Hubbell Incorporated — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Hubbell manufactures electrical products and utility solutions through its Electrical and Utility Solutions segments. The filing describes COVID-19 as increasingly affecting operations and demand during the second quarter.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $949.2 million | $1,196.4 million | $2,039.5 million | $2,283.7 million |
| Gross margin | 29.6% | 29.9% | 29.1% | 29.1% |
| Operating income | $131.5 million | $166.9 million | $250.3 million | $287.8 million |
| Operating margin | 13.9% | 14.0% | 12.3% | 12.6% |
| Net income attributable to Hubbell | $88.2 million | $96.0 million | $163.2 million | $168.3 million |
| Diluted EPS | $1.62 | $1.75 | $2.99 | $3.07 |
- Q2 organic sales declined 20.5%; reported sales fell 20.7%. For the first half, organic sales declined 10.6%.
- Q2 Electrical sales fell 26.3% to $507.1 million, with operating margin down to 11.3% from 12.8%. Utility Solutions sales fell 13.0% to $442.1 million, while operating margin rose to 16.8% from 15.5%.
- First-half segment results diverged: Electrical sales declined 15.6% and operating margin fell to 10.3%; Utility Solutions sales declined about 4%, while operating income increased 3% and margin improved to 14.6%.
- Q2 adjusted diluted EPS, a non-GAAP measure excluding acquisition-related intangible amortization and specified prior-year pension charges, was $1.87 versus $2.31. First-half adjusted diluted EPS was $3.51 versus $3.87.
- Cash dividends were $0.91 per share in Q2 and $1.82 per share for the first half, compared with $0.84 and $1.68, respectively, in 2019.
Cash flow, debt and liquidity
- First-half operating cash flow was $303.7 million, up from $209.6 million; investing cash outflow was $26.9 million, including $35.0 million of capital expenditures. Financing provided $34.6 million, versus $148.2 million used in 2019.
- Cash and cash equivalents were $485.0 million at June 30, 2020, versus $182.0 million at year-end 2019. Cash and investments totaled $549.2 million.
- Total debt was $1,755.6 million; net debt was $1,206.4 million. Total debt to capital was 47%, versus 45% at year-end; net debt to capital was 32%, versus 38%.
- At quarter-end, $125 million was outstanding under the $750 million revolving credit facility, leaving $625 million available. Hubbell repaid the remaining revolver borrowing in July, reporting full $750 million availability as of July 30.
- First-half shareholder returns included $98.9 million of dividends and $41.3 million of share repurchases. No shares were repurchased during Q2.
Changes, outlook and risks
- COVID-19 drove weaker end-market demand, temporary factory shutdowns in the U.S., Mexico and U.K., and interruptions to Aclara meter installations. Lower volume and reduced manufacturing cost absorption, supply disruption, and higher expected credit losses also pressured results.
- Cost reductions, furloughs, executive pay cuts, travel restrictions, favorable pricing and productivity savings partly offset the impact. Management expected some costs to rise in the second half as temporary containment measures ended.
- Hubbell withdrew its 2020 guidance in April and reinstated revised guidance in July. The filing text provided here does not state the revised guidance figures.
- Management expected significant 2020 volume declines in Electrical and continued uncertainty in demand, operations and liquidity from the pandemic. Capital expenditures were expected to remain below 2019 levels.
- Restructuring costs were $9.2 million in the first half, with $9.5 million of additional expected costs for actions underway. The filing reports no material guarantee exposure; legal proceedings were described as arising in the ordinary course.
- A 2019 multi-employer pension charge affected comparability: a $22.9 million Q2 2019 charge was later reduced by settlement, resulting in an $8.5 million full-year 2019 net charge. The settlement requires $6 million in 2020 and $5 million in 2021.
- COVID-19 duration and severity, customer credit and collections, supply-chain and facility disruptions, demand, commodity and material costs, and potential impairment charges are key uncertainties. Goodwill and indefinite-lived intangible impairment tests as of April 1, 2020 found no impairment and no reporting units at risk under the tests performed.
Investor verification priorities
- Verify the revised 2020 guidance issued in July and whether subsequent results and end-market conditions supported it.
- Track Electrical demand and margins, Utility Solutions supply constraints, and Aclara project deployments and installations.
- Monitor receivables, credit-loss allowances, operating cash generation, debt levels and revolver capacity.
- Assess whether restructuring savings and productivity gains can offset volume declines and the return of costs as temporary measures expire.
- Check the timing and cash cost of pension settlement payments, planned capital spending, dividends and any future share repurchases.