Q4 2024 Hubbell Inc Earnings Call
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Speaker Change: Hello delivered strong double digit growth in adjusted operating profit.
Adjusted earnings per share and free cash flow in the quarter.
Speaker Change: While organic volumes were below our expectations strong execution drove year over year adjusted operating margin expansion of 240 basis points.
Speaker Change: On a full year basis, we achieved mid single digit sales growth.
Speaker Change: 9% adjusted operating profit growth.
Speaker Change: 90 basis points of adjusted operating margin expansion and double digit growth in free cash flow.
Speaker Change: 2024 adjusted earnings per share of $16 57 was above the high end of our initial guidance range as well.
Outlook, we provided in October.
Speaker Change: We achieved this strong full year performance.
Speaker Change: Right, having to navigate pockets of significant challenges and telco markets and utility customer destocking.
Speaker Change: As we execute it effectively throughout the year on four key levers within our control.
Speaker Change: The first of these levers instead.
Speaker Change: We've made significant progress in 2024 on our strategy to unify our electrical solutions segment.
Speaker Change: We generated above market growth in attractive verticals with an integrated solutions oriented service model for our customers.
Speaker Change: While at the same time driving business simplification and operational efficiencies to expand margins.
These efforts resulted in double digit adjusted operating profit growth in 2024, despite absorbing the impact of the residential lighting divestiture.
Speaker Change: Second we effectively captured opportunities from secular growth trends across our utility and electrical markets.
Speaker Change: Most notably driving double digit growth in transmission and substation markets in front of the meter as well as renewables and data center balance of system solutions behind the meter.
Speaker Change: Third we proactively manage price cost productivity in 2024.
Speaker Change: Price realization remained favorable across both segments.
Speaker Change: We are delivering unaccepted productivity plants in our factories and supply chain.
Speaker Change: And we actively managed our cost structure and discretionary spending.
Speaker Change: And fourth our strong balance sheet and differentiated capital deployment strategy contributed significantly to our success primarily to the acquisition and successful integration of systems control.
Speaker Change: As we look ahead, we expect that the temporary headwinds we faced in 2024 will fade going forward, while each of the levers that we have driven our success in 2024 and prior years remain intact for 25 and beyond.
Speaker Change: We are introducing our full year 2025 outlook. This morning, which anticipates mid single digit organic growth with continued margin expansion and attractive growth in operating profit earnings per share and free cash flow.
Speaker Change: This outlook is consistent with our long term financial framework and demonstrates <unk> confidence in our ability to continue compounding off of a strong multiyear base of performance.
Speaker Change: I will share more details on the outlook at the end of this call, but first let me turn it over to Bill to provide you with some more details on our performance in the quarter.
Bill: Thanks, Karen and good morning, everybody I appreciate you, taking the time to be with us I'm going to use <unk>.
Bill: Slides to guide my comments and I'm starting on.
Bill: On page four of those materials. So this four block or you can see the strong performance of all.
Bill: Turned in in the fourth quarter and you can see the business model in action double digit growth in operating profit double digit growth in earnings per share and 28% growth in free cash flow.
Bill: Despite flattish sales.
Bill: Those flat flat sales at 1 billion three were below our expectations.
Bill: It's not uncommon for year end to have.
Different forms of incentive driven distortions.
Bill: Specifically there are some volume driven rebates in the system as well as.
Bill: Free cash flow driven bonus formulas.
Those those kinds of incentives can lead decision makers.
Bill: To not one inventory and put their orders in to be shipped after December and in particular in low volume years.
Bill: Those can be exacerbated a little bit so I think we.
Bill: Experienced some of that in December.
Bill: But independent of the organic.
Bill: The organic side.
Bill: Good contribution on sales from our net M&A efforts. So that includes exiting the residential lighting business, but.
Bill: But adding systems control, which is to remind everybody.
Bill: Provides turnkey solutions and a substation market in.
Bill: And you saw a good contribution to sales and organically there.
Bill: The operational performance more than made up for that.
Bill: Net sales backdrop.
Bill: Particular, some of the price cost productivity levers, we're effectively cold.
Bill: We continue to get price in the quarter. So I think impressive after a couple of years of compounding year between 'twenty, two and 'twenty three and now.
Bill: 24.
Bill: And on the operational side.
Bill: Those portfolio transformation efforts.
Bill: Early benefit.
Bill: Margins as well so you saw.
Bill: Two five points nearly two five points of margin expansion.
Bill: On the EPS side.
Bill: An increase of 11% to $4 10 in the quarter and 11% growth rate is in line with operating profit.
Bill: Non op items.
Bill: Neutral in the quarter.
Bill: And the free cash flow up 28% I think is noteworthy.
Bill: <unk> delivered for the full year.
Bill: Above our target of $800 million.
Bill: Which is about a 90% conversion rate.
Bill: And I think of note.
Bill: This cash flow performance absorbs continued increases in our capex.
Bill: Investments.
Bill: Investments continue to be really important for driving capacity in our high growth areas.
Bill: And.
Bill: Getting productivity out of the system and that cap.
Bill: Capex for us over the past three years has doubled so that free cash flow is really helping finance that and we think those projects are.
Bill: Are quite good and give us good returns.
Bill: I think what.
Bill: Unpack the performance now by segments and I'm going to start with the utilities segment on page five.
Bill: And again, you can see solid operational performance.
With double digit operating profit growth.
Bill: And about a point and a half.
Bill: Margin expansion.
Bill: The sales growth of 4%.
Bill: Driven by the acquisition of systems control.
Bill: So also supported by double digit growth in.
Bill: Our transmission.
Bill: Substation product areas as well as in protection and controls.
Bill: And that was partially offset by the weakness we continue to feel in the telecom and closures area.
Bill: We're down 20%.
And in the utility distribution products area.
Bill: We're we're continuing to experience customer inventory rationalization.
Bill: We believe that that.
Bill: Starting to isolate in the distribution product said only in <unk>.
Bill: Specifically with larger investor owned utilities as opposed to the.
Munis and co ops, so we can see that.
Bill: Inventory.
Bill: You're getting narrowed too.
Bill: The finite area.
Bill: The operating profit.
Bill: Turning to <unk> the growth of 12% up to 22, 9% margin.
Bill: It was really driven by.
Bill: Managing price again as well as productivity.
Bill: Benefits from prior year investments and.
Bill: The new acquisition of systems control coming in not only providing dollars, but coming in at attractive margins so kind.
Bill: Underscoring and highlighting where carbon was commenting on the capital allocation you can see.
Bill: Really helping utilities segments here in the fourth quarter.
Bill: I think two areas of note that I would add.
Bill: Talked about sales and the distribution products area.
Bill: And I think it's important to talk about orders.
Bill: So the orders in the fourth quarter.
Bill: Transmission and distribution area were solid.
Bill: We saw the customers as we say queuing up for 25 deliveries rather than looking for shipments to be received in December.
Bill: And that book to Bill in the grid infrastructure area was above one for.
Bill: For the first time since early 2023.
Bill: A favorable order trends.
Bill: Actually continued through January into our new year here.
Bill: And so we think that above one book to bill strongly suggestive.
Bill: The effects of the Destocking, we've been experiencing.
Bill: Our fading here in 2025.
Bill: The second area of note is.
Bill: As the grid automation sales being down.
Bill: 7%.
Bill: I think it's important to point out the challenging comparison.
Bill: The fourth quarter of last year had growth of 37%.
Bill: So super normal growth that had been driven by.
Bill: By us delivering on the backlog and the breakthrough of the chip shortage.
Bill: Addition, we had some project roll offs.
Bill: Lumpy business, so three strong quarters of growth and then the fourth quarter contracting.
Bill: We're expecting because the compare was also strong in the first quarter of 24. So we're expecting this kind of.
Bill: Trend to continue in the first quarter of 'twenty, five and then improvement through the balance of three quarters of 25 after that.
Bill: We thought it would be worthwhile to pull back the lens and.
Bill: Utility from the fourth quarter to the full year.
Bill: And on page six we have provided you with the.
Bill: With an image of of some of the headwinds and <unk> and some of the moving pieces.
Bill: That we navigated through it.
Bill: And I think we think.
Bill: And you.
Bill: The resilience of our business model and its ability.
Bill: To perform despite some headwinds.
We think this are also illustrates.
Bill: A strong setup for 25.
Bill: So thinking about headwinds on the page looking into specialty infrastructure, which is the business unit that has both enclosures and our cash distribution products.
Bill: We've been talking to you all year about the softness there.
Bill: <unk> been talking about strong declines in percentage terms.
Bill: But also.
Speaker Change: Hi, a high margin business and so the combination of that leads to.
Bill: The significant headwind that you see there.
But the addition of systems control.
Bill: And again, underscoring carbons point about capital allocation investing in.
Bill: The substation market.
Bill: Which offers us high growth.
Bill: Well as high margins.
Bill: And.
Bill: So you see a really strong contribution to 'twenty four.
Bill: It happens to be an area.
Bill: That is experiencing good book to Bill.
Bill: And backlog build in that backlog gives us.
Bill: Strong visibility to 'twenty five.
Bill: And is supportive of.
Bill: Of us having a high single digit growth expectations for that business unit.
Bill: This year in 'twenty five.
Bill: And so <unk>.
Bill: Strong contributor in its first year and expecting continued strength in its second year.
Bill: In the T&D area.
Bill: We talked about the distribution side.
Bill: Having the temporary effects of the.
Bill: The inventory being managed down by both the channel and the end user.
Bill: We grew.
Bill: Mid single digits, driven by the strength in transmission and substation. So you can see positive contribution from T&D infrastructure.
Bill: And you'll also see.
Bill: The positive contribution.
Bill: From grid automation, we talked about.
Bill: How it ended.
Bill: And Thats the ended the fourth quarter, it's really driven inside the meters and comp side.
Bill: Grid protection and controls products also in there those are strolling rush strong growth.
Bill: We're expecting that to continue into 2025 as well.
Bill: So in sum we're.
Bill: Feeling that.
Bill: For 2024, generating 9% operating profit growth in <unk>.
Bill: Again, reminding ourselves that were compounding now on top of 50% growth over the prior two years of 'twenty, two and 'twenty three.
Bill: And we think this is really showing.
Bill: Tribute to two our strong position, we've got quality products quality.
Bill: Customer relationships and we're getting those customers the high quality products at the right time, and the right price and we think that shows.
Bill: That we are poised to grow in the two temporary areas.
Bill: Softness in 'twenty four we think are both inflicting to the positive for 25% so.
Bill: Government is going to give you the outlook, but we think this is a good setup for us in utility.
Bill: So page seven I'm going to go back to the electrical segment in the fourth quarter perspective.
Bill: And you see the.
Bill: The benefits of this multi year transformation of the electrical segment continuing.
Bill: We see strong execution in Q4 with 10% operating profit growth.
Bill: And about three five points of margin expansion.
Bill: The top line is down slightly when you exclude the divestiture of <unk>.
Bill: And when you exclude the impact of our <unk> acquisition, which is in.
Hugh: And then it's Hugh.
Hugh: Product redesign with a key customer.
Hugh: And that really caused a four point drag.
Hugh: <unk> to the segment in the quarter.
Hugh: Not unlike systems control.
Hugh: <unk> also with some visibility backlog can you give us some confidence and a strong 25.
Hugh: But we.
Hugh: We also in the top line had strengths.
Hugh: <unk> and data center balance of system, our light industrial markets were very strong.
Hugh: I would contrast that to some of the softer trends in commercial and heavy industrial.
Hugh: I think operating profit up double digits, that's been driven by.
Hugh: The exit of the resi lighting and strengthening the.
Hugh: The margin profile of the segment good price.
Hugh: Productivity improvements and urban referred to the.
Hugh: The business simplification and efficiency initiatives.
Hugh: It is a multi year still in front of its benefit to come so we feel there is.
Hugh: We're looking at a multi year roadmap here of.
Hugh: Of a strong quarter for electrical segment strong year.
Hugh: And looking forward to strong contributions next year.
Hugh: Turn it back.
Urban: Urban to share our outlook for 2005.
Urban: Great. Thanks Bill.
Urban: And our prepared remarks with a brief overview of our 2025 outlook.
Urban: <unk> with organic growth expectations on slide eight.
Urban: We anticipate 4% to 5% organic growth in 2025.
Urban: This is consistent with the mid single digit long term framework, we provided at our Investor Day last June.
Urban: And our expectations by markets are consistent with the early preview we shared with you in October.
Urban: We anticipate 4% to 6% organic growth in our utility solutions segment as we are well positioned to continue capitalizing on electrification driven load growth.
Urban: Interconnection projects across transmission substation, and grit protection and controls market.
Urban: While we expect our meters and Ami business to decline year over year in 2025.
Urban: Confident that telecom markets and high margin details of distribution markets will return to growth.
Urban: And electrical solutions, we anticipate 3% to 5% organic growth in 'twenty five.
Urban: And we continued to make significant progress in our transformation of the HCS segment to compete collectively and high growth verticals.
Urban: And we expect GDP plus growth in 2025.
Urban: Most notably we anticipate mid teens growth in our data center business as artificial intelligence drives accelerated build out of large projects and we anticipate solid mid single digit growth across renewables and electrical T&D markets.
Urban: While macroeconomic uncertainty drives a more muted outlook in commercial and heavy industrial markets.
Urban: We see high visibility to continued electrical Mega project activity driving relative strength across light industrial markets.
Urban: Okay.
Turning to slide nine.
Urban: We anticipate mid single digit organic growth and continued adjusted operating margin expansion to drive full year adjusted earnings per share of $17 35 to <unk> 85, and free cash flow conversion of at least 90% of adjusted net income.
Urban: We expect 2025 performance to primarily be driven by volume growth and we are confident that our unique leading positions in attractive end markets will enable us to achieve these targets.
Urban: We continue to proactively manage price cost productivity across our portfolio and we expect positive contributions from PCB and restructuring benefits.
Urban: Partially offset by a return of investment spending needed to drive further growth and productivity initiatives.
Urban: From a non operating standpoint, we anticipate a higher year over year tax rate and other expenses to be partially offset by lower net interest expense.
Urban: I am confident in our ability to deliver on our initial 2025 outlook, which represents continued attractive growth across our key financial metrics.
Urban: And would reflect an adjusted earnings per share and adjusted operating profit CAGR above 20% over a five year period.
Urban: With that let me turn the call over to Q&A.
Speaker Change: Thank you Len and a reminder to ask a question you need to press star one on your telephone.
Urban: <unk> to be announce to withdraw your question. Please press star one again.
Speaker Change: <unk> compile the Q&A roster.
Urban: One moment for our first question.
Speaker Change: Our first question will come from the line of Jeffrey Sprague from vertical research. Your line is open.
Jeffrey Sprague: Thank you and good morning, everyone.
Jeffrey Sprague: Just back to kind of the channel inventory situation.
Jeffrey Sprague: Obviously been frustrating for us and I'm sure for you how long this has taken on it.
Jeffrey Sprague: <unk> kind of correct itself.
Jeffrey Sprague: Wonder if you could really speak to your level of visibility because I think when it comes down to it no one really had that much visibility in the channel but.
Jeffrey Sprague: Now you make it a very granular point about ious versus muni so.
Jeffrey Sprague: Maybe just the significance of that comment what it portends for how much more inventory might be out there.
Jeffrey Sprague: How much longer to the residual clears.
Jeffrey Sprague: Yeah.
Yes, Jeff Good morning, let me, maybe start with that and you're right to point out.
Jeffrey Sprague: It's been frustrating to.
Don: Try to pinpoint this is Don.
Speaker Change: I would say.
Speaker Change: We break it down between public market.
Speaker Change: Because our visibility is better on the ICU and Thats, where we believe it to be most pronounced.
Speaker Change: So if you breakdown the ious within that we have a subset of that which we call. Our VIP customers, it's where we have longstanding relationship where we have perhaps the best visibility that we can have and after our discussions initially with the channel.
That started to normalize turned over to okay, let's look at the end customer.
Speaker Change: The end user where it still exists that's where we started to look so we started to have much better visibility of where they were they were quite elevated in the year and they were not at the same level. So different customers started to to go after this more aggressively than other customers, depending on where they were in the country.
Speaker Change: Sorry.
Speaker Change: Other things that affect that when storms hit we saw certain customers, bringing their inventory faster than others. So that's where.
Speaker Change: Where we have the best visibility that.
Speaker Change: As we've continued to track it Jeff we're starting to see that that.
Speaker Change: That's starting to now mute and I would say.
Speaker Change: It's going to get better from here for sure.
Speaker Change: Some are now starting to get through this I would say this this isn't an event that you can call a date from minutes over so I think even if we go into this year, we will see some remnants of it but the important part if we're starting to see a return to growth. The other thing that I'd point out in the public.
Speaker Change: Market that we also measure actually through 'twenty four actually we started to see a return to growth and that also through conversation. What these were people that were <unk>.
Speaker Change: Less stocked up.
Speaker Change: And as a result, didnt have to destock. So we've gotten smarter I would say throughout the year, we've gotten more analytical and trying to call. This.
Speaker Change: I would say still imperfect.
Speaker Change: But what we really feel good about is that we're starting to see now a return to growth that I think will I won't call it an inflection but.
Speaker Change: I'd call it a positive signs that that's the construct if so.
Speaker Change: While we are providing the outlook for 'twenty five that we are.
Speaker Change: Just maybe to clarify carbons use of the word public there is referring to union co ops, where we actually grew mid single digits. So Geoff that's where kind of distinguishing between those two because you can kind of see.
Speaker Change: That market segment kind of buying and installing at the same rate.
Speaker Change: So.
Speaker Change: Really.
Speaker Change: Weighted to the higher use.
Speaker Change: Great. Thanks for that and then.
Speaker Change: Given that people are still drawing inventory. It certainly follows that no. One is pre buying inventory because of tariff concerns and that sort of thing, but I wonder if you could give us a little bit of updated perspective on what percent of your cogs might be exposed to Mexican Canadian Chinese tariffs.
It was to happen.
Speaker Change: No.
Speaker Change: Volatility we've seen this week.
Speaker Change: Yes, so I think.
Speaker Change: Jeff as you can imagine we've been spending a lot of time.
Speaker Change: Planning, both commercially and operationally.
Speaker Change: Around the tariff question I think starting with the Chinese parts.
Speaker Change: Back in <unk> when the first tariff regime came through we had.
Speaker Change: Some exposure there that was largely driven by our lighting businesses, both the C&I lighting as well as the resi lighting we.
Speaker Change: We've since disposed.
Speaker Change: Both of those.
Speaker Change: And hence.
Speaker Change: Dramatically reduced our Chinese exposure we've also.
Speaker Change: Ben.
Speaker Change: One of the one of the industrials, who has been affecting some re shoring.
Further reducing the Chinese exposure so at this point.
Speaker Change: Quite small exposure, there and I guess, we could argue.
Speaker Change: Of the moving pieces Thats, maybe the piece that that has some clarity and it's got it would have a very small impact to us that we would navigate through a combination of.
Speaker Change: Price and productivity.
Speaker Change: With Ken in Mexico, obviously still a very fluid situation from our perspective you had.
Speaker Change: Executive orders signed on Saturday.
Speaker Change: <unk> had.
Speaker Change: Discussions with presidents and premiers on Monday that.
Speaker Change: Put a delay on things.
Speaker Change: But as you kind of ask.
We've been working really hard on our commercial side.
Speaker Change: <unk> pricing regime by business unit by product.
Speaker Change: To ensure that we would be able to navigate any effects from the tariff.
Speaker Change: Obviously calculating.
Speaker Change: Other productivity moves and supply chain moves.
Speaker Change: As well as calculating currency moves.
Speaker Change: And so ultimately.
Speaker Change: Jeff.
Speaker Change: Ill.
Speaker Change: It's very unclear to us what the.
Speaker Change: What actually is going to happen here I mean, I can remind us in a team.
Speaker Change: The initial tariffs that were announced ended up having exceptions and moving around quite a bit.
Speaker Change: We have.
Speaker Change: Commerce Secretary has not confirmed a trade ambassador is not confirmed yet so.
Speaker Change: Our assessment, Jeff is quite fluid situation.
Speaker Change: We're preparing ourselves to.
Speaker Change: Absorb and neutralize any effects.
Speaker Change: Ultimately be landed on by by the policy.
Speaker Change: Okay. Thanks for that.
Speaker Change: Go ahead, Yeah go ahead.
Speaker Change: Great.
Speaker Change: No I was just going to say not understood. We don't know if it's going to be zero percent or 10% or some other number but can you give us a sense of maybe just what percent of your Cogs come out of Mexico.
Speaker Change: Okay.
Speaker Change: Yes, I mean, we haven't quantified it Jeff.
Speaker Change: Or two after the U S.
Speaker Change: We'll give that data tariffs come in and I want to provide any false precision at this point.
Speaker Change: Great I'll leave it there.
Speaker Change: Yes.
We are a predominantly U S centric company, maybe maybe that's too early but it both in our sales both in our footprint we do have.
Yes.
Speaker Change: A few.
Speaker Change: <unk> in Mexico, one is a pretty sizable one very very efficient to our operation.
Speaker Change: But the vast majority of manufacturing happens and ultimately the other thing that I would say, even bill alluded to a little bit our preparedness for this I can tell you we will be taking a very aggressive approach in the timing of when these things hit two reactor of course, we're working on productivity is.
Speaker Change: Well, if you see currency devalue or the dollar strengthened.
Speaker Change: <unk> will lead us to start.
Speaker Change: Discussions with suppliers on that front, but there's no doubt that when this happens a bit magnitude that was on the table.
Speaker Change: Up until yesterday, that's going to require pricing and we're going to act with speed on that.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: In the interest of time, please limit yourself to one question one follow up.
Speaker Change: Our next question will come from the line of Nigel Coe from Wolfe Research. Your line is open.
Nigel Coe: Hi, guys good morning.
Nigel Coe: Bill respectful of the answer to give Jeff made it as a sort of a key topic in the market right now I mean, there's something out there with a like a mid teens proportion of Mexico coax is that in the right ballpark too high too low I mean any sense would be helpful.
Speaker Change: Yes, you're in the right ballpark.
Nigel Coe: Okay. That's helpful.
Speaker Change: And then just thinking about the electrical margins in the fourth quarter.
Speaker Change: 20% I think that's the first time you've ever had.
Speaker Change: I had a two handle on that in that segments. I know <unk> is a mixed benefits year over year, but just think about a sequential improvement from <unk> to <unk> normally margins. The downs I'm. Just wondering is there anything unusual in that fourth quarter number and then thinking about the 2025 do you.
Speaker Change: Is it to handle for the full year 25 on the table here.
Speaker Change: Yes, let's start with.
Nigel Coe: The sequential comment and I would say Nigel you know nothing particularly unusual.
Speaker Change: I would agree with you it's.
Speaker Change: It's historically good benchmark for us to hit.
Speaker Change: I do think.
Speaker Change: We had some lower growth lower margin lighting businesses.
Speaker Change: That were I think frankly, obscuring a little bit some of the strength of the balance of our electrical products.
Speaker Change: And.
Speaker Change: Again, I think you saw.
Speaker Change: Some great growth in areas like.
Speaker Change: Data centers like renewables like light industrial areas and.
Speaker Change: Zinc.
Speaker Change: You saw some good drop through in some high margin areas of those products help and so as we <unk>.
Speaker Change: About 25.
Speaker Change: I think those are the areas that are.
Speaker Change: <unk> to be strong and so.
Speaker Change: See any kind of.
Speaker Change: Mixed pulled back or anything that would that would work against us Nigel So maybe the only thing I could add bill in the fourth quarter that we saw as the mix between <unk> and Bernie right. So that we saw decline a little bit as we go over to that design change going into 'twenty five and.
Speaker Change: Bernie actually strengthened and that creates a little bit of a favorable mix for the quarter, but I agree with your point is that that segment as a whole is still has opportunity to drive margin expansion over the.
Speaker Change: Over the next few years and that's what they're focused on.
Speaker Change: Great. Okay. Thanks, guys.
Speaker Change: A moment for next question.
Speaker Change: Our next question comes from the line of Steve Tusa from Jpmorgan. Your line is open.
Steve Tusa: Hey, good morning, guys.
Speaker Change: Hey, Steve.
Speaker Change: Would you say, it's closer to 20% or no I'm just kidding.
Speaker Change: On the.
Speaker Change: On pricing what was price in the quarter for each of the segments and what are you assuming.
Speaker Change: For each into this year.
Speaker Change: It was positive in both segments Steve.
Speaker Change: Less than a point overall, a little bit more on electrical than utility.
Speaker Change: And then in those discussion with these utilities first of all how big like as a percentage of those VIP customers.
Speaker Change: Is there any how did those pricing discussions.
Speaker Change: Play out and then just lastly, if you guys could give a little bit of color on.
Speaker Change: The seasonal dynamics for earnings I think last year, you around 22% of the year and Etfs.
Speaker Change: Should we be in and around that number in the first quarter. This year just to calibrate us.
Speaker Change: Maybe let me start with the seasonality question first and then we'll go back to that.
Utility customer questions to you, but so yes, we would anticipate that.
Speaker Change: The first quarter of 'twenty five.
Speaker Change: Would contribute in the same sort of low twenties ballpark too to the EPS.
Speaker Change: 2025.
Speaker Change: Same as 24, but also pretty similar seasonality wise.
Speaker Change: No I think just to note that we'd be anticipating growth in the first quarter over prior year to be a little bit less.
Speaker Change: Then durbin four to five full year growth so.
Just kind of thinking about.
Speaker Change: The first quarter I do think it's going to be normal seasonality.
Speaker Change: The growth rate on a comparable basis it will be better in the next three quarters.
Speaker Change: And maybe to your question around pricing and the discussions around pricing.
Speaker Change: It's certainly a topic, that's front and center too.
Speaker Change: Our customers I should have positive visits they are reaching out and they want to proactively find out what our approach is going to be.
Speaker Change: Two it we've seen actually some of our distributor partners actually already with letters out to the market kind of providing some inside of kind of what tariffs put possibilities are calm and so.
Steve Tusa: From that perspective, Steve I'd say, it's very much something that's expected.
Steve Tusa: To happen, what generally are our partners and our customers as far as a little bit of time, so that they can pass it through in two step distribution as you can imagine right.
Steve Tusa: Pass it to our distributor partners will then have to pass it onto their customer so generally much more about discussions around the timing and.
Steve Tusa: Kind of the magnitude.
Steve Tusa: Then it is whether it's coming up so we feel good about.
Steve Tusa: The need is absolutely there, especially at these kind of magnitude to get price.
Steve Tusa: <unk> proven to be able to be successful at it.
Steve Tusa: And I would say the discussions that we're having.
Steve Tusa: With VIP, so dose would be I'd say, perhaps more transparent and.
Steve Tusa: It's closer partners to us than did a general market I'd say is constructive to to the actions that we would have to take.
Steve Tusa: On the price and <unk> more than a point in the quarter.
Speaker Change: Okay, great. Thanks, Thanks for all the color Great Great chart spend thanks.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Julian Mitchell: Next question comes from the line of Julian Mitchell from Barclays. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: Maybe I just wanted to good morning, just to focus on the operating.
Speaker Change: Margin guide, that's kind of embedded I think adjusted margins are up about nine.
Speaker Change: <unk>.
Speaker Change: In the just finished for 2025.
Speaker Change: Is it sort of 50 bps or so of increase and any color around.
Speaker Change: What we should expect in terms of operating margin performance of each of the two segments.
Speaker Change: Yes, I think I think you've got the calculation I.
Speaker Change: I think.
Speaker Change: If you did.
Speaker Change: Incrementals on the growth.
Speaker Change: You could develop a model that could get a little more margin expansion than that than.
Speaker Change: We wanted to we wanted to be explicit with our investment.
Speaker Change: Expectations and.
Speaker Change: Some of the non op stuff to make it clear.
Speaker Change: Not all of that incremental with land and I think when.
Speaker Change: When you think about it between the segments.
Speaker Change: I think that.
Nigel Coe: As as Nigel was getting at I think on the electrical side.
Speaker Change: You've got this question of.
Speaker Change: Good margin products being high growth areas and that's that's positive to the story.
Speaker Change: But also they're doing a lot of investing in efficiency areas and taking up some some disparate businesses and having them compete collectively in things like unifying the sales force.
Speaker Change: Simplifying back office steps and so there is some sort of good old fashion grinded out margin work in electrical as well as good margin.
Speaker Change: Growth and mix benefits.
Speaker Change: Think on the utility side.
Speaker Change: It's much more driven around.
Speaker Change: Getting this volume back and delivering the incremental so it's.
Speaker Change: I think youre right to point out that debt.
Speaker Change:
Speaker Change: That kind of margin expansion.
Speaker Change: It kind of comes it comes through the volumes come back.
Speaker Change: That's great and then just following up on the utility.
Speaker Change: Growth outlook. So you have a lot of good color on slide six and eight on that maybe just to home in a little bit on that utility meters and Ami portion.
Speaker Change: So we right in thinking that.
Speaker Change: That piece slash grid automation is down maybe.
Speaker Change: Low double digits still in the first quarter.
Speaker Change: There was a whole down high single and you sort of stable ish.
Speaker Change: Hitting the year.
Speaker Change: Is that the right way to think about it in any way to parse out sort of is it just outright customer spend cops versus.
Speaker Change: Destock type activity.
Speaker Change: Yes, maybe I'll break it down because I think I think what you said is grid automation, which is the larger base, particularly within grid automation, where we have been talking is the meters and Ami. So I think what what the number is kind of you quoted or Theyre actually correct.
Speaker Change: For that part of the business, but we still expect despite those challenges from from those product lines grid automation are holding that has some very attractive areas that are growing double digits.
Speaker Change: They are still slightly grow for the full year in 2005, but with what you quoted is correct for the subset of grid automation.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will come from the line of Chris Snyder from Morgan Stanley. Your line is open.
Speaker Change: Thank you I appreciate the question.
Speaker Change: Sounds like the company expects to be organic growth positive in Q1.
Speaker Change: Solidly so, albeit below below the 4% to 5% for the full year.
Speaker Change: Is the expectation that the four point electrical headwind from the P. CX design change is totally gone in Q1, and then is there any way to size the headwinds in Q4 related to some of the year end inventory.
Speaker Change: Availability of our variability I should say that you referenced in the opening remarks. Thank you.
Speaker Change: Yes, Chris the let's start with your <unk> question, Yes, we are anticipating that.
Speaker Change: Two to be bouncing in Q1.
Speaker Change: And sorry, what was the.
Speaker Change: Remind me.
Speaker Change: The variability on inventory in here when it sounds like the destock was maybe a little bit sharper due to some maybe customer specific reason so yes, if you could size that yet.
Speaker Change: Yes.
Speaker Change: I Wouldnt I don't think we would size it for you and I would just say.
Speaker Change:
Speaker Change: Just hoping that.
This may be our our last earnings call were spending a lot of time on the word destock or customer inventory management, because I do think.
Speaker Change: That as we see the order book in the fourth quarter and through January I think we are seeing.
Speaker Change: We're seeing that issue fading.
Speaker Change: Yes, I think maybe to reiterate.
Speaker Change: As I stated, it's a gradual right now in decline it's not everybody has done on the same.
Speaker Change: Date, and then it inflect, but it's definitely a positive.
Speaker Change: Move into 'twenty five.
Speaker Change: Thank you and then maybe just a follow up on the point about.
Speaker Change: Order, sorry, getting better in the back half of Q4 and continuing that.
Speaker Change: January with book to Bill going back above one.
Speaker Change: It might be a hard one but you know kind of when you kind of see the orders come through is there any way or visibility to determine kind of what's true demand coming from the market versus potential tariff pre buy or customers trying to get ahead of some of the tariff inflation that may come.
Speaker Change: Yes, I would say that that's hard I would say on tariffs of one thing that we do is when does come we really watch the order patterns because what we don't want to have happen is for our customers to get get ahead of us because that of course would have implications too.
Speaker Change: Capturing that there. So we look at typical order patterns by customer and if they start exceeding and we start to invest.
Speaker Change: There is a real project that's happening.
Speaker Change: We watch over that so can.
Speaker Change: Can you can you have some of that of course, it could but I.
Speaker Change: <unk> believes that debt.
Speaker Change: We're going to.
Speaker Change: Due to think of anything that would prevent that from being a big bubble ahead of tariffs.
Speaker Change: Thank you I appreciate that.
Speaker Change: One moment our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Tommy Moll from Stephens. Your line is open.
Tommy Moll: Good morning, and thank you for taking my question.
Speaker Change: Hey, good morning, good morning, Tommy.
Speaker Change: I wanted to start on the topic of.
Speaker Change: And then Corey management and electric distribution lots been discussed already.
Speaker Change: One item, we havent exported.
Speaker Change: With these VIP customers that you referenced.
Speaker Change: Are you able to tell let's say in 2024.
Speaker Change: What their I'll call it consumption rate or install rate.
Speaker Change: Of these.
Speaker Change: Excuse was if we're really trying to get to what the <unk>.
Speaker Change: Market demand looked like last year.
Speaker Change: Feel like that was still a positive trend.
Speaker Change: I'd say.
Speaker Change: One of the things that we have discussion maybe not on an <unk> basis of what theyre installing but we look at their capex and Opex budget. Those are generally the conversations we have with them on what what theyre installing a oftentimes what the discussions there are they gave us kind of the plans of projects that they're going to be implementing in the years.
Speaker Change: In the year ahead and are we prepared with our capacity.
Speaker Change: To support that.
Speaker Change: The other thing is and not with the Iou's within the public power market. We actually saw growth in 24, so that gives us confidence that the markets are growing so well.
Speaker Change: While not there than S SKU level.
Speaker Change: Between the Capex budget, the more general discussions on what we're seeing in parts of the market, we feel that that.
Speaker Change: The install rate is growing.
Speaker Change: Thank you that's helpful. I also wanted to touch on the M&A today.
Speaker Change: Just going back to your most recent Investor day.
Speaker Change: Pulling more dollars.
Speaker Change: In the form of M&A with one of the key themes there.
Speaker Change: So it's a two part question what what can you tell us in general about the pipeline for this year and then also maybe just.
Speaker Change: Hit on.
Speaker Change: The recent rumors of a rather large transformer deal on the market.
Speaker Change: Any comment you can make on appetite or lack thereof for transformers would be appreciated as well. Thanks.
Yeah.
Yeah, Tommy so.
Speaker Change: As coincidence with habits.
Speaker Change: We closed on a deal yesterday.
Speaker Change: It is a add on to the electrical segment.
Speaker Change: Small in size.
Speaker Change: Sort of in the 70 ish million purchase price area.
Speaker Change: And.
Speaker Change: It helps.
Speaker Change: With both powering and controlling.
Speaker Change: Around wireless networks and it is just.
Speaker Change: A bolt on for an acquisition we did.
Speaker Change: A few years ago.
Speaker Change: Company called Excel texts and so.
Speaker Change: Good example of.
Speaker Change: Of our kind of maybe typical hubbell size.
Speaker Change: Not moving the needle or balance sheet or earnings per share per se, but the kind of deal that we think we can add a lot of value to and something that we're trying to invest in high growth situation with with high margins and that's something that.
Speaker Change: We just landed yesterday.
Speaker Change: You are asking about the pipeline I would say.
Speaker Change: Again, the balance sheet is really well poised to support investing.
Speaker Change: Team is really busy.
Speaker Change: We're looking at a variety of sizes.
Speaker Change: Variety of sources from whether they be.
Speaker Change: Private equity sellers or corporate sellers or families still to come.
Speaker Change: The robust dialogue across opportunities in both segments.
Speaker Change: Electrical and utility.
Speaker Change: And we'd like to continue as you pointed out.
Speaker Change: To be inactive investor here and.
Speaker Change: I think I would.
Speaker Change: I would decline comment on any specific target.
Speaker Change: Mentioned.
Speaker Change: Fair enough, thank you and I'll turn it back.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Christopher Glynn from Oppenheimer. Your line is open.
Christopher Glynn: Thank you good morning, guys.
Christopher Glynn: So you talked a bit about the Hubble unification process for Etfs and multi year of efficiencies coming ahead, we could see it very visibly in the.
Christopher Glynn: Renewables in data center growth trends curious, if you could comment on where youre seeing other benefits play through or maybe the balance is coming through but I'm thinking in terms of pricing power realization.
Christopher Glynn: Service levels.
Christopher Glynn: What other instances of yields are you seeing on the unification currently yes, yes.
Christopher Glynn: Yes, I think youre mentioning some of it it's what we call competing collectively so not just into high growth.
Christopher Glynn: Verticals, but overall in our portfolio, where you have strong positions with some of our really leading brands and condos helped pull through.
Christopher Glynn: All of our brands above what we've seen that happen.
Christopher Glynn: We're continuing to drive simplification in our business systems and the back office. So it's not one thing I mean, our restructuring will continue to be elevated in that area over the next couple of years.
Christopher Glynn: Site consolidations.
Christopher Glynn: So I see this as a.
Christopher Glynn: Maybe we can harvest some low hanging fruit early on but I'd say over the next few years, we still have benefits bolt on growth from these efforts and an.
Christopher Glynn: Efficiency.
Christopher Glynn: In.
Christopher Glynn: On the cost side.
Christopher Glynn: Okay, and then one on pricing just yet I.
Christopher Glynn: I think <unk> had some discovery of the past few years on your pricing power as a business with your market positions.
Christopher Glynn: And would you say you're at kind of a new normal of sustainable pricing power last year that's different from.
Christopher Glynn: Where you were a few years ago, just based on understanding of the business that has developed over the past few years.
Christopher Glynn: Yeah, I'd say, so I mean, certainly the magnitude of the pricing that we've been asked over the last couple of years.
Christopher Glynn: <unk>.
Christopher Glynn: It hasnt been anticipating that Thats going forward now of course when tariffs.
Christopher Glynn: To the extent that magnitude, we're going to have to but yeah I would say.
Christopher Glynn: Certainly the success that we've had in that over the last few years not just in the magnitude of it but in the.
Christopher Glynn: The speed by which we've acted on Doug we've learned a lot. So I would say, yes, we've gone to become a and we've organized around it better but I think we're more capable in that area to date and we would have been a number of years ago.
Speaker Change: Okay. Thanks, Jeremy.
Christopher Glynn: Yes.
Christopher Glynn: One moment our next question.
Speaker Change: Our next question comes from the line of Joseph <unk> from Wells Fargo. Your line is open.
Joseph: Hi, good morning.
Speaker Change: Hi can you can you talk about the again on the kind of electrical distribution, but thinking through the mid single digit growth expectation in 2025.
Joseph: If you could just frame.
Speaker Change: How much it was down in 2024.
Speaker Change: It would seem like you've got a relatively easy comp in that mid single digit growth is something that we think about as potentially being more like through cycle growth.
Speaker Change: And so just trying to think through the.
Speaker Change: The upside potential to that but also some of the dynamics in the market and if youre still seeing kind of budget prioritization towards <unk> and more sophisticated fee that could be a pressure point.
Speaker Change: That's an interesting question because I.
Speaker Change: I do agree there is something sort of in the long term.
Speaker Change: Mid single digits in the compare is easier so.
Speaker Change: Is there a path to do better you know certainly if the market and orders are there.
Speaker Change: We think we will get our fair share. So it's an interesting question.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change:
Speaker Change: And then we.
Speaker Change: Also on telecom.
Speaker Change: <unk>.
Speaker Change: I thought that the.
Speaker Change: The comps are going to be easier in the fourth quarter. So it was still down 20.
Speaker Change: Maybe just kind of missed that but did that come in a little softer than expected and similar kind of question like why why wouldn't the growth be better than that low single, maybe just some historical perspective on how strong 2023 was perhaps just understand kind of telecom dynamic.
Speaker Change: Yes, 2023 was was really strong.
Speaker Change: Uh huh.
Speaker Change: So that part is.
Is there I do think your point the <unk>.
Speaker Change: Comps were getting easier in <unk> and so we've kind of had 40 and 30% and 20 kind of percent declines in so we're layering into a much easier situations. So as you pointed out we're starting to look at orders.
Speaker Change: Look at.
Speaker Change: Getting a flattening of that.
Speaker Change: And then enabling the growth which is.
Speaker Change: What we're seeing so I do agree with you we're coming off very strong growth in 'twenty three.
Speaker Change: Makes the compare is hard and that the compares are easier, but the facts are we're going to be running.
Speaker Change: Smaller and closures business, then we werent before and we should be able off of this lower base as you pointed out we should be able to grow it.
Speaker Change: There is.
Speaker Change: Lots of active RF queues in Rfps and et cetera out there so.
Speaker Change: We're trying to gauge all of that and I would say for that we want to remain very disciplined in how we grow that and how fast we grow that because that's an area that in this decline we've seen.
Speaker Change: Rising to finding that Thats, maybe an outlier from from the rest of our business. So as that grow we want to make sure that recapture attractive business and not just scrap capture.
Speaker Change: <unk> growth so that debt.
Speaker Change: Drives a little bit on why we're more.
Speaker Change: Muted on what the growth rate could be as we wanted attractive growth.
Speaker Change: Understood. That's helpful color. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: The next question comes from the line of Brett Linzey from Mizuho. Your line is open.
Brett Linzey: Hey, good morning, all.
Brett Linzey: Wanted to come back to the to the large meter in the Ami project roll off that you noted in the release.
Brett Linzey: Can you frame the size of the exit backlog in terms of months or weeks and then with the softness more a comparison issue or have you actually seen the inbound orders in those larger meter.
Brett Linzey: Hi, slow commensurately with the decline in sales.
Brett Linzey: Yes, I mean, I think if you thought about.
Brett Linzey: The comp.
Brett Linzey: I think you basically need to start back filling the orders and so.
Brett Linzey: You can see what's out there what rfps are coming in.
Brett Linzey: So.
We can just see that there's going to be a first quarter. That's.
Brett Linzey: Kind of feels and looks a lot like the fourth quarter.
Brett Linzey: And then with the visibility that we think we have Brett.
Brett Linzey: It feels like the balance of the year can start to improve from there.
Speaker Change: Okay, Great got it and then just a follow up on the growth and the productivity initiatives within within the guide and the bridge.
Speaker Change: Certainly a bigger figure relative to last year able to parse out.
Speaker Change: That between growth and productivity and then how did the paybacks look on those are those investments and is there any hedging that.
Speaker Change: Thanks.
Speaker Change: The payback on the projects are really good.
Speaker Change: <unk>.
Speaker Change: The growth have slightly better payback than that.
Speaker Change: The productivity is.
Speaker Change: But even productivity is can be kind of in the three years and there is a mix and balance and.
Speaker Change: We.
Speaker Change: We will continue to make specific go no go decisions on specific projects.
Speaker Change: Projects as the year unfolds.
Speaker Change: So I wouldn't I wouldn't want to give you a mix right now because it could change once we green light in other words.
Speaker Change: We have more projects on the board.
Speaker Change: Okay.
Speaker Change: But we're very happy with the returns.
Speaker Change: Good it's a good use of capital for us for sure.
Speaker Change: Okay. Thanks for the detail.
Speaker Change: Thank you one moment our next question.
Speaker Change: And our final question comes from line of Chad Dillard from Bernstein. Your line is open.
Chad Dillard: Hi, Good morning, guys. Thanks for taking my question.
Speaker Change: Good morning.
Chad Dillard: So my question is on the telecom business.
Chad Dillard: So I'm just trying to get a sense for how much margin pressure you've seen since that that business was.
Chad Dillard: At its height.
Chad Dillard: And then I guess like what are your thoughts on potentially of right sizing the business versus keeping scaled out to capture incremental growth.
Yes, I would say.
Chad Dillard: At its height the margins were at the high end of our portfolio now there's still attractive.
Chad Dillard: And we have been.
Chad Dillard: Right sizing throughout 2024.
Chad Dillard: And so we feel where we sit at this split second is right sized.
Chad Dillard: And we're looking forward to as that volume comes back being able to grow off of our current base, which which is.
A substantially lower cost structure than we started the year with its action and it's constructive to what I said that our goal is not to grow it right back to what it was and we've been very deliberate with our businesses to say scale the business back down to the current volume because otherwise what happens you get destroyed in your decrement.
<unk> all of that fixed cost so what you're alluding to is exactly what we got done with that business to now be able to grow it profitable and be selective in what we go without the pressure of sitting on a ton of idle capacity.
Chad Dillard: Got it.
Chad Dillard: Wanted to go back to a prior question on price I think you mentioned that the pricing for the entire portfolio was less than 1% overall, just want to confirm with that a <unk> comment or was that more about 2025.
Chad Dillard: And then secondly, I was hoping you could comment on the breadth of positive price that you see.
Chad Dillard: Seeing across our portfolio I'm, just trying to understand is like how concentrated pricing tailwind it's across the portfolio.
Chad Dillard: Yes, Chad <unk> price was a little bit more than a point overall and a little bit more on electrical and utility and I think broadly we're seeing favorable price across the portfolio with the exception of the telecom market, which we've been talking about so it's really just concentrated in that one area.
Chad Dillard: Thank you.
Chad Dillard: Thank you.
Speaker Change: And that concludes our question and answer session and I'd like to turn.
Dan: On the call back over to Dan for any closing remarks.
Dan: Great. Thanks, everybody, thanks for joining us and I'll be around all day for follow ups.
Dan: Keith.
Dan: Yeah.
Dan: Thank you for your participation in today's conference.
Dan: This does conclude the program and you may now disconnect everyone have a great day.
Dan: [music].
Dan: Okay.
Dan: Yeah.
Dan: [music].
Okay.
Dan: [music].
Dan: Yes.
Dan: [music].
Dan: [music].
Dan: [music].
Dan: [music].