Q2 2024 Hubbell Inc Earnings Call
Good day, and thank you for standing by. Welcome to the Hubbell Incorporated second quarter 2024 earnings conference call. At this time, all participants are on the listen-only mode.
Operator: 24 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is free.
After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
Operator: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Innamorato, Vice President, Investor Relations. Please go ahead.
I would now like to hand the conference over to your speaker today, Dan Innamorato, Vice President, Investor Relations. Please go ahead.
Dan Innamorato: Thanks, Shannon. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the second quarter of 2024. The press release and slides are posted to the investor section of our website at hubbell.com. I am joined today by our Chairman, President, CEO, Gerben Bakker, and our Executive Vice President and CFO, Bill Sperry.
Dan Innamorato: Thanks Shannon. Good morning everyone and thank you for joining us. Earlier this morning we issued a press release announcing our results for the second quarter of 2024. The press release and slides are posted to the investor section of our website at hubbell.com.
Dan Innamorato: Please note that our comments this morning may include statements related to the expected future results of our company and forward-looking statements as defined by the Private Security Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and consider it incorporated by reference to this call. Additionally, comments may also include non-GAAP financial measures. However, those measures are reconciled with the comparable GAAP measures that are included in the press release and slides. Now, let me turn the call over to Gerben.
Speaker Change: Joined today by our Chairman, President, CEO , Gerben Bakker, our Executive Vice President, CFO , Bill Sperry.
Speaker Change: Please note our comments this morning. They include statements related to the expected future results of our company and our forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and consider it incorporated by reference to this call.
Gerben: Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled with the comparable GAAP measures that are included in the press release and slides. Now, let me turn the call over to Gerben. Great. Thanks, Dan. Good morning, everyone, and thank you for joining us to discuss Hubbell's second quarter 2024 results.
Gerben W. Bakker: Great. Thanks, Dan. Good morning, everyone, and thank you for joining us to discuss Hubbell's second quarter 2024 results. Hubbell delivered strong operating performance in the quarter, generating 8% year-over-year adjusted operating profit growth and 40 basis points of adjusted operating margin expansion, along with 7% year-over-year growth in adjusted earnings per share and free cash flow. Given our first half performance and continued visibility into the second half, we are raising our 2024 outlook this morning and are confident in our ability to deliver double-digit adjusted operating profit growth on a full-year basis.
Gerben W. Bakker: Hubbell delivered strong operating performance in the quarter, generating 8% year-over-year adjusted operating profit growth and 40 basis points of adjusted operating margin expansion.
Gerben W. Bakker: along with 7% year-over-year growth in adjusted earnings per share and free cash flow.
Speaker Change: Given our first half performance and continued visibility into the second half, we are raising our 2024 outlook this morning and are confident in our ability to deliver double-digit adjusted operating profit growth on a full year basis.
Gerben W. Bakker: Performance in the quarter was highlighted by strong organic growth and margin expansion in the electrical solutions business, where robust project activity drove strong growth in data center and renewables markets, and where our vertical market strategy is uniquely positioning Hubbell to serve the needs of our customers. As we highlighted at our Investor Day in June, HES is executing on two strategic focus areas to compete collectively in high-growth verticals while also simplifying our business to drive productivity and operating efficiency.
Speaker Change: Performance in the quarter was highlighted by strong organic growth and margin expansion in the electrical solutions.
Gerben W. Bakker: where robust project activity drove strong growth in data center and renewables markets.
Gerben W. Bakker: and where our vertical market strategy is uniquely positioning Hubbell to serve the needs of our customers.
Gerben W. Bakker: As we highlighted at our Investor Day in June , HES is executing on two strategic focus areas to compete collectively in high growth verticals while also simplifying our business to drive productivity and operating efficiencies.
Gerben W. Bakker: We are making good progress on both of these initiatives, and we also continue to benefit from our portfolio transformation efforts, which align the segment to structurally higher growth and margins over the long term. In utility solutions, while we continue to be impacted by weak telcom markets and, to a lesser extent, customer inventory normalization in the utility distribution market as anticipated, T&D and market demand remains strong. Transmission and substation markets achieved robust, double-digit growth in the quarter, as utility customers invest in upgrading the grid infrastructure to interconnect new sources of renewable generation with load growth from data centers and other electrical applications.
Gerben W. Bakker: We are making good progress on both of these initiatives, and we also continue to benefit from our portfolio transformation efforts, which align the segment to structurally higher growth and margins over the long term.
Gerben W. Bakker: In utility solutions, while we continue to be impacted by weak telecom markets, and to a lesser extent, customer inventory normalization in utility distribution market as anticipated, T&D and market demand remain strong.
Gerben W. Bakker: Transmission and substation markets achieved robust double-digit growth in the quarter as utility customers invest in upgrading the grid infrastructure to interconnect new sources of renewable generation with load growth from data centers and other electrical applications.
Gerben W. Bakker: As we highlighted to you last month, our leadership across T&D markets and strong relationships with utility customers uniquely positions Hubbell for sustained outperformance over an attractive long-term utility investment cycle as grid modernization and electrification megatrends accelerate. Operationally, we drove positive price-cost productivity across both segments while continuing to invest in capacity and productivity initiatives, including another quarter of higher year-over-year restructuring and related investments. Overall, we are pleased with our operating performance in the quarter.
Gerben W. Bakker: As we highlighted to you last month, our leadership across T&D markets
Gerben W. Bakker: and Strong Relationships with Utility Customers.
Gerben W. Bakker: uniquely positions Hubbell for sustained outperformance over an attractive long-term utility investment cycle as grid modernization and electrification megatrends accelerate.
Gerben W. Bakker: Operationally, we drove positive price-cost productivity across both segments while continuing to invest in capacity and productivity initiatives, including another quarter of higher year-over-year restructuring and related investments.
Gerben W. Bakker: Even while absorbing pockets of challenges in certain large, high-margin businesses, Hubbell has proven the ability to compound off of recent outperformance. This is a testament to the quality of our portfolio, the attractiveness of secular trends we are exposed to, and the strength of our people and operating model. With that, I now turn it over to Bill. Thanks very much, and good morning, everybody.
Gerben W. Bakker: Overall, we are pleased with our operating performance in the quarter.
Speaker Change: Even while absorbing pockets of challenges in certain large, high-margin businesses, Hubbell has proven the ability to compound off of recent outperformance.
Speaker Change: This is a testament to the quality of our portfolio, the attractiveness of secular trends we are exposed to, and the strength of our people and operating model. With that, let me now turn it over to Bill.
William R. Sperry: Appreciate you joining us. Recognize there's a number of releases this morning. I'm gonna start my comments on page four of the materials. You can see a strong performance in the second quarter by Hubbell. We exceeded our own expectations, thanks really to contributions from the electrical segments. I think they came in the form of strong market growth in targeted verticals, as well as good execution on productivity and cost. So turning to sales, 7% growth to 1.45 billion, that 7% is comprised of 2% organic, which is all price at two points, and five points of acquired sales. And that's a net number.
William R. Sperry: Thanks very much and good morning everybody. Appreciate you joining us. Recognize there's a number of releases this morning. I'm going to start my comments on page four of the materials.
William R. Sperry: You can see a strong performance in the second quarter by Hubbell.
William R. Sperry: Exceeded our own expectations, thanks really to contributions from the electrical segments.
William R. Sperry: I think they came in the form of strong market growth in targeted verticals as well as good execution on the productivity and cost front.
William R. Sperry: So, turning to sales, 7% growth to $1.45 billion, that 7% is comprised of 2% organic.
William R. Sperry: which is all price at two points.
William R. Sperry: and five points of acquired sales. And that's a net number just to remind everybody we had.
William R. Sperry: Just to remind everybody, we had 8% contribution from acquisitions from three different deals that were closed last year, and we had minus 3% headwind from the divestiture of residential lighting that we affected earlier this year. So plus eight and minus three, netting five from M&A. Independent of the impact on volumes, you'll see benefits.
William R. Sperry: 8% contribution from acquisitions from three different deals that were closed last year. And we had minus 3% headwind from the divestiture of residential lighting that we affected earlier this year.
William R. Sperry: Plus 8 and minus 3 netting to 5 from M&A.
William R. Sperry: Independent of the impact on volumes, you'll see benefits.
William R. Sperry: On the margin front from these portfolio reshapings, when we get into some of the segment result pages, I think it's been beneficial to our enterprise to exit lower growth, lower margin businesses and add higher growth, higher margin businesses, and I think we're getting dividends from that acquisition program. Turning to OP operationally, you see 22.8% margins, an expansion of 40 basis points year-over-year, quite important as we finish the year to keep improving on those margins. The Marginal Story was driven by a big performance in Electrical, which we'll talk about in a couple of pages.
William R. Sperry: On the margin front from these portfolio reshapings, when we get into some of the segment result pages, and I think it's been beneficial to our enterprise to exit lower growth, lower margin businesses and add higher growth, higher margin businesses.
William R. Sperry: and I think we're getting dividends from that acquisition program.
William R. Sperry: Turning to OP operationally, you see 22.8% margins.
William R. Sperry: Expansion of 40 basis points year-over-year, quite important as we finish the year to keep improving on those margins.
William R. Sperry: The Margins story was driven by a big performance in electrical which we'll talk about in a couple pages.
William R. Sperry: Utility had sequential improvements in operating profit quarter over quarter and favorable price cost productivity performance in both segments, showing really good execution. We're having success with pricing realization. Some of the investments we made last year are resulting in some productivity improvement inside the factories this year. So, good performance on the PCP side.
William R. Sperry: Utility had sequential improvements in operating profit quarter over quarter and favorable price-cost productivity performance in both segments.
William R. Sperry: Showing really good execution. We're having success with pricing realization and some of the investments we made
William R. Sperry: last year resulting in some productivity improvement inside the factories this year. So good performance on the PCE.
William R. Sperry: Earnings per share 7% growth to $4.37 adjusted EPS. So up above, we had an 8% OP contribution and an increase in interest expense, which aligns to seven. On the free cash flow side, $206 million is on track, at the halfway point here, to hit our target of $800 million for the year. Turning to page five, I wanted to take advantage of these visual graphs, which take us back about a month and a half to Investor Day and really remind us of what I thought was one of the most important takeaways from that investor day, which was, To pull the lens back on the last three-year period, remind ourselves of how much improvement there was in Hubbell's performance in 2022 and 2023, and basically, what we described on investor day So I'm using page five to illustrate that takeaway.
William R. Sperry: C.P. Seid.
William R. Sperry: Earnings per share 7% growth to $4.37 adjusted EPS.
William R. Sperry: So, up above we had 8% OP contribution and an increase in interest expense, which aligns to 7%.
William R. Sperry: On the free cash flow side, $206 million on track.
William R. Sperry: at halfway point here to hit our target of 800 million for the year.
Speaker Change: Turning to page 5, I wanted to take
Speaker Change: These visual graphs take us back about a month and a half to Investor Day and really remind us of what I thought was one of the most important takeaways from that Investor Day, which was
Speaker Change: To pull the lens back for the last three-year period, remind ourselves of how much improvement there was in Hubbell's performance in 2022 and 2023.
William R. Sperry: In sales, to remind everybody, in 22 and 23, we had a compound annual growth rate of 14%, off of that much higher base, and we continue to grow sales 6%. In the upper right-hand side of the graph, you see operating profit. Remind everybody that in 22 and 23, a compound growth rate of 38%. And off of those higher levels, we're growing another 8%, and earnings per share in the lower left. To remind everyone, at 22 and 23, we had a compound annual growth rate of 36%, and we're continuing to grow 7% off that base.
Speaker Change: On the upper right of the graph you see operating profit. Remind everybody that in 22 and 23, that compound growth rate of 38%, and off of those higher levels we're growing another 8%. And earnings per share in the lower left.
William R. Sperry: So I just really wanted to illustrate that point of how we're growing off that improved performance level. On page six, let's start to unpack the performance by segment, and we'll start with the utility segment. And there are really two halves to the story here, the sales and the OP.
Speaker Change: Page six, let's start to unpack the performance.
Speaker Change: by segment and and we'll start with the utility segment.
William R. Sperry: And I'm going to start with sales, which are up 12% to $927 million. Those sales are comprised, sales growth is comprised almost entirely of acquisitions, with organic growth down slightly. And we had a similar shape in the first quarter where both grid infrastructure and grid automation, the two units, contributed double digits to the growth. So let's unpack and start.
Speaker Change: And there's really two halves to the story here, the sales.
Speaker Change: and the OP. And I'm going to start with sales.
Speaker Change: which are up 12% to $927 million. Those sales are comprised, sales growth is comprised almost entirely of acquisitions.
Speaker Change: with the organic down slightly. And we had a similar shape in the first quarter where both grid infrastructure and grid automation, the two units,
Speaker Change: contributed double digits to to the growth. So let's unpack and start. I'm on kind of the lower left of the page and grid infrastructure being the first unit.
William R. Sperry: I'm on kind of the lower left of the page, and grid infrastructure is the first unit. Sales are up 12%. And that's really driven by the systems control acquisition that we closed in December. To remind everyone that it is an integrated solutions provider for substations, for utility businesses, business is doing really well, since we added it, it's growing at an attractive margin level. So, acquisition driving sales, organic, is down mid-single digit, and that's driven by the telecom end market that we talked about at some length in the first quarter.
Speaker Change: Sales are up 12%.
Speaker Change: to remind everyone that is a integrated solutions provider for substations, for utility businesses. Business is doing really well since we've had it. It's growing at attractive margin levels.
William R. Sperry: And the results are very similar to that first quarter, down 40%. I think we're starting to feel the bottom there. And we'll start to look forward to some slightly easier comparisons in the second half. Um, and I think sometimes, uh, over the last two quarters, the performance of the telecom market has somewhat taken away from the picture of what's going on in our core transmission and distribution business, which is growing organically and expanding margins. So they are very, very healthy there.
Speaker Change: I think we're starting to feel the bottom there, and we'll start to look forward to some slightly easier compares in the second half.
Speaker Change: And I think sometimes over the last two quarters that
Speaker Change: Performance of the telecom market has somewhat taken away from the picture of what's going on in our core transmission and distribution business.
Speaker Change: which is growing organically and expanding margins. So very, very healthy there. The strength this year has been in the transmission and substations side of things.
William R. Sperry: The strength this year has been in the transmission and substation side of things. We really see robust project activity involving both new miles of construction as well as grid interconnection. On the distribution side of T&D, we continue to have to navigate through some end-customer de-stocking. It's not significant enough to prevent TND from growing, but it's still a headwind. That headlines in particular areas like pole line hardware that is typically more on the shelves. Stock
Speaker Change: We really see robust project activity involving both new miles of construction as well as grid interconnections.
Speaker Change: On the distribution side of T&D, we continue to have to navigate through some end-customer destocking.
Speaker Change: It's not significant enough to prevent TND from growing, but still a headwind.
Speaker Change: That headlines in particular areas like pole line hardware that are
Speaker Change: typically more on shelves.
William R. Sperry: So let's pivot from that top grid infrastructure unit to the grid automation unit at the bottom. You see sales up double digits. Organic growth is eight percent.
Speaker Change: in stock.
Speaker Change: So, let's pivot from that top grid infrastructure unit to the grid automation unit at the bottom. You see sales up double digits.
William R. Sperry: And we continue to have AMI, which is the communication part, and meters conversion backlog. And there continues to be strengthened grid protection and controls demand, resulting in a smarter and more resilient grid. So I want to talk about margins on the right side of the page, which I think is a really important part of page six. Importantly, those margins from the first quarter are up sequentially by 220 basis points. So, very nice execution from Q1 to Q2.
Speaker Change: Organic Growth.
Speaker Change: 8%
Speaker Change: and we continue to have...
Speaker Change: AMI, which is the comms part and meters conversion of backlog.
Speaker Change: and there continues to be strength and
Speaker Change: Grid protection and controls demand resulting in a smarter and more resilient grid.
Speaker Change: So, I want to talk about margins on the right side of the page, which I think is
Speaker Change: is a really important part of page six. So, importantly, those margins from the first quarter are up sequentially 220 basis points.
Speaker Change: So, very nice execution from Q1 to Q2. You see an increase of 4% in dollars to $222 million. You see a decline year-over-year in margin from 25.6%.
William R. Sperry: You see an increase of 4% in dollars to $222 million. However, you see a decline year over year in margin from 25.6 to 24%. And basically, of the three drivers on the lower right part of the page, you see three of them are headwinds, the most important of which is the decline in telecom volume, which explains essentially the entire drop. In addition to that, we increased our restructuring investments, which was a drag on margins. And I mentioned the systems control acquisition being at attractive margin levels, which happened to be below last year's level slightly. So it creates a little bit of a headwind.
Speaker Change: to 24 percent.
Speaker Change: And basically, of the...
Speaker Change: The drivers on the lower right part of the page, you see three of them are headwinds, the most important of which is the decrementals on the telecom volume, which explains essentially the entire drop.
Speaker Change: In addition to that, we increased our restructuring investments, which was a drag on margins and
Speaker Change: I mentioned the systems control acquisition.
Speaker Change: Being at Attractive Margin Levels.
Speaker Change: It happens to be below last year's level slightly, so it creates a little bit of headwind. And so the fact that price-cost productivity is basically offsetting both the restructuring and acquisition effects.
William R. Sperry: And so the fact that price cost productivity is basically offsetting both the restructuring and acquisition effect, we think sets us up, importantly, for a good second half in the utility market. So I'm going to continue to page seven and talk about the electrical segment. And you see really strong performance turned in by our electrical team in Q2. Sales grew 7% organically while margins expanded 350 basis points to north of 20%.
Speaker Change: We think sets us up, importantly, for a good second half in utility margins.
Speaker Change: So I'm going to continue to page seven and talk about the electrical segment.
Speaker Change: And you see really strong performance turned in by our electrical team in Q2.
Speaker Change: Sales grew 7% organically while margins expanded 350 basis points.
William R. Sperry: The growth was driven primarily by our targeted vertical market, most notably data centers and renewable energy. And a couple things of note there. One, obviously, the markets are growing rapidly. Two is that we have a really good suite of products and solutions, like connectors and grounding products, that fit well with that segment and are helping our customers. And we've made some strides towards competing collectively there, which we think both assists cross-selling product development and makes us easier to do business with. And we think that's helping. These are relatively small businesses for us, comprising approximately 15% of the segment sales.
Speaker Change: to north of 20% level. The growth was driven primarily by our targeted vertical markets, most notably data centers and renewables.
Speaker Change: And a couple things of note there. One, obviously, the markets are growing rapidly.
Speaker Change: Two is we have a really good suite of products and solutions like connectors and grounding products.
Speaker Change: that fit well with that segment and are helping our customers. And we've made some strides towards competing collectively there, which we think both assists cross-selling product development and makes us easier to do business with.
Speaker Change: And we think that's helping us.
Speaker Change: These are relatively small businesses for us, comprising approximately 15% of the segment sales.
William R. Sperry: But because the growth rates are so significant, they're actually driving a lot of incremental growth. Beyond the verticals, though, I think markets are in solid shape, industrial markets in particular are solid. We think non-res is pretty steady.
Speaker Change: But because the growth rates are so significant, they're actually driving a lot of incremental growth.
Speaker Change: Beyond the verticals, though, I think markets are in solid shape, industrial markets in particular, solid.
William R. Sperry: And importantly for us, on the electrical side, we've really exited the period of de-stocking that we were navigating through last year. On the margin side, you see 18% growth to 109 million and about 350 basis points of expansion to 20.8%. I think one of the biggest effects there has been the disposition of the resi lighting business. And in the absence of that, we reduced sales by 9% in the segment, but we added over 50 basis points to this margin story.
Speaker Change: We think non-res is pretty steady.
Speaker Change: And importantly for us, on this electrical side, we've really exited the period of de-stocking that we were navigating through last year.
Speaker Change: On the margin side, you see 18% growth to 109 million and about 350 basis points expansion to 20.8%.
Speaker Change: I think one of the biggest effects there has been the disposition of the resi lighting business.
Speaker Change: And in the absence of that, we reduced sales by 9% in the segment, but we added over 50%.
William R. Sperry: In addition to the absence of that business, we have incremental drop throughs on as volumes return, Hostee Stocking, and in particular, in the highly attractive vertical markets of data center and renewables. And we have price cost productivity, favorability, good price realization with stick rates, and good productivity. You heard Mark Mikes, our leader in this segment yesterday, talk about looking to compete collectively and drive efficiencies and looking forward to Mark's continued strong performance here in the segment. With that, I want to turn it back to Gerben to focus on a couple areas of growth. Great
Speaker Change: basis points to this margin story. In addition to the absence of that business, we have incremental drop throughs on volumes returned.
Speaker Change: Postie Stocking in particular in the highly attractive vertical markets of data center and renewables and we have price cost productivity favorability
Speaker Change: Good price realization with stick rates.
Mark Mikes: and good productivity. You heard Mark Mikes, our leader of this segment, and yesterday talk about looking to compete collectively and drive efficiencies and looking forward to Mark's continued strong performance here in the segment.
Mark Mikes: With that, I want to turn it back to Gerben to focus on a couple areas of growth.
Gerben W. Bakker: Thanks, Bill. And before I go to the full-year outlook, I want to take the opportunity and just highlight a couple of growth areas for us. And as Bill just talked about in the segment discussions, we are seeing some strong pockets of growth in specific markets and product lines within our businesses. And one of the themes that emerge when you look across the performance of the portfolio is that some of the strongest growth is in areas which tend to be exposed early in the industrial project cycle, in particular in data center and renewables verticals across both utility and electrical markets. For example, Hubbell has a leading position in electrical grounding with our Burndy brand, where we are highly specified across key end markets with the premier grounding solution in the industry.
Gerben W. Bakker: Great. Thanks, Bill. Before I go to the full-year outlook, I want to take the opportunity and just highlight a couple of growth areas for us. And as Bill just talked about in the segment discussions.
Gerben W. Bakker: We are seeing some strong pockets of growth in specific markets and product lines within our businesses.
Speaker Change: And one of the themes that emerges when you look across the performance of the portfolio is that some of the strongest growth is in the areas which tend to be exposed early in the industrial project cycle, in particular in data center and renewables verticals across both utility and electrical markets.
Speaker Change: For example, Hubbell has a leading position in electrical grounding with our Burndy brand where we are highly specified across key end markets with the premier grounding solution in the industry.
Gerben W. Bakker: These products are typically installed early in a project cycle, once construction breaks ground, and year-to-date revenue in this product category is up over 30%, with much of that growth being driven by data center and renewable projects. This is a positive indicator for continued market growth in these areas as we continue to execute on our vertical market strategy and pull through other specified solutions as these projects progress. In utility solutions, Bill highlighted strong growth in transmission and distribution, transmission, and substation markets.
Speaker Change: These products are typically installed early in a project cycle once construction breaks ground, and year-to-date revenue in this product category is up over 30%, with much of that growth being driven by data center and renewable projects.
Speaker Change: This is a positive indicator for continued market growth in these areas as we continue to execute on our vertical market strategy and pull through other specified solutions as these projects progress.
Speaker Change: In utility solutions, Bill highlighted strong growth in transmission and substation markets.
Gerben W. Bakker: And as we think about substations, this market is very much at the intersection of trends in renewables and data centers, as substations are needed to interconnect new sources of generation and load. We have a strong position in utility substations, and one of those key product categories is substation switching, which is a critical solution enabling utilities to isolate portions of the grid for maintenance and repair. We have realized over 40% sales growth in this product category in the first half, with orders and demand outstripping sales. As we consider the longer-term impact of load growth on the grid, Hubbell is uniquely positioned with our offerings across transmission, substation, and distribution to enable the upgrading of this aged infrastructure.
Speaker Change: And as we think about substations, this market is very much at the intersection of trends in renewables and data center as substations are needed to interconnect new sources of generation and load.
William R. Sperry: We have a strong position in utility substation, and one of those key product categories is substation switching.
William R. Sperry: which is a critical solution enabling utilities to isolate portions of the grid for maintenance and repair.
William R. Sperry: We have realized over 40% sales growth in this product category in the first half, with orders and demand outstripping sales.
William R. Sperry: As we consider the longer-term impact of load growth on the grid, Hubbell is uniquely positioned with our offerings across transmission, substation, and distribution to enable the upgrading of this aged infrastructure.
Gerben W. Bakker: We believe that grid modernization and electrification will continue to drive growth across our portfolio over a multi-year investment cycle. We have positioned our portfolio and our strategy to take advantage of these opportunities and to serve the needs of our customers, both in front and behind the meter. Now turning to our outlook for the second half and full year. Hubbell is raising our full-year adjusted earnings-per-share outlook this morning from a range of $1620 to $1650.
William R. Sperry: We believe that grid modernization and electrification will continue to drive growth across our portfolio over a multi-year investment cycle.
William R. Sperry: We have positioned our portfolio and our strategy to take advantage of these opportunities.
William R. Sperry: and to serve the needs of our customers both in front and behind the meter.
Gerben W. Bakker: We currently anticipate 7% to 8% sales growth and approximately 3% organic growth for the full year, with adjusted operating margins of 21 to 21.5%. This represents double-digit free cash flow and adjusted operating profit growth at the midpoint, as well as solid adjusted operating margin expansion off of strong 2023 levels. Our first half performance puts us well on track to achieve this increased full-year outlook. Looking ahead to the second half, we see continued momentum in execution in electrical solutions, and we expect utility solutions to achieve improved levels of organic growth while returning to year-over-year adjusted operating margin expansion. Longer term, we remain confident in Hubbell's ability to build on recent outperformance.
William R. Sperry: Now turning to our outlook for the second half and full year.
William R. Sperry: Hubbell is raising our full year adjusted earnings per share outlook this morning to a range of $1620 to $1650.
William R. Sperry: We currently anticipate 7-8% sales growth and approximately 3% organic growth for the full year.
William R. Sperry: with adjusted operating margins of 21 to 21.5%.
William R. Sperry: This represents double-digit free cash flow and adjusted operating profit growth at the midpoint, as well as solid adjusted operating margin expansion off of strong 2023 levels.
William R. Sperry: Our first half performance puts us well on track to achieve this increased full-year outlook.
William R. Sperry: Looking ahead to the second half, we see continued momentum in execution in electrical solutions, and we expect utility solutions to achieve improved levels of organic growth while returning to year-over-year adjusted operating margin expansion.
William R. Sperry: Longer term, we remain confident in Hubbell's ability to compound on recent outperformance.
Operator: At our Investor Day last month, we laid out a multi-year financial outlook for mid-single-digit organic growth and attractive incremental margins, along with StrongSpeak, Free Cash Flow Generation, and Deployment. As grid modernization and electrification megatrends accelerate into 2025 and beyond, Hubbell is well positioned to consistently deliver on these commitments while serving the growing needs of our utility and electrical customers. With that, I will now turn the call back over to Shannon for the Q&A session. Thank you. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
William R. Sperry: At our Investor Day last month, we laid out a multi-year financial outlook for mid-single-digit organic growth and attractive incremental margins.
William R. Sperry: along with Strong Free Cash Flow Generation and Deployment.
William R. Sperry: As grid modernization and electrification megatrends accelerate into 2025 and beyond, Hubbell is well positioned to consistently deliver on these commitments while serving the growing needs of our utility and electrical customers.
William R. Sperry: With that, let me now turn the call back over to Shannon for the Q&A session.
Shannon: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 11 again.
Speaker Change: We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster.
Operator: We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is now open. Thank you. Good morning, everyone.
Speaker Change: Our first question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is now open. Thank you.
Jeffrey Todd Sprague: Hey morning, just on the utility in general, I guess just kind of specifically, the first question is just on the inventory dynamic. It doesn't sound like you're necessarily declaring victory on the channels being cleared at the customer level. Maybe just give us any kind of additional insight on where we stand as it relates to that. For example, your view of what end demand and distribution might have been in the quarter, even though you were dealing with, you know, some sell-in issues, as I mentioned. Yeah, let me start that, Jeff.
Jeffrey Todd Sprague: Thank you. Good morning, everyone. Good morning. Just on the utility in general, I guess just kind of specifically, first question is just on the inventory dynamics.
Speaker Change: It doesn't sound like you're necessarily declaring victory on the channels being cleared at the customer level.
Speaker Change: You know, maybe just give us any kind of additional insight on where we stand as it relates to that and you know, your view of what end demand and distribution might have been in the quarter even though you were dealing with, you know, some sell-in issues as inventory is correct.
Gerben W. Bakker: And, you know, as we indicated early in the year, the destocking, particularly on the distribution side of utility, lasted a little longer than initially anticipated, and it primarily came down to the lesser visibility that we have as we look into the end customer. You know, I would say, there is evidence that this is improving, but it's very hard to call because it's happening, you know, at different levels, at different speeds, with different customers within different product lines.
Speaker Change: Yeah, let me start that, Jeff. And, you know, as we indicated early in the year,
Speaker Change: The de-stocking, particularly in the distribution side of utility, lasted a little longer than initially anticipated, and it primarily came through the
Speaker Change: Lesser visibility that we have as we look into the end customer. You know, I would say...
Speaker Change: You know, there is evidence that this is improving.
Speaker Change: But it's very hard to call because it's happening, you know, at different levels, different speeds at different customers, within different product lines. So certain product lines right now we're seeing that ending and then we're seeing the demand inflect up but then others.
Gerben W. Bakker: So certain product lines right now, we're seeing that ending, and then we're seeing the demand increase, but then others, we still continue to see some of that destocking continuing. And, you know, just as a perspective, we dealt with this in the electrical segment last year. At that time, too, it was hard to predict.
Speaker Change: We still continue to see some of that destocking continuing. And, you know, just as a perspective, we dealt with this in the electrical segment last year. You know, at that time, too, it was hard to predict.
William R. Sperry: But the best sign of it was that when it was over, we saw demand inflecting back up, and we returned to growth in that. So, we still see end demand strong. We see this through. If you look at the cap on utility budgets, those are growing, not only in the actual spend but in the projections out. Discussions that we have with our customers indicate that they continue to invest.
Speaker Change: But the best sign of it was that when it was over, we saw demand inflecting back up.
Speaker Change: and you know we return to growth in that so you know we still see and demand strong we see this through you know if you look at the cap at budgets for utilities those are growing not only in the actual spend but in the projections out
Speaker Change: Discussions that we have with our customers indicate that they continue to invest. And again, in areas of the portfolio where the D-Stock is over.
Gerben W. Bakker: And again, in areas of the portfolio where the D stock is over, you know, certainly certain product lines, but then also certain other areas like transmission and substation, you know, demand is very strong. So we have, you know, good indication that end demand in T&D continues to be strong and that this is a period that we'll have to work through in the second half to continue to, you know, get through it with the different customers and the different product lines.
Speaker Change: You know, certainly certain product lines, but then also certain other areas like transmission and substation, you know, demand is very strong. So we have...
Speaker Change: Good indication that the end demand in T&D continues to be strong, and that this is a period that we'll have to work through over the second half to continue to get through it with the different customers and the different product lines.
Gerben W. Bakker: And then just on the kind of transmission and substation markets, the comment that things are growing double-digitally there. Obviously, systems control is not in the organic base, but is it also growing at that double-digit pace? And I just want to clarify on margins, too.
Speaker Change: and then just on the
Speaker Change: You know, kind of the transmission and substation markets, the comment that things are growing double-digit there. Obviously, systems control is not in the organic base, but is it also growing at that double-digit pace?
William R. Sperry: I think, you know, Bill said, margins there were down versus last year. I think he just meant the mixed effect of a lower margin business coming in. But we'll clarify that maybe how the margins are tracking. Scholl.
Speaker Change: And I just want to clarify on margins too, I think, you know, Bill said margins there were down versus last year. I think he just meant the mixed effect of a lower margin business coming in. But can we clarify that, maybe how the margins are tracking?
William R. Sperry: Yeah, let's start with the second question. So their margins are at attractive levels. We didn't have them last year, but they're just a little bit below, you know, the mid 20s.
Speaker Change: Yeah, let's start with the second question. So their margins are at attractive levels. We didn't have them last year, but they're just a little bit below, you know, the mid-20s. And so we love adding that kind of margin, Jeff, but it's interesting, it creates a little bit of headwind.
William R. Sperry: And so we love adding that kind of margin, Jeff, but it's interesting, it creates a little bit of, I would say that the transmission and substation growth of double digits is organic, not an acquisition. You know, impact, it's grown organically for the systems control growing in line with that double digit pace in the water market. It is. And again, we didn't own it last year, but it is.
Jeff: I would say that the transmission and substation growth of double digits is an organic, not an acquisition.
Jeff: and, you know, impact. It's grown organically at that level.
Jeff: But a systems control growing in line with that double digit pace in the water market? It is and again we didn't own it last year but it is, yes it is compared to what it was doing last year.
William R. Sperry: Yes, it is compared to what it was. Great. All right. Thank you. Thank you. Our next question comes from the line of Steve Tusa with J.P. Morgan. Your line is now open. Hey, good morning. Hi, Steve.
Charles Stephen Tusa: Morning, Steve. Could you just give us some color on utility on what the, like, margin is in the second half, kind of an exit rate, and then any color you have on pricing there? Yeah, maybe we'll start with pricing. You know, I think that we can still continue to operate, you know, Steve, in an inflationary environment. And, you know, some materials, you know, between copper and steel, are moving around in an opposite direction sometimes here, but you know, with the other value added components and with things like Labor and Transportation and things like that, you know, we still feel we're operating. And I may be reading into your question too much, but we get the question a lot of, "You know, if steel is down, will we have to give up?".
Speaker Change: Great. All right. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Steve Tusa with J.P. Morgan. Your line is now open.
Speaker Change: Hey, good morning. Hi, Steve. Morning, Steve. Could you just give us some color in utility on what the margin is in the second half, kind of an exit rate, and then any color you have on pricing there?
Speaker Change: Yeah, maybe we'll start with pricing. You know, I think that we can still continue to operate, you know, Steve, in a...
Steve Tussa: In an inflationary environment and, you know, some materials, you know, between copper and steel are moving around in opposite directions sometimes here.
Steve Tussa: You know with the other value add on components and with things like
Steve Tussa: labor and transportation and things like that. You know, we're, we still feel we're operating. And I may be reading into your question too much, but we get the question a lot of
Charles Stephen Tusa: You know, utility prices, and we really aren't feeling that pressure right now, and you know we continue to believe that our customers are paying for quality, reliability, on-time delivery, and you know, really helping out down in Houston over the last month being reminded of supporting customers with, If there's a hurricane outage or something of that like, you know, being there to support them and get their customers back up and turned on as fast as possible. It's all part of what we think is the value proposition that ultimately supports, you know, our pricing level.
Steve Tussa: You know, if steel is down, will we have to give up?
Steve Tussa: You know, utility price and we really aren't feeling that pressure right at this moment.
Steve Tussa: And, you know, we continue to believe that our customers are paying for
Steve Tussa: Quality, Reliability.
Steve Tussa: On Time Delivery, you know, really helping out down in Houston over the last month, being reminded of
Steve Tussa: supporting customers with
Steve Tussa: If there's a hurricane outage or something of that like, you know, being there to support them and get their customers back up and turned on as fast as possible, it's all part of what we think is the value proposition that ultimately supports
Charles Stephen Tusa: So I may be reading too much into it that you're asking about commodities impact. But, you know, that's, we're not feeling that pressure, you know, as. So then I guess just the margin, like a little more precision on the margin, you know, your exit rate or the second half. Maybe I'll help you.
Steve Tussa: You know, our pricing level. So I may be reading too much into it that you're asking about to do commodities impact, but you know, that's, we're not feeling that pressure, you know, at this moment, Steve.
Steve Tussa: So then I guess just the margin, like a little more precision on the margin, you know, your exit rate or the second half.
William R. Sperry: We expect margins in the second half to improve from the first half, with, you know, some of that organic volume coming back. And then just one last one for you on seasonality. You said last quarter that you expected kind of a normal seasonal year, 47%. You were very precise on that, in terms of EPS in the first half. Any reason why that would change? Yeah, I mean, I think the 47% is a pretty gross number, measure, and I used it to just remind everybody that we would be, Seasonally, something normal.
Speaker Change: Maybe I'll help you. We expect margins in the second half to improve.
Speaker Change: from the from the first half with you know some of that organic volume coming back.
Speaker Change: And then just one last one for you on the seasonality. You said last quarter that you expected kind of a normal seasonal year, 47 percent, you were very precise on that, of EPS in the first half. Any reason why that would change?
Speaker Change: Yeah, I mean, I think, I think the 47% is a pretty gross.
Speaker Change: measure, and I used it to just remind everybody that we would be
William R. Sperry: I think if you look back on our last 5 to 10 years, you see 47s, 48s, 49s. And so I do think that it is a great way to describe seasonality. I think maybe you're pointing out it's a pretty sensitive and gross way to describe seasonality.
Speaker Change: We would be seasonally something normal. I think if you look back on our last five to ten years you see 47s, 48s, 49s.
Speaker Change: and so I do think that it is it is a great I think maybe you're pointing out it's a pretty sensitive and
William R. Sperry: So with our guide right now, uh, you know Steve is more in the 48 plus closer to 49. Yeah, okay. Got the math. Thanks a lot.
Speaker Change: and gross way to describe seasonality.
Speaker Change: You know, Steve is more in the 48 plus, closer to 49 expectation.
William R. Sperry: Thank you. Our next question comes from the line of Nigel Coe with Wolf Research. Your line is now open. Thanks. Good morning.
Speaker Change: Yep, okay, got the math. Thanks a lot.
Speaker Change: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Your line is now open.
Nigel Coe: Maybe, Bill, I'll turn to kind of the implied question, maybe your interpretation of Steve's question on its tail. Maybe you could talk about, you know, steel prices have come down a lot since you gave your plan in January. So perhaps price costs might be more tailwinds from here. I mean, how do you respond to that, given that pricing and utility remain very strong? Yeah, I think you're pointing out a variance in steel, which is favorable. There have been some negative variances in copper and higher inflation and things like transportation. So there's a problem.
Nigel Coe: Thanks, good morning. Maybe, Bill, I'll turn to kind of the implied question, maybe your interpretation of Steve's question on its tail, maybe talk about
Nigel Coe: The steel prices have come down a lot since you gave your plan in January , so perhaps price costs might be more tailwinds from here. How do you respond to that, given that the pricing and utility remains very strong?
Speaker Change: Yeah, I think you're pointing out a variance in steel, which is favorable. There's been some negative variances in copper and higher inflation and things like transportation and wages.
William R. Sperry: It's, it's hard to try to isolate on a single commodity, try to read that through too much into any kind of favor. Okay, okay, so it's all kind of mixing back to back to plan. I just wanted to maybe just try and dig into the trends within core utilities. So, you know, organic down 6% this quarter. Did I miss the price within utilities?
Speaker Change: It's hard to try to isolate on a single commodity and try to read that through too much into any kind of favorable PPV, if you will.
Speaker Change: Okay, okay, so it's all kind of mixed back to...
Speaker Change: I just wanted to maybe just try and dig into the trends within core utilities. So organic down 6% this quarter.
William R. Sperry: I'm assuming it's two, 3%, but, so let's call it down to high single-digit volumes. But then if we ship out telecom, are we back to sort of low single digits for core utility components telecom, sorry, core utility components ex-telecom volumes? And then maybe just talk about the book-to-bill as well.
Speaker Change: Did I miss the price within utility? I'm assuming it's 2-3%, but...
Speaker Change: So let's put it down high single-digit volumes, but then if we ship out telecom...
Speaker Change: Are we back to sort of a low single digits for Core Utility Components X Telecom volumes? And then maybe to talk about the book-to-bill as well, are we now at a point where book-to-bill is above one? Thank you. Thank you. Thank you.
William R. Sperry: Are we now at a point where book-to-bill is above one? Yes, so let's see a couple of components there. Let's start with you got the price right at a couple of points. And I think you're, you know, extracting the enclosures from the telecom market correctly to get, you know, attractive growth rates inside. Core Transmission and Distribution.
Speaker Change: Yes, so let's see a couple of components there. Let's start with you had the price right at a couple of points.
Speaker Change: You know, you're kind of extracting the enclosures, the telecom market correctly to get, you know, to attractive growth rates inside of the core transmission and distribution.
William R. Sperry: I think the book and bill question. You know, it's one that we spend some time looking at and is, It's not yet. It's not at this split second, all the way back to one, but you're right to point out it was.
Speaker Change: I think the book and bill questions...
Speaker Change: is one that we spent some time looking at and is a...
Speaker Change: It's not yet, it's not at this split second, all the way back to one, but...
William R. Sperry: You know, in a couple of years past, it was way north of one. And I think that's still kind of normalizing right. Okay, maybe, maybe a comment to add to that, because the backlog, most, most of our businesses are booked to bill. Now, we've added some businesses recently, where, you know, like Systems Control or Clara, where the backlog is a bigger component because of the, you know, there's just a long lead time nature or order planning of that.
Speaker Change: You're right to point out it was
Speaker Change: You know in a couple years past it was it was way north of one and I think that's still still kind of normalizing right now.
Speaker Change: Okay, maybe a comment to add on to that, because the backlog, most of our businesses are booked to build. Now we've added some businesses recently where, you know, like Systems Control or Clara, what backlog is it?
Speaker Change: There's a bigger component because of the, you know, there's just a long lead time nature or order planning of that. But most of our business is booked.
William R. Sperry: But most of our business is booked to bill, where you're generally around one, typically. And as you look back over the last couple of years, as Bill noted, when we were well above it, our laser priority was, and it truthfully continues to be, to get those backlogs back down, because that's a reflection, when you do, that your service is better, and your lead times get shorter. And that's a good thing.
Speaker Change: to Bill, where you're generally around.
Speaker Change: As you look back over the last couple of years, as Bill noted, when we were in the early stages
Speaker Change: Well above it.
Speaker Change: Our laser priority was, and it truthfully continues to be,
Speaker Change: to get those backlogs back down because that's a reflection when you do that your service is better, that your lead times get shorter and that's a good thing. That's one of the key value propositions that we have for our customers when we're able to do that.
Gerben W. Bakker: That's one of the key value propositions that we have for our customers when we're able to do that. So for us, actually, a reduction in backlog, driving that down, is very strategic in how we want to operate. And we still have pockets where our lead times are too long and where backlog is too high, where we're focused on taking that down. So it's a hard question for us to answer in the context of, you know, are they growing? We look at Anthem ends, and if that's growing, and then backlogs, we want to get them as low as possible to have attractive lead times and service levels.
Speaker Change: So, for us, actually, a reduction in backlog, driving that down, is very strategic in how we want to operate. And we still have pockets where our lead times are too long and where our backlog is too high, where we're focused on taking that down. So it's...
Speaker Change: It's a hard question for us to answer in the context of, you know, are they growing? We look at Anthem end, and if that's growing, and then backlogs, we wanna get them as low as possible to have attractive lead times and service levels.
William R. Sperry: Great, I'll leave it there. But if you could maybe just clarify, Bill, the proportion of the utility business that's telecom, so we can just like pull that up appropriately, that'd be great. That's about 10% of the segment, Nigel.
Speaker Change: Great. I'll leave it there, but if you could maybe just clarify, Bill, the proportion of the utility business that's telecom, so we can just pull that out appropriately, that'd be great.
William R. Sperry: That's 10% of the segment, Nigel.
William R. Sperry: Our next question comes from the line of Julian Mitchell with Barclays. Your line is now open. Hi, good morning.
Nigel Coe: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Julian Mitchell with Barclays. Your line is now open.
Julian C.H. Mitchell: Maybe just wanted to clarify the 3% organic growth for the total company for the year. So is that kind of very low single-digit growth in utility and then sort of mid-single-digit plus in HES, is that the right framework? And just within utility, curious what the updated telcom assumption is for the sales change in the year after down 40 percent in the first half. So let me start with Telcom, which was. When we started our guide, we thought it was going to be down double digits. We had it down 40% in the first quarter.
Julian C.H. Mitchell: Hi, good morning. Maybe
Julian C.H. Mitchell: Good morning. Maybe just wanted to clarify the 3% organic growth for the total company for the year. So is that kind of very low single-digit growth in utility and then sort of mid-single-digit plus in HES? Is that the right framework? And just within utility, curious what the updated telcom assumption is for the sales change in the year after down 40 in the first half, please.
Speaker Change: So let me start with telecom, which was when we started our guide, we thought it was going to be down double digit.
William R. Sperry: That persisted into the second at down 40, and that caused us to adjust our telecom expectations by order of magnitude down 25. And I think as you were trying to parse the two segments into the three percent. It would be electrical at mid-singles and the utility at... Thanks very much. And then just, you know, there was some discussion earlier about sort of first half/second half dynamics, but maybe within the second half, just curious around sort of seasonality of third versus fourth quarter earnings. I think, sort of, typically, it looks like earnings are often flattish, sequentially in the third quarter and then, you know, down, maybe mid-high single-digit in the fourth quarter sequentially.
Speaker Change: We had a down 40% first quarter. That persisted into the second at down 40 and that caused us to adjust our telecom expectations to order of magnitude down 25 for the year.
Speaker Change: and I think as you were trying to parse
Speaker Change: The two segments into the three percent.
Speaker Change: It would be electrical at mid-singles and the utility at low single digits.
Speaker Change: Thanks very much and then just
Speaker Change: Yeah, there was some discussion earlier about sort of first half second half dynamics, but maybe within the second half just curious around sort of seasonality of third versus fourth quarter, I think sort of
Speaker Change: Typically, it looks like earnings are often flattish sequentially in the third quarter.
Speaker Change: And then, you know, down, you know, maybe mid-high single digit in the fourth quarter sequentially. Is that the right way to think about sort of 2024 as well?
William R. Sperry: Is that the right way to think about sort of 2024 as well? Yeah, Julian, I think our typical seasonality is the second and third quarters, you know, kind of form our head and the first and fourth quarters of shoulders. Um, and so, second and third, you can sometimes step up a little bit, but it's not wrong to think of those as the two big quarters and then steps down.
Speaker Change: Yeah, Julian, I think our typical seasonality has the second and third quarters, you know, kind of form our head and the first and fourth quarter our shoulders. And so.
Julian C.H. Mitchell: second and third you know you can you can sometimes step up a little bit but it's it's not wrong to think of those as two big quarters and then steps down in the fourth
William R. Sperry: That's great. Thank you. Thank you. Our next question comes from the line of Brett Linzey with Mizuho. Your line is now open. Hey, good morning, all.
Julian C.H. Mitchell: That's great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Brett Linzey with Mizuho. Your line is now open.
Brett Logan Linzey: Thanks. Just wanted to come back to the telecom market being down again, as expected, but any insights you can share as to the level of visibility into the back half and customer readiness with some of this speed funding? Yes, I mean, I'll start that one. And, you know, maybe if you take a step back, as you look at last year, Telcom was up double digits in the first half of 23. It went down sharply by double digits in the second half of 23.
Brett Logan Linzey: Hey, good morning all. Thanks. Just wanted to come back to the telecom market down again as expected, but any insights you can share as to the level of visibility into the back half and customer readiness with some of this BEAD funding?
Speaker Change: Yes, I may have lost...
Speaker Change: start that that one. And, you know, maybe if you take a step back, if you look at last year, Telcom was up double digits in the first half of 23.
Gerben W. Bakker: So certainly, as we go into the second half, now, we're going to see easier competition. As you look at maybe the first half to, I mean, second half to second quarter, we see that pretty flattish, you know, beat money you talk about that's, that's still an area that we believe will drive growth, and the need to invest in this area is very clear to us, especially in the rural deployment of fiber. So we see that coming.
Speaker Change: It went down sharply, double digits in the second half of 23, so certainly as we go into the second half now, we're going to see easier competition. As you look at maybe first half.
Speaker Change: [inaudible]
Speaker Change: In this area, it is very clear to us, especially in rural deployment of fiber.
Gerben W. Bakker: Money is starting to flow to some of the states, and the states have got to identify the projects; they have got to bid those. So we see that more as a 25 and, perhaps later, 25 coming back. So we do believe we're at the bottom here.
Speaker Change: So, we see that coming. Money is starting to flow to some of the states, and the states have got to...
Speaker Change: You know, identify the projects, they got a bid though, so we see that more as a 25 and perhaps, you know, later in 25.
Speaker Change: Coming back. So, you know, we do believe we're at the bottom here. We believe, you know, we'll be along the bottom for a little while and then we'll see that, you know, coming up slowly through the balance of this year and then, you know, into next year.
Gerben W. Bakker: We believe we'll be along the bottom for a little while, and then we'll see that coming up slowly through the balance of this year and then into next year. Okay, great. Yeah, thanks for that color.
William R. Sperry: And then just on a clarification, so continued backlog conversion here, maybe just an update on the level of visibility on backlog into 25, how orders progressed during the quarter, and, you know, just really the appetite amongst some of your customers to continue to spend here. Yeah, yeah, and we've clearly seen us work backlogs down here. That was, you know, I talked about this earlier where we have too much backlog, past due backlog with all the chip shortages.
Dan Innamorato: and Dan Innamorato.
Dan Innamorato: Okay, great. Yeah, thanks for that color.
Speaker Change: Just on Eclera, so continued backlog conversion here, maybe just an update on...
Dan Innamorato: You know, the level of visibility on backlog into 25, how orders progressed.
Speaker Change: during the quarter and, you know, just really the appetite amongst some of your customers to continue to spend here.
Speaker Change: Yeah, yeah, and we've clearly seen us work backlogs down here that was, you know, I talked about this earlier where with too much backlog, past due backlog with all the chip shortages.
William R. Sperry: So, you know, certainly, the second half of last year and going into this year, we've been working the backlogs down. One of the other things that we mentioned is that during this period, new projects were slower, especially the large projects, to come to market or to bid.
Speaker Change: So, you know, certainly, you know, the second half of last year and continue going into this year, we've been working the backlogs down. You know, one of the other things that we mentioned that during this period, the new projects were slower, especially the large projects.
Gerben W. Bakker: We are seeing, you know, increased pipeline capacity. There are pockets in particular where we're seeing that now, for example, in water. We're all so excited to have actually gotten some projects. If you look at some of the grid resiliency projects, prior to grid funding, there are a few customers there that have gotten that funding that's translated into orders for us that will ship next year. So I would say we are seeing an increased pipeline. We still have a bit on these projects to fill our 25, pipeline. So I'd say it's perhaps a little early to talk about 25 at this point, but we're active in bidding on these projects.
Speaker Change: We're slower to come to market or to bid. We are seeing increased pipeline. There's pockets particular where we're seeing that now, for example, in water.
Speaker Change: You know, we're all so excited to have actually gotten some some project if you look at
Speaker Change: Some of the grid resiliency, prior to grid funding, there's a few customers there that have gotten that funding that's translated into orders for us that will ship next year.
Speaker Change: You know, so I would say we are seeing increased pipeline, you know, we still got a bit on these projects that, you know, to fill our 25.
Speaker Change: pipeline. So I'd say it's perhaps a little early to talk about 25 at this point, but we're active in bidding in these projects.
William R. Sperry: I appreciate the insight. Thank you. Our next question comes from the line of Joe O'Day with Wells Fargo. Your line is now open. Hi, good morning.
Speaker Change: Appreciate the insight.
Speaker Change: Thank you. Our next question comes from the line of Joe O'Day with Wells Fargo. Your line is now open.
Joe O'Day: Thanks for taking my question. I wanted to start with the second quarter electrical profit. And so if we just look at it sequentially, it was up $29 million; revenue was up $21 million.
Joe O'Day: Hi, good morning. Thanks for taking my questions.
Joe O'Day: I wanted to start on the second quarter electrical profit and so if we just look at it sequentially it was up $29 million, revenue was up $21.
William R. Sperry: So any details there in terms of the profit growth, exceeding the revenue growth sequentially with that bridge on what you saw on the price side? I imagine there were some costs, maybe some mix, but any details? Yeah, Joe, you know, as we went from first quarter to second quarter, one of the contributors to that incremental drop through of the residential wiring business. The second was the... strong, strong growth in data centers and renewables is occurring in product areas that are very high-margin areas. So you're getting a mixed effect there.
Speaker Change: So any any bridge details there in terms of the nonprofit growth exceeding the revenue growth sequentially with with that bridge on what you saw on the price side I imagine there were some some costs maybe some mix but any details you can help with would be would be great.
Speaker Change: Yeah, Joe, you know, as we went from first quarter, second quarter, one of the contributors to that incremental drop through
Speaker Change: sequentially was the absence.
Speaker Change: of the residential lighting business.
Speaker Change: The second was the
Speaker Change: The strong, strong growth.
Speaker Change: in data centers and renewables is occurring.
Speaker Change: In product areas that are very strong margin areas, so you're getting a mix effect there.
William R. Sperry: And then lastly, there have been some productivity improvements, just tossed consciousness between first that a lot of those, a lot of those working together to get. So this wasn't a matter of some new pricing in the quarter. It was much more a matter of mix and productivity. Yes, yes, Got it. And then on the grid infrastructure side and core T&D comments and talking about solid and market demand, have you seen anything in terms of utility spend moving from the first half of the year to the second half of the year?
Speaker Change: And then lastly, there have been some productivity improvements.
Speaker Change: and just cost consciousness between first and second quarter that showed up. So a lot of those working together to get those kind of sequential drop-throughs.
Speaker Change: So this wasn't a matter of some new pricing in the quarter, it was much more kind of mix and productivity. Yes, yes.
William R. Sperry: We've heard a couple of references to this, whether it's sort of specific to some utility customers or whether it's interest rates, but just overall, kind of if you've seen some of that spend move, I don't think we've heard that as any kind of market trend.
Speaker Change: Got it. And then on the...
Speaker Change: On the grid infrastructure side and core T&D comments and talking about solid and market demand,
Speaker Change: Hey, have you seen anything in terms of, uh,
Speaker Change: Utility spend moving from the first half of the year to the second half of the year. We've heard a couple of references to this and whether it's sort of specific at some utility customers or whether it's interest rates, but just overall, kind of if you've seen some of that spend move a little bit.
Speaker Change: I don't think we've heard that as a any kind of market trend, Joe.
Unknown Executive: Got it. Thanks very much. Thank you. Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open.
Joe O'Day: Got it. Thanks very much.
Speaker Change: Thank you. Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open.
Christopher D. Glynn: Thanks. Good morning, guys. Morning, Chris. Just on distribution, some topics about maybe impacts of subdivision, buildouts, declining and incremental emphasis on transmission and generation spend. Does that borrow from distribution spend at all?
Gerben W. Bakker: Just just curious about those couple dynamics, as they may or may not relate to, you know, de-stocking lasting a little longer than maybe you thought, three or six months. Yeah, it's it's, You know, a hard question, perhaps, to ask the funding, does the spending compete with one another? You know, I'm sure to a certain extent that the utilities have budgets, and if they spend more one way or another, it could happen.
Christopher Glenn: Thanks. Good morning, guys.
Christos: Good morning, Christos.
Christopher Glenn: Just on the distribution, some topics about maybe impacts of subdivision.
Speaker Change: build-outs declining and
Speaker Change #100: Incremental emphasis on transmission and generation spend. Does that borrow from distribution spend at all? Just curious about those couple of dynamics, as may or may not relate to, you know, de-stock lasting a little longer than maybe you thought three or six months ago.
Speaker Change #101: Yes, it's, it's, uh, it's...
Speaker Change #102: You know, a hard question, perhaps, to do the...
Speaker Change #103: Funding to the spending compete with one another.
Speaker Change #104: You know, I'm sure to a certain extent, you know, the utilities have budgets and if they in one year direct more one way or another.
Gerben W. Bakker: The good thing is our portfolio is well exposed to both sides. So I would say if they're diverting from one area to the other, we'll see the benefit in those areas. I'd say narrowly to your question of, you know, residential and starts, I would say it's probably a fairly small effect on our sales and our portfolio. Much more important to us drivers are, you know, things like grid hardening, grid modernization, load growth in general.
Speaker Change #105: The good thing is our portfolio is well exposed to both sides, so I would say if they're diverting from one area to the other, we'll see the benefit in those areas. I'd say narrowly to your question of residential and starts.
Speaker Change #105: I would say it's probably a fairly small effect.
Speaker Change #105: On our sales, on our portfolio, much more to us drivers are, you know, things like grid hardening, grid modernization, load growth in general, and those are all, you know, good factors that are helping to grow our markets.
William R. Sperry: And those are all, you know, good factors that are helping to grow our market. Sounds great. And then on the industrial comments for ATS, they said particularly solid there. I think that sort of general industrial, whether that's through distribution or MRO and not including the Real Powered, High Powered Verticals right now. Do I have that right?
Speaker Change #106: Sounds great. And then on the industrial comments for ATS said particularly solid there. I think that sort of general industrial whether that's through distribution or MRO and not including the
William R. Sperry: That just got a general industrial? Okay, yeah, great. Thanks. Yeah, yeah. Thank you. Our next question comes from the line of Scott Graham with Seaport Research Partners. Your line is open.
Speaker Change #107: Thank you.
Speaker Change #108: Thank you.
Speaker Change #109: Our next question comes from the line of Scott Graham with Seaport Research Partners. Your line is now open.
Scott Graham: So, good morning. Thank you for taking my question. I have a couple, hopefully just quick ones.
Scott Graham: So good morning. Thank you for taking my question. I have a couple, hopefully just quick ones. The distribution where you say the end market demand is solid,
Gerben W. Bakker: The distribution where you say the end market demand is solid. Is that, does that mean like the POS is flat, up 8, kind of, can you give us a little more color on what you mean by that? Is that POS? Yeah, I think what we mean is that out in the field. There's product being put up on distribution polls that are exceeding, you know, our sales to our customers. And that's where we see the quote, demand.
Scott Graham: Is that, does that mean like the POS is flat, up 8, kind of, can you give us a little more color on what you mean by that, is that POS?
Speaker Change #111: Yeah, I think what we mean is that out in the field,
Speaker Change #112: There's product being put up on distribution polls.
Speaker Change #112: That's exceeding, you know, our sales to our customers and that that's the where we see the quote demand
Gerben W. Bakker: So we're maybe, maybe we're not talking about orders; we're talking about demand, you know, for the material in the market. And that's where we see inventory. [inaudible] I think we'll be returning to a more normal kind of relationship. And maybe just to add that visibility on that is not completely clear, right? We don't have actual reports of what, it's more to what I said earlier. When you look at utility CAPEX budgets that are up and continue to be projected to be up, and discussions that we're having with our customers on what to do.
Speaker Change #113: So maybe, we're not talking about like orders, we're talking about demand, you know, for the material in the market.
Speaker Change #113: And that's where we see the inventory positions getting worked down and we think we'll be returning to a more normal, you know, book and bill kind of relationship there.
Speaker Change #114: And maybe just to add, that visibility on that is not completely clear, right? We don't have actual reports of what, it's more to what I said earlier, when you look at utility CAPEX budgets that are up and continue to be projected to be up.
Gerben W. Bakker: We recently, you know, saw here a storm where we know material was used that would normally have a little bit of effect within a quarter. And in this case, they actually told us they were working through that by inventory. So that's also a good sign. So it's through these data points about our position in the market and, you know, our connection that we have with our customers that, that.
Speaker Change #114: Discussions that we're having with our customers on what to do. We recently, you know, saw here, you know, a storm where we know material was used that would normally have within a quarter a little bit of effect. And in this case, they actually told us they were working through that through inventory. So that's also a good sign. So it's through these.
Speaker Change #114: data points with our position in the market and, you know, our connection that we have with our customers that, you know, we make this observation that the end demand is actually, you know, still strong.
Gerben W. Bakker: You know, we make this observation that the end demand is actually still strong. Thank you. Two other quick ones, if I may, that, is it, can, will a cloud be up in the second half? Very big comparisons there, particularly in the fourth quarter. And if it's at all possible, what would Transcribed by https://otter.ai HES Organic look like without? Yeah, I think Clara is going to be flattening out.
Speaker Change #115: Thank you. Two other quick ones, if I may. Will a cloud be up in the second half? Very big comparisons there, particularly in the fourth quarter. And if it's at all possible, could you split out data center renewables and tell us what
Speaker Change #116: HES Organic look like without them?
Speaker Change #116: Yeah, I think Clara is going to be flattening out.
Speaker Change #117: And I would think of it that way. And...
Speaker Change #118: X verticals, I don't know that we've, we've offered.
Scott Graham: Yeah, Renewables and Data Center are up double digits in the quarter, Scott, so.
William R. Sperry: And I would think of it that way. And... [inaudible] expert, I don't know that we've offered. Yeah, Renewables and Data Center are up double digits in the quarter, Scott, so. That's fine. Thank you. Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank Securities. Your line is now open.
Scott Graham: That's fine. Thank you.
Speaker Change #119: Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank Securities. Your line is now open.
Nicole Sheree DeBlase: Yeah, thanks. Good morning, guys. Good morning, Nicole.
William R. Sperry: Just maybe to circle back on electrical margins, obviously a really strong year-on-year performance this quarter. I think typically you see a bit of an uptick in margins sequentially into 3Q. Just on the back of that really strong performance in 2Q, do you think that that normal seasonal relationship will hold? And I guess I'm just trying to get to the sustainability of the margins that you saw in the second quarter. Yeah, I mean, I think we probably aren't banking on sequential pickup in the third quarter and then again by the time we get to the fourth quarter.
Nicole Sheree DeBlase: Yeah, thanks. Good morning, guys.
Speaker Change #121: Good morning, Nicole.
Nicole Sheree DeBlase: Just maybe to circle back on electrical margins, obviously really strong year-on-year performance this quarter. I think typically you see a bit of an uptick in margins sequentially into 3Q. Just on the back of that really strong performance in 2Q, do you think that that normal seasonal relationship will hold? And I guess I'm just trying to get to sustainability of
Speaker Change #123: The margins that you saw in the second quarter.
Speaker Change #122: Yeah, I mean, I think we probably aren't banking on sequential pickup in third quarter and then again by the time we get to fourth quarter.
Speaker Change #124: You start to see the shoulder of the head and shoulder shape. So we're sort of in the...
William R. Sperry: I think already in the second quarter, we're seeing the sweet, sweet part of the margin. Got it. Okay, thanks. And then just on the full year guidance, if you could clarify, I think you guys trimmed the sales outlook a little bit, but no change to the margin guidance. So what drove the uplift at the low end of the range? Is it just better rolling through better one-half performance?
Speaker Change #129: I think already in second quarter we're seeing the sweet sweet part of the margin seasonality.
Speaker Change #125: Got it. Okay, thanks. And then just on the full year guidance, if you could clarify, I think you guys trimmed the sales outlook a little bit, no change to the margin guidance. So what drove the uplift at the low end of the range? Is it just better rolling through better one half performance?
William R. Sperry: We did actually change the margin, so we had embedded in our guidance originally kind of, quote, flattish margins and explicitly now, saying up, you know, to 50. Okay, and no change to... No change to like below-line items that we should think about. No. Thank you. Thank you. And I'm currently showing no further questions at this time.
Speaker Change #126: We did actually change the margin so we had embedded in our guidance originally kind of quote flattish margins and explicitly now we're saying up you know 10 to 50 basis points.
Speaker Change #127: Okay, and no change to like below line items that we should think about? No.
Speaker Change #128: Thank you. I'll pass it on.
Speaker Change #128: Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Dan Innamorato for closing remarks.
Dan Innamorato: I'd like to hand the call back over to Dan Innamorato for a closing remark. Great. Thanks, Shannon. Thank you, everybody, for joining us. We'll be around all day for questions.
Dan Innamorato: Great. Thanks, Shannon. Thank you, everybody, for joining us. We'll be around all day for questions.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change #130: Thank you.
Speaker Change #131: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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