Q4 2021 Hubbell Inc Earnings Call

You will need to press star one on your telephone keypad.

Please be advised that today's conference is being recorded.

Do you require any further assistance please press star zero.

I would like to hand, the conference over to Dan Inamorato. Thank you. Please go ahead.

Thanks, operator, good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our results for the fourth quarter of 2021, the press release and slides are posted to the investors section of our website at <unk> Dot Com and I'm joined today by our chairman President and CEO Girvin Backer, our executive Vice President and CFO Bill Sperry. Please note our com.

Rents. 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 $19 95.

Therefore, please note the discussion of forward looking statements in 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 before we get started we also want to highlight that all results in our press release and the materials for this call.

All are presented on a continuing operations basis, excluding the financial impact of our C&I lighting business. Following the recent closing of that divestiture and the classification of C&I lighting as discontinued operations. We have also recast prior period financial results on a continuing operations basis to ensure we're presenting the most relevant year over year comparisons in <unk>.

<unk> for future results. These recast financials are summarized in this morning's press release now let me turn the call over to Garvin great.

Great. Thanks, Dan and good morning, everyone and thank you for joining us to discuss <unk> fourth quarter and full year results.

As you saw from our press release, we achieved a strong finish to 2021 with solid operating results in the quarter.

The performance of our core continuing operations in the fourth quarter exceeded our expectations, which were embedded in our most recent outlook a few months ago.

Most notably our electrical solutions segment drove exceptional performance with close to 50% year over year growth in adjusted operating profit in the fourth quarter.

Demand remains strong for utility and electrical solutions, we grew backlog further into FERC quarter as orders continue to outpace increased shipments, particularly in our utility segment.

The full year 2021, we grew orders more than 30% year over year, and our exiting the year with a record backlog.

While we expect supply chain dynamics to remain tight and continue to constrain output into 2022, we are confident that grid modernization and electrification are secular trends, which will drive attractive GDP plus growth over the next several years and we will talk more about our unique positioning.

And the investments we are making.

From an operational standpoint.

Im also pleased to highlight we turned the corner on price material in the fourth quarter.

We achieved 11 points of price realization, which fully offset the impact of material cost inflation on a dollar for dollar basis.

Dow material inflation has been an accelerating headwind throughout 2021, we have been proactive and aggressive in our pricing actions, which have stepped up significantly as we have progressed through the year and this sets us up well to turn this equation into a net tailwind in 2022.

Finally, we are providing our initial 2020 outlook this morning, which anticipate strong double digit adjusted earnings per share growth.

We'll talk about the outlook in more detail at the end of this presentation, but we expect continued strength in customer demand and significant price material tailwind to enable Hubble to continue to navigate through a challenging supply chain environment, while investing in our business to better serve our customers all while continuing to drive strong financial <unk>.

<unk> for our shareholders.

We thought it would be helpful to give a brief update on our portfolio and strategy following the divestiture of C&I lighting.

What we have achieved with this strategic action is a more focused portfolio with leading positions across the energy infrastructure in front of the meter behind the meter and at the edge strategic.

Strategically we are focused on providing our customers with reliable and efficient critical infrastructure solutions in markets with higher growth and margin characteristic where we have a unique right to play and ability to win.

Note that we have broken out the electrical solutions segment for you to provide more context on our product offering and market exposure.

Highlighting the depth and breadth of our electrical offerings across the industrial nonresidential and residential markets.

However, as we announced over a year ago. We now manage this segment as a unified business to more effectively utilize the combined strength of our brands products and organizational talent in order to better serve our customers.

This integration has been highly successful and you will see some of the early returns on this strategy when we take you through the electrical solutions results.

In the utility solutions segment, we continue to believe that we have a best in class franchise with two highly complementary businesses.

Our leading position across components communications and controls enables us to offer uniquely differentiated solutions to our customers across electric water and gas applications.

Utility solutions now represents over half our total enterprise sales following the divestiture of C&I lighting.

We are very pleased with the evolution of our portfolio and we believe these actions position hubbell well for the long term.

We continue to view portfolio management is an ongoing process and an important lever to drive value for our customers employees and shareholders.

Hubble has a proven track record of effective capital deployment, and we expect to continue deliver active attractive returns to our M&A model.

Now building off the portfolio discussion. We also wanted to highlight the importance of ESG to our strategy.

<unk> has made significant progress on ESG over the past year, increasing our disclosures as well as setting multiyear targets for improvements on key metrics.

We released our inaugural sustainability report in late 2021, and we encourage all of our stakeholders to view. This report on the sustainability section of our website and to continue to actively engage with the <unk> leadership team on ESG topics.

ESG at Hubbell is directly aligned to our business strategy.

And our utility solutions business, our products are critical to ensuring that electricity is transmitted and distributed safely reliably and efficiently throughout the grid.

As the leading utility T&D component supplier, we play a critical role in bolstering the resilience of the grid.

As well as in hardening the infrastructure to withstand the impact of climate events and enabling the transition to clean renewable energy.

Our unique combination of utility components communications and controls also enables us to play a leading role and make into the utility infrastructure smarter across electric water and gas applications.

In our electrical solutions segment, we provide solutions that enable the owners and operators of critical infrastructure to reliably and efficiently utilize electricity.

These solutions are serving increasingly diversified end markets as electrification drives more applications to be plugged into the grid.

Electrical T&D utility automation and controls renewables data communication and electric transportation are among our most attractive market verticals currently.

And we see significant opportunity to drive further value for our customers and shareholders in these areas.

When we talk about orienting our portfolio towards high growth high margin verticals. These are the areas of our portfolio, where we see the most opportunity and return on invested capital.

And for these reasons, we are stepping up our investment levels in 2020 to.

Reinvigorating our innovation strategy is a key priority for hubbell.

We plan to innovate, while sticking to our roots and evaluating opportunities through our lens of where we have a clear right to play and ability to win for.

For instance, it has become increasingly clear to us over the past several years that our power T&D components business has transitioned from a GDP grower to sustainable GDP plus trajectory and we are investing in additional capacity in key product categories in that business to effectively serve strong and visible customer demand.

<unk>.

We've also driven substantial recent growth in our electrical connection and bonding offering for sonar telecom and datacenter applications and.

And we are investing in additional sales and engineering resources, there to more effectively pursue those opportunities.

We are confident that we can accomplish this while continuing to deliver attractive and differentiated earnings growth over the near and long term.

And with that let me now turn it over to Bill to walk you through our near term financial results and outlook Bill. Thanks, a lot and good morning, everybody I appreciate you joining us.

Going to use the slides.

To guide my comments.

And I Hope you found those I was going to be starting on page six.

Which takes the fourth quarter results.

For us on a continuing operations basis I'll make some comments.

When we get to the full year on how.

Discontinued operations.

<unk>, so that we can see things.

On the same format that we started the year on but do you see.

The fourth quarter results showed impressive sales growth of 20%.

Two 1 billion won.

That 20%.

Is comprised of 4% acquisition, 16% organic.

The 16% organic is comprised of 11 points of price and 5% growth from unit volume so very healthy.

<unk> of growth.

I think commenting on the acquisition.

Growth of four points.

There were three specific acquisitions that contributed to that in the fourth quarter.

One on the electrical segment side too on the utility side.

On the electrical side, we had invested in.

Business.

That makes the.

Mounts and enclosures antennas for some of the new Telecom technology rollout some of the <unk> product.

Exposed to education, and healthcare and warehouses, some verticals that we like.

We also bought in enclosures business and the utility.

Area that makes the enclosures at street level, and pedestal level that electric and telecom utilities put a lot of their electronics and in the.

The third was in distribution automation area, where we're controlling and protecting.

Infrastructure.

And.

All three of those businesses exhibiting.

High margin and high growth.

Some of those we invested just about $235 million.

Those in so.

I'm spending some time illustrating those because I think it's important.

That we compare that to <unk>.

Thinking about our portfolio changes as we just this week.

Closed on the sale of C&I lighting and thinking about bringing in these higher margin higher growth businesses for <unk> and <unk>.

Swapping out.

More challenged lower growth lower margin businesses.

Some of them that were happy to keep continue as <unk> mentioned in our M&A strategy.

We will talk more about the five volume points on the next couple of pages. When we talk about the two <unk>.

Different segments, but in general despite the impressive year over year growth of 20%. It's also.

Good news I think sequentially compared to the third quarter.

We saw an increase and usually typical seasonality would suggest the fourth quarter will be slightly down.

So to be up.

I think as.

Testament to some of the backlog that Durbin had mentioned that we had built.

During the year as well as some sequential price that came in and I'll talk a little bit more about how our price has progressed and really good news is carbon described is turning the corner.

Operating profit.

Also impressive growth at 15%.

$253 million.

The margin side. However, you see was about 60 basis points lower than previous year.

I think the good news to point out about that is as our quarters progressed.

This is showing a tighter to prior year level than we've seen.

Year to date and.

I think setting us up to show you margin expansion next year.

And it's really been driven by the price cost dynamic.

On the cost side.

We always look at each quarter compared to the prior quarter of the prior year.

And in that viewpoint.

Material inflation really accelerated and continued to increase throughout the year, which caused us to have to be quite aggressive.

And responsive with our pricing.

And so to end this quarter with 11 points of price.

Just to contrast that in the first quarter, we had pulled one point of price.

Can see how diligent and effective a process that's been during the year.

We're working very closely with its customers and thoughtfully on how to do that.

I think in particular very.

Encouraging to us to have got in the fourth quarter to a point that we're neutral on dollars between price and cost.

I think it's really interesting to note the math on margin.

To just have comparable op with higher costs and higher sales, we actually had a couple of points of margin headwind, even though we were dollar neutral and so that's kind of speaks to the fact that we still got we believe work to do and we're looking forward to getting those margins expanded in 'twenty two.

Earnings per share up 20% in line with sales.

A larger increase in operating profit as we had tailwind and non op areas.

Including.

Our better than prior year on the effective tax rate.

As well as lower interest expense.

The free cash flow, you see 70% growth to over $200 million of cash, but I think I'm going to save my cash flow comments till we get to the full year I think cash flow is better talked about.

Not just the quarterly dynamics, but across really.

Tire year.

So turning to page seven.

We will start with the electrical segment results.

And this is really where the continuing operations.

Effects.

You see 22% sales growth to $489 million.

We had 1% of that.

<unk> was acquired.

14 points of price pulled in this segment and 8% unit growth. So very impressive sales growth impressive pricing performance expense and impressive.

Unit expansion.

<unk>.

Of note that 13 points of prices is ahead of the company at 11.

Which is indicating that our electrical segment is ahead of our utilities segment by about a quarter in terms of getting that price pulled in concert with our distributor customers.

I think to comment on the 8% unit growth.

We had in <unk>.

<unk> growth in the light industrial product area, some verticals that are really <unk>.

<unk> attractive dynamics in renewables.

Data centers are quite attractive.

The <unk> rollout area, which I had mentioned before.

Heavy industrial we saw double digit growth.

Quite strong recovery there non res.

On a continuing ops basis, our exposure is cut in about half to non res.

But.

We saw some growth there expecting that to continue.

One area of softness was in residential.

And now it's really.

Not a demand comment but on.

On the supply side.

A lot of constraints there that prevented.

Our resi business from growing.

On the operating profit side, you see 48% growth to $67 million of operating profit.

Margin expansion of.

250 basis points.

And.

You really got a lot of levers working for US here one is the incremental drop through on the unit growth and second is.

This segment had gotten themselves to a positive tailwind position on price above material costs.

So.

Impressive financial performance I think.

Not coincidental to the financial success is.

The success.

Thus, creating.

Really.

Electrical segment.

You recall year, and a half or so ago, we had been reporting this really has three different businesses.

It together under one segment.

Has really allowed us to compete collectively and I think we've got some good traction on that front I think we've seen both effectiveness benefits as well as efficiency I think we're more focused on our customer.

This pricing performance I think is.

This is driven in large part to be able to to do that across an entire segment rather than battle, it individually and certainly efficiencies in.

Marketing and product development and.

In operations as we utilized factory and distribution Center network space.

So very successful.

Implementation of really that one segment, which is <unk>.

Similar to what we had achieved on the power side many years ago.

Worth mentioning the full year for electrical because it certainly was.

A quarter of some relatively easier comps, but for the full year for the electrical segment on a continuing ops basis, we did see.

30% growth in operating profit and a 150 basis points of operating margin. So.

Really successful year as well for the segment.

Page eight.

Flipping to utilities solutions.

Same story for utilities that we've had over the past few quarters.

Impressive growth of 19%.

Two over.

$612 million.

We acquired through the two companies I mentioned six points of that growth.

Price accounted for 9% and the unit growth was about 4% so.

At 9% as you see is a little bit behind.

Where our electrical segment.

Is.

But.

When you see the trajectory.

First half was about two points for utility third quarter was about six points fourth quarter nine points. So you can see how we're trending and setting up well for 'twenty, two and we will talk about our outlook.

In just a minute.

The 4% unit growth.

Really is being driven by demand in our power systems area.

We're upgrade system hardening and modernization.

<unk> continues to be.

Important needs on the part of our customers.

Skirvin was describing that demand that we saw far exceeded our unit shipped.

And so we have some decent visibility.

To power systems on the <unk> side.

The chip shortages did impact our meter business there our results were.

Down a little bit in the fourth quarter.

And we're anticipating that showing improvement next year as well.

On the operating profit side, you see roughly comparable at $86 million of operating profit.

But down about three points, so again slightly similar story to what.

We talked about in the third quarter were the.

The price material headwind, though we've gotten price up to nine points, we're still.

Havent fully caught up on a dollar basis yet.

We see that catching up in the first quarter.

And ultimately in the second half.

Beyond catching up on dollars, we think we can start to get margins to expand in the second half year. So.

I think the franchise extremely solid.

And as price cost kicks in how you're going to see a solid year and we think in 'twenty two.

Pull the lens back to see the full year for our continuing operations.

Sales up 14%.

Acquisitions were about four price was six.

And units were for.

I'll ask you to just remember that six points of price for the whole year. When we talk about next year that number is important because we ended.

The fourth quarter was 11 and that leaves us with five points of wraparound price, which we'll talk about in our outlook coming up.

Our operating profit.

C up 8% to $610 million.

<unk>.

You see a 14, 5%.

Achievement for the year.

Just to remind everybody we burden our our operating profit with our restructuring expense as we consider those.

Part of running the business.

We don't have a corporate segment. So that's fully loaded all so for.

Corporate overhead and so.

I'd like to think of that 14, five as kind.

A trough number.

With the year with with a dramatic price cost dynamic.

And that will be onward, and upward from here with both our new electrical portfolio.

As well as price cost turning the corner for us.

Earnings per share you see up 13% at $8 five.

So this again on a continuing operations basis.

If you looked at us on the format that we launched 2021 and you included the adjusted results from C&I.

We would have been.

Around the middle of our guidance range and our full year performance.

And really since October when we were talking about guidance last.

Our C&I the discontinued ops have underperformed and our continuing ops have done better.

So we got to that.

Mid part of the range kind of with the strength of our continuing ops.

On a free cash flow basis.

You see a difference between 2020 , one 'twenty being a year, where we had.

Our sales down 9% in a year like that Youre, essentially liquidating working capital, making working capital source.

Here, you see 14% sales increase.

That required it.

Increase in investment in working capital, notably in receivables and inventory.

The supply chain unreliability, I think caused us to be quite conscious about investing even more in inventory in the fourth quarter and so.

You'll see that $424 million achievement.

Was about at.

96%.

Adjusted net income so a little short of our target of 100, driven by that working capital need.

And I think that will inform us as we talk about our 'twenty two guidance so.

On page 10.

Mike.

Start looking forward here.

And show you, how we think 2022 is going to play out.

And it really starts with the unit volume on the sales side.

Which we're thinking in the mid single digit range.

We continue to think non res can grow light industrial can grow.

We think our T&D electrical utility components can grow.

Stronger end.

And so the combination of backlog and growth is good there. If you think about how our order book looks in January .

You continue to see quite strong demand into the new year.

That's supportive of that volume outlook.

I mentioned the price we.

Achieved 11 by the fourth quarter and six for the year. So.

That's five points of wrap around.

And so as we build our waterfall from our 805 starting point.

You see two really good contributors.

Incrementals dropping through on the volume.

Then.

The price cost productivity bucket being.

Nice and tall and green.

We don't think it's going to be the full effect of the five points of price.

Because inflation the second tier besides <unk>.

Price and in addition to price material cost is non material inflation against productivity.

And we are.

Anticipating continued inflation from areas like salary and wages and transportation and.

And we expect headwinds in those areas or productivity.

It's going to be hampered a little bit by returning costs in areas like <unk>. We think our salespeople are going to have much more time on the road.

Being able to be with our customers things like medical and other items. We think are returning costs that will prevent productivity from fully offsetting inflation, but still very healthy contribution from that second green bucket.

We've got EPS centered at $9.

Nice double digit growth to that.

Not all of it.

That volume and price is going to drop through we're anticipating making.

Some specific investments.

On the innovation side.

<unk> got some new product development efforts underway in attractive high growth areas like renewed.

Our renewables.

Utility automation in comms.

There are some areas there.

That we're really well positioned to.

Invest some of this goodness and come out in 'twenty three beyond much stronger.

There is also some capacity expansions in the power area, which has really continued to grow.

And so we'll be we'll be adding some capacity there.

In the nonoperating Youll see.

Essentially a breakeven.

We are anticipating.

Initiating some share repurchases with the proceeds from the sale of C&I lighting.

We're thinking that could be.

In the neighborhood of $125 million or so.

We've got plenty of operation plenty of authorization from our board to execute on those levels.

Also some positive contribution from other income relating to some credits we anticipate getting for supporting transition services around our divestiture.

And that all nets against.

Anticipated of a normal tax rate, which I will reverse some of the tailwind we had.

This year so.

Net of that double digit growth to $9 on the free cash flow side.

We're anticipating similar range to this year, we finished at 96% this year.

And as we grow.

We think that the investment in working capital is going to be continued to be required and we also believe that we will be investing on the capital expense side.

And growing that in the double digits way to support the power expansions.

And on the electrical side.

A big aggressive plan around automation.

And driving efficiencies there I think of note.

Youll see that organic investment.

But you don't see the benefit from inorganic investment and the.

The same way, we had that $235 million of investment in three deals last year.

We would hope to be able to deploy some capital on the acquisition side and we have quite an active pipeline.

And <unk>.

Finding higher growth higher margin acquisitions, we hope will enhance this outlook so.

With that ill turn it back to <unk> comments on the new year, great. Thanks, Bill on before we begin Q&A.

I'd just like to underscore a couple of key points from this morning's presentation.

<unk> is well positioned for the near term and long term.

We entered 2022 with a high quality portfolio of complementary businesses, which are strategically aligned electrification on grid modernization and with reasonable strength in the name.

While the operating environment remains uncertain, we are turning the corner on price cost and continue to navigate a dynamic supply chain environment to effectively serve our customers.

The outlook, we have provided to you. This morning reflects strong fundamental operating performance and we are confident in our ability to deliver.

And finally I want to highlight that we are planning to hold an investor day in New York on June seven this year, while we look forward to giving you further insight into our long term strategy.

And with that let's turn it over to Q&A.

Thank you as a reminder to ask a question you will need to press star one on your thoughts about again that is star one to ask a question.

Q1 s, who withdraw that question press the pound key.

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

Thank you good morning, everyone.

Hey, good morning, I apologize I missed a little bit at the beginning of the call here, but.

Can you just elaborate a little bit more on.

The price realization in electrical is it broad based across.

The entire.

Segment.

And whether or not you have kind of additional price coming into the market to begin the year here.

Yeah, Jeff It is quite broad based in electrical.

Close cooperation with our customers.

Wasn't easy certainly.

And there was many price polls.

But thats been a good success story for the electrical team.

And I think.

Right now we're planning it that the wraparound so how we exited the year.

Is it going to be the wraparound.

As there is continued inflation in wages and other areas there may be need to pull price.

As I say the kind of massive.

Neutrality leaves you margin short and Thats. Another reason that we might need to still not be done on the price point. So I think there is some we're planning it as a wrap around in and kind of see how it develops and the price material positive for electrical that's a dollar number.

<unk> or markdown rate number yet it's a dollar number.

And.

On a clear again, the semi shortages and the like do you have any visibility on just kind of improving supply there.

I would imagine you've been working on supply for the better part of the year here just wondering if theres any kind of light at the end of the tunnel or anything else going on with site access or anything that might still be holding that business back.

Yes, so specifically.

Clara Jeff the chip shortages are continuing.

We expect those to continue well.

Into 2022, Theres, obviously, a lot of work going on to built chip capacity, but as you know that's multi year.

Timing to get those up and running so.

Certainly our our plans and projections continue to project that we're going to be dealing with these challenges.

Throughout.

2022.

So I think access has gotten better certainly.

We've been we've been hearing there helped back with.

Omicron coming up.

We are.

About to wrap up a big project and a big IOU utility this quarter. So we'll put that behind us and have continued to be able to do that so I'd say, it's probably less access and more material shortages that are that are holding that business back and thats.

More broadly on our entire business vacation and we've done a lot of work I think as Bill explained.

Sequentially, we've continued to increase our production in <unk>.

<unk> of solving some of these things not only in our own plans, but supply chain. So we do see it getting better, but it's slow coming I would say.

Okay. Thank you.

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

Good morning, and thanks for taking my questions.

Tommy.

Robert I wanted to start off on the investments you have budgeted for some of the innovations.

What additional can you add if anything on on some of the specific product.

Development initiatives you have underway and then as we think about the dollars budgeted here is there any way you can frame. It just total size of that budget, maybe 'twenty two versus 21.

When you do allocate those dollars, what's a rough payback period or forward.

Cycle time and until you see first revenue. Thank you.

Yes, great John Let me I'll start with that and I'm going to kick it to bill to provide some color on on.

The numbers around it.

But it is first of all.

Geared towards these higher margin higher growth opportunity.

Inc.

Solar I think data centers.

Thank you.

Utility products.

And we have portfolio of products that are that.

That are adjacent.

<unk> two dose so it's been a lot of cases modifying products that we make for dose specific applications.

I'd also say, it's not just about product, but it's about <unk>.

Production and when we talk about the capacity that we're adding.

To service the utility man and one example of that is actually a little bit of restructuring and investment were taken three sites and we're consolidating dose.

Into one and on top of that adding additional capacity to one of our best our enclosure business add needed capacity to serve this increased demand not only from utility but from from the communications market. That's really has been growing and we continue to see grow as GDP plus so its not one area.

I would say, but it's definitely more focused for us to do this in areas that matter for us higher growth higher margin areas and that takes investment and maybe bill you can give a couple of comments of kind of magnitude.

Moving to Tommy good morning.

We've got about 20 in that waterfall.

Dedicated to the investments and on.

And the payback cycle.

That does not payback this year, we'll start to see.

Good traction next year and the way our plans have in year three you really start to get your payback there so but I think we will have lots of intermediate.

Signposts that tell us that the investments can have a big.

A nice payoff.

We think we've picked some really kind of nice return lower risk places that carbon was highlighting.

Yes, maybe.

So I wanted to say I mentioned in my comments.

Investor Day coming up in June and I would really encourage you to join.

Join us for that that will be an opportunity, where we look to be more specific on some of the investments that we're making and the innovation. So I think we'll provide some more color there as well.

We will be there.

A quick follow up on the EPS outlook, you've provided for the full year, so double digits full year 22 versus <unk> 21.

Anything you would offer to help us frame that seasonality.

In terms of the contribution across the quarters, maybe just comparing it to a typical cadence.

Yes, it's interesting Tommy we think it's returning to look.

A lot more normal seasonally on the topline.

And.

What I'd say on the earnings front.

A little bit challenging us.

Jeff's question we.

We have really really nice insight on price, we know what's in the market. We know what our products are selling for.

As a LIFO company, there's just a little bit of uncertainty on the material cost then.

We're starting to see steel costs potentially come down and so.

We.

I'm not sure we've got that.

Pegged perfectly to know.

The earnings level, it will behave seasonally but because the top line is.

We've got it planned out in a much more.

Seasonal way I would say the way, we're looking at price cost.

It's slightly back half weighted benefit.

But I'm not sure that our.

We're using jump off points right rather than have perfect knowledge of where the costs are going to be.

Yes.

Fair enough I appreciate the insight and I'll turn it back.

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

Hey, guys. Good morning, good morning.

Steve.

Can you just give some color on.

The segment margins in any any drivers there maybe just like price cost spread between for both of them for 'twenty two.

Yes, so on the electrical side Steve.

By by the end of the year they had gotten ahead.

But for the year, they still had headwind on the price cost side.

And so I think that.

They are really benefiting from.

Sure.

For the year anyway really having.

That volume kind of drop through.

An attractive way.

And.

So I think the utility guys. In contrast are about a quarter behind that Steve.

The utilities themselves have just been.

A little more time to get those price pulls through versus our distributor partners I think where we.

Quite nimble as the year progressed and this became the order of the day.

And so.

The utility folks had.

More than those three points.

Rice, we're we're coming over three points of margin negative compare more than that was coming from the price cost. So I think the.

The key to us getting utility margins up in the second half of next year is getting that price to catch up and crossing over so it's going to be quite important for us to achieve that.

Great. Thanks.

Your next question comes from the line of Brett Linzey from Mizuho. Your line is now open.

Thanks, and good morning.

Good morning, Brian I wanted.

Wanted to come back to the the order growth, 20%, how does that split between the segments and I am curious are you seeing any more advanced ordering as customers look to secure secure spot.

Any double ordering or is it really just commensurate with the underlying demand youre seeing in your core markets.

Yes, I would say that the order pattern has been skewed towards the utility.

And our unit shipped was a little lower in utility.

So a lot of the backlog has been built on that side and I think youre right to point out.

That the order pattern is above what our expectation for sustained annual.

Growth rates will be and so I think utilities are doing a lot of things. They they see the promise to deliver dates gap out and so theyre getting in line.

They are seeing some of the.

Materials be available a radically and so they're making sure they are in the queue.

They see price increases so they want to be ahead of that and so for all those reasons I think that demand and yet.

They really have the need to put that product into the.

Utility infrastructure and so.

That's been pretty skewed towards the utility side electrical on their side.

<unk> has had.

<unk> built backlog.

And they built a decent amount of backlog, but but not nearly as much as the utility and I think we're seeing.

Distributors order and they can basically sell it when they order it on the electrical product side.

Got it makes sense and then on that point with the order backlog is some of that.

Subject to repricing or their escalator clauses within that you talked about some of the inflationary pressures youre seeing outside rolls.

Just thinking about how they might be able to move up over and over the course of the year on re pricing basis.

Yes.

I would say there is very little we probably have pockets here and there where we see this but for the most part we don't and Thats one of the reasons when bill talked about that lag.

When we see commodities come up when we go with price and when we actually start to realize that being a little longer in utility is exactly for that reason right. There is more demand out there.

More orders that have been placed.

With future date, so it takes us a little longer to recover it but with clear and we've shown showed this chart in the past, where we kind of show price cost over a longer cycles and you can see that over to cycles, we show.

Equal or even net ahead.

It's going to take some time and that's really the view, we take with our customer and it's a longer term view.

Having to recover cost increases with price and Thats one of the reasons. We are able to effectively do is we do a good job communicating this were fairly consistent in our approach of doing it but yes. It takes a little time to recapture it but then we hold onto it on the other side as well when we see commodities coming down that.

Dynamic that we've shown over over time being being net.

A positive for our story.

Yes, it makes sense, thanks, a lot of ethanol.

Again to ask a question please press star one.

Star one to ask that question.

Your next question comes from the line of Josh <unk> from Morgan Stanley . Your line is now open.

Hi, good morning, guys.

Josh.

So.

I wanted to continue the discussion here on price cost, maybe some specific input sensitivity.

Go buy a lot of ways.

Payroll connectors, whatever those are but just looking over at the catalog.

An awful lot of steel or something that looks like it's made out of it.

And with LIFO, maybe deflation a little bit more more imminent.

Could you just sort of.

Help us what's the sensitivity to steel in particular since that.

On a rolling over here I mean, yes.

Yes, just kind of doing some back of the envelope like you start to come up with numbers and like the dollars of EPS tailwind.

We're heading into that in the next couple of quarters. How do you think about kind of snapping the line on.

Some of the futures rates out there.

On steel if you were to hold the price that that big was there something on either price leak or some other inflationary item that we should.

Just keep an eye on so we don't run away with individual points.

Yes, I think.

The math problem that you're solving you're coming at it.

An interesting way in the same way that I look at it right where you have <unk>.

Gross margins in this.

30% range. So you've got you've got your Cogs up there in 70 kind of point land in sort of half of those causes.

Labor and overhead and burden so.

The balance of half of those Cogs as a combination of <unk>.

Component cost sub assemblies purchased for resale amounts as well as some raw materials.

<unk>.

When you look at the raw materials.

Youre right to look at our catalog and theirs.

There is aluminum and copper for sure but steel is would be.

Our largest exposure.

And so as.

As we've been looking at the forward numbers and watching the market.

And I have seen.

Copper and the relatively flattish area, you've seen aluminum and a favorable area and <unk>.

Certainly steel you may be seeing in the favorable area. So.

<unk>.

As that unfolds.

To the extent there is.

Some sustained movement.

Down from here.

That would be upside to how we.

We see the plan.

And.

In order to accomplish that you've got to basically hold onto the price, which is why would carbon was talking about the conversation.

With the customer Orion, we very specifically Josh.

Do not have those conversations.

As a steel surcharge right we have it as a.

Set of broader inflationary pressures so that.

If a customer were able to see steel going down that they don't just.

As for the price cut and sew.

And so it's hard for us to say the sensitivity because if it goes down a lot you'd give up some price. So it's not just the subtraction of that but you're right to point out that.

That.

Steel is the biggest and youre right to point out.

That it can it can be.

It can be sensitive so youre right to point that out yes, yes, maybe to add a couple of comments as we think about 'twenty two.

More generally I would say there is among the many things that we.

Look at and track.

Two I would say come out of this SKU, one ish commodities and inflation and what's going to happen with that inflation, particularly those related to supply chain things like freight and labor.

And.

What's the impact of those on our results in the second one really ongoing supply chain challenges and what's the impact on volume, so commodities and inflation and volume are really two big leverage youre right to point out at this point, we're tracking disclosed lease deal is showing some.

Retrenchment, but I'd also say.

Still plenty of challenges Steve.

Steel is the biggest copper and aluminum are also pretty significant for us one that we're actually looking at right now is aluminum.

What made a lot of that is coming out of Russia and that needs to play out still here. So.

So said early in the year I would say, while while we do see some upside.

On steel, particularly right now there's still a lot of uncertainties. This early in the year. So our approach is to monitor these closely and as the quarters go.

We'll certainly update you on that.

Required updates to our guidance, we will do so.

Great that's super helpful detail and I'll squeeze in a shorter extra one just because of that.

In the T&D components section.

Are there kind of a polledo of growth in there as it pertains to some of these mega trends like grid hardening.

Or is it kind of evenly spread across that segment different way of saying.

Can you sort of own what you need to own to capture the upside.

Are there areas, where you'd like to double that.

Yes, I would say just on the infrastructure hardware side.

I think we feel really great about our position and feel like we have.

Paul.

Our leading position as you get to the edge and meters, we feel like we are.

Very important leading player there so one of the places thats exciting to us is that space in between the meter and the components in areas of automation and control and protection. So that's kind of place where youll see us some of the questions came up about new product.

<unk> will be there.

As well as frankly acquisition potentials as well, but if you're talking just T&D components, we feel incredibly well positioned with our breath of product our relationship with the customer and I would say urban.

During 'twenty one.

Given all the ups and downs for the utilities in dealing with their suppliers. It feels to me like our relationships probably improved.

And our ability to kind of work well with them during.

A volatile year.

Perfect I appreciate it.

There are no further questions at this time presenters you may continue.

Alright, great. Thanks, everyone for joining us and I'll be around all day for calls.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may have.

You may now disconnect.

Okay.

Sure.

[music].

Yes.

[music].

Yes.

Yes.

Okay.

Yes.

[music].

[music].

[music].