to get to.

Get get back our margins.

On the utility side on page 7.

You see.

23% growth to 589 million.

Kurt there.

And there are 6 points of acquisition inside of that utility growth number and 3 points of price.

<unk> to the.

And the 4 points of price and electrical so.

Utility customers, moving a little bit more deliberately than.

And the.

Channel, serving the electrical side.

And those acquisitions.

To remind you included in.

The enclosure area for electric utilities water utilities and telecoms.

That business is high.

The EDI high margin. We also bought that company is called the armour cash.

Beckwith is wrapping around here with which is controlling the infrastructure.

And maybe also of note.

And we sold a very small line of business from within.

And of Clara the customer engagement business.

That didn't fit well.

With our set of solutions and.

Was worth more to someone else than it was to us so.

And has no material impact on on our sales.

Of our op going forward, but we feel we can use the proceeds from that to invest and areas with with the better fit.

We've unpacked the sales here and the utility solutions between the components and the communications.

The components of both.

Electrical T&D.

The old legacy Hubbell power systems, continuing the resilient and last year continuing to grow.

Very very nicely this year the grid modernization.

Trend and renewables trends continue to push spending there.

We've noted a little better strength and distribution and transmission this quarter that can go back and forth.

And the gas distribution and components that go into the last mile.

Of natural gas distribution had been youll recall.

Slightly held back.

By some site access issues and happy to see those conditions, improving seeing nice growth and nice margins out of the gas distribution business.

And on the comms business and of Clara.

We had also had site access issues, there and as those.

Back proved.

We see that returning to growth so again broad based situation of.

Of healthy demand inside of utility solutions.

The $93 million of operating profit as comparable to last year.

<unk> and.

And at lower margin than last year.

The price cost.

Area continues to.

The.

A source of drag here in the second quarter.

Our 3 points of price is up from about a point.

And the.

The first quarter we've.

We've had our fourth increase already announced which will influence the second half.

So I think an unprecedented number of.

Of increases.

And we feel we're certainly leading the market as we announce.

And this increases.

But.

We continue to be very confident that we will catch up as this inflation from the commodity starts to level out.

And that will catch up and restore our margins.

Those from there's 2 other factors worth mentioning here and the margin profile.

First is the armor cast acquisition that I mentioned.

It's located in southern California, and and are we closed on the.

Very early January so we've had it for about 6 months.

And I'd say they've and.

Toward significant labor turnover and having a hard time.

Staffing the facilities and that geography.

So.

It's not been contributing much though on the.

Bottom line.

And.

And so we are working hard and we're very excited about the acquisition and we are.

Confident we'll have a better second half and set up well for a better 2002.

I think the third driver I'd mentioned to you is inside of the Clara recall Theres 3 lines.

And is there the communications the meters and the install.

On the install businesses.

And the lower end of profitability of the 3 lines of business, that's where the access.

It had been constrained and that was loosened we saw the <unk>.

Stall area of B.

The largest level of growth.

And therefore being mix unfriendly and so those pieces conspired to result in flat Opie for.

<unk>.

And I think that describes the 2 segments and where they.

As we think about the outlook for utility.

We feel great about the backlog that's starting in the second half the demand feels broad based and solid.

And perhaps of note the chip shortage that we're all reading so much about the.

The place that would.

Affect hubbell, because more and the of Claire on the communications side and we will.

Sort of watching those supply chain situations closely but our guidance is contemplating some of those some of those risks. So I'll turn it back curve and to you to talk through the outlook and generally great.

Bill.

Let's turn to our 2021 outlook and on page 8 and starting with our end market Pie chart on the left with the first half behind us and increasing visibility into the unfolding economic recovery our markets overall are trending above expectations that we had at the beginning of the year.

Thanks, Bill and most notably as Bill indicated industrial markets have strengthened throughout the year and we now expect this market to be up high single digits on average with light industrial verticals, leading the way and heavier industries expect that to continue recovering and the second half.

We're also more optimistic on nonresidential.

The markets, where we're expecting modest decline a quarter ago and now see modest growth.

While new construction activity remains mostly software now we expect to see recovery here heading into 2020.2 as major leading indicators of rebounded strongly in recent months.

Near term.

Residential incremental optimism and nonresidential is driven by Reno and retrofit markets, which have been solid as the economy has reopened.

On the utility half of our business, we are sticking with our prior and market guidance for approximately mid single digit growth for the full year.

Communications and controls outgrew.

Outgrowing components, primarily due to the prior year comparison dynamics.

This all adds up to mid single digit market growth for the full year and we are now anticipating high single digit organic growth as we drive approximately 4 points of price realization.

And then when we layer.

On the contributions from acquisition, we now anticipate total sales growth of 11% to 13% for the full year.

We've also tightened and raised our adjusted earnings per share guidance by 25 at.

And at the midpoint versus our prior range.

And continue to expect approximately 500.

Million of free cash flow for the full year.

I'll give some more context on the drivers of this guidance range that the next page, but with half of the year behind US we are confident and our ability to deliver on these raised expectations.

Now turning to page 9 for our year over year EPS Bridge.

As shown on this earnings.

Earnings bridge throughout the year and we think it is a helpful way to summarize the various moving parts of our guidance.

At a high level, what has changed relative to our prior guidance is that we now expect stronger volume growth.

Stronger incrementals price realization and some non operating tailwind from a lower tax rate.

All of which is more than offsetting inflationary headwinds, which have also turned out to be more significant than contemplated in our initial guidance.

The net impact of these dynamics allows us to raise the full year guidance to now reflect mid teens adjusted earnings per share growth.

A couple of other.

The points of note on this page before we turn it over to Q&A.

Restructure and continues to be a key driver of our financial model with ongoing investments generating strong strong savings throughout this year.

We continue to include restructuring investment and our adjusted earnings framework and are still targeting investments.

Consistent with our prior guidance of approximately 30.

We now expect this investment to be more weighted to the second half as bill highlighted as our operational efforts over the first half has focused more on increasing our production capacity to meet the strong demand from our customers.

We.

And we still have a multiyear pipeline of footprint optimization products to drive incremental savings well into the future.

On price and material.

As we've reiterated consistently throughout the first half we are highly confident and our ability to manage this equation to net favorability over the course of the cycle.

Although inflation and material as well as freight and labor have persisted throughout the second quarter, we have taken aggressive pricing and productivity actions that will accelerate and the second half and generate wraparound tailwind going into 2022.

As is typical of our financial model tends to operate with.

The 1 to 2 quarter lag between commodity cost and price capture.

So while we anticipate catching up the net positive on price material across the enterprise by the fourth quarter. This will continue to be a headwind on a full year basis.

To conclude we are raising our full year adjusted earnings per share guidance to a.

The range of $8.50 to 880.

We remain confident and our ability to deliver on these commitments and we are focused on serving the critical infrastructure need of our customers, while continuing to actively manage our cost and deliver value for our shareholders.

With that let me now turn it over to the Q&A section.

And as a reminder, you can ask the question you will need the press star 1 on the telephone.

The question from Japan, Please Tim.

All of the Q&A roster.

Your first question is from Jeff Sprague from vertical research your line is open.

Thank you good morning, everyone.

Good morning, John and Jeff.

Hey, good morning.

For me.

First just on maybe where you closed durbin.

And of getting.

Net neutral on price cost I assume I assume that comment was just on.

The raw materials or are you talking relative.

And to the broader scope that bill was talking about trying to get the labor and the logistics.

Inside of that construct also.

Yes.

I'm talking about getting the material piece covered.

And we're we think we got the actions lined up and already asked but.

And as we've been through our reviews with everybody.

We keep showing and those other chunks, Jeff and so.

I think we've got to keep pushing on this and making sure that.

And there is other forms of and plate inflation outside of commodities that we have got a sweep up into our pricing.

And then Jeff and maybe add a.

Comment on that.

And much lower inflationary theories, we generally adopted the strategy of <unk>.

Price for commodities, and then we drive productivity and our business to offset more.

A more general inflation in this environment, where we're seeing the steep inflationary.

Sure, we're definitely thinking around our pricing strategy more than just commodity but think inflation more broadly. So a lot of our actions are with broader cost inflation in mind.

And understood and then the comment on restoring the.

The.

Power.

Margins.

Could you just clarify kind of.

And when and the kind of what level you were talking about restoring yes.

Yes, I think Jeff if you look at the utility segments March from $18.19 into 'twenty you saw a nice healthy.

Couple of hundred basis points of margin expansion there and.

And so we're definitely catching the the utility segment here.

Off of off of a nice high watermark.

And even specifically it's interesting thinking about the third quarter last year.

The.

They actually rebounded nicely from the second quarter and I actually had some factory closures with with Covid and the second.

And they still had some.

And some favorable price cost going such that that.

And that they had real nice margins and so we've got some tough comps not only in the and the.

Half of 'twenty, 1, but looking back and yet as we continue to grow.

And manage price cost we think we can.

<unk>.

And we're hoping that 2022 kind of.

Recovers a lot of that margin.

When we faced the headwinds on this year and.

And what you should expect to see of sequentially improvement on that margin as we go through the balance of this year.

Okay, Great and then just 1 last 1 from me just on the clearer.

Obviously, the comp was super easy the growth and the quarter.

And that.

It doesn't really stand out relative to that comp I assume there was still.

Access and other issues, but could you just give a little more specific color on how you see things playing out there over the balance of the year.

Yes, I think that the <unk>.

Access will be even despite some of these variance.

Quarter.

And still feels like access is better.

I think in terms of.

The demand.

Of the backlog plus the blanket orders continues Jeff to be healthy and as she is higher than last year.

<unk>.

And so.

On the Lumpiness of the business makes it a little tricky to be.

The 2 predictive to you narrowly but certainly what we're looking for is the comms and meters business to be the.

And for some of the growth not not the install side right. So we sort of need that to stabilize.

But again I would say the pipeline and the backlog.

It all looks where we want it and so if you take out of <unk>.

Quarter to quarter distortions I think we.

The dry we still see.

This medium term outlook for us is mid single digit growth there.

And with with margin expansion.

Great. Thanks, a lot guys.

Your next question is from Steve Tusa from Jpmorgan Your line.

Okay.

Good morning, Steve of course, Steve.

Okay.

Steve if you're talking we can't hear you.

Yes.

I don't know if youre on mute or maybe got dropped.

And is it.

Yes.

And maybe taken a question and I hereby move to the next question in case, there's a problem with Steve's line.

Thank you Sir.

Next question is from Tommy Moll from Stephens. Your line is open and.

Good morning, and thanks for taking.

Hey, Tom and thank Tony.

So in terms of your end market strength, you've you've talked about the V shaped and inflection versus the last year also pointed out some momentum.

And the quarter over quarter comparisons.

And then obviously raise your full year outlook.

As you look.

My question for the business.

And as we start to think about next year I know, we're not going to give guidance today, but.

Do you of any sense of the duration of this momentum.

And any pockets of your business where.

And where you can start to see.

A more normalized.

Across the change or or is it just yes, I think it's I think tammi the.

The first piece that is hard and you are right to point out is.

Comparing our second quarter when last year, we were down 21% this quarter.

Yes.

That's hard to describe that as normal.

<unk>.

And so we took a decent amount of enthusiasm from the sequential from <unk> to see that behave and a better than normal seasonal fashion.

Not by a lot, but when we look at order.

Orders the.

The orders did improve.

And so that suggest to us the demand profile is improving.

Thank the.

The cloud and our Crystal ball comes when if you told us that.

Customers weren't anticipating.

Price increases and the choppy supply chain that would be a little bit of regular and delivering customer service.

That could lead to.

Earlier buying the needed so we keep watching what's selling through.

Through and the channel versus whats out our doors.

And so far through the first half of our sense is that everything is kind of moving.

Whether the end user is doing a little bit stockpiling is hard for me to see or to know.

But I think we're going to get past the down V and the up the here and the second and start to have.

Slightly more normal looking second half when we start to do of VP wide basis on the top line. So.

I think I think the units.

Versus price will be interesting to keep looking at theres going to be quite of bit of price.

And the second half if you think about.

The us anticipating of full year.

At 4 points of price Tommy and we had of first quarter of <unk>.

And 1 point and in the second quarter of about 3 and a half.

You can see that we're anticipating the second half.

Over 5.

So that will be.

And that'll be on top of units and so we'll have to keep our eye on sort of those organic pieces.

And it.

And make sure we track the units as well.

And then maybe just a couple of comments to add to that I would say what gives us.

Confidence with our guidance going into the second half is what bill just indicated we built backlog.

In the first half so we have that going into the second half.

We also have not seen meaningful restocking and the first half of that certainly helps it gives us confidence that we can deliver and the second half.

Pulling that land side, a little further going into.

2000, and trying and even beyond I would say and the scenario that we've talked about the around some of the secular.

Growth trends and our and our industries right. So whether you look at renewables or grid reliability of those those are areas that we feel are setting us up.

Well longer term to continue to enjoy growth of course of course, the comps get tougher.

Spike up like this but.

We're still very optimistic.

The mystic about.

Our growth going forward and as we think about Tommy stimulus.

And any kind of infrastructure package that government policy may be behind.

It's certainly too early for us to see any impact of that obviously and it's not even clear.

And if where 2022 might be impacted there. So we think the demand we're seeing is some.

And as solid and and.

And we're pretty confident and that.

Thank you both that's very helpful. I wanted to follow up on capital allocation.

You've taken care.

And near term maturity.

Your leverage appears to be well under control. So what what would you offer to help frame up the priorities in terms of M&A shareholder returns in the areas of increased from <unk>.

<unk> and return on that you've got it.

Right.

Yes, I would say Tommy if you think about.

Think about us generating and order of magnitude 600, or so of operating cash flow and.

And.

I would anticipate there being a couple of hundred million dollars of dividends.

$100 million of Capex.

The.

And that dividend.

And.

And is meant to be at a relatively.

Around that 45% of net income payout ratio. So as our net income kind of structurally gets better and anticipate increasing a dividend.

And payout in relation to that.

$100 million of Capex is order of magnitude a couple of points.

And of our sales and.

And we're finding that that's adequate to handle capacity plus productivity needs.

Our.

Our share repurchases tend to be.

And that 40 ish range 50 ish, a year, which we really at the starting point and Tom you would think about.

Offsetting dilution rather than per se trying to shrink the shares outstanding and that that leaves about.

<unk> 50 of acquisitions.

And.

We continue to think Thats a.

It would be a nice amount for a given year to be able to spend that.

And that in and.

And new acquisitions.

Armour cash started the year at his first day was new and.

So we're eager to.

And to get back and close from acquisitions.

We've got a nice pipeline of opportunities there I'd say the market.

<unk> is a little bit hot if youre on the buyer side.

Ted I'd say valuations are attending up.

The <unk> move fast.

And so.

We got to be mindful as we are on the buy side here to make sure.

We can find good things that are good values and we're confident.

Side, and we will continue to do that.

Thanks, Bill that's helpful and I'll turn it back.

Your next question is from Christopher Glynn from Oppenheimer. Your line is open.

Okay. Thank you good morning.

Good morning, Chris on your Craig.

Good morning, so more good.

Good numbers topline from utility.

And you broke out the 19% the T&D, 90% for Clara organic I'm curious, how you peg the market growth there because I think you kind of have the legacy of doing a little bit better.

Yes, the inside of T&D.

And.

I think our perception is that we may be have been <unk>.

Share gaining a little bit of of share.

But it's.

Maybe hard for me to prove that to you, but it feels to us like we are of Chris.

Okay and is there any way you benchmark the of Claris side of the house.

Yes, I mean, certainly there are a couple of.

Public comps.

And who report sales growth.

From the meters income side and.

And as we looked at them.

The quarter and quarter out over our ownership period, I would say it feels like we've outpaced them a little bit probably on the meter side.

But again.

And we continue to see that and that's a good mid single digit kind of a long term grower.

<unk>.

Couple of decent public comps that we can track ourselves too to make sure. We're yes, we're growing with the March yes, it's strictly easier on on that side of the.

Communications side, where you have some public companies to compare it and on the <unk>.

Legacy power side, where where there's less or the are there.

Sure and then larger company, so it's very hard to.

To get to that and.

Exact numbers.

Okay, and then on the electrical curious do any.

Deeper dive on the book to Bill and then within non res and the particulars of what's improving.

The.

And where if it's kind of bifurcated and your product categories or not.

Yes, I mean, the book to Bill was over $1.15 and that neighborhood. So.

Decent bookings.

And in non res.

We had higher perform.

The <unk> on the Reno retrofit side than we did on the new construction side. So.

Something thats like C&I and lighting, Chris that's become.

More dependent on the Reno and retrofit and I think.

Benefit and it was interesting to see them grow at over.

20% on the quarter.

On.

But the.

The leading indicators on on new construction of the non res or actually.

Meaning favorable too so despite the fact that we started the year of little cautious on non res. It's it's proved to be.

The strong.

<unk> and then we were predicting back back in January.

Alright, and then just.

Clarifying and thank you said lower tax rate and I'm not sure. If you gave us the level of model if you could comment there and.

And also would.

I'm not sure what's driving that but would we expect just kind of.

Our normalized tax rate back in 2.

'twenty 2.

So I would say our normal tax run rate has been and that 22 to 23 range.

In the second quarter.

It's down and around 18.5 ish.

And so that will.

And will cause kind of a 1 point reduction and the full year to 'twenty, 1 'twenty 2 rather than 'twenty 2 'twenty 3 so.

The discrete items and the quarter don't repeat and don't reverse they just help.

The create a little bit of tailwind and the second quarter and that gets.

It's kind of smoothed out over the full year.

Understood. Thank you.

Your next question is from Josh <unk>.

Lee from Goldman Your line is open.

Hi, good morning, guys.

Hey, Josh.

Bill just to follow up on on some of the price.

The cost commentary and kind of that broader definition that you're using.

What would the expectation.

And maybe some of the the material side of the equation starts to level off but.

And maybe things like freight or labor or other logistics costs remain high and I guess is.

Is that something.

And that you feel like you can go to the market with price with the or the customers really want to be able to circle of chart with steel prices and <unk>.

Tie back to that a little bit better.

Yes, and I think we're trying to position that conversation and the broader sense and you've captured the.

2 biggest drivers that we're going to throw in the bucket.

Such as transportation costs and labor costs. So.

We certainly owe our customers.

Every effort at us having.

Productivity.

And I would say.

To expect that.

Whether the to give us a couple of points.

Off the cost base is realistic and an inflationary environment like this.

Okay.

You just kind of just those 2 items, you mentioned transport and labor and going to outstrip what productivity can do so.

And we feel.

And so the more surcharge and the discussion is Josh right, where youre just pulling out of graph of.

Here's steel and copper hears of aluminum I think thats too it feels like Youre, just surcharge and for the metal and.

And.

Productivity is Mrs.

The part of the conversation that we think is important and which is.

Overcoming inflation so.

And that's.

Sort of of a new initiative.

The initiative and drive of ours and.

Carbon.

I spent.

Last week and operations reviews, and really met with all of our key.

The EU and P&L managers and they are all pushing for that definition of of.

And what price needs to cover so.

We're going to keep we're going to keep driving here and the second.

Carbonite.

Maybe just add to that as well.

And we're.

Have definitely evolved and pricing and the businesses, both how we organize around it as well as our approaches and we're doing it.

And more aggressively and I would say we're doing it.

And analytics around it and organization around.

Second half.

I fully agree with bill Com and it's less about indexing and surcharge and then it is looking at pricing across your entire portfolio and where can you get price.

And and where do you need price and I think we're managing both of those probably better than.

And it so of managed it and I think you see that by price realization year commodities have continued to go up throughout this year right and it's not I mean steel as an example of it is 1 of our highest users and a year ago that was sitting at about <unk> 700, <unk> of 2000 and done and so and it's sitting.

And we've ever and the high right now so.

Will that eventually level off will that come down.

Who knows you know the thing that we can control is the actions we take.

Which is pricing and we're going after the really aggressively.

Got it that's helpful. And then just on the utility side for your Garvin.

Obviously, a lot, especially on the legacy.

Power systems business.

And going on and the marketplace, whether it's some of the energy transition Stouffer and renewables are good.

Great modernization, but I also note the theirs.

And some heightened kind of near term activity with places like Texas, and California, Whats your sense.

Sense of kind of what is going on there that you would say is a bit more kind of a secular and forward thinking on the part of your customers versus.

The stuff, that's more reactionary and the here and now and I.

My guess would be it's all of the above but anyway.

On a little further.

Yes.

It's the kind of life and as you asked the question because it is and it's I would say, it's bill I see it very much consistent with how we've communicated that.

There is absolutely some secular drivers in this market that will continue to set us up.

Very aged infrastructure that with the push.

For renewables, which is which is real I mean, the this is happening is putting a ton more stress on the system. So I think there is a desire to retire.

Sufficient.

Assets and to put on more efficient and which is which is the renewables and we benefit from that very secular and.

And I think in that there is of heightened realization of how fragile. This grid is and Thats, where youll see the upgrading of the grid.

You get the reminders of that Thunder storms and Theres fires.

But I'd say those 2 kind of go hand in hand.

And we are very bullish on this over the next.

Few years, but as you point out it's not necessarily 1 thing.

But but it's positive for us and I also say that there is generally good support from regulators on these types of investment and the public utility commissions are <unk>.

Recognizing the need for this.

This as well so I think theres a lot of momentum here.

Great I appreciate the color thanks, guys.

Your next question is from Chris Snyder from UBS. Your line is open.

Thank you and I wanted to follow up on and Chris on some of the high has.

And that's been 1 of them on some of the commentary around.

And the wall material inflation could you remind us of how significant raw material consumption is as the percentage of the cost of goods sold and a normal year. Just so we can put some math around the Q4 price cost neutral comments, which it sounds like is reflecting price up and the 5% kind of plus range.

Yes, Chris your math and like the way Youre doing the math I would put our raws.

And the order of magnitude of the low 40% of sales.

And.

The little bit more and then.

Half of Cogs.

And so there is a.

The medical equation between.

What you need on the top line and price versus.

The inflation, you're getting and the rod.

I think about it exactly the way you are.

Okay I appreciate that and then.

For the second 1 and wanted to follow up.

And particularly on the non res.

Matching business and then within that and specifically the new construction side, which feels like it's beginning to turn could you.

And just remind us where you sell into the <unk>.

New construction.

Lifecycle and I know lightning is quite late stage.

And.

Bill you more on the electrical side I am just so we can clear feel for how you realize that recovery.

Yes, I would say the rough in electrical is fairly mid cycle to the construction so think of <unk>.

Boxes that wood.

Be in.

Inside of the wall.

But then some.

Receptacles and.

And lighting and poke throughs and the floors.

And would all be quite late cycle. So we are kind of mid to late and.

Skewed towards the late in the timing of that.

I appreciate that thank you Ken.

Okay.

And.

Of the.

Your last question is from Justin Bergner from G Research Your line is open.

Good morning, and good morning Bill.

Thanks.

2 quick questions on the grid side, the T&D side.

What is the potential upside from.

Bringing electrical repair and power lines for example, and California.

And then on the utility infrastructure Bill if the bipartisan bill passes.

And looking at the medium term do you see that as sort of extending this 5% to 6% organic growth rate.

<unk>.

Bear your T&D business are actually Inc.

Increasing net growth rate.

So Justin let me take the first part and now.

Bill the second quarter and so the first 1 on on the on the grid T&D the.

Particularly the question was around underground.

I think you probably.

Recently, a large IOU utility talking about.

Perhaps doing this.

Our portfolio leans more to the overhead side, but if you think about transmission infrastructure and the distribution grid.

Most of the U S actually as overheads, except.

So if you go into neighborhoods.

We do have a presence and the on.

And I would also say that 1 and as you look at the investments required to Barry. This is humongous. So it's generally the at least the nx or more of the cost I think many utilities don't find the economics can be <unk>.

To do this and I don't see it as a.

A threat to our to our franchise and truthfully.

Net.

And in certain situations can happen and we can surf materials for it as well.

Yes, I think the second half on the infrastructure.

Sure.

I think areas like.

Renewables can really be quite favorable to where hubbell as exposed.

Solar and wind components, both on both sides of our segments, we would have.

Struggle of the benefits as well as some of the the grounding and component elements inside of electrical anything on grid reliability, and certainly would be favorable there's talk on telecom reliability.

And just making buildings.

<unk>.

<unk>.

More and energy efficient.

There are behind the meter piece of our business. So there is a lot of inside of that that ultimately.

I think could contribute to it.

And maybe what I'd call a stimulated.

The utility of demand that would be a little bit more than sort of our normal level of sense. If that comes to pass and gets spent over who knows period of 5 years or so so it would be.

Certainly on the topline it would be bullish implications.

<unk> per se.

Great. Thank you I'll take my other questions offline I appreciate the color.

Okay, great. Thank you.

There are no questions over the phone and May turn the call back to day Inamorato.

Alright, thanks, operator, and thanks, everyone for joining us I'll be around all day for questions.

<unk> zone.

This concludes today's conference call. Thank you for participating you may now disconnect.