Q3 2021 Hubbell Inc Earnings Call
Art, and then listen only mode. After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Dan Inamorato scene.
<unk> director of Investor Relations. Thank you. Please go ahead.
Thanks, Paul Good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our results for the third quarter 2021, the press release and slides are posted to the investors section of our website at how old Dotcom I'm joined today by our chairman President and CEO Urban Bakr, and our executive Vice President and CFO Bill Sperry.
Please note that our comments. This morning may include statements related to the expected future results of our company and are forward looking statements as defined by the private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward looking statements in our press release and consider it incorporated by reference into this call. Additionally comments may also include non-GAAP.
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 Durbin.
Great. Thank you Dan and good morning, everyone and thank you for joining us to discuss hubbell's third quarter results.
You've likely seen our press release announcing the definitive agreement, we reached to sell our commercial and industrial lighting business and we will give you. Some further commentary on that in a couple of minutes.
But let me start my comments with some key takeaways for the quarter.
First as you'll hear throughout this morning's presentation demand remains strong.
We continue to see broad based order growth across markets and businesses within both segments.
Year to date, our orders are up approximately 30% and our third quarter ending backlog was up over 60% versus prior year.
In our electrical segment strong demand is being driven by recovery in industrial markets as well as pockets of strength in verticals like telecommunications solar and industrial manufacturing.
In our utility segment orders continue to accelerate sequentially driven by ongoing grid hardening and modernization investments.
As we noted in this morning's release supply chain disruption affected our production and shipment levels in the third quarter.
Leading to further backlog built a strong order rates continued to outpace shales.
While we expect these headwinds to persist in the fourth quarter. We are confident that we are serving our customers effectively throughout their spend dynamic environment.
We have been aggressive and qualifying alternate sources of supply for key components.
<unk> premium rates to expedite materials, and reallocating internal resources to drive higher production and shipment output.
We've also continued to take aggressive actions to drive value for our shareholders.
Most significantly we are executed unprecedented levels of price realization across the enterprise, which have accelerated in pace and magnitude as the year has progressed.
We achieved seven points of price realization in the third quarter.
Up significantly from three 5% in the second quarter and 1% in the first quarter.
And we expect further acceleration in the fourth quarter and continues to project that we will be price material positive in the quarter.
Finally, we are updating our guidance to reflect third quarter results and our latest outlook for the fourth quarter.
We will walk you through the moving parts in more detail, but we are modestly lowering our range versus our prior expectation.
Based primarily on incremental supply chain disruptions to unit volume and productivity levels.
This morning, we announced that we reached a definitive agreement to sell our commercial and industrial lighting business. The GE current for cash purchase price of $350 million.
This strategic decision positions to portfolio for higher growth and margin characteristics.
And enables us to expand our focus and strength in core markets, where we provide reliable and efficient critical infrastructure solutions.
This portfolio move will create value for our shareholders and the company.
As we've talked about in the past lighting is an important product category to our customers and within the broader low voltage electrical market.
And we are confident that GE current is the right strategic partner for the business going forward.
Looking ahead this portfolio reshaping will allow humbled to more effectively focus our strategic investment decisions on core areas of our portfolio, where we have the ability to strengthen our position in markets with higher growth and margin characteristics.
We see significant opportunity to accomplish this across both our electrical and utility segments.
With our portfolio of strategically aligned around clean energy Megatrends in grid modernization and electrification, we are well positioned to solve critical infrastructure problems for our customers, while driving differentiated financial results for our shareholders over the long term.
We expect to deploy the net proceeds from the sale to accretive bolt on acquisition as well as share repurchase.
As we noted in our press release. This transaction is subject to customary closing conditions and regulatory approval and is expected to close in the first quarter of 2022.
Let me now turn it over to Bill to give you some more context around our financial results for the quarter.
Thanks, Kevin.
Morning, everybody hope those of you here in the New York area are enjoying the northeaster here.
I'm going to start my comments on page five and there really are three recurring themes there are going to go.
Go through.
The overall results as well as breaking it down by segment. It starts with the V shaped recovery in demand, which we're experiencing very broadly.
Both segments.
Second is the inflation being driven by that demand.
That's resulting in our pricing strategy.
Quite aggressive and getting great traction and good stick rates and we will talk more about that.
And third is the physical disruption.
Coming from the uncertain supply of labor and materials that makes it harder.
Harder to plan, a shift and has both capacity constraints as well as inefficiencies.
You'll hear that.
Throughout our comments.
So on page six.
Show the results for the enterprise.
Sales up 9% to two over a 1 billion too I think it's important for me to unpack.
The drivers of that sale of.
Sales levels Theres more.
More unusual drivers here than is typical so we've got starting with acquisitions at 3% that is quite normal.
We've got acquisitions across across both segments.
We're very pleased with the exposures, we have acquired a new situations on the electrical side.
<unk> gained exposure to the communications components as part of our fiber rollout.
On the utility side, we've added a enclosures capacity.
Our high growth high profit area as well as our controls.
Controls and protection inside of distribution automation area. So that those three points were quite happy with where we've invested there.
In addition to the acquisition there is seven points of price I would say that's the unusual piece.
And so as you do the math, you'll see that that volume is actually down a point in the quarter and that has some impacts ultimately.
On on margins here so.
Going over to operating profit.
You see a 4% decline to $174 million.
Compared to the prior year and that's a result of the volumes being lower.
And the price cost drag as we continue to get price.
The cost inflation continues to drive up quarter over quarter.
As we look at the O P sequentially from second quarter to the third quarter we.
We see that the op dollars and percent are reasonably flat.
Which is suggesting that the incremental price is equal to the incremental inflation.
And so we will get ahead of that as soon as we see moderation on the inflation side and as carbon saying, we're expecting that now and in the fourth quarter.
On the earnings per share side down a similar percentage as the operating profit down 3% to $2 and 24.
And on the free cash flow side generating $70 million.
You see that's below last year's levels.
Last years.
Situation quite different ware.
We were actually harvesting working capital and in this case with the V shaped recovery, we're investing very heavily.
In areas.
Like receivables and inventory.
To make sure we support the growth of the business and our ability to service customers.
You'll see as we get to the.
The full year outlook still confident in free cash flow generation.
We announced as I think all of you saw last week, an increase in the dividend high single digit increase in our dividend rate I think that's a good sign for you all.
Our confidence in the free cash flow generation, and we are anticipating quite a strong fourth quarter cash flow performance there.
So now let's.
Let's disaggregate into our two segments.
We are got our products and solutions positioned.
Behind the meter and in front of the meter to the edge will start with the behind the meter business, which is electrical solutions.
And you can see the electrical team head of quite a nice quarter here, 11% sales growth to $612 million and 9% operating profit growth to $76 million.
Again, I think important to unpack that sales drivers of the 11%.
We have about <unk>.
1% from acquisitions.
And eight points of price.
Results in about 2% increase in volume.
And where we're seeing the strength coming on the sales side is really led by industrial.
We're seeing strength.
In heavy industrial which has some steel applications I think you've been.
Notice, saying some of the profit reports of some of the steel manufacturers.
We've also got on the lighter industrial side applications in communications and solar those verticals, providing quite quite a lot of growth.
The harsh and hazardous business in industrial.
Serving.
The oil markets also seeing strength there.
So the exception on the non res side.
<unk> has been on.
On the C&I lighting area.
Where.
We've had.
I think as we've talked with you all before an important driver of market growth.
Has been the national account business, namely Big box retailers and.
Quick serve restaurants.
Now you rollout projects across their real estate portfolio.
Big drivers of volume in those discretionary projects have been a little slow to restart they've also had.
The chip shortage has affected the lighting business volume.
But the 9% growth in operating profit driven by the couple of points of volume.
Which is creating drop through.
We're seeing productivity and restructuring tailwind.
And the price material.
<unk> gotten a price here in the segment.
The electrical team is a little bit ahead of the utility team Dave.
Dave neutralize the inflationary effects of materials, but to stop at neutralizing the dollars leaves a percentage margin headwind so.
The and the inefficiencies.
Of the supply chain cost, but but a strong strong quarter there for our electrical team in getting price.
Satisfying customer demand to drive an increase in profit.
On page eight we have the utility solution results for the quarter.
8% increase in sales to $600 million for the quarter.
And a 12% decline in operating profit to just under $100 million.
Again, as we unpack that sales number.
Plus eight acquisitions drove six points.
And price drove another six points. So our volumes there were down four points.
And let's talk a little bit about two different elements of the utility solutions segment.
First is the T&D component area.
Apprised of the transmission and distribution component business Hubbell power systems legacy business.
As well as the gas distribution that last mile of components and the natural gas area.
Both.
Of those business lines experiencing.
Very strong orders.
Sales of double digit growth and yet the orders were even higher than that.
And we are actually building backlog there.
And the labor shortages, both hourly and supervisory levels continuing to impact ultimately have that capacity.
As well as some component shortages material shortages.
Notable area would be resins going into our enclosures products on the communications and controls.
Again on the you've got the Claris side, which is the advanced metering infrastructure and the meters themselves as.
As well as the distribution automation products.
The <unk> order book continues to grow.
Very handsomely, we've had $200 million of orders a quarter all year, it's been steady and improving showing a very healthy demand.
Clara team not able to satisfy all of that as the chip shortage.
Affects their ability to assemble the final products and get those shipped out.
So the operating profit.
The price that we've gotten there of six points.
Still is resulting in a drag relative to the material headwinds.
About three points, that's similar to the drag that we experienced in the second quarter.
And again the team keeps getting price, it's about equal to the incremental inflation. So.
Waiting to catch up and we anticipating a big fourth quarter pricing and utility.
And that combined with some of the inefficiencies coming from lower volumes and supply chain to drive down the profit in that area.
So we thought it would be useful to put together a picture on page nine of our full year outlook.
And you can see that.
On the sales side, we've raised and tightened the sales range up to 12% to 13%.
Anticipating five points of price for the year, which implies close to double digits in the fourth quarter.
That's an important.
Exit point I think in the acquisitions given us three to four points there.
The earnings per share at <unk> 30 to 850 in recognition of third quarter performance and what we expect in the fourth quarter.
And cash flow, we're anticipating to be.
Around 100%.
Adjusted net earnings.
And Thats in recognition of the increased investment in receivables and inventory that we anticipate.
On the right side, we wanted to share with you.
Some of the actions we've been taking and tried to illustrate why we think we're setting ourselves up.
For a strong 22.
And it starts with.
The inflation, we've experienced on materials and inbound freight.
That's been at about a 15% clip.
You see a significant drag.
Six points to our margin from that.
The response has been.
To pull price and as that's progressed quarterly from about one point in the first quarter to three points in the second to seven points in the third 10 points in the fourth we're seeing very good stick rates.
We're very confident in those price increases and so.
You see that we clawed back.
$200 million in price, but having ending the year with a 10% Paul and a 5% average you can see the kind of magnitude of price cost tailwind that we're anticipating next year and again, that's as soon as cost would be to flattened out you certainly can see the wrap around of price that.
We will get.
The next headwind comes from.
The cost and efficiencies and productivity.
Where some of the shortages of labor and materials causes us to be.
Inefficient and spend more money.
And we've overcome that with our productivity and restructuring activities.
This green bar up 100 basis points has got.
Contributions both from.
Savings from investments, we made last year and spending at a slightly lower level. This year.
Just to remind you we had about.
30 ish million of restructuring spend last year were anticipating around $15 million this year.
And then volume at the end where.
Our products are going to earn their fair share, but we also think we can supplement that.
With investment in.
In acquisition so.
For each of.
Each of the headwinds that's thrown at us.
Of inflation or supply chain disruption, we feel we've got effective management levers to offset those.
And again set us up into a positive 2022.
So with that I'll turn it back to <unk>.
Great. Thanks.
Thanks Bill.
And while we're not providing specific guidance for 2022 at this point in the year heading into 'twenty. Two we believe we are well positioned as we expect continued strength in our markets and operational tailwind to drive strong results.
Near term above average levels of backlog visibility gives us confidence and continued demand momentum into the early part of 'twenty two.
While we do expect orders to taper as supply chain conditions normalize our businesses are exposed to the secular trends in grid modernization and electrification, which we expect to drive sustained market strength over a multiyear period with GDP plus growth.
Operationally, we expect significant carryover benefit from price realization.
Which should more than offset carryover material inflation into 2022.
While we expect certain supply chain headwinds to persist into next year. We will continue to actively drive productivity actions to mitigate and are confident in our ability to drive overall adjusted operating margin in 2022.
We're also confident in our ability to drive strong key free cash flow generation next year to progress on working capital efficiency.
We have a strong balance sheet and anticipate investing excess free cash flow to generate attractive returns for our shareholders to support our long term capital deployment strategy.
Finally, we believe that this morning's announced divestiture drives a reshaping of our portfolio towards higher growth and margin profile further enabling us to deliver differentiated performance and long term returns for our shareholders in 'twenty two and beyond.
With that then let's maybe turn it over to Q&A.
We will now begin the question and answer session. If you would like to ask a question. Please do so by pressing star one on your phone that star one on your telephone keypad.
Bible, we compile the Q&A roster.
Your first question.
The line of Jeff Sprague with vertical research your line is open.
Thank you good morning, everyone.
For the additional detail here today.
Hey, good morning.
First on lighting Gordon congrats on that.
She'll be glad we stopped pestering you on that now.
But.
Could you share a little while to things that revenue number looks lower than the revenue as you reported in this segment are you keeping a piece of the business and secondly can you give us a little bit of color on the profitability of the PCR or selling so we can kind of understand.
Kind of the ramifications of the exit pre youre redeployment of the proceeds.
Yes, just let me maybe what tag team this with Bill and I'll answer the first.
First question you are right to point out that the revenue is reflective of the C&I portion of our lighting business and.
Those have been with us for a long time this used to be a group in it by itself lighting over the last couple of years as we spend a lot of time in these businesses restructuring them realigning them, we really split those two things out because theyre very different businesses to C&I business from the from the residential business.
So youre right to point out that it's only a portion.
The overall lighting business.
We're selling here today, and maybe I'll make one more comment on what will probably be some other questions on this is.
As we look forward and we have talked a lot about view about lighting.
Wanted to key responsibilities of this leadership team is to strategically manage our portfolio. This happens through acquisition and growth and this happens through divestitures and rationalization.
Certainly <unk> talked in the past about the efforts on the ladder.
We've taken very aggressive action on a SKU rationalization, we've talked about how we're doing that much more scientific today.
We've taken product lines that were more valuable to others out we did that too in the last couple of years one in high volt business in electrical earlier. This year, we took our consumer engagement business from a Clara.
And now you.
You see a larger one so what I would say this work continues on both sides.
And.
And the end result, strategically for us is to drive a higher growth higher margin business out of there. So.
I think bill maybe give some color on the profitability of this yes, so Jeff.
The C&I side of the business, which we sold.
<unk> has been.
Has been earning in the high single digits of EBITDA.
That's what it would contribute in a year.
Okay.
And on the.
On the wrap around price right that is pretty obvious.
Quite a number.
Certainly probably number none of us have you seen in our careers.
But I wonder the competence.
On the inflation side.
Do you actually see some visibility that there there is some actual relief on the Cogs side of the equation or is that just kind of a supposition at this point.
Yes, I don't know that.
That we see relief I do think we've seen some moderation and maybe differentiate between materials, which.
Had been pretty steeply inflicting starting in last year's fourth quarter through the first two quarters of this year, we started to see some signs in the third quarter of some moderation there.
And then that was backfill unfortunately by transportation costs container costs.
For our inbound freight and so that caused.
The inflation really to persist through the third quarter end.
So I think on the materials side, our biggest as steel Geoff and you're starting to see some evidence of that flattening, which would be really welcome.
A lot of the forward analysis I've been reading is talking about.
Cost actually coming down but but.
That's not that's not something we have been banking on.
So we are a plateauing as where are lapping would allow us to get get some tailwind.
Yes, so probably the bigger question then on the margin bridge when we when you bridges in 2022 is going to be.
Questions, just availability and factory inefficiencies and the like there.
Do you see any.
Kind of any relief, there or any kind of improvements in your ability to predict and scheduled production effectively.
Yes.
I would say first of all I agree with you and try to take those.
Two bars.
Which had the huge magnitude.
And if we can get the red one flattened we know the green is going to be positive.
That would be great because you can see how the inefficiencies are a much smaller problem and in terms of productivity and restructuring investing we can overcome those more specific to your question.
On the labor side, we have seen some improvement.
A little more reliable.
Liability in terms of.
When people are going to show up and being able to schedule.
Well on a shift properly the materials, though continue to be.
Less reliable I would say.
And.
It's a little bit challenging.
Jeff because I would argue that our.
Our vendor base hasn't been the best at communicating what should we should be expecting that kind of surprise.
Surprise, you and say you are on allocation one day and then.
And then take that down the next.
And so it just takes a lot of energy.
To evaluate.
Other other alternative supplies into maybe design around some of those problems and shift resources around so.
I think we are seeing that persist through the through.
Through the fourth quarter.
But it's just it's just something we have to navigate through.
Great. Thank you for the color.
Your next question is from the line of Steve Tusa with Jpmorgan. Your line is open.
Hey, guys good morning.
Steve.
What are you seeing in terms of like.
Construction projects and potential.
Deferral do too.
Inflation anything there.
Yes.
I mean for us the or non res.
Got lighting in it as well as wiring and.
Connector type products, the lighting, we're thinking which is showing some softness.
Is a little more driven by the large national account stuff, Steve like Rolling out a quick service restaurant program amongst your franchisees.
But the rough in electrical and those type of products that are construction based have actually been.
Pretty steady actually for us I don't know that I have.
Super keen insight beyond that but those non lighting non res has been okay. Yes.
And maybe just certainly.
So far this year, our sales have been selling through and I would agree bill that we haven't seen a lot of movement to the right a project Thats a matter of fact.
We could be selling more if we if we could get through all of those supply chain issues right now.
There is certainly a part of the order rate.
That isn't sustainable probably tied more to lead times push out to customers trying to secure.
Supply. So we do expect at some point the order rate to come down some but.
We're not seeing a lot of movement to the right at this point, yes, maybe said if you put a little math behind with urban said, Steve We got orders up 30%.
Don't know that 30% of shipments can be absorbed.
But certainly more than the 11% 12% sales.
We have.
It could be absorbed so that's kind of I know, maybe thats a pretty wide goalposts.
What we're seeing.
Right right, Okay, great. Thanks, a lot for the comments.
Thank you Steve.
Your next question is from the line of Tommy Moll with Stephens. Your line is open.
Good morning, Tommy.
Yes.
Okay.
Let's go to the next one operator I think you've told me if youre if youre talking Tommy we can't hear your question.
Okay. I'll proceed with the next question in the queue. Your next question is from Josh Harris.
Winski from Morgan Stanley Your line is open.
Yes, that's me.
Good morning, guys.
Josh.
So maybe first question.
Yes, I know Whiting has sort of been kind of.
Bottom of the list in terms of price cost over.
I'm.
I guess bill maybe first what would that those two borrowers look like this year.
Pro forma for the absence of wiring does that does that situation improve in its absence.
Can you say it again.
Yes.
If I look at on slide nine the Red and the Green bar price and material.
Cereal inflation this year, what do those look like ex lighting like did that relationship start to get closer.
It seems like that business historically struggled a little bit more on price maybe versus the rest.
I would say, they probably aren't prone to any more inflation than the average.
Other than for the led product chip availability has been a shortage problem, but.
I would say you're right that in terms of price.
Not been able to pull so.
That's been that's caused some of the SKU on here.
Got it and then just on the inflation wrap we spent a lot of time on the on the pricing that on the call very helpful. But is there anything kind of contractual or <unk>.
Specific to our year end cycle, where the.
Roland.
<unk>, our first half it was higher than the <unk> rate.
Just based on something that's lagging or do you guys kind of at the run rate on inflation in <unk> you. Thank you.
Yes, I would say not not materially.
And again as a LIFO accounting company, we're kind of recognizing that most recent cost in our run so.
We're sort of subject to that most recent price, yes, I'd say, maybe a little different from traditional ways of pricing, whereas when you come through the year and in and consider your inflation and reprice on that very soon we would have done it in a year like this that's gone out the window I don't think Theres any company that's waiting for year end too.
But pricing throughout.
The year as they need it and that's what we're seeing.
Got it and then just maybe one last one if I could.
Distributor inventories, maybe a little harder to see in electrical and I think probably fragmented across some of your end markets would would those guys take more inventory if they could get it or yes, yes.
Some specific stuff theyre looking for.
No they would take more.
And they would take more at a higher price too.
Got it that's helpful. Thanks, guys best of luck.
Right.
Your next question is from the line of Christopher Glynn with Oppenheimer.
Your line is open.
Yes, thanks, good morning all.
Good morning.
So.
Yes sure.
Yes.
On the human body.
Third our.
Knowledge your viewpoint on what percent impact.
Volume was held back.
The supply chain issues.
Yes, I mean, we don't I don't know that we have science around it but as.
As we see the backlog pick up.
And we see everything selling through.
I think it's.
It's clear that.
If we were making.
Making more stuff it would sell through.
And.
Just.
When you see things like.
The sequential volumes.
Not picking up much in the third and.
Trying to be a little bit flatter in the fourth.
You start to get a feel for.
We got to get material in the plant and people in the plant.
To ramp that up a little bit Chris.
Gotcha.
On the 10% prices so in the fourth quarter versus 5% for the year.
Our analysis is simple as taking that difference in saying you're going to get 5% price next year or is there.
It's not something that makes that too simple.
Yes, I mean, it wraps around it you did it by quarter.
So you could you.
You could say that there is going to be more impact in the first quarter. When we only got kind of a point this year.
Slightly lesser in the second and kind of stepping down, but then you get back to Josh as question right, which is.
And Jeff's question, right, which is if if inflation persist in either materials or transportation.
We'll keep we'll keep pulling on the price lever so.
It's kind of a dynamic compare but.
I think if you were smoothing it not by quarter, but just by the year.
And we stopped our actions right now, yes, you'd see about a 5% rep.
Okay great.
Just curious the backlog you look at right now or maybe using that to project year end, how do you see like what's the size of backlog that's kind of abnormal I think a clear is really your only core backlog business just wanted to get a sense of that magnitude is it a couple hundred million.
For instance that you would call abnormal backlog or yes, I'd say there are two businesses that have pretty long dated.
Books right. One is clear as you mentioned the other is.
The gas component.
Switch.
Has long lead times that customers are looking to schedule their projects.
And so.
When you normalize for that.
You get a you get a really big increase in backlog few hundred million dollars and.
I think what carbon suggesting is.
The 30% order rate seems unlikely to be the sustainable order rate.
And so when price increases and supply chain start to normalize my guess is that order rate starts to normalize a little bit as well, but it's essentially taken our backlog.
From kind of six weeks to 12 Friday is effectively whatsapp so.
It's almost given us.
A full quarter of visibility basically.
Okay, Great and last one for me.
Any demand.
And any material areas.
From the price Thats coming on.
I had trouble had trouble hearing you sorry, Chris sorry, just wondering if youre seeing any elasticity as youre putting price yet.
Yes, I'd say the price stick is pretty broad across the board.
The electrical distributor channel.
As welcoming the price increases.
They are eager to push them through and Theyre not seeing any elasticity.
I think on the utility side, it's been lagging by about a quarter to that rate.
But again I think we've had six price increases to utilities during the year end.
Typical year, we would get them at the blanket season, which is about this time of year.
Sure.
So it's quite unusual.
Kind of pace and sequencing and.
It's almost Chris more operational where.
The channel needs enough time to process, the increase and get it adequately into their system, rather than you can't just call him and jam it too quickly so.
I'd say theres literally less city with well communicated.
Processes.
Great. Thanks for all the color.
Hey.
Your next question is from the line of Tommy Moll with Stephens.
Your line is open.
Hi, My life now.
We can hear you Tommy we just couldn't hear you before sorry.
No big deal. Thanks for taking my questions wanted to start on the lighting divestiture.
All of our questions are you indicated the proceeds you'll plan to deploy for bolt ons or share repurchases.
Fair to discern that there is no large deal in the M&A pipeline from from those comments.
Then second question on the divestiture.
You indicated it's part of the strategy to drive higher margins higher growth rates et cetera across the portfolio. This is a pretty meaningful step on that journey.
Any other big.
Opportunities in front of you say in the next year or so that you want to call out for us on that same journey.
Let's start with the first question, which is should we assume.
But theres nothing sizable that we could do I would say that would be a bad assumption.
I think the pipeline has a typical spread tommy of.
$30 million to $50 million kind of averages, but there are larger situations that we're looking at and.
We certainly have both cash from these proceeds cash on the balance sheet cash flow and then.
A little bit of powder in the balance sheet itself. So I don't think you should assume that we don't have.
Larger things and then as far as.
Future actions I think.
If you looked over the last couple of years.
We've sold.
High voltage equipment business, a couple of years ago.
We sold earlier this year.
And Clara consumer engagement business and now this definitive agreement on C&I lighting so.
I think we've shown.
And <unk> mentioned.
Our management kind of diligently evaluating with a very crisp tool.
S SKU profitability and kind of managing proliferation, there focused on innovation and new product development that would raise gross margins on kind of the organic side.
And I think that we're going to continue to evaluate opportunities.
Both on the investment side and the diverse side so.
I think we've shown that over the last couple of years.
And I think that's just how we've just view that as our responsibility to keep evaluating that Tony.
So maybe following up on that same theme bill in terms of the organic opportunities to drive above.
<unk>.
Above benchmark growth.
Drive higher margins.
Some of the.
<unk>.
Opportunities you've called out in the past include renewables for example, but but if you could just refresh us there.
The organic strategy.
In front of you in terms of the end markets, where you think you could.
Could take additional share or potentially enter.
Yeah.
Yes.
We've really tried to re invigorate and redesign the whole way, we're approaching innovation and new product development and one of the big benefits of creating an electrical segment.
Is the and rather than have kind of three vertical lines of business.
Is the ability to kind of stand up.
And evaluate the low voltage opportunities.
Across all the areas of electrical and utility, sometimes sharing that R&D, sometimes sharing that marketing.
It's really I think been very invigorating new approach that we've taken since we announced the new electrical segment.
And so I think areas like.
Renewables.
Things in data centers.
Areas around electric vehicles I think.
All of those represent really interesting organic opportunities for us that were.
Planning on pursuing.
Sure.
Thanks, Bill I'll turn it back.
Okay.
Your next question is from the line of Nigel Coe with Wolfe Research. Your line is open.
Good morning, everyone hope, you're well morning, Nigel good morning.
So just on lighting and <unk>.
It surprised just the C&I portion with cells.
What was the logic for folks divesting C&I, but retaining residential at least at this moment.
And the spirit of the question is that some of your peers have been selling assets and they have been so lock stock.
So just wondering especially just influence Scotia.
Residential business is less strategic.
C&I, So just curious why selling C&I and retaining residential.
Yes, I think it starts Nigel with the fact that.
The businesses are quite different so the C&I business is.
An integrated one it has plants.
It has an agent.
Front end that goes to the to the channel and to the projects.
First is the <unk>.
As a purchase for resale business. There is no manufacturing side to it that we have and the customers.
Or not.
E channel.
They're big box retailers homebuilders.
Showrooms and.
It very vibrant e-commerce channel so that.
We have been running the businesses differently, yes, theyre, both lighting, but I hope through that brief description there really.
Not that related so.
When we were approached by a strategic the interest was.
In.
In the C&I side I think there is quite a compelling story that that strategic has to make.
That being I think a really well balanced competitor going forward.
And so that's why we did it that way, Okay, typically and then bill on the mechanics of the sale.
The earnings drop to disc ops.
Before the sale or does that happened on the sale I mean do you adjust to discontinue this business and then let me think about the redeployment so doing the math on that.
The proceeds on a net basis lower I think you've heard this business quite some time is there a is there a <unk>.
Check provide here.
Yes, the tax friction is quite modest.
And so there's not as much friction as you might think.
And.
So I.
I think you can.
Yes run run models.
Different mixes of share repurchase versus acquisition.
You'll be close.
Okay.
Great and then just any any changes on the on your on your sourcing around.
Well the supply chain friction.
<unk> historically bought in a fair amount for China, I think Thats minions license, so I'd be curious about changing with this divestment, but.
Any big changes on the supply chain.
Yes, I would say.
Not materially those those places where we source offshore there.
There is certainly a cost benefit even with some of the <unk>.
<unk> chain headwinds there.
They remain we have in certain cases move suppliers I talked about that early bill talked about that where we've really been.
Hit hardest times, where we had total supply in times.
Where we had to create some pretty critical suppliers, just just stop supplying a lot of effort has gone into two.
Second sourcing and I think that will serve us well going forward. We have moved around in this truthfully even before this current situation. When we had the tariff situation. We we do have manufacturing footprint across the globe and the ability to shift that so.
We have re short cemetery, but I wouldn't say whole scale big changes in our strategy, they're more in areas, where we need to supply that we've either resource.
Redesign.
<unk> in certain areas.
And moved footprint.
That gives you should give you a sense of the intense focus that has gone through solving this right. So if you even if you think about engineering resources that would normally be working all of their time on developing new products. A portion of that time is going to just finding alternate sources qualifying alternate sources redo.
<unk> some parts began them and its really dynamic, but I can tell you. This organization is stepping up to solve these issues.
And then just one more if I may.
Slightly unfair question, but it would be interesting to get an answer from you guys. I mean are they.
These challenges.
Challenges on manufacturing labor supply chain et cetera are they leading.
To any share shifts around either with your competitive or even despite the channel are you are you allocating to certain distributors, but not others and any sort of significant shift to ship their minds.
Yes, I would say in our visits and Gerber and I spent time with the leaders of our biggest customers.
The consistent message we're getting back.
Is that we're doing as well or better than.
Than our competition.
It it feels not great to us to have the backlog build so dramatically and we'd love to be satisfying that but.
The feedback were getting and they would be they would be I think straightforward about that if we were somehow lagging.
And.
So I think that that we're holding more than our own is what it feels like despite the.
The backlog really gapping out Nigel.
Alright, Thanks Bill.
And your last question is from the line of Chris Snyder with UBS. Your line is open.
Thank you I just wanted to follow up on commentary around.
Portfolio Reshuffling, and then specifically within the residential lighting business.
I guess my question is should we view the residential lighting business.
As core I understand.
Commercial industrial and residential are run separately kind of part of the comments, but usually accompanies exited about two thirds of hubbell lighting up by my math and then you know commentary around wanting to push into higher margin higher growth verticals.
May.
Suggests that Ravi.
<unk> is noncore and any color there.
Yes, I would say.
Chris the.
One <unk>.
Yes.
Comfort in the fact that we're looking hard at our portfolio. We do as I stated before we look at that from a SKU perspective, we look at that from a.
Product line from entire businesses and it's it's.
The growth profile of it is the margin profile office and it's a strategic fit.
Long term for our business and that's that's.
Resulting offtake and portfolio actions.
On exiting.
Our divesting, but it's also taking actions on adding to the portfolio.
What I will tell you is going to work is very active in our company and certainly when when that results in big.
Uh huh.
Moves we will continue to have dialogue with you about it.
Thank you for that and then just secondly, I really appreciate the detailed 2021 margin walk and the slides, it's really helpful and I think the company.
Said that you expect to be price material neutral in Q4.
But I guess when should we expect kind of total price cost neutrality.
Normalized incrementals to return along with that.
Yes, so we.
In materials, we include inbound freight.
And so if you're just saying price versus material and inbound freight that's where we expect to exit the year.
With with being ahead.
And then we kind of take productivity and we net that against non material inflation.
Wages and alike.
And thats kind of the paradigm that we setup. So if you are saying.
Question was around price material.
What we think we will be overcoming.
By the end of the year.
Thank you.
And that ends our Q&A session for the call I'll hand, the conference over to Dan Inamorato for closing.
Thanks, operator, thanks, everyone for joining us I'll be around all day for any follow up questions. Thank you everyone.
Ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect have a great.
Okay.
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