Q4 2022 Hubbell Inc Earnings Call

Speaker 2: F.

Speaker 3: Thank you.

Speaker 4: Good day and thank you for standing by. Welcome to the fourth quarter 2022 Hubbell Incorporated Earnings Conference call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question and answer session. To ask a question during the session you will need to press star one one on your telephone.

Speaker 5: relations.

Speaker 6: Thanks operator. Good morning everyone and thank you for joining us. Earlier this morning we issued a press release announcing our results for the fourth quarter in full year 2022. The press release in slides are posted to the investor section of our website at Hubble.com. I'm joined today by our chairman, President CEO , Gerben Bocker.

Speaker 7: Our Executive Vice President and CFO Bill Sparry. Please note our comments this morning may include statements related to the expected future results of our company. And our forward-looking statements as defined by the Private Security's litigation are form active 1995. Therefore, please note the discussion of forward-looking statements in our press release and considered incorporated by reference into this call.

Speaker 8: Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures that are included in the press release and slides. Now, let me turn the call over to Garibin.

Speaker 9: Great, good morning everyone and thank you for joining us to discuss Hubble's Fort Quarter and full year 2022 results.

Speaker 10: 2022 was a strong year for Hubble. We effectively served our customers through a challenging operating environment, consistently delivering high-quality critical infrastructure solutions, which enable grid modernization and electrification in front of and behind the meter.

Speaker 11: We also delivered strong results for shareholders.

Speaker 12: with full-year organic growth of 18%, adjusted operating profit growth of 29%, and adjusted earnings per share growth of 32%.

Speaker 13: We begin 2022 by completing the divestiture of our CNI lighting.

Speaker 14: successfully positioning the Hubble portfolio for structurally higher long-term growth and margins.

Speaker 15: We also stepped up our investment levels to bolster our positions in key strategic growth verticals through acquisitions and organic innovation.

Speaker 16: expanded our capacity in areas of visible long-term growth, and to improve our manufacturing and distribution footprint for future productivity.

Speaker 17: Importantly, we have been able to fund these investments while still expanding operating margins driven by strong execution on price costs in the face of significant inflationary and supply chain pressures.

Speaker 18: Our employees have worked hard through a challenging environment to sustain a culture of excellence, delivering industry-leading service levels for our utility and electrical customers, along with differentiated financial operating performance.

Speaker 19: The critical contributions of our employees and partners is what had led to a highly successful 2022 for all of our key stakeholders.

Speaker 20: Looking ahead, we believe that Hubble's unique leading position in attractive markets will enable us to continue delivering on each of these fronts in 2023 and beyond.

Speaker 21: We will talk more in depth on our near-term outlook later in this presentation.

Speaker 22: but we anticipate continued market growth and strong execution.

Speaker 23: driving positive price-cost productivity to fund investments back into our business, which will generate long-term value for our customers, while delivering attractive returns to our shareholders.

Speaker 24: Turning to page 4.

Speaker 25: Our fourth quarter results were generally consistent with year-to-day trends.

Speaker 26: Utility customers continue to invest in upgrading, hardening, and modernizing aging grid infrastructure.

Speaker 27: Orders continue to outpace shipments, and we exited 2022 with record backlog levels, which gives us good visibility to continued growth in 2023, though continued investment is required to address areas of capacity constraint.

Speaker 28: In electrical solutions, orders and volumes softened in the fourth quarter as customers actively managed inventories and cash flow into year end.

Speaker 29: These dynamics were anticipated and contemplated in the outlook we provided last October .

Speaker 30: Operationally, we expanded operating margins by over 200 basis points in the quarter.

Speaker 31: while the overall environment remains inflationary, easing raw material inflation and continued traction on price drove a net price cost productivity benefit.

Speaker 32: Finally, we continue to accelerate our investment levels.

Most notably, we invested over $60 million in capital expenditures in the fourth quarter as we were able to execute several large capacity and productivity projects.

For the full year, we invested just under $130 million in capital expenditures.

Up 40 million from 21 levels.

And we expect another year of elevated capex in 23 as we believe that these high return investments are the best-gurned use of our shareholders' capital.

So overall the fourth quarter was a strong finish to a strong year for Hubble.

Let me now turn it over to Bill to provide you some more details on our performance.

Thanks very much, Garvin, and thank you all.

for joining us this morning looking forward to talking about fourth quarter full year and in particular our outlook for 2023 I'm going to start my comments on page 5 of the materials that Dan referenced

and we'll start with the fourth quarter results for the Hubble Enterprise.

You see sales growth of 11% up over a billion two. That 11% is comprised of high single digits of price.

low single digits of volume and one point from acquisition.

We look at our sales performance through a few different lenses here. The first is against prior year. This double digit growth against double digit growth in last year's fourth quarter, you know, shows good compounding.

and good robust levels of demand. We also look at it through the lens of comparing it to the third quarter. We're down sequentially about 7% roughly in line with with fewer days and the per day shipment level.

reasonably flat to the third quarter sequentially. And we also believe that there was some, the channel was managing their inventory levels and we'll talk more about that in a couple of pages when we get to the electrical segment.

The operating profit on the upper right of the page, very impressive growth of 27%, very healthy margin expansion of two points.

to 16%.

and when we look at the incremental drop through on the growth.

you see about mid 30s drop through which we think is quite good.

Price is really a very important part of the success of this financial performance.

the price is stick in.

Gerben made reference to the critical products and our customers adding to their structural solutions and having this sticking price is really helping us as inflation is continuing to affect us.

in the non-material and value-added places. And when we talk about next year, we'll give you a little bit more breakdown about how we're anticipating price costs.

On the lower left you see earnings per share growing at 26% in line with the profit growth.

On the non-op side, we had some headwind from taxes as well as from pension, but that, uh, Gervin had referenced that we started last year with the disposal of the CNI lighting business. And we used, um,

some of the proceeds of that sale to buyback shares, which partially offset these non-op headwinds. The free cash flow.

You see is down 9%. That's that more than explains The capex increase that german described so the OCF side here is quite healthy and we're being quite intentional on making these investments in order to position Hubble

for the future to be successful. Page six, we'll switch to breaking the fourth quarter down between our two segments, and page six starts with the utility segment, and you see a really strong finish.

to an outstanding year by our utility franchise.

standing here by our utility franchise set up for success for 2023.

You see total sales growth here of 17%.

to about 716 million of sales.

that 17% of sales is comprised of a low double digit increase in price.

and a mid single digit increase in volumes.

demand continues to be very robust.

Despite high double digit shipments here, we continued to add to the backlog in the fourth quarter. You'll see.

that the T&D components, the historical Hubble Power Systems infrastructure business, showing the most growth at 27%.

The trends continue to be

driven by the need for grid hardening and for renewables.

and continues to reinforce the shift that we've seen from mere kind of GDP type replacement levels is spending to the need for our customers to really upgrade the grid.

And I think you'll see the evidence of our strong positioning as our utilities continue to turn to us with these critical needs.

and that's really helping.

inform and drive some of our CAPEX decisions that Gerben had mentioned to continue to support our customers here.

On the communications and control side, you'll see a decrease of 10% in sales while the man was still strong. There are two drivers to that contraction. Number one is the persistent shortage of chips from the supply chain.

that's really preventing us from growing. That's been a persistent problem for the last few quarters and has kept our communications and controls business relatively flat. In addition, we had a one-time event in the fourth quarter.

where we recognized the commercial resolution. This was stemming from a legacy dispute that preceded Hubble's acquisition and it became obvious it was time to resolve that so that we could move forward with a constructive relationship with a big customer.

during 2023. So while the quarter was down, we have expectations of the comms business growing. It may still be a little choppy in Q1, but we're anticipating getting this chip supply situation to improve during the course of the year.

And we're looking forward to returning that business to growth.

You can see on the right side of the page, very impressive operating profit growth of 42%.

adding three points to operating profit margin up over 17% in the fourth quarter by the utility team.

That performance being driven by price, which we really needed to overcome inflation, as well as inefficiencies in our plants that coming from some of the disruptions from the supply chain. The mid-single digit volume growth is also...

is also dropping through at attractive levels.

We're a good year by our Utilee franchise and you can see a good quarter setting us up for a good year next year.

On page 7, we've got the electrical solutions results. You'll see 3% sales growth, more modest than on the utility side. But a good 60 basis points margin expansion, 8% OP growth to a 14.3% margin.

That 3% is comprised of made single digits price.

volume compared unfavorably to last year. We think that the fourth quarter results

significantly impacted by some of our mix. So you see residential sales down significantly, so strong double digit decline for Resi as consumers continue to struggle with high interest rates. And we saw some growth.

In some of the verticals we've been investing in, namely data centers, renewables and telecom, and the balance being more exposed to the non-REZ cycle.

And so we also thought that we were able to perceive some de-stocking activity in the quarter. We've mentioned this before with you all. Some of that observation is based on anecdotes and discussions with our customers.

In other places we have hard data where we can analyze point of sale and point of purchase data and see that our replenishment orders given to us are below what's going out the door. We believe that the way the channels incentives are structured.

whether on the volume side those incentives may have maxed out, or on the cash flow side where obviously managing inventories in December becomes very important to our customers. So I think there's a little bit of distortion.

in the fourth quarter. As we've seen, the first several weeks of January , we've seen a nice rebound in orders. And so we'll continue to watch that quite carefully, obviously.

On the operating profit side, you see the nice margin expansion and again, price and material tailwinds enough to overcome the impact of lower volumes and enable us to operate very well through previous webinars.

through the operating disruptions, but also overcoming some of the drag coming from the Resi lighting business.

We thought it would be constructive on page 8 to step back and discuss the full year's performance.

and really illustrates some of the trends that Gerben highlighted in his opening remarks. Sales of 18%, very strong growth.

mid-single digit volume and double digit price.

a very robust demand environment for us.

You see the 140 basis points of margin expansion to just under 16% on the OP side, 29% growth in OP, diluted earnings per share growing a little bit better than in line with that operating profit. And that's the last thing I want to talk about.

the cash flow being up 20% year over year.

being held back a little bit with the heavy investment in CapEx that we had mentioned, as well as significant investment in inventory as we continue to try to support our customer service. But you really see the trends for the whole year that have persisted. Strong demand.

on price, which was excellent job by the Hubble team, really required to counter inflation as well as those inefficiencies. The fourth trend was investment, acquisitions, capex, and inventory, all sources of investment.

On the acquisition side, we closed on three deals in the year. We invested about 180 million to do so. We were quite intentional about adding exposure to desirable verticals that are exhibiting higher growth and higher margin potential than our average.

So we added to our utility tool business, we added data center exposure, and we added

a nice bolt on to our Burndy grounding business and connector business that, again, is supporting high growth, high margin there.

So we'll switch now from 2022, wrap a bow on that and start to look forward to 23 and our outlook.

We were proposing to go through this a little bit differently than we have in the past. We've got a little more granularity in our discussion of the different pieces and parts.

so that we can help provide a little more context to why we're guiding the way we see it. So on page 10 we're starting with our markets outlook.

And you'll see on the yellow callout box at the bottom of the page a mid-single digit expectation of organic growth.

And you'll see from that's driven really by the strength of the utility business on the left of the page Those growth drivers remain intact.

We see our customers continuing to need material, continuing to install it at a high rate in response to the need to modernize their grid and respond to renewable needs.

We're starting the year with a highly visible backlog.

And in addition, we've got some support for funding from the policy side here.

We've outlined a way where we believe that the IIJA probably gives us a lift of a point or two above what otherwise the markets would give us.

So we're anticipating

The utility market's giving us mid-single digits plus.

More modest on the electrical side, and we decomposed our exposure in this pi graph here to try to give you a sense of.

You know, residential really, we think, is the starting point of the cycle. They're in a point of contraction right now. Will continue to be in 23, we believe. Just dealing with high mortgage rate, high interest rates, affecting demand there.

Usually, non-REDs follow the REZ-Y cycle and then into industrial. And you see, we've added this blue segment where we think our electrical business is exposed in a much less cyclical, much more resilient set of end markets, namely the...

data centers, renewables, and telecom, as well as some of the enclosures we sell as connectors to the utility businesses there. So if we continue to believe RESI will contract.

That gives us a low single digit outlook for the electrical segment.

Our visibility, frankly, is better to the first half than it is the second half.

and we may even argue the first quarter better visibility than the first half. So we've got a little bit of caution built in there for what will happen second half in the non-res markets.

We also have Pedro Levin wanted to peel back.

our view of price-cost productivity. And at the bottom, you'll see we're anticipating about 50 million of tailwind coming out of our price-cost productivity management scheme here.

We'll start on the edges where it's a little bit more straightforward on price. We believe we've got about two points wrapping around from our actions we've taken in 2022.

And we continue to hear feedback from our customers that despite on-time service being below where we typically are, that we're still leading in those service levels. And so we anticipate that price sticking.

On the productivity side, we're anticipating in the ballpark of about a point of contribution from productivity. On the productivity side, we're anticipating in the ballpark of contribution from productivity

And this cost pie you'll see we've disaggregated into two halves, the material and the non-material half.

on the right, in the blue section, the non-material, mostly laborer, and manufacturing costs were anticipating mid-single-digit inflation there. Likewise, on the material side, you'll see that the raw materials were anticipating.

there to be benefits in tailwinds as there's deflation in the raws.

But our component by where there's value add is larger than that and we're anticipating the same mid-single digit inflation right there. So the netting of all that gets us to about 50 million and on page 12 you'll see we're anticipating investing.

about half of that benefit in the future success. And so page 12 shows our investments.

starting with footprint and successful multi-year restructuring program that Hubble has implemented.

We spent about 17 million in 2022, which was an increase from 10 in 2021.

So our margin performance absorbed extra expense in 22. We're anticipating to keep that flat in 23. So nothing incremental as far as the income statements concern, but still good activities with good projects that...

Typically, give us, we find in that three-year average payback range. As for capacity, we continue to find in the utility side and parts of electrical that we need to invest in our capacity. So our CAPEX has moved impressively from...

that we would add another 10 million or so of innovation expense. And I know those of you who joined us for Investor Day saw some of those innovation ideas and we continue to be encouraged by early results.

for us to get impact still going to take us some time, but we've got a good business case of getting about a half point of growth above our markets from those activities.

So those pieces we thought we'd give you the puts and takes and let Gerben on our last page kind of sum it out and net it out in our typical waterfall format that you're used to seeing.

Great, thanks Bill and as you said let me summarize it here on page 3. Hubble is initiating our 2023 outlook with an adjusted earnings per share range of $11 to $11.50.

We believe this represents strong fundamental operating performance for our shareholders and we are well positioned to deliver on this outlook in a range of macroeconomic scenarios.

From a sales standpoint, we expect solid mid-digit, single-digit growth.

organically driven by 2-4% of volume growth and approximately 2 points of price realization.

We believe this is a balanced view with good visibility into utility demand and less certainty in electrical markets at this stage.

We expect the 2022 acquisitions of PCX, Ripley Tools and RAF to add an additional 1% to 23 revenues.

Operationally, we expect that continued execution on price-cost productivity will fund attractive, high return investments back into our business.

Our outlook range embeds solid margin expansion with high single digit to low double digit adjusted operating profit growth.

This operational road rate is consistent with the long-term target we provided at our investor day last June .

despite the current macroeconomic uncertainty and a higher 2022 base following significant outperformance last year.

and it puts us well on the path to achieve our 2025 targets.

We expect this strong operating performance to enable us to absorb below the line headwinds from pension expense and the previously communicated non-repeat other income from the CNI lighting the best to show.

Overall, our 2023 outlook represents a continuation of the strong fundamental performance that Hubble demonstrated in 2022.

With leading positions in attractive markets underpinned by grid modernization and electrification megatrends as well as a growing track record of consistent operational execution, I am confident that Hubble is well positioned to continue in delivering differentiated results for our shareholders over the near and long term.

With that, let me turn it over to Q&A.

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

First question comes from Jeff Sprig with Vertical Research Partners in the Proceed.

Thank you. Good morning, everyone. Hey, a couple questions, maybe mostly focused on the utility side. First on the IIJA, thanks for taking a shot at that. A lot of companies have not been able to quantify or are a little worried to try to quantify it. But

The nature of my question is really how that interplays with the lack of a better term spending that would have happened anyway. You are presenting it zero like it's incremental, but I just wonder your confidence in that.

and whether or not it's just replacing other investment or using government stimulus to spend what was going to be spent regardless.

Yeah, I mean, I think, Jeff, ultimately, the dollars ultimately are fungible. But certainly, the customers we've spent...

a good deal of time talking to have very specifically increased.

You know their capex

assumptions because of it. So, but that's so, for us it's important to kind of quantify it though. It's ultimately contributing a point or so, you know, to a mid single digit. So it, I agree with you, there's a little bit of fungibility there at the end of the day.

And then just on the capacity.

You know, as you know, some of it is tied to efficiency and supply chain resiliency. You know, I mean, it looks like demand will stay at a high level, right? But the rate of growth will maybe, you know, settle down to something more normal. Maybe it's a single-digit plus for a few years. Could you just, you know, address the concern that the...

you know, maybe it's the wrong time to add the capacity and, you know, how you see the capacity being used or what bottlenecks it might be uncorking for you.

Yeah, I think it's important that it is on Corking bottlenecks.

So one of our specific areas has been on enclosures, you know, Jeff, which has been a really high growth, high margin area.

There are, we feel very good that the return on capital of that is going to be because we have such good visibility on that demand is going to be there. So weigh, weigh, weigh-

We're we feel real good about it and excited about being able to serve our customers better, and I think they're Rewarding us relationship wise as we're doing that yeah, maybe I Jeff I can provide a little bit of addition to what what built it? And specifically he's referring to our utility

in closures in the utility business. But this is a business that, and these are closures, not only serve utility markets, but they serve communications markets, and they serve water markets that all have these applications. So it's not only the visibility on the utility side, but these other markets have been high growth markets.

factories as well. So there's an element of productivity in these moves as well. So we believe, and this is just one example of

you know, high return investment that we believe will serve, you know, our customers well and we will serve our shareholders well long term.

And then just one last one for me if I could could you just elaborate a little bit more What happened with the Clara in the quarter? I guess I tend to think of a quote-unquote commercial resolution being a cost item not a revenue item, but

the way you're laying it out here, some kind of adjustment to revenues, or head ones to revenues. So, they'll expect you to name the customer, but maybe you could give us a little bit more color on what actually happened and what you resolved.

Yeah, just the nature of it resulted ultimately Jeff in the character of a price concession. So it hits the top line and drops through to the OP line as well.

Great, thank you.

Thank you and as a reminder, please limit your questions to one question and one follow-up.

Comparator, our next question comes from Steve Piso, JP Morgan, you may proceed.

Hey guys, good morning.

What if it is?

So can you just talk about your price assumptions like first half and second half? He said I think 2% embedded in the numbers. Maybe I'm thinking about a different call, but I'm about 5 this morning. But any color on kind of that first half to second half price.

No, you're right on the two. That's basically been layered in throughout 22 so as it wraps around.

It sort of does have a tapering effect, but when you think about price cost...

Some of the commodities are coming down to and so really how it nets.

It does net a little more favorable early and a little bit more favorable first quarter and first half. But that's Steve also even that will be determined.

I mean we have a little more confidence in what we see in the price but the cost side is obviously kind of what we'll have to react to.

Yeah, and on the price side, I guess is there any, you're not embedding any quarter where it's actually negative.

No.

Okay, where would you look within your product lines to, you know, is the kind of canary to call mine on that front?

Where do you see the most price pressure? Yeah, where would you expect? You're not seeing it today. I don't think anybody's really seeing it today, but where would you be watching for that? Where would you be most concerned if there were to be some pressure some pushback?

Yeah, my guess is it would it would show up maybe on our electrical side.

and maybe some of the more commercial, you know, first of all, REZI products, you know, they're sort of seeing contracting demand there with commercial that would maybe be the most cyclical responsive to that.

You know, some of the more rough and electrical that might be where we'll be paying a lot of attention to these. Yeah, and I think it's less about that certain product lines are going to seem more cost-effective. I think that's pretty spread, especially with a chart that Bill shows that raw material is actually a fairly small percentage. So I think all of our product lines are exposed fairly similar to that other inflation.

on the IRA stuff, giving us a little bit of precision on that versus other companies that just say it's great. So we appreciate it. Thanks.

Thank you.

Thank you. Thank you. One moment for questions.

Next question comes from Tommy Mull with Stevens, you may proceed.

Good morning and thanks for taking my questions.

Morning.

Also, really appreciate the price cost productivity slide you provided with all the details, especially because now we get to keep asking you about it. That's what we knew you would.

the price cost productivity slide you provided with all the detail especially because now we get to keep asking you about it. Yeah, that's what we knew you would.

But jokes aside here, the pie chart is very helpful and you called out to

and the larger two of the components there on your cost side, you continue to expect inflationary pressure. But on the raws, obviously, there's some easing anticipated there and my suspicion might be that would be most visible and most talked about from the customer standpoint.

And so my question is if you're going to realize the two points of wrap, which is really I think just to hold price.

through the year.

Have you had to reframe or provide any.

increase visibility to your customers.

If you're facing more than three quarters of your cost is inflationary, they're not going to see that as much.

How do you get confident you can hold?

You know, Tommy, we have to use very similar visual, that's what we're sharing with you. And I think it's...

you know, our customers are very alive, for example, to to labor inflation and wage inflation. And so I think that they kind of...

relate to where they see the inflation and as you point out when you

look on a futures market and you see the raw metals getting cheaper.

on a futures market and you see the raw metals getting cheaper.

That's really only a small part of the whole picture. So we've had to have that be.

part of a conversation, part of a relationship discussion, right? It's not...

It's not pure transactional. It's not sending people letters, right? It's about having conversations and sharing the kind of analysis that you're looking at today.

I appreciate that bill.

As a follow-up here on the electrical solutions and market visibility you provided, it sounds very similar to the early peak you gave us for 2023, a quarter ago.

at least in terms of the direction, but has anything changed versus a quarter ago? It sounds like your visibility is pretty limited first quarter, maybe first half, but is there any change versus what we heard from you? Yeah, I think the part that we gained insight was

you know, the inventory management actions that appeared to us to have taken place in the fourth quarter and

appeared to us to have taken place in the fourth quarter and if those

are the new new, Tommy. You know, you could argue it might be a little softer than we had communicated and that's why so important to us to see the pickup in orders in the first three plus weeks here in January .

I know a month is not the largest set of data points, but at least it's been sustained through the month. So I think that those two offsets yet probably do get us back to where we were when we talked to you in October . But, you know, they're...

They're kind of equal in opposite reactions, I think.

If that's helpful, thank you, and I'll turn it back.

Thank you, one moment for questions.

Our next question comes from Josh Prokaczynski with Morgan Stanley . You may proceed.

Hi, good morning guys. Morning Josh.

So, not to look at gift horse in the mouth with the IIJA disclosure there, and I'll echo what everyone else has said on how helpful that is. Maybe just to wonder if you could maybe estimate IRA, is that in your mind bigger, smaller, longer duration, shorter duration? Like how do you feel about that relative to what you put in your mind?

tax credits, but if you think about it, they extended the renewable tax credits for solar and wind, and that's an area that both our utility and electrical businesses benefit from the EV incentives, and while we're not directly in EV, the balance of systems that goes around with this infrastructure.

we benefit well of as well. So I would say it does affect, and coming back to it's so difficult to pinpoint what exactly what percentage of our growth will be tied to this. I would say it's helpful as well.

Got it. That's the self-ful of it. Bill, you're coming there on the on the destock and then the order rebound. You know, it seems like a lot of that is maybe washed out, but any more detail you could give on, you know, kind of portfolio breath that was impacted and sort of order of magnitude on size with it like.

a five point correction on inventory or like a 20 that came down sharply and then came right back up.

Yeah, I mean, I think it was fairly broad-based.

I think if you interviewed our customers, they were feeling.

you know, a little overstocked.

I think, you know, Josh, some of that's driven by

when

promise dates were extended, you know, they had customers who wanted materials, so they were just, you know, making sure their shelves were stocked.

I think there's also been places where they may be bundling or kitting something and they may have a decent chunk of inventory that needs one last part to the bundle and then that'll get shipped. And so I think what we care a lot about is...

you know, our order's gonna, you know, come to a sustainable level through a nice orderly overtime process as promised delivery dates get shorter.

Yes, I mean I think.

That's sequential fact from the fourth quarter do you think the fourth quarter's a little distorted by that.

There very well could be destocking throughout 'twenty, three though as well.

Hopefully thats kind of measured.

But I think that.

If you just look year over year.

And you go kind of by end market, we are anticipating <unk> contracting.

Significantly.

That's creating ultimately a drag we think those blue markets that lineup.

We think are going to be quite resilient.

To a consumer led.

Assertion and some of the inflation and interest rate problems and consumers are having.

Those are a little more secular really driven right now and then the balance of non res and industrial we see industrial being in slightly probably stronger shape in the non res being.

Being a little more maybe quick to follow <unk> and so I think we have we have kind of a range like that.

Chris.

What kind of confidence in that.

You'll hear us maybe be a little bit.

More confident in the first half a little more visibility.

Little more uncertainty in the second half I think.

Yes, I really really appreciate that color and obviously a tough macro but.

I guess just a follow up.

Okay.

Incremental.

My first one and three.

Alright hearing background noise and then also any.

To worry about on data center and telecom some other companies have kind of flat some slowdowns in turns there. Thank you.

Yes, I mean, I think when you talk about.

Data centers.

You think about the two segments of that market.

The Mega centers and being run by the fangs and the Big Tech World and you certainly see them reacting with head count reductions for example in.

Could that lead to.

Some slowing of growth on the capital side I think it's that's possible and it could.

I think the telecom side.

We still see the build out so we're still.

I'd say in the medium term or both were very bullish on both of those factors.

Even though I do agree there could be.

Because the second side of data centers outside of the Mega All these co lows.

There's probably going to be demand at that part of it. So it could be maybe a reshaping of mix inside of data centers.

So I do think your questions important to figure out what net effect. It has but I think we're still anticipating growth out of both of those and maybe to your second part of further destocking.

We would say.

There probably is especially if you look at so that's some of our distributor partners are still struggling with with getting.

Supply.

Have a lot of the materials they need for project I'm missing something and when that comes in that will naturally costs.

Inventories to come down.

A little bit further we believe our products are.

Are less exposed to that because we.

Certainly performed.

Relatively well through it but we would say there is still probably some destocking.

In the in the early part of 'twenty three.

Thank you.

Thank you I would now like to turn the call back over to Daniel Morado for any closing remarks.

Great. Thanks, everybody for joining us I'll be around all day for questions. Thank you.

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

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Good day and thank you for standing by welcome to the fourth quarter 2022, Hubbell incorporated earnings Conference call.

This time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again, please be advised that today.

The conference is being recorded I would now like to hand, the conference over to your speaker today Dan.

And in a morado.

Vice President Investor Relations.

Yes.

Thanks, operator, good morning, everyone and thank you for joining US earlier. This morning, we issued a press release announcing our results for the fourth quarter and full year 2020 to the press release and slides are posted to the investors section of our website at <unk> Dot Com I'm joined today by our chairman President and CEO Durbin Barker, 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 release and considered incorporated by reference into this call. Additionally comments may also include non-GAAP financial measures those measures are reconciled.

The comparable GAAP measures and are included in the press release and slides now let me turn the call over to Jeremy.

Great. Good morning, everyone and thank you for joining us to discuss <unk> fourth quarter and full year 2022 results.

2022 was a strong year for Hubbell, we effectively served our customers through a challenging operating environment consistently delivering high quality critical infrastructure solutions, which enabled grid modernization and electrification in front of and behind the meter.

We also delivered strong results for our shareholders.

With full year organic growth of 18%.

Adjusted operating profit growth of 29% and.

And adjusted earnings per share growth of 32%.

We began 2022 by completing the divestiture of our C&I lighting.

Successfully positioning the hubbell portfolio for structurally higher long term growth and margins.

We also stepped up our investment levels to bolster our positions in key strategic growth verticals through acquisitions and organic innovation.

<unk> expanded our capacity in areas of visible long term growth.

And to improve our manufacturing and distribution footprint for future productivity.

Importantly, we've been able to fund these investments while still expanding operating margins driven by strong execution on price cost in the face of significant inflationary and supply chain pressures.

Our employees have worked hard through a challenging environment to sustain a culture of excellence delivering industry, leading service levels for our utility and electrical customers along with differentiated financial operating performance.

The critical contributions of our employees and partners as well that led to a highly successful 2022 for all of our key stakeholders.

Looking ahead, we believe that <unk> unique leading position in attractive markets will enable us to continue delivering on each of these fronts in 2023 and beyond.

We will talk more in depth on our near term outlook later in this presentation, but we anticipate continued market growth and strong execution.

Driving positive price cost productivity to fund investments back into our business, which will generate long term value for our customers, while delivering attractive returns to our shareholders.

Turning to page four.

Our fourth quarter results were generally consistent with year to date trends.

Utility customers continued to invest in upgrading hardening and modernizing aging grid infrastructure.

Orders continue to outpace shipments and we exited 22 with record backlog levels, which gives us good visibility to continued growth in 2023 continued investment is required to address areas of capacity constraint.

And electrical solutions orders and volumes softened in the fourth quarter as customers actively managed inventories and cash flow into year end.

These dynamics were anticipated and contemplated in the outlook, we provided last October .

Operationally, we expanded operating margins by over 200 basis points in the quarter while.

While the overall environment remains inflationary.

Easing raw material inflation and continued traction on price drove a net price cost productivity benefit.

Finally, we continue to accelerate our investment levels, most notably we invested over $60 million in capital expenditures in the fourth quarter as we were able to execute several large capacity and productivity projects.

For the full year, we invested just under $130 million in capital expenditures up $40 million from 'twenty one levels.

And we expect another year of elevated Capex in 'twenty three as we believe that these high return investments are the best current use of our shareholders' capital.

So overall the fourth quarter was a strong finish to a strong year for hubbell.

Let me now turn it over to Bill to provide you some more details on our performance.

Very much Carmen and thank you all for joining us this morning, and looking forward to talking about fourth quarter full year and in particular, our outlook for 2023.

I'm going to start my comments on page five of the materials that Dan referenced and we will start with our fourth quarter results further Hubbell enterprise you see.

<unk> sales growth of 11% up over $1 billion to that.

Of that 11% is comprised of high single digits of price low single digits of volume and one point from acquisition.

We look at our sales performance through a few different lenses here. The first is against prior year.

Double digit growth.

Against double digit growth in last year's fourth quarter shows good com bounding.

And good good robust levels of demand. We also look at it through the lens of comparing it to the third quarter.

We're down sequentially.

<unk>, 7%.

Roughly in line with with fewer days in the per day shipment level reasonably flat to the third quarter sequentially.

And we also believe that.

There was some the channel was managing their inventory levels, and we will talk more about that.

And a couple of pages when we get to the electrical segment.

The operating profit on the upper right of the page very impressive growth of 27%.

Very healthy.

Margin expansion of two points.

To 16%.

And when we look at the incremental drop through on the growth.

You see about mid thirties drop through which we think is quite good.

Price is really a very important part of the success of this financial performance the prices sticking.

Kevin made reference to the critical products.

And our customers adding to their.

Structural solutions and.

Having this sticking price is really helping us as inflation is continuing to affect us in the non material and value added places and when we talk about next year, we will give you a little bit more breakdown about how we're anticipating price cost.

On the lower left you see earnings per share growing at 26% in line with.

The profit growth.

On the non op side, we had some headwind.

Taxes as well as from pension.

But.

<unk> had referenced that we started last year.

The disposal of the C&I lighting business and we used.

Some of the proceeds of that sale to buy back shares, which which partially offset these headwinds.

Headwinds.

The free cash flow.

You will see is down 9% that's that more than explains.

The Capex increase that Gordon described.

So the Ocs side here is quite healthy and we're being quite intentional on making these.

Investments in order to position.

For the future to be successful.

Page six will switch to breaking the fourth quarter down between our two segments in page six starts with the utility segment and you'll see a really strong finish to an outstanding year by our utility franchise set up for success for 2020.

Three.

You will see total sales growth here of 17% to about $716 million of sales that 17% of sales is comprised of a low double digit increase in price.

In the mid single digit increase in volumes.

Demand continues to be very robust.

Despite.

High double digit shipments here, we continue to add to the backlog in the fourth quarter.

Youll see.

That the T&D component the historical Hubbell power systems.

Infrastructure business, showing the most growth at 27%.

The trends continue to be.

Driven by.

The need for grid hardening and for renewables and continues to reinforce the shifts that we've seen from mere kind of GDP type replacement levels of spending to the need for our customers to really upgrade.

Grid.

And I think Youll see.

The evidence of our strong positioning as the utilities continue to turn to us with these critical needs.

And that's really helping.

Inform and drive some of our Capex decisions that Durbin had mentioned to continue to support our customers here.

On the communications and control side.

You will see a decrease of 10% in sales.

While demand was still strong there are two drivers to that contraction.

Number one is the persistent shortage of chips from the supply chain, that's really preventing.

US from growing and Thats been a persistent problem for the last few quarters and this has kept our communications and controls business relatively flat.

In addition, we had a one time event in the fourth quarter.

Where we recognize the commercial resolution.

This was stemming from legacy dispute that preceded.

<unk> acquisition.

And it became obvious it was time to resolve that so that we could move forward with a constructive relationship with the big customer in to our mutual benefit we believe.

But that had the impact.

Driving down.

Sales in the quarter for the communications controls segment.

We expect.

This chip.

Situation to improve during 2023.

So while the quarter was down we have expectations of the comms business growing.

That it.

It may still be a little choppy in Q1.

But we're anticipating.

Getting this chip supply situation to improve during the course of the year.

And we're looking forward to returning that business to growth.

You can see on the right side of the page very impressive operating profit growth of 42% adding.

Adding three points to operating profit margin up over 17% in the fourth quarter by the utility team.

That performance being driven.

By price, which we really needed to overcome inflation as well as inefficiencies in our plants that coming from.

Some of the disruptions from the supply chain.

Mid single digit volume growth is also.

Because also dropping through at attractive levels. So.

Really good year by our utility franchise and you can see a good quarter setting us up for a good year next year.

On page seven we've got the electrical solutions results and you will see 3% sales growth more modest than on the utility side, but a good 60 basis points margin expansion and 8%.

Oh <unk> growth to a 14, 3% margin.

That 3% is comprised of mid single digits price and.

Volume compared unfavorably to last year.

We think that the.

Fourth quarter.

Their results.

Significantly impacted by some of our mix you see residential sales.

Down significantly so strong double digit decline for for resi as consumers continue to struggle with high interest rates.

And we saw some some growth in some other verticals, we've been investing in namely data centers renewables in telecom.

And the balance being.

Being.

More exposed to the.

To the non res cycle.

And so we.

We also thought that we were able to perceive some destocking activity in the quarter.

I've mentioned this before with you all.

Some of that observation is based on.

Anecdotes and discussions with our customers and other places we have hard data, where we can analyze point of sale and point of purchase data and see that.

Our replenishment orders given to us or below whats going out the door.

We believe that the way the channels incentives or structure.

Whether on the volume side, those incentives may have maxed out or on the cash flow side, where.

Obviously managing inventories in December becomes very important to our customers. So I think there is a little bit.

Distortion.

In the fourth quarter.

As we've seen the first several weeks of January we've seen a nice rebound in orders.

And so we'll continue to watch that quite quite carefully obviously.

On the operating profit side.

You see the nice margin expansion and again.

Price and material.

Tailwind enough to overcome the impact of lower volumes and enable us to operate very well through.

Through the operating disruptions, but also.

Overcoming some of the drag coming from the resi lighting business.

We thought it would be constructive on page eight to step back and discuss the full year's performance.

And really illustrates some of the trends that <unk> highlighted in his opening remarks sale.

Sales of 18%.

Very strong growth.

Mid single digit volume in double digit price.

Very robust.

The demand environment for us.

You see the 140 basis points of margin expansion to just under 16% on the op side, 29% growth in op.

Diluted earnings per share growing a little bit better than in line with that operating profit and the cash flow being up 20% year over year.

Being held back a little bit with the heavy investment in Capex that we had mentioned as well as significant investment in inventory as we continue to try to support our customer service, but you really see the trends for the whole year that have persisted strong demand.

Number one number two a tough operating environment, where the availability of our people materials and transportation has been inconsistent throughout the year and leads to operating inefficiencies.

Three is the execution on price, which was excellent job by the Hubble team.

Really required to counter inflation as well as those inefficiencies in the fourth trend was investment.

Acquisitions, Capex and inventory all sources of investment on the acquisition side, we closed on three deals in the year we.

We invested about $180 million to do so we were quite intentional about adding exposure to desirable verticals that are exhibiting higher growth and higher margin potential than our average.

So we added to our utility tool business, we added data center exposure and we added.

A nice bolt on to our Burndy grounding.

Business and connector business that again is supporting high growth high margin there.

<unk>.

So we'll switch now from 2020 to.

Wrap a bow on that and start to look forward to 'twenty three and our outlook.

We were proposing to.

Go through this a little bit differently than we have in the past we've got a little more.

Daniel clarity in our discussion of the different pieces and parts. So that we can.

Ill provide a little more context to why we are guiding the way we see it. So on page 10, we're starting with our markets outlook and Youll see on the yellow callout box at the bottom of the page our mid single digit expectation of organic growth.

And you will see from that's driven really by the strength of the utility business on the left of the page those growth drivers remain intact.

We see our.

Our customers continuing to need material continuing to install it at a high rate.

In response to the need to modernize their grid and respond to renewable needs.

We are starting the year with a highly visible backlog.

And in addition, we.

We've got some support for funding.

From the policy side here.

We've outlined a way where we believe.

Jay probably gives us a lift of a point or two.

Above what otherwise the markets, who would give us so we're anticipating.

The utility markets, giving us mid single digits plus.

More modest on the electrical side and we've decomposed our exposure in.

And this pie graph here to try to give you a sense of.

Residential really we think is the starting point in the cycle there in.

A point of contraction right now will continue to be in 'twenty three we believe.

Consumers dealing with high mortgage rate high interest rates.

The demand there.

Usually non res follows the resi cycle and then into industrial.

And you see we've added this blue segment, where we think our electrical business is exposed in a much less cyclical much more resilient set of end markets, namely the.

Data centers renewables in telecom.

As well as some of the enclosures we sell.

As connectors to the to the utility businesses there.

So.

If we continue to believe <unk> will contract.

It gives us a low single digit outlook for the electrical segment.

Our visibility frankly is better to the first half and it is the second half and.

And we do maybe even argue that the first quarter better visibility than the first half. So we got a little bit of caution built in there for what will happen.

Half of that in the non res markets.

We also on page 11 wanted to Peel back.

Our view of price cost productivity.

And at the bottom you'll see we're anticipating about $50 million of tailwind coming out of our price cost productivity management.

Scheme here, we'll start on the edges, where it's a little bit more straightforward on price.

We believe we've got about two points wrapping around.

From from our actions we've taken in 'twenty two.

We continue to hear feedback from our customers that despite on time service being below where we typically are that we're still leading.

And those service levels and so we anticipate that price sticking.

On the productivity side, we're anticipating in the ballpark of about a point of.

Contribution from productivity.

And this cost pie, you'll see we've disaggregated into two halves the material and the non material half.

On the right in the Blue section the non material.

Mostly labor and manufacturing costs, we're anticipating mid single digit inflation there likewise on the materials side Youll see that.

The raw materials, we're anticipating.

They are to be.

Benefits and tailwind as there is deflation in the raws, but our component by where there is value add is larger than that and we're anticipating the same mid single digit.

Relation right there so the netting the netting of all that gets us to about <unk>.

$50 million in on page 12, you will see we're anticipating investing.

Half of that benefit.

In the future success, and so page 12 shows our investments.

Starting with footprint in <unk>.

Successful multiyear restructuring program that Hubble has implemented.

Where we spent about $17 million in 2022.

Which was an increase from 10 in 'twenty, one so our margin performance absorbed.

Extra expense in 'twenty, two we're anticipating to keep that flat in 'twenty three so nothing incremental as far as the income statements concern, but still good activities with good projects that typically give us we find in that three year average payback range.

As for capacity.

We continue to find in the utility side.

And parts of electrical that we need to invest in our capacity.

So we've got our Capex has moved impressively from $90 million in 'twenty one to.

$130 million in 'twenty, two and we anticipating this year up to about $150 million.

And that ultimately result in about $15 million incremental operating expense.

That we would add another $10 million or so of innovation expense.

Those of you who joined us for our Investor day.

Some of those.

Innovation ideas and we continue to be encouraged by early results, but for us to get impact still going to take us still going to take us some time, but we've got a good business case.

Getting about a half point of growth above our markets from those activities. So those pieces, we thought we'd give you the puts and takes and let durbin on our last page kind of summit out and netted out in our typical waterfall format that you're used to see.

Great. Thanks Bill.

As you said, let me summarize it here on page three.

Initiating our 2023 outlook with an adjusted earnings per share range of $11 to $11 50.

We believe this represents strong fundamental operating performance for our shareholders and we are well positioned to deliver on this outlook in the range of macroeconomic scenarios.

From a sales standpoint, we expect solid mid digit.

Single digit growth organically, driven by 3% to 4% of volume growth and approximately two points of price realization.

We believe this is a balanced view with good visibility into the utility demand and less certainty and electrical markets at this stage.

We expect that 2022 acquisitions of VCX Ripley tools and reacts to add an additional 1% to 23 revenues.

Operationally, we expect our continued execution on price cost productivity will fund attractive high return investments back into our business.

Our outlook range Embeds solid margin expansion with high single digit to low double digit adjusted operating profit growth.

This operational growth rate is consistent with our long term targets, we provided at our Investor Day last June .

As far as the current macroeconomic uncertainty and the higher 2022 base following significant outperformance last year.

And it puts us well on the path to achieve our 2025 targets.

We expect our strong operating performance to enable us to absorb below the line headwinds from pension expense and the previously communicated non repeat other income from the C&I lighting divestiture.

Overall, our 2023 outlook represents a continuation of the strong fundamental performance that <unk> demonstrated in 2022.

With leading positions in attractive markets underpinned by grid modernization and electrification megatrends as well as a growing track record of consistent operational execution I am confident that <unk> is well positioned to continue delivering differentiated results for our shareholders over the near and long term.

Sure.

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

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Withdraw your question. Please press star one again.

Our first question comes from Jeff Sprague with vertical research partners you May proceed.

Alright, Thank you and good morning, everyone.

Hey, a couple questions, maybe mostly focused on the utility side.

First on the J J and thanks for taking a shot at that a lot of companies have not been able to quantify or little worried you try to quantify it but the nature of my question is really.

How that plays with for lack of a better term spending that.

It would have happened anyway.

You are presenting at year like it's incremental but I just wonder your confidence in that.

Whether or not it's just replacing other investment or using government stimulus spend what was going to be spend.

We spent regardless.

Yes, I mean I think.

Jeff ultimately.

The dollars ultimately are fungible.

But certainly the customers we have.

Spent a good deal of time talking to have very specifically increased.

Their capex.

Bob.

Assumptions because of it so.

But that's so for us it's important to kind of quantify it though.

Ultimately contributing a point or so.

To a mid single digit so I agree with you there is a little bit of Fungibility there at the end of the day.

And then just on the on the capacity.

As you know some of it is.

Efficiency and supply chain resiliency.

I mean, it looks like demand will stay at a high level, but the rate of growth will maybe settled down to something more normal maybe it's mid single digit plus for a few years.

Could you just.

Dress the concern that.

Maybe it's the wrong time to add the capacity.

How you see the capacity being used for what bottlenecks that might be uncorking for Ya.

Yes, I think it's important that it is on Uncorking bottlenecks.

So one of our specific areas has been on enclosures.

Jeff, which has been a really high growth high margin area.

And.

There are we feel very good that the return on capital of that is going to be because we have such good visibility on that demand.

Is going to be there so.

We were.

We feel real good about it and excited about being able to serve our customers better and I think there were.

Awarding us relationship wise as we are doing that.

Jeff I can provide.

A little bit of deflation to what bills or didn't specifically he's referring to our utility.

Enclosures in the utility business, but.

This is a business that.

And these are closures on all of these are utility market, but they serve communications markets and they serve water markets that all have these application so.

It's not only do we see the visibility on the utility side, but these other markets have been high growth market. So we're very very confident here that this is a more sustained growth level. If you think about this investment and we've talked about this this is a new facility that we're opening up in Oklahoma city, expanding not only the capacity of enclosures.

But at the same time, we're consolidating some factors as well so theres an element of productivity.

These moves as well so we.

We believe and this is just one example of.

High return on investment that we believe will serve our customers well and will serve our shareholders well long term.

And then just one last one for me if I could you just elaborate a little bit more.

What happened with the clearer in the quarter I guess I tend to think of a quote unquote commercial resolution being a cost item not a revenue item but.

The way you're laying it out here at some kind of adjustment to revenues or headwinds to revenues.

I don't expect you to name the customer, but maybe you could give us a little bit more color on what actually happened and what you resolve.

Yes, just the nature of it resulted ultimately Jeff in the character of a price concession. So it hits the top line and drops through to the top line as well.

Alright, thank you.

Thank you and as a reminder, please limit your questions to one question and one follow up.

Operator, our next question comes from Steve Tusa with Jpmorgan you May proceed.

Yes.

Hey, guys good morning.

Stacey.

So can you just talk about your your price assumptions like first half and second half you said I think 2% embedded in the numbers, maybe I'm thinking about a different call them about five this morning, but.

Any any color on kind of that that first half the second half price.

No.

Youre right on the two.

Thats basically been layered in throughout 'twenty, two sides that wraps around.

Yeah.

It sort of does have a tapering effect, but when you think about price cost.

Some of the commodities are coming down to and so.

Really.

Net.

Net.

Little more favorable early.

And a little bit more favorable first quarter in first half.

And but thats, Steve ultimately the net will be determined.

We have a little more confidence in what we see in the price of the.

The cost side is obviously kind of.

While we will have to react to.

Yes.

On the price side.

I guess is there is there.

Any you're not embedding any quarter, where its actually negative.

No.

Okay.

Where would we where would you look.

Within your product lines too.

Canary in the coal mine on that front.

Where do you see the most price pressure, yes, where would you expect youre not seeing it today I don't think anybody is really seeing it today, but where would you be watching for that where would you be most concerned if there were to be some pressure some pushback.

Yes, My guess is it would it would show up maybe on our electrical side.

And maybe some of the more comfort.

First of all <unk> products.

Sort of seeing contracting demand there.

With commercial that would maybe be most cyclical responsive to that.

Some of the more rough in electrical that might be where we will be paying a lot of attention.

Yes.

Think it's less about that certain product lines are going to see more cost efficient I think that's pretty spread and especially with the chart that bill shows the raw Ms. Gara is actually a fairly small percentage. So I think all of our product lines are exposed fairly similar to that other inflation. So I think it has more to do with the market dynamics and.

There is a potential slowdown in the second half that could put.

Additional pressure on that would be indeed.

More on the electrical side and the utility.

Thanks for all the color as always all the details are helpful and I Echo what Jeff said on the on the IRI stopped giving us a little bit of.

Precision on that versus other companies that just say it's great. So we appreciate it thanks.

Thanks, Steve.

Thank you a moment for questions.

Our next question comes from Tommy Moll with Stephens you May proceed.

Good morning, and thanks for taking my questions.

Good morning, Tommy.

Also really appreciate.

Cost productivity slide you provided with all the details, especially because now we get to keep asking you about it.

Yes.

So we knew it.

Yeah.

Sure.

But jokes aside here.

The Pie chart is very helpful and you called out too.

And the larger two of the components there on your cost side.

Do you expect inflationary pressure, but on the raws.

There is some easing anticipated there and my my suspicion might be that would be the most visible and most talked about from the customer standpoint.

So my question is if youre going to realize the two points of rap, which is really I think just to hold price.

Through the year.

Have you had to reframe or provide any.

Increased visibility to your customers as you are facing more than their orders of your cost is inflationary theyre not going to see that as much.

How do you get confident you can hold.

Tommy we have to use very similar visuals.

What we're sharing with you and I think it's our.

Our customers are very alive for example, too to labor inflation and wage inflation and so.

I think.

I think that they kind of.

Relate to where they see the inflation and as you point out when you.

Look on our futures market and you see the raw metals getting cheaper.

That's really only a small part of the whole picture. So we've had to have that be.

Part of our conversation part of our relationship discussion right it's not.

Not pure transactional it's not sending people letters right, it's about having conversations.

Sharing the kind of analysis that youre looking at today.

I appreciate that bill.

As a follow up here on the electrical solutions and market.

<unk> ability you provided it.

It sounds very similar to the early peak you gave us for 2023 a quarter ago.

At least in terms of the direction, but has anything changed versus a quarter ago. It sounded like your visibility is pretty limited first quarter, maybe first half, but is there any change versus what we heard from you.

I think the part that we gain insight was the.

The inventory management actions that appear to us to have taken place in the fourth quarter and.

If those.

Are the new new Tommy you could argue it might be a little softer than we had communicated and thats why so.

So important to us to see.

The pickup in orders in the first.

Three plus weeks here in January so I know, it's a month does not.

The largest set of data points, but at least it's been sustained through the month. So I think that those two offsets, yes, probably do get us back to where we were when we talked to you in October .

Yeah.

There.

They're kind of an equal and opposite reaction I think.

That's helpful. Thank you and I'll turn it back.

Thank you one moment for questions.

Our next question comes from Josh brokers <unk> with Morgan Stanley You May proceed.

Hi, good morning, guys.

Good morning, Josh.

So, let's look a gift horse in the mouth with the JA disclosure, there and I'll Echo what everyone else is that on on how helpful that is.

Maybe just wonder if you could maybe estimate IRA is that in your mind bigger smaller longer duration shorter duration like how do you feel about that relative to what you put out there with <unk>.

Yes, I would say Josh the IRI.

In fact shows.

To a lesser extent, but it does benefit us as well in here rather than direct funding. This is more about tax credits, but if you think about it they extended the renewable tax credits for solar and wind and that's an area that both our utility and electrical.

Businesses benefit from the.

The EV incentives and while we're not directly in the balance of systems that goes along with this infrastructure.

Benefit well.

As well, so I would say it does affect and coming back to its so difficult to pinpoint what exactly what percentage of our growth will be tied to this I would say it's helpful as well.

Got it that's helpful and then bill your comment there on the on the Destocking and the order rebound. It seems like a lot of that is maybe washed out but any more detail you can give on kind of portfolio breadth that was impacted and sort of order of magnitude on size, what's it like.

Our five point correction on inventory or like a 'twenty that came down sharply and then came right back up.

Yes, I mean, I think I think it was fairly broad based.

I think if you interviewed our customers they were feeling.

No.

A little overstocked.

I think Josh some of that driven by.

Win win.

Promise dates were extended.

They had.

<unk> had customers who wanted materials. So they were they were just making sure their.

Their shelves where stocks.

Theres also been places, where they may be bundling or kidding something in.

They may have.

Decent chunk of inventory that needs one last part to the bundle and then and then that'll that'll get shipped and so.

I think what we care a lot about us.

No.

Our orders going to come to a sustainable level through a nice orderly over time process as promised delivery dates get shorter.

Or is it going to be something a little more.

Short or reactionary and I think.

Through the fourth quarter and now through one months in the third or the first quarter of the new year.

Feels it just feels manageable so the breath that youre talking about is preventing.

Any real.

<unk> he kind of problematic.

Situation right now so so for us the way that it's that it's kind of evolving here is.

It feels manageable to us right now.

Got it Thats helpful.

Thank you a moment for questions.

Our next question comes from Brett Linzey with Mizuho you May proceed.

Hi, good morning, all good.

Hey, just wanted to come back to the the communications controls business, so down 10% driven by chip supplier could you just talk about the timing of the chip situation, improving and really anything that team is doing in terms of redesigns or reengineering to help monetize some of that backlog.

Yes, let me provide some causing maybe bill fill in as well but.

Chip availability has has been the Achilles heel throughout.

The pandemic and we're all aware of that so.

Sure.

We're pretty early on realized that this wasn't going to be a short term turnaround so to.

To your point of redesign.

Been very active.

As a matter of fact, it's what you had taken a good part of the engineering resources.

Clara to do this.

This is simple.

Simple chip.

Replacement and you go there is a.

It's on the design and then a lot of SaaS fleet to make sure that this product.

The functions into field. So we right now have product out in the field, that's being tested and if that continues as we expect we will be able in the second quarter to substitute chips and that's part of the reason we believe that even if the supply chain Astellas challenge, we should be able to start seeing growth.

Back into that business and the other thing is.

We read about chip availability getting better and of course, we track this very closely as well with our supplier and it's really the types of chips that matter and we certainly have learned a lot about chips over the last year, but.

The memory chip those kind of chips that are used in phones have become much more available the types of shifts the microprocessor types of chips that we use in our products have been the ones that have been still more challenged from a supply perspective, we do anticipate that to improve throughout this year and the combination of just a general improvement with our redesign is y.

Yeah.

We're optimistic and confident that we can grow.

'twenty three.

Thanks for that I guess, just a follow up I imagine, there's a lot of labor Underutilization factory inefficiencies and so on in that business.

Tried to size what that magnitude could be and really if you can uncork some of the backlog.

Improved continuity of supply and so on what the earnings power.

Could could be as part of the declare recovery.

Yes, maybe talk more generally linked to efficiency in the factories and certainly this business felt it although to this business. There is also a component of contract manufacturing that happens to us at a certain extent and were shielded, but in our business and in general Thats absolutely right.

Comments made with all the disruption.

It's driven more inefficient factoring in I would say if 22 was was all about pricing and magic price cost productivity 'twenty. Three we will continue to be that but a high focus of us in returning to higher productivity in our in our footprint.

Okay, great personal.

Thank you one moment for questions.

Our next question comes from Nigel Coe with Wolfe Research you May proceed.

Thanks, Good morning, everyone.

Good morning Nigel.

Hi, guys just wanted to go back to the commercial business.

Did I hear that right bill that came through as a price concession so.

Impacted the headline price.

<unk>.

Yes, okay.

Okay, Thanks things that.

I am pleased that about $25 million does that zone.

No thats too high.

Hi.

That would have impacted EBIT.

Revenue and EBIT impact correct.

Correct.

Okay great.

Okay. This is my clarification questions and then moved on.

My real questions. So on the inventory did you see that hidden primarily within residential products. So was it much more generalized.

Yes, I would say much more generalized.

So.

Utility, which has had very impressive growth, but we invested in utility inventory to rates or trying to.

We're still don't have our double a items.

On time delivery performance levels, where we want them Nigel so that.

That inventory has been kind of across the board.

It skews at this point, if you looked at our year end balance sheet. It skews raw versus finished good or web and maybe thats.

<unk> because of it was finished we would sure.

Shifting but.

So at least Thats still has to work its way through the factories get converted then.

<unk>.

So that's that's kind of part of what curve and saying we should be able to.

Run the factories, a little bit hotter and get some efficiencies as we as we burned through a lot of that raw material.

Right, Okay, and then just a quick one on below line items.

I mean pension and any kind of big swings on pension I think thats. The TSA income rolling off this year and any impact that that would be helpful.

Yes, so both of those you saw when Durbin walked through the waterfall. We've got this red bar at the end so.

The non recurrence of the TSA as part of it in.

The pension while we benefited from.

Our liabilities going down with higher interest rates the.

The gap between return expected return on assets and discount rates has narrowed and so that creates.

A cost headwind for next year that's.

Its pension, Matt, it's not cash, but it does create a income statement headwind for us in that other.

Okay. Thanks Bill.

Yes.

Thank you one moment for questions.

Our next question comes from Christopher Glynn with Oppenheimer You May proceed.

Thanks, Good morning, guys good.

Good morning, Chris.

Good morning.

Just curious your thoughts on the acquisition pipeline a couple a couple of angles anything in electrical are focused pretty much on utility and part of the thought there is maybe more premium on the utility side deals, but obviously you can add lots of value.

And also.

Should we be thinking exclusively along the lines of the typical bolt on sizes.

Yes, so I would say Chris.

The pipeline is equal opportunity so.

Two of the three deals we closed in 'twenty, two or electrical so I would not think about it being exclusively utility.

If you thought about activity.

During the 180 in 'twenty two.

For me is slightly disappointing I would have rather had a fourth.

And get us into the <unk>.

Mid twos is an annual kind of investment rate.

And so.

We've got the cash to keep doing that.

And.

I think the year.

The year was a little challenged for us in getting I think sellers.

To accept.

Sort of the uncertainty of the macro.

So I think it was a little harder to get buyers and sellers to.

To agree at the end of the day. So we had we had a couple that we thought maybe could get done that ultimately didn't.

And so we're looking to be more active the pipeline, though is supportive of that activity level, but.

You are asking about is the size.

Going to be more typical traditional historical levels I would say yes.

But I would think about there being opportunities in both electrical.

And utility Chris.

Great. Thanks for that and other question was on the electrical margin historically, you have a little bit more of a seasonal margin tail off in the fourth quarter over the third quarter.

But last year was moderate too.

Is there any particular sequential factors that he's that or the last couple of years really a better guidepost here margin than historically.

No I mean look I think the.

The seasonality can be driven by fewer days in the fourth quarter and then if the weather prevents construction right. Those are the two factors I would say.

I do think we've been operating with backlog such that.

Maybe you'd see less of that weather impact maybe but the days are there in the electrical side.

Has less backlog than the utility side right now so I think the biggest sequential factor continues to be price cost tailwind.

<unk> and <unk>.

Contributions from that that help lift that help lift margins.

Great. Thank you.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

And our next question comes from Chris Snyder with UBS you May proceed.

Thank you.

So guidance puts electric at low single digit organic growth in 2023, so flat to up versus the 1% in Q4 and with price trading we think the guidance for volumes to increase from here.

Is this solely the result of.

Moving past this customer inventory digestion period, or something else driving volumes higher from this point. Thanks.

Yes, I mean I think.

That's sequential fact from the fourth quarter do you think the fourth quarter is a little distorted by that.

There very well could be destocking throughout 'twenty, three though as well.

<unk>, that's kind of measured.

But I think that.

If you just look year over year.

When you go kind of by end market, we are anticipating razee contracting.

Significantly.

That's creating ultimately a drag.

We think those blue markets that lineup.

We think are going to be quite resilient.

To a consumer led recession and some of the inflation and interest rate problems and consumers are having.

We think those are a little more secular Lee driven right now and then the balance of non res and industrial we see industrial being in slightly probably stronger shape in the non res.

Being a little more maybe quick to follow <unk> and so I think we have we have kind of a range like that.

Chris.

What kind of confidence in that.

Youll hear us maybe be a little bit.

More confident in the first half a little more visibility.

Little more uncertainty in the second half I think.

Yes, I really really appreciate that color and obviously a tough macro but.

I guess just a follow up.

Okay.

Incremental.

My first 123.

Alright hearing background noise and then also any.

To worry about on data center and telecom some other companies have kind of flag some slowdowns in turns there. Thank you.

Yes, I mean, I think when you talk about.

Data centers.

You think about the two segments of that market.

The Mega centers and being run by the fangs and the Big Tech World then.

You certainly see them reacting with head count reductions for example in.

Could that lead to.

Some slowing of growth on the capital side, I think that's possible and it could.

I think the telecom side.

We still see the build out so we're still.

I'd say in the medium term or both were very bullish on both of those factors.

Even though I do agree that there could be.

The second side of data centers outside of the Mega All these co lows.

There's probably going to be demand at that part of it. So could you maybe a reshaping of mix inside of data centers.

So I do think your questions important to figure out what net effect. It has but I think we're still anticipating growth out of both of those and maybe to your second part or is there further destocking.

We would say.

There probably is especially if you look at sale.

Some of our distributor partners are still struggling with with getting.

Supply.

Have a lot of the materials they need for a project or missing something and when that comes in that will naturally costs.

Inventories to come down.

A little bit further we believe our products are less exposed to that because we.

Certainly performed.

Relatively well through it but we would say there's still probably some destocking.

In the in the early part of 'twenty three.

Thank you.

Thank you I would now like to turn the call back over to Daniel Morado for any closing remarks.

Great. Thanks, everybody for joining us I'll be around all day for questions. Thank you.

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