Q1 2022 Hubbell Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the first quarter 2022 results conference call.
Time, all participants are in a 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.
And now it's my pleasure to hand, the conference over to your first secret today, Don and number of auto Vice President Investor Relations. 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 first quarter 2022 results. The press release and slides are posted to the investors section of our website at <unk> Dot Com I'm joined today by our chairman President and CEO , <unk>, <unk>, 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 $19 95. 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 financial measures.
Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides.
That I will turn the call over to Griffin.
Great Thanks, Dan and good.
Everyone and thank you for joining us to discuss <unk> first quarter results.
<unk> is off to a strong start in 2022.
Our markets remain healthy with broad based demand driving strong sales and order growth.
In particular, our utility solutions segment continues to build backlog, even as customer shipments picked up sequentially.
Grid modernization initiatives continued to drive robust investment levels from our core utility customers as they seek to upgrade aging infrastructure and integrate renewables onto the grid.
Operationally supply chain headwinds persist inflation in raw materials and labor.
Availability and higher cost of containers as well as shortages and key materials, such as chips and resins are leading to higher input cost and manufacturing and transportation inefficiencies across our businesses.
However, we are executing effectively through these challenges to serve our customers and deliver strong results for our shareholders.
We continue to accelerate our price and productivity initiatives and we have now turned the corner on price material, which was a net positive in the first quarter.
The combination of strong volume growth and positive price material enabled us to return to year over year margin expansion.
Earlier than we had initially anticipated.
Overall, we are pleased with the performance in the quarter and we are confident that we are well positioned to continue executing effectively over the balance of 2022.
While the macroeconomic environment remains dynamic our strong order book significant price traction and operational discipline.
Visibility and confidence to raise our full year outlook today, which now reflects mid teens adjusted earnings per share growth.
We will provide more color on the full year outlook later in the presentation.
Before I turn it over to Bill to walk you through the financial results I'd like to highlight some key accomplishments in the quarter.
First on capital deployment, we deployed $150 million of proceeds from the C&I lighting divestiture to share repurchase returning cash to shareholders and generating approximately 10 cents of accretion in 2022 in line with our initial guidance.
Our balance sheet and cash position is strong.
Forwarding, our bolt on acquisition strategy, which we expect to continue executing over the short and long term to generate attractive returns for our shareholders.
Next I'm proud to highlight that Hubble received two of four annual awards from a major customer.
Hubbell power systems was awarded the above and beyond award for successfully managing through supply chain constraints to serve its customers.
<unk> was awarded the operational and technical Excellence Awards.
For improvements in operational efficiency and proactive management of communication.
This recognition is particularly well deserved for our teams who are working so hard to effectively serve our customer needs. During these challenging times.
Not only is this an example of the strength of hubbell's individual brands and businesses, but it also demonstrates the quality of our portfolio across utility and electrical end markets.
We have made good progress in our efforts to go to market collectively as one hubbell and we see significant opportunity ahead and building on our strong channel partnerships to better serve our customers.
And finally Hubbell is honored to have been named one of 2020 twos world's most ethical companies ethisphere for the second consecutive year.
I'd like to thank our over 17000 employees, who demonstrate the highest standard for integrity, each and everyday and note that this achievement is a recognition of their commitment to compliance and ethics as a foundation of our strategy and culture.
We also released our second annual sustainability report in the first quarter highlighting the progress we have made on ESG over the past several years as a core element of our business strategy and product offerings.
We encourage all our stakeholders to view this reports into sustainability page of our website and to continue to actively engage with the Hubble leadership team on ESG topics, Let me now turn it over to Bill.
Thanks, Kevin Good morning, everybody. Appreciate you joining him aware of how busy the day is and I'll try to keep my comments short and sweet and open with the happy birthday to our own Dan in Toronto today.
And as <unk> said really off to a strong start to the year and Theres really two notable management accomplishments that are driving.
The results and Youll hear us comment several times. The first is price I know youre all aware that we got behind last year and as inflation persisted throughout the last five quarters.
We relentlessly kept working with our channel partners to raise price and I think the fact that we that we caught up and created a tailwind in the first quarter of 'twenty two.
Is really good evidence.
The high quality of our products.
How well positioned they are.
In front and behind and at the meter where essentially at low cost relative to the value that they add.
The second besides price was our production levels I think as you know we've been operating for a while.
Constrained not by orders, but constrained by supply chain.
So it was a great sign to see sequential increase from Q4 to Q1, which is typically a decline in output.
And for us to increase the units there.
<unk>.
Some evidence that.
Getting better and fighting through some of the supply chain constraints and.
When you have both that price and production level raises with the backdrop of strong orders youre going to see very high growth in sales and earnings which is which is what youll see in our in our results released today.
I'm going to start on page four of the materials you can see sales increase of 21% to 1.1 dollars 6 billion that 21%.
It was driven by organic growth as well as price.
As I mentioned.
The comparison.
Comparison to the prior year sequentially as well, we saw mid single digit growth versus the fourth quarter of last year with both units and price being up sequentially.
At the operating profit level, you see 20 basis points of margin expansion to 13, 9%.
Welcome to see that return to margin expansion.
And we really have the.
Price material tailwind complementing the volume growth to help drive that.
Earnings per share you see an increase of 30% year over year to $2 12.
Driven by the operating profit growth as well as some other income tailwind.
On the cash flow side, we had a use of $36 million in the quarter.
The extraordinary high level of sales.
Required a large investment in receivables.
And we also invested aggressively in inventory and.
We continue carbon pointed out that the customer awards that we received we continue to try to serve the customer make sure we've got.
Inventory on hand, and keep our service levels as high as possible given.
Some of the choppy operating environment that we're in.
On page five you see the results laid out a little more graphically that 21% sales growth.
Unpacks into 12 points of price and nine points of units.
That skews slightly higher for the utility segment, which we'll talk about separately.
But both in units and price, but the electrical segment also showed very strong growth. So.
Broad based demand profile here and despite the 21% increase in shipments.
Orders were up 25%, so we actually built more backlog.
In the quarter.
At the operating profit level, you see the impressive 22% growth to $160 million in the quarter.
And.
That volume growth and price material tailwind really combining to.
To create.
Some nice lift on the margin side, there's a partial offset for the non material inflation to think of things like compensation cost and transportation costs eating into some of those gains as well as <unk>.
Some inefficiencies in the factory where the.
The supply chain and consistency.
Of both labor and material not being available as consistently as is typical and so when you're operating at high levels of volume.
There is some some inefficiencies and spending that are going on inside of our of our plants.
The EPS is up 30%.
Just under 50.
Of new earnings coming from all of this growth to $2 12, the growth rate.
It's higher than the growth rate.
Because of some interest expense lower as a result of our bond refinancing we did last year as well as some.
And just transition services income.
But.
Taxes were comparable in the periods not a tax driver there.
Here, you see the cash flow use laid out compared to.
A small source of cash last year.
Typically the first quarter is our weakest cash flow year.
Sorry.
Cash flow quarter in the year.
And we still anticipate meeting our initial targets on free cash flow. This is just.
Early investment in the year at a time of high growth in receivables first.
And inventory second.
We're going to now.
Unpack our results by segment and we will start on page six with our electrical segment you can see the impressive growth of 19% all organic.
10 points from price nine points from volume.
Quite a broad based.
The contribution to the demand profile.
Light industrial.
Up in the mid twenties data centers and telecom I would note as verticals inside of that space.
Non res similarly up strong in the mid twenties heavy industrial up in the mid twenties.
Commodity prices that we see.
In both steel for example in oil and gas or.
Are good indicators for our heavy industrial business customers.
Still pushing demand up and.
And the exception to to the really strong outlook.
Is on the residential side.
We had some tough compares to a very heavy amount of home remodeling done last year.
As people were spending more time in their house than they wanted to.
No travel.
Not commuting to work we saw a lot of attention spent three modeling which has been difficult to.
Difficult to compare against on the op side double digit growth for the electrical segment.
At 11% to $58 million.
You see that the margins, though did not expand in sympathy with the company.
And though we got good drop through on our incremental volumes and price material was favorable.
That was more than offset.
By the inflation in transportation.
And that was really most acutely felt by our residential business, which is essentially a purchase for resale in the container costs transportation costs become very large hit to that business as those costs spiked up.
And.
As well as extra spending on restructuring so.
If the residential business had had.
Comparable year to last year, you would have seen.
Comparable margins in the extra investment in restructuring, which will create <unk>.
<unk> and higher margin in the future cause an additional.
Half point drag so.
I think the underlying business very healthy here.
In page seven we transitioned to showing the utility segments.
Very strong performance.
We've built quite a strong franchise here on the utility side.
22% growth.
Which is actually 23% organic we sold.
Small product line from inside the Clara business.
And that 23% organic.
Unpacks to 13 points of price.
10 points of volume.
Again kind of note the volume.
Was 7% higher sequentially versus the fourth quarter of last year.
Inside the utility solutions segment is where.
We have the more pronounced buildup of backlog and so getting the bottlenecks eased out in our production capacity up.
It has been a very welcome sign.
And.
You can see that drop through on the operating profit side, but finishing on sales really saw strength from the power systems side, and the transmission and distribution components as well as gas components.
We had growth in the 30% range and on the communications and control side.
The Clara Ami meters business continues to be constrained by the lack of availability of chips and we expect that.
Condition to persist throughout the year.
And.
But the entire segments still powering with very strong growth.
You see the drop through effect of having.
Price material tailwind, which.
This was the quarter that the power team caught up on that.
And you see the welcome lift in margin.
Expansion of nearly a point.
So you got.
Above 20% sales growth with 90 bps of margin expansion, you get a lot of op lift and really helping add.
Two our earnings per share story.
So that gets me to page eight and the impact of those trends and results on our outlook and.
I would say usually.
We would consider.
This to be too early a point in the year.
To consider arrays, especially with as much macro uncertainty as there is.
But we started with.
A higher than normal backlog, we added to that backlog despite shipping 21% increase in sales.
And the prices are.
Really seem to be sticking.
<unk>.
And we are going to get some incremental price and so that's causing us.
To anticipate higher sales than we had initially guided you to and we're going to reflect that new outlook in this guidance. So when we came out in January .
We were describing a expected sales growth of 8% to 10%.
Which was comprised of 5% price.
Three to five of volume.
So given what we've seen through the first quarter.
On price sticking as well as some anticipated incremental price that we're going to ask for we.
We believe that price will be more in the range of 7% for the year.
And that volume, which we had anticipated at three to five.
Feel now would be coming through at four to six.
And the effect of this change at the sales side effectively imagining the price being absorbed by incremental inflation. So it leaves us an extra point of volume that.
That extra point of volume, we think should drop on the order of 20.
To the year and so what we've done is raised the midpoint of our outlook range.
From $9 to $9 20.
So in other words, we've kind of maintained our margin outlook.
And we've maintained the percentage drop through free cash flow that we're expecting between 90 and 100%.
Worth, noting I think that.
There are no new incremental acquisitions included in this guidance.
We are pleased that that pipeline seems to be refilling.
And we feel we're quite intentional and finding verticals that have high growth and high margins in them.
And so.
Just a comment there that acquisitions are not included in this outlook.
So with that I'll turn it back to <unk> for some closing remarks, great. Thanks, Bill and before we begin Q&A I'd just like to underscore a couple of key points from this morning's presentation hubbell.
<unk> is off to a running start in 2022 after strong execution in the first quarter.
And while the macroeconomic environment remains dynamic and uncertain, we have strong positions in attractive end markets with long term growth drivers and we are executing well and the areas that are within our control.
We are confident that we are positioned to deliver on our 22 outlook, which we raised this morning and drive strong results for our shareholders over the long term and with that let me turn it over to Q&A.
Thank you Sir we will now begin the question and.
If you have a question please press <unk>.
Star then one on your telephone keypad.
One on your telephone keypad, please standby, while we compile the Q&A roster.
Your first question comes from the line of Jeffrey Sprague with vertical research. Please go ahead.
Good morning, everyone.
Morning, Jeff Good morning.
Maybe just.
Just start off on the volume side of the equation and the reason I go there we're seeing a lot of results here recently, where.
Companies are posting topline that ABB is almost all price.
No volume.
These results therefore kind of stand out in that regard, even though the prices are impressive.
If you look at in particular, what's going on in the utility market.
Is there anything additional to add around.
I don't know infrastructure spending coming in or other actions.
Or is this just really kind of.
It's sort of been uncorking of some of the supply chain headwinds in Europe .
Kind of better able to just kind of keep up with the overall pace of demand here.
Hey, Jeff Let me maybe break those down into two sides. One is in on the demand side and one is on the supply side fundamentals.
Fundamentally dimmed.
Demand is strong in the utility market, we've talked about the need to harden the grid upgrades.
Grid and Thats still absolutely fundamentally there.
Sure.
Bill State as we continue to see orders exceed shipments so we're building.
Backlog now of course, there is an element of lead times, expanding and that creates maybe a little bit of a unnatural.
<unk>.
But.
So far exceeds our supply right now debt.
We believe even if that moderates that debt at the levels that we're producing we can maintain those and continue to see growth.
The second part of it is we were able to increase our productive.
Output and.
No small feat I would say, it's part of why I'm. So proud of the team being recognized for some of these service award that our customers are truly telling us that during this time.
We are outperforming in delivering its a real focus for us I would say the things that we are doing on the supply chain side make us more resilient right. So we.
We spent a lot of time approving alternate materials and design qualifying new suppliers for redundancy.
Making.
Passive investment, particularly in the utility business, we're making some investment there because that business is really seeing growth throughout the pandemic.
And automation, so I would say the investments that we're making into the into the business are helping us improve and what we've seen now that the rate. We wanted it to be but we have seen quarter over quarter continued improvement despite what our sale.
Very very challenging time, when you look at containers, our supply chain on the omicron that we dealt with in the first quarter. So I think we're just building a more resilient.
Operation, but still plenty of China, So hope.
Hopefully I answered both sides of the equation. Therefore, you yeah. Thanks, and then just again on utility.
It's been a little bit of concern and I don't know if this is kind of chatter at this point, but just.
Pressure on the consumer Bill for.
Inflation, possibly feeding back in.
Some pressure on T&D spending I mean, obviously that didn't show up in your results in this quarter.
I'm just wondering to the extent you could speak to do you see that creeping into the conversation anywhere maybe unpack kind of capex versus opex on T&D and the sort of visibility that you have looking forward kind of 12 to 18 months in that segment.
Yes, I think I.
I don't know that we have any particularly acute.
Insight into the balance there I mean, I think it's <unk>.
Quite an important question as to how supportive the PUC can be.
And.
If the consumer starts getting quite pinched here.
I do think Youre right.
Utilities have been quite.
Quite effective in getting a lot of their spend into capital in a way from O&M such that.
That can be they ultimately will get reimbursed for the return on capital for that but.
I think your question is one that will have to keep watching because.
Not something Thats.
Evidenced itself yet in any of our demand profile.
Alright, Thanks, a lot I'll leave it there thank you.
Thanks, Jeff.
Your next question is from Steve Tusa with Jpmorgan. Please go ahead.
Loaner.
Thanks, Steve.
Great.
Youre welcome.
Good morning, Steve you're on.
Alright, guys.
Yes work from home sorry about that yes.
Yes.
Yes, yes.
Is going to Mark in a second just be ready.
Yes.
Although I've been accused the Bakken before ourselves.
Yeah.
So I guess.
My question.
It's really around kind of the second quarter.
How do we think about the progression over the course of the year and is there any lumpiness with this.
Price cost dynamic that's going on that we have to think about when it comes to.
Either year over year sequential performance as we kind of move through the year, because clearly the year looks conservative here, but I'm just wondering how that plays out.
And sequentially.
Yes, I think Steve.
Steve as we look at the second quarter.
Sure.
There is.
Some momentum in the sales side and.
I think youre right to point out that.
The commodities.
Starting really at the very beginning of March I think triggered.
By the invasion.
It started to re inflect in Reinflate.
And that creates.
Only the need to keep getting price and so we're anticipating getting some more in the second quarter and trying to just navigate through that.
But.
We're just anticipating Steve with the visibility that we have in our book.
And the backlog that we will have.
Some some <unk>.
Similar trends to what we saw in the first quarter I would say of note we usually see.
A decent sized seasonal pickup from first quarter to second quarter and because of the first quarter was really using some of its backlog to support its levels.
I don't think we will see that same level of sequential pickup of seasonality I think that will feel a little more muted than it will it will look a little more like momentum I would say.
The only thing to add to that is as we are one month into the second quarter. The order patterns to remain quite robust as similar to what we saw in the first quarter.
Right.
A pickup, but maybe not as much as normal seasonality.
Yes, absolutely.
One more question for you what happens when these raws rollover.
Historically, you guys have had some negative pricing in some instances.
Whats the kind of playbook for when things soften up on the on the input side.
Yes, I think.
It's going to start with.
The dialogue, we've been having with our customers and the channel Steven.
<unk> been very clear that that our price increases are not a surcharge on steel or copper or something like that it's really part of a quite a broad based inflation profile. So yes commodities are a big part of that.
Yes people costs compensation costs are a big part of that transportation costs are a big part of that.
Medical is a part of that so.
<unk>.
Even if let's say steel or copper or to start to soften.
We've I think got it the right dialogue with our customers that thats not.
An immediate cause for a price decrease and so at the same time.
I am sure.
Those conversations will be had.
We'll just need to make sure we keep reinforcing the value proposition.
What our products play in front of the meter behind the meter and the solutions they provide.
But also it just feels to us Steve like Theres still a real shortage in supply and so having the supply.
It is.
Is really worth something and Thats why <unk> been I think keeps pointing out the awards that we've getting for serving serving the customer and trying to keep that that's positive relationship as we can so that'll be that'll be a battle, but we.
We feel we feel will be up to it alright.
Alright, I hope the Rangers give Dan a win for his birthday Tonight, and I will go figure out my car by car issues.
Good luck with the loan.
Okay.
Your next question is from Tommy Moll with Stephens. Please go ahead.
Good morning, and thanks for taking my questions.
Tommy.
Backlog up quarter over quarter.
One.
Gating factor you highlighted.
It's just the chip shortages that have impacted shipments for your ami meters meters business.
I'd be curious for any context, you can provide there but also more broadly.
To the overall enterprise.
Additional detail can you give us on maybe the magnitude where your revenue constrained.
Where are the areas.
Constraints that are most acute.
Yes, I think the areas Tommy if I were to point to them.
On the materials side starts with chips.
You pointed out the area of our business that that impacts.
I'd say resins would be an example of another material that's not been consistently available.
And that causes.
Some disruption in our enclosures business inside of power systems, as well as our electrical products.
Business inside of the electrical solutions.
Segment.
But I think also other inputs outside of those materials.
I do think that our absenteeism.
<unk> continues to be higher than if I are quoted normal going back a couple of years pre COVID-19 .
So when you combine.
<unk>.
When you combine sort of on a 9% volume increase going through the pipe and your staffing at individual cells is kind of uncertain day to day and week to week and you don't exactly know, which materials youre going to have.
So ending up with spending more inside of our plants and not running as efficiently as we could and I think the third place to point out is you got materials, you've got labor in the third is transportation.
And Thats really been most affecting I would say our residential business where.
Where they've got a purchase for resale model taken.
<unk> taken a container in.
Those containers prices really spiked that just really ate into the profitability of that business. So I'd say those are the the most acute.
Contributors to preventing us from being firing on all cylinders here, yes, I would say on dose through you're absolutely right. Bill those are two that are fundamental day to day.
In our view.
We'll probably take the rest of this year and wood chips, probably into next year to solve that so so one of the things we're spending a lot of time on as I said at the beginning as to kind of redesign product and its ultimate materials. Our ultimate design with chips out chips are going to be hard to get nomex chip you do so it's a little more challenging but what really cost.
Some of the inefficiency is that consistency of supply and that's probably a bigger.
Issue for US right now is the starts and stops and when Youre running factories that that's not good.
Proudfoot and even worse for forecast so.
That's where we are.
Perhaps a.
Struggling the most and that is.
Not the most efficient.
Cost on that volume that we're getting and then youll see the default or on that volume not being as good as it could be.
I appreciate the context, there shifting gears for a follow up.
District distribution automation.
You talked about some growth related investments.
I'm wondering if you could frame for us.
<unk>.
What that entails.
What are the opportunities you're chasing down.
What type.
Type of timeframe to be able to harvest some benefits from that investment.
Yes. So you are talking specifically about da or specifically about the investment that we put in our outlook bridge.
And my assumption was the former is a subset of the ladder, but it.
It is a subset it's just not all of it so.
But I think so let's start with the bigger piece.
And I would say.
Some of that investment.
It is going into capacity and as turbine highlighted.
Power systems segment.
But decent amount is going into new product development.
And.
Tommy we've got an Investor day planned.
In the next six weeks or so and we're eager to see some folks there and we are anticipating doing a little bit deeper dive into some of the new product development that we're working on.
But we're targeting certain.
Applications certain areas of high growth that we think we've got.
The right to compete in.
And yet your question is a good one which is that kind of investment.
Isn't going to payback this year, we'll start to see some benefit next year, but I really think.
You are right to point out that that's got a couple of years before you really start.
To see that.
And yet we think thats, a really important part of the story going forward as being able to grow faster than GDP and to really get the gross margin growth by having new products that have.
A value proposition that can extract a better a better gross margin so and on the distribution automation side, we just happens to be one of those areas, where we think.
The control and protection of the of the grid.
In between the meter and the infrastructure is there really.
Area, that's got just a lot of opportunity for growth.
Given some of Jeff's questions about the need for utilities to keep their O&M down.
And it's just a place where we think we've got a right to play and a right to win.
And so that just you are right to call that.
Subset.
The other.
Thanks, Bill I'll turn it back.
Operator.
Okay.
Next question is from Nigel Coe with Wolfe Research. Please go ahead.
Thanks, Good morning, guys. Good morning, Matt Good morning, Nigel.
So Tim has made during the call. So I apologize if you've addressed this already but what was the major reason for the diversions between.
The electrical margins in the.
Down margins in electrical and obviously very strong in utility.
It sounds like logistics and inflation more impactful there, but any more color that'd be helpful.
Yes, I think.
A couple of things that were specific inside of electrical.
One was.
Sure.
The business unit facing off against residential Nigel.
Is.
Facing some difficult compares the first quarter for really the first half of last year saw some extraordinary spending in the home remodeling.
Area, because people are essentially trapped in their homes and weren't allowed to get out and about so they decided to invest in their nest as they say and.
So those volumes were down.
And then that was exacerbated by the fact that our resi business is.
Our purchase for resale largely and so.
The cost of containers than to bring that product across the ocean.
Really really hampered the.
The margin. So if you if we had had the same years last year.
Would've seen margins flat and electrical we spent an extra half point.
On restructuring in this segment.
And we are.
Excited about the fact that that will create productivity and margin next year. So we think a very good investment.
But those two things you would've seen margin expansion without those in.
But you are right that.
Just the the non material inflation in some of the inefficiencies that Tony was just talking about.
That's sort of eat into the tailwind provided by volume and price material tailwind.
Okay. Okay, obviously lots of questions on price already but I'm just curious if you maybe just a bit more definition on how you see the.
Material balance.
Through the year and what is your assumption just just to be clear on commodities Tfl is it flat from here over the balance of the year, what you've seen.
Some modest.
I don't know deflation.
But what are your assumptions on commodities.
Yes, our assumption is that there is continued to be inflation throughout the year and that materials are going to cost more than they did last year and we are priced for that and have actions in the second quarter consistent.
With that but it's also important to say that our pricing is informed by more than material because we certainly.
On the transportation side.
On the human resource cost side met.
Medical salaries and wages benefits.
<unk>, our salespeople are back out on the road.
So there is.
There is just.
Non material inflation and that it's more it's overwhelming what you can do with productivity initiatives and so I think Nigel it puts a little more burden on price and so it's may be to our benefit that we have been so obsessed simply focused on price as a company for the last five quarters because.
Because we really really really need it.
We will talk to them pretty well.
And then just final quick one on the oil and gas oil and gas business can you just mark to market on where that business is right now I think it used to be mainly in offshore business, but in light of the oil price than the drill baby drill kind of from the administration.
What are you assuming for that business this year.
What are the tracking relative to.
Kind of 2014 levels.
Yes so.
It's down to about 5% of our sales at this point Nigel.
The.
But it saw a good quarter.
Inside.
We combine it in our heavy industrial piece inside of the electrical segment.
And we.
We saw good return of margins as the volume came back.
And so we continue.
<unk>.
As important as energy is to the economy here.
We continue to feel.
Get us providing explosion proof products.
Mostly in the upstream part of that process.
It's.
It's near term future with energy prices, where they are it looks looks pretty good just as much.
Quite a small piece of the total at this point.
Yes, okay. Thanks Bill.
Your next question is from Chris.
<unk> with UBS. Please go ahead.
Yes.
Thank you.
The prepared remarks, the company noted that orders outpaced revenue leading to further build.
Can you provide some color on what the 2022 guidance assumes.
So this backlog whether it be released at some point during the year or even just further build over the next few quarters.
Yes, it's a very interesting question, Chris because.
I don't know that we have a great crystal ball.
We I think we would start with the premise that orders of 25%.
Is probably not the sustainable rate of orders that we anticipate seeing over a prolonged amount of time.
And so I think your question is getting at Wynn.
Those orders start to more normalize and I think.
The contributors right now continue to be.
They are expecting price increases so you'd rather put the order in before.
The on the.
The promised delivery date is on an extended time, rather than fast and so they're ordering more to make sure they get in line.
And.
I think urban was saying on the utility side theres still quite a bit of fundamental drivers on the volume side and so.
We think as lead times come down so as the supply chain Smoothes out.
That should that should bring the orders more in line.
I'm not really sure when that happens and so we don't really have something explicit but I think we are saying that we see enough momentum in orders combined with enough backlog.
That gave us the confidence to raise our sales outlook for the year.
By two points of price in one point of volume but.
But your question is harder for us to really see and we're sort of hoping that as that correction happens.
We've got the backlog in place to be able to make that a soft landing rather than a dislocation and thats at.
At this stage of the game, that's our that's our anticipation.
No I appreciate that and I understand it's a hard question to answer.
Lot of moving parts.
My follow up maybe a bigger picture one on utility. Obviously this has always been a long cycle resilient business.
But with the addition of the player.
Now, presumably has a pretty sizable backlog.
Focus on renewables.
Structural.
Hi.
Floor.
This business has been raised I'd like to floor back from a growth perspective, just because it feels like these secular drivers are now a bigger piece of the business.
Somewhat hard to see why those secular drivers reversal the company. Thank you.
Yes, I would say, Chris and Garvin may have more to say, but we traditionally.
Really probably thought about that that business that segment as a GDP grower that.
<unk> had had a really high MRO.
No.
Driving base to it and so we would have kind of in a traditional.
Medium range plan had a low single digit growth rate for that.
And I think we've seen that.
Fundamentally shift towards the mid single digit growth rate and I think we continue to believe.
Thats the case, so I totally agree with you.
Kind of went from.
GDP MRO to sort of a secular grower and thats.
Because we can.
Garner some some decent margins in that area that's.
That's a welcome shift from us and Gerber may have more to say yes.
I would be.
Bullish on both sides of that portfolio because.
As more renewables come up on to the grid and the grid continues to get older.
<unk> is very very stress so I would say on the core business is just a lot harder than going on thats multi year.
Our projects IC that business' GDP, plus as well and then <unk>.
Certainly on the on the Clara side, the automation to grid automation and modernization of the grid, making.
Making it more efficient we've talked a lot about that how that how that is attractive growth.
So I'm quite bullish on that total utility business.
Thank you.
Your next question is from Josh.
With Morgan Stanley . Please go ahead.
Hi, good morning, guys.
Good morning, Josh.
So within the new four to six on the volume.
How should we think about what you got.
These are sort of holding back as contingency unable to deliver and backlog.
The supply chain. So I guess, maybe said differently like you could get everything you needed to supply chain wise like what is that four to six full flight.
Yes, I think it's a hard question because if you looked at our order rates there so far exceeding.
But if you could mirror accurately solve everything can have unlimited capacity it could be much harder, but thats.
Not the reality I think as we kind of look at the year I think bill said it.
We do see momentum carrying into the second quarter.
Whereas where it gets more uncertain as to towards the back half of the year.
For us and probably.
Probably most pronounced in the fourth quarter.
We're projecting perhaps some more seasonal returned to a more seasonal level. So.
Orders hold up and we can continue to solve for our supply chain issues.
Issues that keep our productive capacity capacities increasing additional.
Additional upside there but.
It's.
I would say by by single digit small increments not huge.
A pattern should not be reflective of what the possibilities are.
Got it Okay. That's helpful and then on the restructuring front I mean.
As much as there has been kind of a multiyear assessment.
The footprint you guys sort of have different challenges.
You may you might of three years ago I think.
<unk> bandwidth purposes for.
Maybe contingency on where do you need to make stuff like how much has.
Maybe that footprint assessment changed as a result of what we've gone through over the past call. It year and are you spending of that restructuring differently than maybe you had been historically.
I think that.
We had as you pointed out sort of started out with a multiyear vision.
Accompanied with a multiyear gantt chart of projects and we.
We feel really happy with the result of those.
The biggest thing Thats changed.
To inform that Josh has is not COVID-19 .
It's been the creation.
Electrical segment, and bringing all the businesses on that half underneath a single management team and I think as they think about competing collectively they see opportunities to share production and become more efficient with the square footage. So.
What we started.
I think has been breeds even a new.
Some new life into it and again, we'd anticipate talking to you a little bit about that at our Investor day.
In June if you have the chance to join US I think you'll hear Pete Lowry in the electrical segment talk talk a little more about that and.
So we think that.
Happy to try to keep the spending sort of flattish. So we don't really have to talk maybe about.
Year over year, I don't want to kind of distort our performance and so.
I kind of like I like where we are in terms of the spending and the saves being.
Kind of creating some earnings momentum.
But not necessarily creating.
Dramatic headwinds from year over year anywhere.
Got it Thats helpful.
I'll leave it there.
And last question is from Christopher Glynn with Oppenheimer. Please go ahead.
Thanks, Good morning, congrats on the recognitions and executing all of that price.
I'm curious if there is any sense if the need for incremental pricing is starting to taper notwithstanding that you have some incremental price coming through in the pipeline.
From a holistic sense is there any basis now to start to develop that view.
Leveling on the horizon.
Yes, maybe.
I would say.
If we compare it to last year.
The magnitude and the frequency.
As we clearly anticipate that to be less however, I think it's a pole of bill pointed out we're still seeing inflation. This year, we saw a tapering a little bit towards the end of the year going into this year, particularly steel, but after the innovation, we've seen not only steel aluminum copper and then.
The normal ongoing inflation I think if you look at the.
The numbers are quite robust for core inflation so.
We have additional pricing actions that we'll need to take to continue to offset price cost we've gotten quite good at it so I would say more actions.
Our expected, but not at the probably frequency or magnitude that we saw last year.
Okay.
I wanted to go back to Chris's question.
<unk> talked about the <unk>.
Further.
The advance of the organic profile for the utility solutions.
Youre at really high levels right now.
<unk>.
30%, 31%, maybe mid high teens volume.
On nicely positive comparisons is it possible for correction at this point or is this just the fundamental higher gear shift from.
Connecting renewables.
Yes.
Fundamental secular drivers.
Yes, I think the nature of a correction that we could envision Chris would be.
Kind of wood carbon was described we had a magic wand and could make as.
As much power systems products as was demanded and the lead times went down to overnight.
I think demand wood wood quite adjust to what's needed and.
Would argue though that.
What's needed still is something in the mid single digits order of magnitude greater than last year. So.
The correction I don't really see being in the form of.
Going to contraction I see it.
Settling in at that at that mid single digits and the question is do we get there nice and smooth.
Or do we get there.
Rapidly and how do we do we have enough backlog to bridge that and those are.
That kind of question.
<unk>.
There's a little bit difficult for us to predict.
Okay.
Great. Thanks for those thoughts Bill.
Okay.
Yeah.
And that ends our question and answer session I will now turn the call back over to Mr. Griffith.
Closing.
Great. Thanks, everyone and I appreciate the participation and engagement with US This morning, I'd like to close with reminding you.
That's far Investor Conference will take place in first one again after a few years couple of years I think it had been.
On June 7th in New York City, and we look forward to sharing further detail on our strategy and our long term value for our customers and shareholders, which are there. So thank you and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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