Hubbell Incorporated — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Hubbell manufactures electrical products and utility solutions and reports Electrical Solutions and Utility Solutions. The C&I Lighting business sale closed February 1, 2022; its results are presented as discontinued operations.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $1,256.0 million | $1,054.3 million | $2,412.1 million | $2,010.6 million |
| Gross margin | 30.5% | 28.3% | 29.3% | 27.9% |
| Operating income / margin | $190.6 million / 15.2% | $142.2 million / 13.5% | $333.5 million / 13.8% | $252.1 million / 12.5% |
| Continuing-operations diluted EPS | $2.51 | $1.62 | $4.39 | $2.95 |
| Total diluted EPS | $2.26 | $1.74 | $5.57 | $3.16 |
- Q2 sales rose 19.1%; organic growth was 19.6%, primarily from pricing and higher unit volume. First-half sales increased 20.0%, with organic growth of 20.3%.
- Q2 continuing net income attributable to Hubbell was $135.6 million, up 52.7%; adjusted diluted EPS from continuing operations was $2.81, up 26.6%. First-half continuing net income attributable to Hubbell was $238.1 million, up 46.9%; adjusted diluted EPS was $4.93, up 28.1%. Adjusted measures exclude specified items and are non-GAAP.
- Q2 Electrical Solutions sales increased 13.3% and operating margin was 15.0%, versus 14.9%. Utility Solutions sales rose 23.7% and operating margin improved to 15.3% from 12.4%. For the first half, Electrical Solutions margin declined to 13.0% from 13.3%, while Utility Solutions margin increased to 14.5% from 11.9%.
- Continuing-operations operating cash flow was $174.2 million for the first half, compared with $189.8 million a year earlier. Capital expenditures were $41.9 million. Investing cash flow included $348.6 million of net proceeds from the C&I Lighting sale; share repurchases used $150.0 million and dividends used $113.3 million.
- At June 30, cash and cash equivalents were $424.2 million. Total debt was $1,442.5 million, net debt was $932.5 million, and net debt to total capital was 25%. The $750 million revolving facility was undrawn, and Hubbell was in compliance with its 65% debt-to-capital covenant.
Changes, outlook and risks
- Q2 gross margin increased 220 basis points, reflecting pricing above material-cost inflation and higher volume, partly offset by freight, logistics, manufacturing costs and costs exceeding productivity gains. S&A expense as a share of sales rose 50 basis points to 15.3%, reflecting inflation in travel and other costs.
- First-half continuing operating cash flow declined amid working-capital investment to support customer demand and backlog growth. Management reported ongoing supply-chain disruption and elevated freight, labor and commodity costs, which may persist through 2022.
- Management said inflation is expected to remain a factor and pricing actions may continue, but warned that margins may not be maintained if inflation persists or accelerates. Demand could also be affected by economic conditions and higher interest rates. The filing provides no specific full-year financial guidance.
- Unusual items include a $4.4 million Q2 pension settlement charge in continuing operations; the 2021 comparison included a $16.8 million debt-extinguishment loss and $6.8 million business-disposition loss. The first half included an $80.7 million pre-tax gain on the C&I Lighting disposal; Q2 discontinued operations recorded a $13.6 million net loss, including transaction and separation costs.
- On July 8 and July 11, 2022, Hubbell acquired PCX for approximately $128 million and Ripley Tools for approximately $50 million, respectively. These are post-quarter events; preliminary purchase accounting was not complete. The company also expects to recognize a tax benefit in Q3 related to closure of an IRS examination.
- Risks highlighted include supply and raw-material availability and costs, inflation, demand and pricing conditions, COVID-19-related disruption, foreign exchange, execution of productivity and restructuring plans, and successful integration of acquisitions. Management reported no material change in risk factors from its 2021 Form 10-K and no significant change in market-risk exposure.
Important facts for investors to verify
- Whether pricing and productivity continue to offset inflation, freight and manufacturing costs, particularly in Electrical Solutions.
- How working-capital needs and order-backlog growth affect operating cash flow and inventory.
- The extent to which the C&I Lighting disposal gain, transition services and discontinued-operation costs affect comparisons of reported earnings.
- Integration, purchase accounting and performance of the PCX and Ripley Tools acquisitions, and their impact on debt and liquidity.
- Timing and amount of the expected Q3 IRS-related tax benefit and any subsequent changes to management’s outlook.