Q2 2022 Hubbell Inc Earnings Call

Thank you for standing by and welcome to the second quarter 2022 earnings Conference call for Hubbell Corporation. At this 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 this session you will be to press star one.

One on your telephone once again Thats star one one.

As a reminder, today's program may be recorded and now I'd like to introduce your host for today's program, Dan Emera, Vice President Investor Relations. Please go ahead Sir.

Thanks, operator, good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our second quarter 2022 results. The press release and slides are posted to the investors section of our website at <unk> Dot com.

And today are our chairman President and CEO , Garvin, Docker, and our executive Vice President and CFO Bill Sperry. Please note. Our comments. This morning may include statements related to expected future results of our company and are forward looking statements as defined by the private Securities Litigation Reform Act of 1095. Therefore, please note the discussion of forward looking statements in our press.

Elyse 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.

With that I'll turn the call over to Garvin, great. Thanks, Dan and good morning, everyone and thank you for joining us to discuss <unk> second quarter results.

We'll open our call. This morning, with a broad overview of our performance markets and the investments we continue to make that drive value for our stakeholders Bill.

Bill will then provide details on our second quarter results and I'll come back with some comments on the outlook for the year.

<unk> delivered another strong quarter of operating performance with year over year organic growth of 20% and adjusted operating profit growth of 29%.

We are performing above our initial expectations through the first half of the year and have generated year over year adjusted EPS growth of 29% through the first two quarters.

We are raising our annual outlook. This morning to reflect that strong performance.

While we anticipate the second half operating environment to remain dynamic and we see uncertainty around macro economic conditions. We are confident in our ability to continue to execute effectively and deliver on the stronger outlook due to three key factors the strength of our end markets.

The strength of our position in those markets and our continued operational execution, particularly proactively managing price cost as well as supply chain constraints.

Starting with markets Custer.

Customer demand for reliable and efficient critical infrastructure solutions in front and behind the meter continues to drive strong orders and sales growth.

In particular, the utility solutions segment continues to build backlog, even as customer shipments pick up sequentially.

Grid modernization initiatives continued to drive robust investment levels from our core utility customers as they seek to upgrade and hard and aging infrastructure, while integrating renewables onto the grid.

Our lead in quality reliability and service in these markets continue to position us well to effectively serve these critical needs for our customers.

And electrical solutions demand remains strong across most of our end markets.

Electrification trends together with strong industrial and nonresidential markets continued to drive sales and order growth across most of our electrical businesses, while residential markets remained soft as anticipated.

I'd also like to highlight the ongoing strength, we are seeing and communications markets, which is a key strategic vertical for hubbell spanning across both segments.

Telecommunications customers continue to invest in building out <unk> networks rural broadband access and fiber to the home upgrades driving demand for our leading products and solutions across the hubbell portfolio, including enclosures connectors tooling and antennas.

Results in the quarter were also driven by continued execution on price cost.

Price realization was 14% in the quarter up again sequentially as the company continued to actively manage price and productivity to offset broad based inflationary pressures.

While material inflation is showing signs of easing non material inflation and supply chain headwinds persist.

The increased cost of labor freight and logistics as well as site availability and key materials and components continue to drive higher input costs and manufacturing and transportation efficiencies across our businesses.

Despite these challenges we were able to drive increased unit output and achieved strong year over year operating margin expansion of 130 basis points in the second quarter.

Overall, a very strong quarter for Hubbell, we are confident in our ability to continue to effectively navigate a dynamic environment.

And we are raising our full year expectations. This morning, while at the same time accelerating investments in the second half of the year to position us well for sustained long term outperformance.

We will provide more color on that full year outlook at the end of this presentation.

Before I turn it over to Bill to talk you through the financial results in more detail I would like to welcome VCX and Ripley tools to the Hubbell portfolio.

<unk> high quality businesses, which we acquired earlier this month has strong financial profiles and attractive growth characteristics and bolster our position in key strategic growth verticals of data centers renewables electric T&D and communications.

We also have a strong cash position and balance sheet and expect to continue investing in acquisitions as a core component of our strategy for long term shareholder value creation.

With that let me turn it over to Bill.

Thanks, very much carbon and appreciate you all joining us this morning.

I'm going to kick off my remarks, with a shout out to stones fans and recognizing Mick jagger's birthday today.

I'm going to start on page four of the materials that Dan referenced and <unk>.

Hope you found those.

Starting with sales.

$2 6 billion.

20% organic.

Growth over last year with very healthy contributions from both price and volume.

<unk> margins of 16, 6%, a 130 basis points of margin expansion there.

Really getting the drop through from incremental volumes and the price cost tailwind.

Earnings per share of $2.81.

Saw the contributions to those earnings below the line.

We have tailwind from non op and we bought some shares.

That reduced the share count helped EPS.

Were offset by a more normalized tax level in 'twenty two versus.

A lower level than the prior year.

And then for cash flow $168 million in the quarter.

Resulting driven by higher income.

But with investments in both Capex and working capital, which we'll talk more about so.

Really a very strong quarter high quality beat of our own expectations.

There's a lot of moving pieces as you see but the simple part of our story is.

Better volume and better price cost.

That's really the driver of that Youll hear a lot about.

Our time this morning.

Page five.

Enterprise results laid out here again.

Again see the sales of 19%.

Two 1 billion $2 56, that's comprised of 14% price.

6% units and a point of drag from foreign exchange so.

The 19% is obviously very strong compare to last year. When we do a sequential look back to the first quarter also a very strong compare we have sales up high single digits.

And about half of that driven by price and half driven by incremental volume.

So I think strong topline both perspectives.

And I'd say, the the fact that we're able to get more volume out in this in the second quarter.

Is a good sign implies that our factories were able to improve their capacity slightly even though.

The headwinds inside the supply chain still persist with labor materials, and transportation, all being a little bit inconsistent and continuing to cause inefficiencies in that part of our.

Manufacturing operations.

But the order pattern remained solid.

Really good broad based demand and I'll talk more about that in each segment.

On the upper right of page five operating profit up 29% to $208 million.

16, 6%.

About 130 basis point margin expansion.

Decent incrementals in the mid twenties.

Being driven by six points of volume and the drop through there.

Tailwind from price cost, but some partial offsets from non material inflation.

As well as some of the plant inefficiencies and other returning costs. So.

We tend to focus purely.

On the materials, but the non material inflation is still an important factor in our financial performance here in the second quarter.

EPS up 27%.

Two $2 81.

Growth roughly in line with the operating profit growth.

And free cash flow growing to $168 million, 41% looks.

It looks like good growth, but in order for us to continue to meet our full year target.

We need to have a very strong second half of cash flow collection as is typical for us fourth quarter tends to be our largest quarter. So that that measure is quite back end loaded.

It is noteworthy though.

I think the amount of that we are investing in capex is up about 16% in the quarter. So thats a claim on these cash flows and continue to invest in working capital receivables naturally up with sales and inventory up as we continue to.

To support our customers.

And have inventory on hand to support the 20% sales growth.

Good cash flow growth. Despite some strong investments and continue to need to focus on cash flow in the second half.

Now I wanted to.

Talk about each segment and their performance and I was going to start with the electrical segment on page six.

Sales up in the electrical segment, 13% nice solid growth rate.

About 10 points of price.

For <unk>.

<unk> and at one point of drag from foreign exchange.

We saw broad strength across the electrical segment with the very notable exception of the resi business, which I'll come to in a second.

But the various components of the non res.

Part of this segment good strength in non res.

Strength in light industrial both of the.

Burndy and wiring device brands doing very well in those markets.

The heavy industrial markets also doing very well for us.

And I think urban noted.

Some of the verticals in communications and data centers, providing some really nice growth for us there across the segment.

Definitely the notable.

The exception to that good news.

Rajeev for us representing about 15% of segment sales.

And they were down double digits.

Had a significant.

On performance here.

On the operating profit side you see.

$83 million of adjusted operating profit generated a 14% growth to the prior year at 15, 7% <unk> margins.

A slight improvement over last year, so the volume growth of four points drops through at attractive Incrementals, we have positive price costs.

Those are.

Offset partially by the supply chain inflationary headwinds and we also had higher restructuring investment in the in this segment.

I think it's worth noting if.

Without the resi drag on margins.

This segment would have had about a point of margin expansion. So.

Despite only being 15% of this segment.

Impacting the performance there.

On page seven I want to switch to talking about the utility solutions segment.

And you can see just an excellent quarter turned in.

By our partners in.

In the utility.

Segment.

Driven mostly by the performance of Hubbell power systems within this segment.

So overall.

$729 million of sales, representing a 24% increase from prior year.

That Scott price in the mid teens and volume in the high single digits.

We've experienced robust demand.

On the T&D component side, that's really the legacy Hubbell power systems.

And you'll see 32% growth there.

Just a lot of demand from utilities to continue to satisfy their needs to harden their infrastructure against environmental impact integrate renewables.

Grade their networks so.

Very strong very strong demand.

And our position in the industry, where we enjoy a lot of strength and we continue to get very positive customer feedback that.

Despite the fact that our services right now below our standards and our lead times are longer than wed like representing some of the supply chain difficulties.

We're getting feedback from our customers that we are.

Outperforming the competition and I think that's serving us.

Very well.

The second part of the segment after the T&D components as the communications and controls Youll see thats up more modestly at 3%.

And the meters.

Continue to be constrained.

By chip shortages.

Though there is adequate backlog to support a lot more growth.

Supply chain is just not cooperating to let us satisfy all of that.

So on the right side of the page and operating profit you see the segment.

<unk> generated $125 million of adjusted operating profit.

40% increase from the prior year.

Over a 200 basis point margin expansion to 17, 2%.

That margin expansion is being driven by the drop through on the incremental volume, which is substantial plus the price material cost favorability.

And they are overcoming the.

The supply chain headwinds in order to drive that margin performance. So a really nice job by our utility team and really helping drive the performance of the whole enterprise.

On page eight I wanted to recall us for a minute to Investor day.

Just a couple of months ago, where we introduced a very simple construct.

It started with first of all us feeling that.

Our high quality products and solutions.

Would be able.

To grow as the end markets. They are exposed to grow and we are anticipating that those end markets without grow GDP.

Part of the reason is.

We highlighted the six growth verticals, where we have an outsize exposure about 40% of the sales exposed to.

To these markets and we think each of these will.

Outperform GDP.

We also introduced the second construct which is that we had management levers to help us outgrow the end markets, which we think will outgrow GDP, specifically there were going to use innovation acquisitions and.

Some sales and marketing initiatives in the third.

Bucket of levers was to manage price cost productivity as well as restructuring.

And we'll talk about those in a moment as well so garvin had indicated.

Two acquisitions and it just helps illustrate the point, we were making at Investor day, which is.

Well, while we're exposed to these markets, we think theyre going to outgrow GDP. We also are going to.

B directional and intentional with our investment in inverse specifically in these verticals and in.

In July closing on two acquisitions.

So they are subsequent events to the second quarter, but we will enjoy their performance.

For the second half of this year and then the full year next year, we're very excited to have both of these.

Find companies in the portfolio.

First one is replete tools.

And Ripley is a bolt on for our utility segments.

A Connecticut based company founded in $19 36, so very well established brands.

High quality.

<unk>.

That are primarily focused to the communications area.

Where they're working on fiber optic and telecom applications, some specialized tools required for that as well as.

Some tools for the <unk>.

Our.

The T&D industry that.

Our full complement to some tools that <unk> has in its portfolio. So.

Last year sales of about $20 million, we paid ballpark of about $50 million for the business.

High growth high margin.

Exact example of getting exposure to markets, where we think we can win and we think we can outgrow the economy.

On the right side.

Is <unk> and I know you've heard us talk about an interest in increasing our exposure to data centers and <unk> presents a significant step forward for us in that regard.

They make pre fabricated electric rooms for data centers basic.

Basically provide the power power quality uninterrupted supply.

To do so by using manufacturer.

Labor in our plant rather than needing specialized labor on site and so you are picking up a number of themes here with this investment one is the data center growth too.

Two is.

The arbitrage in labor from onsite specialty to manufactured labor inside of a plant and the third is the dramatic reduction in cycle time that.

That results from using these modular prefab units and Thats really.

<unk> to the owner operators.

The Mega centers and in the colon as well so we think.

Our investment there.

Sales of about $50 million.

And.

A little bit less than $130 million investment. So when you look at the two together we spent about 175 million.

<unk>.

We think they will have about a one point impact on growth in 2022.

For the balance of the year, they will contribute roughly a dime of earnings.

And have a bigger impact next year in 'twenty three.

And I think as we stand back and evaluate 22.

At the halfway point.

We've had.

Some important portfolio reshaping, where we sold our C&I lighting business for about $350 million.

We've added these two and we bought about $150 million worth of shares.

Earlier at the end of the first quarter so.

We essentially deployed the cash from that sale replay.

<unk> the earnings.

<unk> positioned ourselves with much higher growth much higher margin businesses. So I think a good example in just six months of the power of focusing on the portfolio.

So with that I'd like to turn it back to <unk> to talk about the outlook for the remainder of 2022.

Great. Thanks, Bill and I'd like to close our prepared remarks today with some comments on that wanted to outlook on page nine.

As we highlighted at the beginning of the call we are raising our full year 2022 outlook.

We now anticipate mid teens full year sales growth up from low double digits from the prior guidance and we are raising our adjusted earnings per share outlook to a range of $940 to $9 80 versus a prior range of $9 to 940.

We continue to anticipate generating free cash flow conversion of 90% to 100% of adjusted earnings per share.

Relative to our prior guidance. This race 2022 outlook is driven primarily by stronger first half performance.

Stronger volume and price material assumptions and a modest contribution from acquisitions.

And partially offset by higher general inflationary pressures and targeted investments in the second half.

When we spoke to you all at Investor Day in early June we outlined three key areas, where we are looking to invest over the next three to five years.

Footprint optimization and restructuring to drive a more efficient manufacturing and distribution network.

Primarily across our electrical solutions segment as we continue our journey as a unified operating segment.

Second targeted capacity expansion in markets with visible growth trajectories and strong hub positions, primarily in certain power T&D and communication product lines, where our capacity is tight and customers have critical needs for our products.

And finally innovation to accelerate organic growth with an emphasis to capitalize on attractive mega trends and key strategic growth verticals through new products solutions and go to market strategies.

While we recognize that the nurse near term macroeconomic environment is uncertain. We believe that now is an opportune time to accelerate some of these previously planned investments from a position of strength to set the company up for sustained performance over the long term.

We expect these initiatives to drive future productivity and cost savings, while enabling us to better serve the critical infrastructure needs of our customers with differentiated solutions in front and behind the meter.

To summarize this mornings call <unk> is off to a strong start through the first half of 2022, we have leading positions in attractive markets with long term growth drivers and we are executing effectively in the areas within our control we.

We are confident in delivering on our raised 2022 outlook and then driving differentiated results for our shareholders over the long term with that let me turn it over to Q&A.

Certainly ladies and gentlemen, if you have any questions at this time. Please press star one one on your telephone. Our first question comes from the line one moment for our first question.

And our first question comes from the line of Jeff Sprague from vertical Research partners. Your question. Please.

Great. Thank you good morning, everyone.

Good morning, Kevin.

Hey, good morning.

So hoping for me maybe.

Maybe just first on Pcs.

Obviously, I understand the organic growth in that sector, but a little surprised you're buying an integrator right. So.

Youre basically buying now electrical components from other providers and packaging them.

Alright, so maybe just explain.

Unless I'm wrong, there just maybe explain how you kind of advantage that.

Now that's kind of a sustainable strong business for you.

Yes, I think it starts with.

They do manufacture a number of the product that goes in but youre right. There is an awful lot of sourcing.

But the.

Design.

Elements of it Jeff that is done in very close concert with the owner operator of the data center.

Is a very sticky.

<unk>.

And one that we think.

Really enables.

The margin to be earned.

And so.

It is a little different in that there is quite a bit of purchase for resale content in.

In the end product, but.

I think the the way the nature of the interaction with the customers quite intimate and design intensive in and Thats very appealing to us.

Okay.

Just on the.

On price here now on price costs.

I mean, the pricing execution in the quarter as obviously phenomenal.

Maybe just address a little bit how these discussions are going now with customers.

But as we move forward obviously there is.

It's been a pretty significant rollover on steel copper aluminum most industrial metals.

So maybe just a little color on how you how you expect.

Things to play out in the gas market in the next year and if we're seeing any pushback on pricing.

Yes, Jeff maybe I'll start with some comments and I'm sure Bill will have some as well, but I would say our approach to pricing.

A not tie it specifically only to commodities, but to general inflation. So.

While we see on commodities.

A pullback right now general inflation is still tremendously high and we feel that in our business.

We have these discussions.

With our customers, it's around the broader inflation and need to price.

If you looked at last year, we were on the negative on that I'd say, despite very good traction.

And if you think about the chart that we've shown you in the past of how over time, we manage that.

We still need more more positive price cost to claw back from negative last year and those are discussions we have with our customers I would say the other part in our portfolio as we're generally.

A small portion of the total cost of the systems, so the discussion around availability and quality and reliability.

Generally a more prominent than on price now all that said.

With commodities when they do come down at the magnitude in which they are coming down and that's sustainable over time sure we're going to feel eventually pressure too.

I have discussions with pricing the other way, but I'd say thats still out for us a little bit.

And maybe just one last one for me on Clara.

This would seem like it's spring loaded for growth as supply chain.

Eases up but actually is that is that a good characterization in other words.

Are you seeing business move away from you because you can't deliver their backlogs building and.

Maybe just give us a little bit of color on the outlook for that business and put back in line.

Yes.

<unk>.

There's a couple of elements to your question first is yes, there's a ton of backlog there so.

I think we're starting to hear rumblings that the supply chain may be thawing, a bit and maybe improving.

We haven't anticipated that that happens.

Until the start of next year.

And it's not clear to me that that shape.

Would enable a C.

Spring like Youre, describing or will it be so it will be dependent on on how those chips come back. If you. If you are.

You are right to characterize the demand is there.

By a lot of smart meters.

Absolutely.

Okay, great. Thank you guys appreciate it.

Thank you.

One moment for our next question.

Sure.

And our next question comes from the line of Tommy Moll from Stephens. Your question. Please.

Good morning, and thanks for taking my questions.

Good morning, Tommy.

I wanted to start off at a high level on your revised guidance.

Specifically around EPS and.

Just help me if I'm missing something here, but looking at the typical seasonality first half to second half.

It would appear at first glance.

Even the revised outlook may be a concern.

For second half.

Just given the price material appears to be a positive now underlying demand, particularly on the utility side, where you've called out.

Great organic growth and backlog build.

It just.

It raises the question for me could could there still be some conservatism baked in there any context, you could give there would be helpful. Thank you.

Yes, Tommy if you did a typical first half second half what is the first half contribute to a year's worth of earnings it would appear to be conservative in.

I think we are.

Trying to achieve conservatism.

We're very aware of some of the latest trends coming out of consumer facing companies.

And some of the challenges that appear to be.

There and while we don't have.

Much consumer exposure.

Consumer is such a large part of the economy that that.

We're still going to be exposed to that macro phenomenon, so and I think the way Tommy we're looking at it.

We would anticipate effects from a consumer to hit our electrical segment first that would be.

Typical impact.

<unk> led recession.

And our utility franchise.

With typically.

Lag the effect that our electrical and it would be shallower.

And come out faster so.

I would say this guidance is.

Got some conservatism worried about that uncertainty.

I think the the one thing I would point out to you.

That you maybe not factored into your question is.

We are planning on a significant amount of investment.

And restructuring in the second half.

We've put a specific bar there just to highlight that.

But if you go back to.

2020.

We had about $27 million of restructuring in 'twenty, two we're trying to do about 30% so consistent number.

That would have to get there we would have an aggressive second half investment level.

A little north of $20 million in the second half. So we think those projects are.

Really important to setting up 23, and getting both capacity and our power side as well as efficiency on the electrical side. So we think those are very.

Wise investments, but that also would create just a specific drag to that first half second half seasonality that you are looking at and that's why we wanted to show that on a bridge on page nine just to be clear about that.

Yes, that's helpful. Thank you Bill.

As a follow up I wanted to ask about the EV charging solution that you talked about.

Earlier this summer.

So I guess a couple of parts of the question just in terms of the.

Our model here is the idea that you go in as a preferred partner.

With your incumbent utility customers.

For some phase III budget.

I guess, that's the first question and then second question would be just on timing and magnitude toward a meaningful P&L impact if all goes well.

What kind of timeframe are we looking at here.

Yes, let me tackle the first part.

Sure.

Which is yeah, I'd say the only partner not the preferred partner because we think we are kind of combining <unk>.

Unique elements of metrology revenue grade meter with charging units and yes, the idea would be.

You have the utility that they in turn think about offering that to consumer.

Offering a differential rate cheaper.

To charge the car overnight.

And that that benefits the consumer.

Payback to utility because the marginal cost of production generation to be very very low. So the margin on that would be very very good and really help load managed for the utility. So we think there is an optimum solution that works really well for as you say, our core utility customer their customer and that we're uniquely.

Provided.

Do that.

The timing.

Is it going to take a while.

And I really wouldn't hazard to tell you.

When when we'd start to see any impact there.

And maybe.

As we've talked about at Investor Day is an example of where we're investing in what we refer to as NPS, which is new products that are magnitudes larger than our traditional.

This kind of solution that different from the.

The charges that are available.

Our unique so I would say while certainly we're very excited about it. It's very early days of development of what's a completely new solutions to the market in some of these are going to be successful and some of them won't be done I think that's one of the reasons why.

More uncertain on the timing and the magnitude of the impact but these are projects that are if successful in one successful are much larger scale than we would traditionally see with our new product development processes.

I appreciate the time and I'll turn it back thank you.

Thank you.

And gentlemen, we ask that you. Please limit yourself to one question and one follow up you may get back in the queue as time allows.

And our next question comes from the line of Nigel Coe from Wolfe Research. Your question. Please.

Hey, Good morning, this is wolf rank on for Nigel.

Good morning, well.

Good morning.

So first on the backlog I was wondering if you could talk about the dynamic of orders that are greater than versus less than 90 days David.

How that performed in the quarter and how you see that trending through the back half of the year.

Yes.

We think about the order pattern in the backlog I mean, maybe the first.

Comment to make would be between the segments where.

The utility order pattern has been stronger than the electrical.

And we've been building therefore more backlog on the utility side.

Electrical is approaching still building backlog, but approaching a lot more book and bill.

Balance.

And I think that the.

Over 90 days.

Is has been a component.

And.

In certain places.

Like.

Smart meters, we are talking about that are constrained.

Youre seeing.

More of that but I think if your question is getting at.

Do we see customers reacting to supply chain improvements.

And will that.

Reduce orders so they don't have to have what I might call a safety order in.

Yes, I mean, I think that reaction is going to be.

Media in response to lead times coming back in.

And kind of allowing them.

To not need to kind of feel like they got to get in the queue. So if we were to tell you.

What's the state of the supply chain.

We still are a little bit uneven with labor.

<unk> them.

To not need to kind of feel like they got to get in the queue. So if we were to tell you what's the state of the supply chain.

We still are a little bit uneven with labor still a little bit uneven with materials supply.

And so our lead times are still elevated to what we'd want them to be and my guess is thats contributing versus thats contributing.

To customers wanting to get in line to make sure that they can get the material that they need.

Got it.

And then.

What are your expectations could you provide any detail on how youre thinking about gross margins for the rest of the year.

Yes, I think.

The.

The contribution to gross margin.

That would come from unit growth.

And effectively dropping through incrementals at above average margin.

There is there is a component of that that would that would show up as gross margin.

And then price cost.

Would also show up.

As as margin and so.

Gross margin so.

Two drivers I think.

Our tailwind.

<unk>.

When we ultimately see our factory efficiency return.

Which we don't see yet returning in the second half but.

But that ultimately in the more medium term that that would come back into gross margin as well.

Thanks, guys.

Thank you one moment for our next question.

And our next question comes from the line of Josh <unk> from Morgan Stanley . Your question. Please.

Hey, good morning, guys.

Hey, Josh.

Just a question on what you guys are seeing out there in channel inventory policies hopped on a bit late though if you already covered it I can always jump back.

I think it's kind of a maybe a richer mix between what's going on the consumer versus industrial.

Guys don't really touch consumers much but any observations across the different lines of business would be would be helpful.

Yes, I would say.

General and inventory and Thats.

A topic that we got from customers quite often at every opportunity we have with them to do checks on that.

We also.

Followed data on sell in and sell out to two.

I'll have to look at real demand I would say.

That generally is still our products are selling through.

Certainly in this <unk>.

Apply chain Crunch.

Distributors are trying to get their hands on on products I would say there has been a level.

Of getting inventory in so I would say.

At this point our distributors are perhaps.

Appropriately starts rather than overstocked I would say that we're probably under stock for a period of time, so that has been stocking going on.

But in our products no signs of Av.

Any overstock position now the one thing that remains to be seen if there is a slowdown.

Are the levels that they have too high for what they need then you could see a correction.

In that with inventory levels, but at this point, we don't see.

Big risk of Overstocking in.

The consequences of Destocking Andy.

In the absence of a significant slowdown.

Got it that's helpful. And then I think just as maybe some of the macro data has softened up in pockets here folks are always trying to look for prior recessionary periods as kind of a starting point, but.

And my guess is that your markets that we saw on a volume basis are up terribly much.

Like what was that 2018.

Soft patch.

Any way to contextualize, even kind of rough numbers.

Some of those various markets.

On a volume basis versus kind of pre COVID-19 levels.

Yes, it's an interesting way to look at it I thought you were going to talk about.

How how our exposure would perform.

And a consumer led recession as opposed to.

Financial institution led crisis or an industrial recession.

Im not sure I have.

I think maybe Dan and I should follow up with you Im not sure I have good analysis at my fingertips.

Of some of those levels for it.

Versus kind of 18 to 19.

Sure.

Got it I.

I guess since your voluntary.

Do you feel about kind of a consumer led.

Impacting that but yes, I mean, I think we were anticipating.

That is that it's going to affect our electrical segment first.

Our electrical segment will feel it with a little more severity and that our utilities segment.

Might have one or two quarter lag versus our electrical and that it would.

It would probably be shallower and shorter in duration.

And I think the.

Some of the.

Underlying demand.

Provided we're talking a little bit about the infrastructure Bill and does that provide a little ballast or not but but the fact is we don't believe Josh that we're immune to this macro by any means.

And that.

We're sitting here at halfway Mark of the first year with <unk>.

Roughly 20% sales growth and margin expansion and we recognize.

And price in the double digits right, we know that Thats.

Those are not kind of sustainable like steady state kind of performance. So.

We're trying to.

To be very very.

Cautious in looking at these markets with a kenai.

We've chosen to invest in inventory because we see enough backlog that we feel good about being able to.

Clear that inventory.

Durbin kind of also commented on we feel like the balance sheet is poised to invest and it's a really good time.

To help support the utility business with some growth capital in support of <unk>.

<unk> segment with some productivity capital and.

And that's how that's kind of how we're operating going forward. We think the time for us to make those investments as the second half of this year to help help support 'twenty three and 'twenty four.

Got it thanks a lot.

Thank you one moment for our next question.

And our next question comes from the line of Chris Schneider from UBS. Your question. Please.

Thank you I was just hoping for more color on the back half margin drivers relative to Q2, the guidance calls for a pretty material fall off in margins in the back half.

It seems more significant than what would be implied by the $20 million back half restructuring expense. So I understand there may be slight volume declines as well.

I would've expected a more material offset from improving price cost with LIFO accounting and the recent decline in steel I mean any color on the buckets.

Buckets would be helpful. Thank you.

Yes, Chris I would say.

That.

It's been a little bit difficult for us to <unk>.

<unk> cast all of those variables you just highlighted with precision.

And so.

Where we've had.

Trying to make sure we're not over our skis in areas like volume in areas like price cost.

We believe there is a relationship.

Between pricing costs, such that if costs react.

Prices eventually will as well and so.

I guess, maybe I'd answer your question by saying there are.

Easy to see scenarios, where our second half margin assumptions are conservative.

We just happen to believe that the proper posture for us to have right now, but we certainly.

I certainly understand your question.

<unk>.

We'll we're going to manage.

Our best to outperform.

That's we wanted to have a proper.

Proper level of caution around those couple of variables that you highlighted.

I really appreciate that color and I think the strategy.

Sends from the macro at hand so.

Dr kind of response, there's obviously been a lot of moving parts.

Overall difficult to manage macro for two plus years now, but I guess, if we think about one day going back to a normalized environment, what do you view as kind of normalized incrementals.

The two segments.

Yes, I think that I am hoping we emerge from this period.

With a higher level of margin.

And that would be driven by.

Selling C&I lighting investing.

In and acquisitions that have good margins.

Getting innovation and new product development in areas with high margins. So I'm, hoping we kind of when I like your word normalized when we get to normal the new normal I'm, hoping we're at a higher level of margin than we entered.

And.

Youre asking then dynamically from there.

I would argue we would anticipate incremental margins to be in the mid twenties.

And that's always going to be a function of how much investing are we doing versus are you just purely harvesting.

No.

New volumes, but but that would be that would be my expectations for our financial model over over the next couple of years.

Thank you for all that I appreciate it.

Yes.

Okay.

Thank you one moment for our next question.

And our next question comes from the line of Christopher Glynn from Oppenheimer. Your question. Please.

Thank you good morning, everyone.

Hey, Chris.

So at your Investor Day, you guys spend a little time talking about channel strategy the electrical segment.

Some of the different tiers of distribution top 10 versus.

The tail.

Just curious any comments on present contributions and if you think that 50 basis points a year from that strategy might be.

Something that you are more likely to overshoot.

Yes, I wouldn't say that.

Our estimates have changed in the last couple of months.

I would say there continues to be a lot of uncertainty but.

It does feel to us.

Like our relationships with that top tier.

<unk> channel partner has really strong I think girvin was alluding to it and talking about pricing it's been.

A very hand in glove in close relationship process over the last couple of years and.

They have required us to communicate early.

Required us to be coordinated in how we do things as opposed to try to disrupt how their systems load prices and I think the grades certainly that curve and I get when we meet with senior leadership.

Are quite favorable in terms of helping manage through this pricing environment.

And.

I would say.

Underlying this is.

Is the obvious point that this price increases have not.

Damaged demand in any way right, we haven't hit some elasticity point.

Such that demand would go down and therefore.

Maybe it's been easy that we and our channel partners around the kind of the same side of the table as it were.

But.

I would say that.

The sales and marketing team is doing.

Some interesting initiatives about utilizing better tools for cross selling.

Organisers better materials for vertical market sales and getting kind of humble to compete collectively with solutions and some of those markets rather than one off product sales and I think I'd say, Chris we feel really good about that.

But I wouldn't say we've.

Upped our forecast in the last two months really.

Yes, maybe.

That timeframe I might have asked that at Investor day, but I didnt.

And then on <unk>.

Utility.

Despite the longer lead times, youre getting great grades on serving the competition well so.

The T&D business is really running like wild horses.

Would you expect that.

Yeah.

Gratuity or upside from.

Channel shift in your favor would that be sticky in the run rates in the future do you hold that.

Yes, I mean I think it's.

I think what Youre asking is.

If we're gaining share right now would we expect to keep that.

I would say we would think.

We.

We feel that we are supporting our customers by investing in new products investing in capacity.

We hear feedback from them that others aren't doing that.

And so yes, Chris I mean I expect.

That that there is stickiness in.

Reward for support during.

Choppy and challenging operating environment. So we think so.

Sounds great. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Steve Tusa from Jpmorgan. Your question. Please.

Hey, guys good morning.

Hey, good morning, Thanks for squeezing me in.

Thanks for joining us.

Yes, sorry set six other earnings are five of the earnings today. So.

Sure.

Anyway, and I think you guys are kind of an easy one so so it's nice not to have too.

Jump up and down here.

Yes.

The price cost spread I mean have you guys kind of detailed what how you expect that to trend.

Over the next couple of quarters and with some of that.

Potentially carry into.

To next year.

Yes, I think.

It's a dynamic that we're going to be watching really carefully.

We havent provided much detail.

And it's largely because.

It's hard for us to really anticipate steel and copper and aluminum costs.

We think that price will be in sympathy with those costs up or down.

And I think Steve for Us too.

The amount of non material inflation that we've been experiencing.

In the form of things like salaries wages healthcare.

All the kind of stuff.

Transfer to this it's not in materials has really been significantly above the amount of productivity, we've been able to generate and so that's put kind of a higher burden.

Our price because we can't cover.

Whenever the economist, if they're telling us inflations at 9%.

We're not we don't have 9% productivity right. So.

I think we are assuming therefore price.

Can't come down.

Quickly as materials, because because theres a lot of other inflation so.

We are sort of netting all of that stuff in sort of our guidance and our outlook.

And.

It will be interesting as we as we get to maybe our October call and we may be talk about our 'twenty three setup and as we get to our January call, we'll give guidance.

That I think the variable that you are asking about is potentially one of the most significant variable. So we got we're going to do a lot of analysis on it and we're watching it very closely.

I agree with your premise I guess that it sets up to have a favorable contribution towards <unk> 23.

Yes next year, Okay, and as far as.

The trends in in non resi you're concerned.

What's what are you seeing most recently there.

Yes, I mean to us.

It still feels good.

That's why it's.

Feel like watching some of these consumer facing companies and seeing what's happening.

It feels a little.

Maybe.

Uncorrelated.

Related right now, but but for now what we see non res is healthy.

And on the resi side I think you said that it was down 20% or something that I missed that.

Yes.

Double double digits. So so it represents about 15% of the segment and it's been down double digits. So it's a.

It's a pretty pretty good drag unfortunately, right. So that that volume would be down then strong double digits like 20% ish.

Alright.

Yes, Okay, alright, thanks, guys I appreciate it thanks.

Thanks, Steve.

Thank you.

This concludes the question and answer session of today's program I'd like to hand, the program back to Goodman Barker, Chairman, President and Chief Executive Officer for any further remarks.

Well great. Thanks, everyone for your time today and your questions and interest in Hubbell.

Strong second quarter and year, so far and well positioned to continue to execute through the numerous uncertainties and opportunities ahead.

You all have a great rest of the summer and we look forward to speaking with you again in the fall in our third quarter. Thank you.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect good day.

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Thank you for standing by and welcome to the second quarter 2022 earnings Conference call for Hubbell Corporation. At this 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 this session you will be to press star one one on your.

Telephone once again Thats star one one.

As a reminder, today's program may be recorded and now I'd like to introduce your host for today's program Dan Emera.

Vice President of Investor Relations. Please go ahead Sir.

Thanks, operator, good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our second quarter 2022 results.

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 , Garvin Docker, and our executive Vice President and CFO Bill Sperry. Please note. Our comments. This morning may include statements related to 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 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.

With that I'll turn the call over to Garvin, great. Thanks, Dan and good morning, everyone and thank you for joining us to discuss <unk> second quarter results.

I will open our call. This morning, with a broad overview of our performance markets and the investments we continue to make that drive value for our stakeholders.

Bill will then provide details on our second quarter results and I'll come back with some comments on the outlook for the year.

<unk> delivered another strong quarter of operating performance with year over year organic growth of 20% and adjusted operating profit growth of 29%.

We are performing above our initial expectations through the first half of the year and have generated year over year adjusted EPS growth of 29% through the first two quarters.

We are raising our annual outlook. This morning to reflect that strong performance.

While we anticipate the second half operating environment to remain dynamic and we see uncertainty around macro economic conditions. We are confident in our ability to continue to execute effectively and deliver on the stronger outlook due to three key factors the strength of our end markets.

The strength of our position in those markets and our continued operational execution, particularly proactively managing price cost as well as supply chain constraints.

Starting with markets Custer.

Customer demand for reliable and efficient critical infrastructure solutions in front and behind the meter continues to drive strong orders and sales growth.

In particular, the utility solutions segment continues to build backlog, even as customer shipments pick up sequentially.

Grid modernization initiatives continued to drive robust investment levels from our core utility customers as they seek to upgrades and hard and aging infrastructure, while integrating renewables onto the grid.

Our leading quality reliability and service in these markets continue to position us well to effectively serve these critical needs for our customers.

And electrical solutions demand remains strong across most of our end markets.

Electrification trends together with strong industrial and nonresidential markets continued to drive sales and order growth across most of our electrical businesses, while residential markets remained soft as anticipated.

I would also like to highlight the ongoing strength, we are seeing and communications markets, which is a key strategic vertical for hubbell spanning across both segments.

Telecommunications customers continue to invest in building out <unk> networks rural broadband access and fiber to the home upgrades driving demand for our leading products and solutions across the hubbell portfolio, including enclosures connectors tooling and antennas.

Results in the quarter were also driven by continued execution on price cost.

Price realization was 14% in the quarter up again sequentially as the company continued to actively manage price and productivity to offset broad based inflationary pressures.

While material inflation is showing signs of easing non material inflation and supply chain headwinds persist.

The increased cost of labor freight and logistics as well as site availability and key materials and components continue to drive higher input costs and manufacturing and transportation efficiencies across our businesses.

Despite these challenges we were able to drive increased unit output and achieved strong year over year operating margin expansion of 130 basis points in the second quarter.

Overall, a very strong quarter for Hubbell, we are confident in our ability to continue to effectively navigate a dynamic environment and we are raising our full year expectations. This morning, while at the same time accelerating investments in the second half of the year to position us well for sustained long term outperformance.

<unk>.

We will provide more color on that full year outlook at the end of this presentation.

Before I turn it over to Bill to talk you through the financial results in more detail I would like to welcome VCX and Ripley tools to the Hubbell portfolio.

These two are high quality businesses, which we acquired earlier this month have strong financial profiles and attractive growth characteristics and bolster our position in key strategic growth verticals of Datacenters renewables electric T&D and communications.

We also have a strong cash position and balance sheet and expect to continue investing in acquisitions as a core component of our strategy for long term shareholder value creation.

With that let me turn it over to Bill.

Thanks, very much carbon and I appreciate you all joining us this morning.

I'm going to kick off my remarks, with a shout out to stones fans and recognizing Mick jagger's birthday today.

I'm going to start on page four of the materials that Dan referenced.

Hope you found those.

Starting with sales.

$2 6 billion.

20% organic.

Growth over last year with very healthy contributions from both price and volume.

<unk> margins of 16, 6% 130 basis points of margin expansion there.

Really getting the drop through from incremental volumes and the price cost tailwind.

Earnings per share of $2 81.

You saw the op contributions to those earnings below the line.

We have tailwind from non op and we bought some shares.

That reduced the share count helped EPS.

Were offset by a more normalized tax level in 'twenty two versus.

A lower level than prior year.

And then for cash flow $168 million in the quarter.

Resulting driven by higher income.

But with investments in both Capex and working capital, which we'll talk more about so.

Really a very strong quarter high quality beat of our own expectations.

There's a lot of moving pieces as you see but the simple part of our story is.

Better volume and better price cost.

That's really the driver that Youll hear a lot about.

Our time this morning.

Page five.

Enterprise results laid out here again.

Again see the sales of 19%.

Two 1 billion $2 56, thats comprised of 14% price.

6% unit and a point of drag from foreign exchange. So the 19% is obviously, a very strong compare to last year.

When we do a sequential look back to the first quarter also a very strong compare we have sales up high single digits.

And about half of that driven by price and half driven by incremental volume.

So I think strong topline both perspectives.

And I would say that the fact that we're able to get more volume out in the in the second quarter.

<unk> is a good sign implies that our factories were able to improve their capacity slightly even though.

The headwinds inside the supply chain still persist with labor materials, and transportation, all being a little bit inconsistent and continuing to cause.

Inefficiencies on the part of our.

Our manufacturing operations.

But the order pattern remained solid.

Really good broad based demand and we'll talk more about that in each segment.

On the upper right of page five operating profit up 29% to $208 million.

16, 6%.

About 130 basis point margin expansion.

Decent incrementals in the mid twenties.

Being driven by six points of volume and the drop through there.

Tailwind from price cost, but some partial offsets from non material inflation.

As well as some of the plant inefficiencies and other returning costs. So.

We tend to focus purely on the.

Cereals, but the non material inflation is still an important factor in our financial performance here in the second quarter.

EPS up 27%.

Two $2 81.

Sure.

As growth roughly in line with the operating profit.

<unk>.

And free cash flow growing to $168 million, 41%.

Looks like good growth, but in order for us to continue to meet our full year target.

We need to have a very strong second half cash flow collection as is typical for us fourth quarter tends to be our largest quarter. So that that measure is quite back end loaded.

It is noteworthy though.

I think to the amount of that we are investing in capex is up about 16% in the quarter. So thats a claim on these cash flows and continue to invest in working capital receivables naturally up with sales and inventory up as we continue to try.

To support our customers.

And have inventory on hand to support the 20% sales growth so.

Good cash flow growth. Despite some strong investments and continue to need to focus on cash flow in the second half.

Now I wanted to.

Talk about each segment and their performance and how it's going to start with the electrical segment on page six.

Sales up in the electrical segment, 13%.

Nice solid growth rate.

10 points of price for volume.

Volume and one point of drag from foreign exchange.

Really saw.

<unk> strength across the electrical segment with the very notable exception of the resi business, which I'll come to in a second.

But the various components of the non <unk>.

Part of the segment good strength in non res.

Strength in light industrial both of the.

R&D and wiring device brands doing very well in those markets.

The heavy industrial markets also doing very well for us.

And I think urban noted.

Some of the verticals in communications and data centers, providing some really nice growth.

For us there across the segment.

Definitely the notable exception to that good news.

Rajeev for us representing about 15% of the segment's sales.

And they were down double digits.

So had a significant.

Effect.

On performance here on the operating profit side you see.

$83 million of adjusted operating profit generated a 14% growth.

The prior year at 15, 7% <unk> margins.

A slight improvement over last year, so the volume growth of four points drops through at attractive Incrementals, we have positive price costs.

Those are.

Offset partially by the supply chain inflationary headwinds and we also had higher restructuring investment in the in this segment.

I think it's worth noting if.

Without the resi drag on margins.

This segment would have had about a point of margin expansion. So.

Despite only being 15% of the segment.

Impacting the performance there.

On page seven I want to switch to talking about the utility solutions segment.

And you can see just an excellent quarter turned in.

By our partners and.

In the utility.

Segment.

Driven mostly by the performance of Hubbell power systems within this segment.

So overall.

$729 million of sales, representing a 24% increase from prior year.

Scott price in the mid teens and volume in the high single digits.

We've experienced robust demand.

The T&D component side, that's really the legacy Hubbell power systems.

And you see 32% growth there.

Just a lot of demand from utilities to continue to satisfy their needs to harden their infrastructure against environmental impact integrate renewables.

Grade their networks so.

Very strong very strong demand.

And our position in the industry, where we enjoy a lot of strength and we continue to get very.

Very positive customer feedback that.

Despite the fact that our services right now below our standards and our lead times are longer than wed like representing some of the supply chain difficulties.

We're getting feedback from our customers that we are.

Outperforming the competition and I think thats.

Serving us.

Very well.

On the second part of the segment after the T&D components as the communications and controls you'll see that's up more modestly at 3%.

And the meters.

Continue to be constrained.

By chip shortages, and though there is adequate backlog to support a lot more growth the.

The supply chain is just not cooperating to let us satisfy all of that.

So on the right side of the page and operating profit you see this segment.

Generated $125 million of adjusted operating profit.

40% increase from the prior year.

And over a 200 basis point margin expansion to 17, 2%.

That margin expansion is being driven by the drop through on the incremental volume which is substantial.

The price material cost favorability.

And they are overcoming.

The supply chain headwinds in order to drive that margin performance. So.

Really nice job by our utility team and really helping drive the performance of the whole enterprise.

On page eight and wanted to recall us for a minute to Investor day.

Just a couple of months ago, where we introduced a very simple construct.

Which started with first of all us feeling that our high quality products and solutions.

Would be able.

To grow as the end markets. They are exposed to grow and we are anticipating that those end markets without grow GDP.

Part of the reason is.

We highlighted the six growth verticals, where we have an outsize exposure about 40% of the sales exposed to.

To these markets and we think each of these wells.

Outperform GDP.

Also introduced the second construct which is that we had management levers to help us outgrow the end markets, which we think will outgrow GDP, specifically there were going to use innovation acquisitions, and some sales and marketing initiatives in the third.

Bucket of levers was to manage price cost productivity as well as restructuring.

And we will talk about those in a moment as well so garvin had indicated.

Two acquisitions and it just helps illustrate the point we're making.

At Investor Day, which is.

While we're exposed to these markets, we think theyre going to outgrow GDP. We also are going to.

<unk>.

B directional and intentional with our investment in inverse specifically in these verticals and in.

In July closing on two acquisitions.

So they are subsequent events to the second quarter, but we will enjoy their performance.

For the second half of this year and then the full year next year, we're very excited to have both of these.

Find companies in the portfolio.

First one is replete tools.

And Ripley is a bolt on for our utility segments.

A Connecticut based company founded in $19 36, so very well established brands.

High quality products.

That are primarily focused to the communications area.

Where they're working on fiber optic and telecom applications, some specialized tools required for that as well as.

Some tools for the.

Power.

The T&D industry that are full complement to some tools that <unk> has in its portfolio. So.

Last year sales of about $20 million, we paid ballpark of about $50 million for the business.

High growth high margin exam.

Exact example of getting exposure to markets, where we think we can win and we think we can outgrow the economy.

On the right side.

Is <unk> and I know you've heard us talk about an interest in increasing our exposure to data centers and <unk> presents a significant step forward for us in that regard.

They make pre fabricated electric rooms.

For data centers basic.

Basically <unk>.

<unk> power power quality uninterrupted supply.

They do so by using manufacturer.

Labor in our <unk>.

<unk> rather than needing specialized labor on site and so you are picking up a number of themes here with this investment one is the data center growth too.

Two is.

The arbitrage in labor from onsite specialty to manufactured labor inside of a plant and the third is the dramatic reduction in cycle time that.

And that results from using these modular prefab units and Thats really of interest to the owner operators.

The Mega centers and co lows as well, so we think smart investment there.

<unk> of about $50 million.

And.

A little bit less than $130 million investment. So when you look at the two together we spent about $175 million.

Invested.

We think they will have about a one point impact on growth in 2022, we think for the balance of the year they will contribute roughly.

<unk> of earnings and have a bigger impact next year in 'twenty three and.

And I think as we stand back and evaluate 22.

At the halfway point.

<unk> had.

Some important portfolio reshaping, where we sold our C&I lighting business for about $350 million.

We've added these two.

And.

We bought about $150 million worth of shares.

Earlier at the end of the first quarter so.

We have essentially deploy the cash from that sale.

<unk> the earnings.

<unk> positioned ourselves with much higher growth much higher margin businesses. So I think a good example in just six months of the power of focusing on the portfolio.

So with that I'd like to turn it back to <unk> to talk about the outlook for the remainder of 2022.

Great. Thanks, Bill and I'd like to close our prepared remarks today with some comments on that 22 outlook on page nine.

As we highlighted at the beginning of the call we are raising our full year 2022 outlook.

We now anticipate mid teens full year sales growth up from low double digits from the prior guidance and we are raising our adjusted earnings per share outlook to a range of $940 to 980 versus our prior range of $9 to 940.

We continue to anticipate generating free cash flow conversion of 90% to 100% of adjusted earnings per share.

Relative to our prior guidance. This race 2022 outlook is driven primarily by stronger first half performance.

Stronger volume and price material assumptions and a modest contribution from acquisitions.

And partially offset by higher general inflationary pressures and targeted investments in the second half.

When we spoke to you all at Investor Day in early June we outlined three key areas, where we are looking to invest over the next three to five years.

Footprint optimization and restructuring to drive a more efficient manufacturing and distribution network.

Primarily across our electrical solutions segment as we continue our journey as a unified operating segment.

Second targeted capacity expansion in markets with visible growth trajectories and strong hubbell positions, primarily in certain power T&D and communication product lines, where our capacity is tight and customers have critical needs for our products.

And finally innovation to accelerate organic growth with an emphasis to capitalize on attractive mega trends and key strategic growth verticals through new products solutions and go to market strategies.

While we recognize that the nurse near term macroeconomic environment is uncertain. We believe that now is an opportune time to accelerate some of these previously planned investments from a position of strength to set the company up for sustained performance over the long term.

We expect these initiatives to drive future productivity and cost savings, while enabling us to better serve the critical infrastructure needs of our customers with differentiated solutions in front and behind the meter.

To summarize this mornings call <unk> is off to a strong start through the first half of 2022, we have leading positions in attractive markets with long term growth drivers and we are executing effectively in the areas within our control we.

We are confident in delivering on our raised 2022 outlook and then driving differentiated results for our shareholders over the long term with that let me turn it over to Q&A.

Certainly ladies and gentlemen, if you have any questions at this time. Please press star one one on your telephone. Our first question comes from the line one moment for our first question.

And our first question comes from the line of Jeff Sprague from vertical Research partners. Your question. Please.

Great. Thank you good morning, everyone.

Good morning, Ken.

Hey, good morning.

So hoping for me maybe.

Maybe just first one on Pcs.

Sure.

Obviously, I understand the organic growth in that sector, but a little surprised you are buying an integrator right. So.

Youre basically buying now electrical components from other providers and packaging them.

Alright, so if you just explained.

Unless I'm wrong, there just maybe explain how you kind of advantage that.

Now that's kind of a sustainable strong business for you.

Yes, I think it starts with.

They do manufacturer and number of the product that goes in but you are right. There is an awful lot of sourcing.

But the.

The design elements.

Elements of it Jeff that is done in very close concert with the owner operator of the data center.

Is a very sticky process.

And one that we think.

It really enables.

The margin to be earned.

And so.

It is a little different in that there is quite a bit of purchase for resale content.

In the end product, but.

I think the the way the nature of the interaction with the customers quite intimate and design intensive in and Thats very appealing to us.

Okay.

Just on the.

Price here now on price cost.

I mean, the pricing execution in the quarter as obviously phenomenal I mean.

Maybe just address a little bit how these discussions are going now with customers.

Mike as we move forward obviously there is.

It's been a pretty significant rollover on kind of steel copper aluminum most industrial metals.

So maybe just a little color on how you how you expect.

Things to play out in the gas market in the next year and Thats, what we are seeing any pushback on pricing.

Yes, Jeff maybe I'll start with some comments and I'm sure Bill will have some as well, but I would say our approach to pricing.

<unk>.

Been a not tie it specifically.

Only two of commodities, but to general inflation so.

While we see on commodities.

A pullback right now general inflation is still tremendously high and we feel that in our business.

We have these discussions.

With our customers, it's around the broader inflation in the enterprise.

If you looked at last year, we were on the negative on that I'd say, despite very good traction.

And if you think about the chart that we've shown you in the past of how over time, we manage that.

We still need more more positive price cost to claw back from the negative last year and those are discussions we have with our customers.

I would say the other part in our portfolio as we're generally.

A small portion of the total cost of the systems. So the discussion around availability and quality and reliability generally are more prominent than than on price now all that said.

With commodities when they do come down at the magnitude of Douglas.

They are coming down and that's sustainable over time sure we're going to feel eventually Brescia too.

I have discussions with pricing the other way, but I'd say, that's still out for us a little bit.

And maybe just one last one for me on Clara.

This business would seem like it's spring loaded for growth with supply chain.

Ever eases up but actually is that is that a good characterization in other words.

Are you seeing business move away from you because you can deliver their order backlogs building and.

Maybe just give us a little bit of color on the outlook for that business and put back in line.

Yes.

<unk>.

There's a couple of elements GP. Your question first is yes, there's a ton of backlog there so.

I think we're starting to hear rumblings that the supply chain may be thawing, a bit and maybe improving.

We haven't anticipated that that happens.

Until the start of next year.

And it's not clear to me that that shape.

Would enable a spring like youre, describing or will it be so it will be dependent on on how those chips come back. If you if you are but.

You are right to characterize the demand is there to buy a lot of smart meters.

Absolutely.

Okay, great. Thank you guys appreciate it.

Thank you.

One moment for our next question.

Sure.

And our next question comes in the line of Tommy Moll from Stephens. Your question. Please.

Good morning, and thanks for taking my questions.

Good morning, good morning, Tommy.

I wanted to start off at a high level on your revised guidance.

Specifically around EPS and just help me if I'm missing something here, but looking at the typical seasonality first half the second half.

It would appear at first glance, but even the revised outlook maybe for.

Versus second half just given the price material appears to be a positive now underlying demand, particularly on the utility side, where you called out.

Great organic growth and backlog build.

It just.

It raises the question for me could could there still be some conservatism baked in is there any context, you could give there would be helpful. Thank you.

Yeah, Tommy if you did a typical first half second half what is the first half contribute to a year's worth of earnings it would appear to be conservative.

I think we are.

Trying to achieve conservatism.

We're very aware of some of the latest trends coming out of consumer facing companies.

And some of the challenges that appear to be.

There and while we don't have.

Much consumer exposure.

Consumer is such a large part of the economy that that.

We're still going to be exposed to that macro phenomenon, so and I think the way Tommy we're looking at it we would anticipate effects from a consumer to hit our electrical segment first that would be.

Nicole impact of a consumer led recession.

And our utility franchise with typically.

Lag the effect that our electrical and it would be shallower.

And come out faster so.

I would say this guidance is.

Got some conservatism worried about that uncertainty.

I think the the one thing I would point out to you.

That you maybe not factored into your question is.

We are planning on a significant amount of investment.

In restructuring in the second half.

We've put a specific bar there just to highlight that.

But if you go back to.

2020.

We had about $27 million of restructuring in 'twenty, two we're trying to do about 30% so consistent number.

And.

That would have to get there we would have an aggressive second half investment level.

A little north of $20 million in the second half. So we think those projects are.

Really important to setting up 23, and getting both capacity and our power side as well as efficiency on the electrical side. So we think those are very.

Wise investments, but that also would create just a specific drag to that first half second half seasonality that youre looking at Thats why we wanted to show that on a bridge on page nine just to be clear about that.

Yes, that's helpful. Thank you Bill.

As a follow up I wanted to ask about the EV charging solutions that you talked about it.

This summer.

So I guess a couple of parts of the question just in terms of the.

The model here is the idea that you go in as a preferred partner.

With your incumbent utility customers.

For some base rate Budd.

Right.

I guess the first question and then second question would be just on timing and magnitude toward a meaningful P&L impact if all goes well.

What kind of timeframe are we looking at here.

Yes, let me tackle the first part.

Sure.

Which is yeah, I'd say the only partner not the preferred partner because we think we are kind of combining <unk>.

Unique elements of metrology revenue grade meter with the charging units and yes, the idea would be.

You have the utility that they in turn think about offering that to consumer.

Offering a differential rate cheaper.

To charge a car overnight.

And that that benefits the consumer and the <unk>.

Payback to utility because the marginal cost of production generation to be very very low. So the margin on that would be very very good and really help load managed for the utility. So we think there is an optimum solution that works really well for as you say, our core utility customer their customer and that we're uniquely.

Provided.

Do that.

The timing.

Is it going to take a while.

And I really wouldn't hazard to tell you.

When when we'd start to see any impact there.

And maybe just.

As we've talked about at Investor Day is an example of where we're investing in what we refer to as NPS, which is new products that are magnitudes larger than our traditional.

Yes.

Is this kind of solution that different from the.

The charges that are available is very unique I would say, while certainly we're very excited about it. It's very early days of development of what's a completely new solutions to the market in some of these are going to be successful and some of them.

And I think Thats one of the reasons why.

Uncertain on the timing and the magnitude of the impact but these are projects that are if successful in one successful are much larger scale than we would traditionally see with our new product development processes.

I appreciate the time and I'll turn it back thank you.

Yes.

Thank you, ladies and gentlemen, we ask that you. Please limit yourself to one question and one follow up you may get back in the queue as time allows and our next question comes from the line of Nigel Coe from Wolfe Research. Your question. Please.

Hey, good morning, this is <unk> on for Nigel.

Good morning, well.

Good morning.

So first on the backlog I was wondering if you could talk about the dynamic of orders that are greater than versus less than 90 days David.

That performed in the quarter and how you see that trending through the back half of the year.

Yes, if I, if we think about the order pattern in the backlog I mean, maybe the first comp.

Comment to make would be between the segments where.

The utility order pattern has been stronger than the electrical.

And we've been building therefore more backlog.

On the utility side.

Electrical is approaching still building backlog, but approaching a lot more book and bill.

Sort of balance.

And I think that the.

Over 90 days.

Is has been a component.

And.

In certain places.

Like smart meters, we're talking about that are constrained.

You are seeing.

More of that but I think if your question is getting at.

Do we see customers reacting to supply chain improvements.

And will that.

Reduced orders so they don't have to have what I might call a safety order and.

Yes, I mean, I think that reaction is going to be immune.

Media in response to lead times coming back in and kind of allowing them.

To not need to kind of feel like they got to get in the queue. So if we were to tell you.

What's the state of the supply chain, we still are a little bit uneven with labor and are allowing them.

To not need to kind of feel like they got to get in the queue.

So if we were to tell you what's the state of the supply chain.

We still are a little bit uneven with labor is still a little bit uneven with material supply.

And so our lead times are still elevated to what we'd want them to be and my guess is that's contributing versus thats contributing to.

Customers wanting to get in line to make sure that they can get the material that they need.

Got it.

And then.

What are your expectations could you provide any detail on how you're thinking about gross margins for the rest of the year.

Yes, I think.

The.

The contribution to gross margin.

That would come from unit growth.

And effectively dropping through incrementals at above average margin.

There is a component of that that would that would show up as gross margin.

And then price cost.

Would also show up.

As as margin.

No.

Gross margin so.

Those two drivers I think.

Our tailwind.

At.

When we ultimately cede our factory efficiency return.

Which we don't see yet returning in the second half but.

But that ultimately in the more medium term that would that would come back into gross margin as well.

Alright, thanks, guys.

Thank you one moment for our next question.

And our next question comes from the line of Josh Shipp Inscape from Morgan Stanley . Your question. Please.

Hey, good morning, guys.

Hey, Josh.

Just a question on what you guys are seeing out there in channel inventory apologies I hopped on a bit late though if you already covered it I can always back.

I think it's kind of a maybe a richer mix between what's going on the consumer versus industrial I know you guys don't really touch consumers much but any observations across the different lines of business would be would be helpful.

Yes, I would say.

General and inventory and Thats.

A topic that we cover with our customers quite often at every opportunity we have with them to do checks on that well.

Also <unk>.

Followed data on sell in and sell out to two.

You'll have to look at real demand I would say.

That generally is still our products are selling through.

Certainly in this supply chain crunch.

Distributors are trying to get their hands on on products I would say there has been a level.

Of getting inventory in so I would say.

At this point our distributors are perhaps.

Appropriately stocks, rather than overstocked, I will say that we're probably under stock for a period of time, so that has been stocking going on.

But in our products no signs of Av.

Any overstock position now the one thing that remains to be seen if there is a slowdown.

Are the levels that they have too high for what they need then you could see a correction.

And that with inventory levels, but at this point, we don't see.

Big risk of Overstocking in.

The consequences of Destocking Andy.

In the absence of a significant slowdown.

Got it that's helpful. And then I think just as maybe some of the macro data has softened up in pockets here folks are always trying to look for prior recessionary periods as kind of a starting point, but.

And my guess is that your markets that we saw in the borrowing basis are up terribly much.

Like what was that 2018.

Soft patch.

Any way to contextualize, even kind of rough numbers.

Some of those various markets.

On a volume basis versus kind of pre COVID-19 levels.

Yes, it's an interesting way to look at it I thought you were going to talk about.

How how our exposure would perform.

And a consumer led recession as opposed to.

Financial institution led crisis or an industrial recession.

Im not sure I have.

I think maybe Dan and I should follow up with you I'm not sure I have good analysis that my fingertips.

Of some of those levels for it.

Versus kind of 18 to 19.

Sure.

Got it I.

I guess since your voluntary.

How do you feel about kind of a consumer has seen impacting yes, yes, I think we were anticipating.

That is that it's going to affect our electrical segment first.

Our electrical segment will feel it with a little more severity and that our utilities segment.

Might have one or two quarter lag versus our electrical in that.

Would probably be shallower and shorter in duration.

And I think the.

Some of the.

Underlying demand.

Provided we're talking a little bit about the infrastructure Bill and does that provide a little ballast or not but but the fact is we don't believe Josh that we're immune to this macro by any means.

And that.

We're sitting here at halfway Mark in the first year with <unk>.

Roughly 20% sales growth and margin expansion that we recognize.

And price in the.

Double digits right, we know that that's.

Those are not kind of sustainable like steady state kind of performance. So.

What we're trying to.

To be very very.

Cautious in looking at these markets with a kenai.

We've chosen to invest in inventory because we see enough backlog that we feel good about being able to.

Clear that inventory.

Durbin kind of also commented on we feel like the balance sheet is poised to invest and it's a really good time.

To help support the utility business with some growth capital and support the electrical segment with some productivity capital.

And that's how that's kind of how we're operating going forward. We think the time for us to make those investments as the second half of this year to help help support 23 and 'twenty four.

Got it thanks Bill.

Thank you one moment for our next question.

Yes.

Sure.

And our next question comes from the line of Chris Schneider from UBS. Your question. Please.

Thank you I was hoping for more color on the back half margin drivers relative to Q2, the guidance calls for a pretty material fall off in margins into the back half.

It seems more significant than what would be implied by the $20 million back half restructuring expense. So I understand there may be slight volume declines as well.

Well I would have expected a more material offset from improving price cost with LIFO accounting and the recent decline in steel or any color on the buckets.

Buckets would be helpful. Thank you.

Yes, Chris I would say.

That.

It's been a little bit difficult for us to <unk>.

<unk> cast all of those variables you just highlighted with precision.

And so I.

Where we've had.

Trying to make sure we're not over our skis is in areas like volume in areas like price cost.

We believe there is a relationship.

Between price and cost such that if costs react.

Prices eventually will as well and so.

I guess, maybe I'd answer your question by saying there are.

Easy to see scenarios, where our second half margin assumptions are conservative.

We just happen to believe that the proper posture for us to have right now, but but we certainly.

I certainly understand your question.

<unk>.

We'll we're going to manage.

Our best to outperform.

That's we wanted to have a proper <unk>.

Property level of caution around those couple of variables that you highlighted.

No I really appreciate that color and I think the strategy.

Sends from the macro at hand so.

Dr kind of response, it's obviously been a lot of moving parts.

Overall difficult to manage macro for two plus years now, but I guess, if we think about one day going back to a normalized environment, what do you view as kind of normalized incrementals.

The two segments.

Yes, I think that I am hoping we emerge from this period.

With a higher level of margin.

And that would be driven by.

Selling C&I lighting investing.

In and acquisitions that have good margins.

Getting innovation and new product development in areas with high margins. So I'm, hoping we kind of one week I like your word normalized when we get to normal the new normal I'm, hoping we're at a higher level of margin than we entered.

And.

Youre asking then dynamically from there.

I would argue we would anticipate incremental margins to be in the mid twenties.

And that's always going to be a function of how much investing are we doing versus are you just purely harvesting.

No.

New volumes, but but that would be that would be my expectations for our financial model over over the next couple of years.

Thank you for all that I appreciate it.

Yes.

Thank you one moment for our next question.

Okay.

And our next question comes from the line of Christopher Glynn from Oppenheimer. Your question. Please.

Thank you good morning, everyone.

Hey, Chris.

So at your Investor Day, you guys spend a little time talking about channel strategy the electrical segment.

Some of the different tiers of distribution top 10 versus.

The tail.

Just curious any comments on present contributions.

You'd think that 50 basis points, a year from that strategy might be.

It's something that you are more likely to overshoot.

Yes, I wouldn't say that.

Our estimates have changed in the last couple of months.

Say there continues to be a lot of uncertainty but.

It does feel to us.

Like our relationships with that top tier.

<unk> channel partner is really strong.

I think <unk> was alluding to it and talking about pricing it's been.

A very hand in glove in close relationship process over the last couple of years and.

They have required us to communicate early.

Required us to be coordinated in how we do things as opposed to try to disrupt how their systems loan prices.

The grades.

That curve in and I get when we meet with senior leadership.

Quite favorable in terms of helping manage through this pricing environment.

And.

I would say.

Underlying this is to us.

Is the obvious point that price increases have not.

Damage demand in any way right, we haven't hit some elasticity point.

Such that demand would go down and therefore.

Maybe it's been easy that we and our channel partners around the kind of the same side of the table as it were.

But.

I would say that.

The sales and marketing team is doing.

Some interesting initiatives about utilizing better tools for cross selling.

Organisers better materials for vertical market sales and getting kind of humble to compete collectively with solutions and some of those markets rather than one off product sales and I think I'd say, Chris we feel really good about that.

But I wouldn't say we've.

Upped our forecast in the last two months.

Yes, maybe.

Yes.

In that timeframe I might have asked that in investor day, but I didnt.

And then on.

On utility.

Despite the longer lead times, youre getting great grades on serving the competition well so.

T&D business is really running like wild horses.

Would you expect that kind of.

Yeah.

Gratuity or upside from.

Channel shift in your fever would that be sticky in the run rates in the future do you hold that.

Yes, I mean I think it's.

I think I think what youre asking is.

If we're gaining share right now would we expect to keep that.

I would say we would think.

We.

We feel that we are supporting our customers by investing in new products investing in capacity.

We hear feedback from them that others aren't doing that.

And so yes, Chris I mean I expect.

Expect that there's stickiness and reward for support during.

Choppy and challenging operating environment. So we think so.

Okay. That's great. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Steve Tusa from Jpmorgan. Your question. Please.

Hey, guys good morning.

Hey, how are you.

For for squeezing me in.

Thanks for joining us.

Yes, sorry set six of the earnings of five of the earnings so.

Anyway, and I think you guys are kind of an easy one so.

It's nice not to have too.

Jump up and down here.

The.

The price cost spread I mean have you guys kind of detailed how you expect that to trend.

Over the next couple of quarters and with some of that.

Potentially carry into <unk>.

For next year.

Yes, I think.

It's a dynamic that we're going to be watching really carefully.

We havent provided much detail.

And it's largely because.

It's hard for us to really anticipate steel and copper and aluminum costs.

We think that price will be in sympathy with those costs up or down.

And I think Steve for us to the amount of non material inflation that we've been experiencing.

In the form of things like salaries wages health care.

All that kind of stuff.

Transfer to this it's not in materials.

Really been significantly above the amount of productivity, we've been able to generate and so that's put kind of a higher burden on our price because we can't cover.

Whenever the economist, if they're telling us inflations at 9%.

We're not we don't have 9% productivity rates so.

I think we are.

Assuming therefore price.

Can't come down.

Quickly as materials, because because theres a lot of other inflation so.

We're sort of netting all of that stuff in sort of our guidance and our outlook.

And it'll be interesting as we as we get to maybe our October call and we may be talk about our 'twenty three setup and as we get to our January call, we'll give guidance.

That I think the variable that you are asking about.

As potentially one of the most significant variable. So we got we're going to do a lot of analysis on it and we're watching it very closely and.

<unk>.

I agree with your premise I guess that it sets up to half.

Favorable contribution to our 'twenty three.

Yes next year, okay, and as far as the trends in it.

Non resi you're concerned.

What are you seeing most recently there.

Yes, I mean to us it still feels good.

And that's why it's.

I almost feel like watching some of these consumer facing companies and seeing what's happening.

It feels a little.

Maybe.

Uncorrelated right now, but but for now what we see the non res is healthy.

And on the resi side I think you said that it was down 20% or something that I missed that.

Yes.

The double double digits. So so it represents about 15% of the segment and it has been down double digits. So it's a.

It's a pretty pretty good drag unfortunately, right. So just that volume would be down then strong double digits like 20% ish.

Good morning team.

Yes, Okay, alright, thanks, guys I appreciate it thanks.

Thanks, Steve.

Thank you.

This concludes the question and answer session of today's program I'd like to hand, the program back to Goodman Barker, Chairman, President and Chief Executive Officer for any further remarks.

Well great. Thanks, everyone for your time today and your questions and interest in Hubbell.

Strong second quarter and year, so far and well positioned to continue to execute through the numerous uncertainties and opportunities ahead.

You all have a great rest of the summer and we look forward to speaking with you again in the fall in our third quarter. Thank you.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect good day.