Hubbell Incorporated — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless stated otherwise. Hubbell manufactures electrical products and utility solutions. Its reporting segments are Electrical and Utility Solutions (formerly Power). The interim financial statements are unaudited.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | $1,090.3 million | $1,087.3 million |
| Gross profit / margin | $313.5 million / 28.8% | $307.3 million / 28.3% |
| Operating income / margin | $118.8 million / 10.9% | $120.9 million / 11.1% |
| Net income attributable to Hubbell | $75.0 million | $72.3 million |
| Diluted EPS | $1.37 | $1.32 |
| Cash dividends per common share | $0.91 | $0.84 |
| Operating cash flow | $108.4 million | $78.1 million |
| Capital expenditures | $17.8 million | $23.3 million |
Adjusted diluted EPS, a non-GAAP measure excluding acquisition-related intangible amortization, was $1.64 versus $1.57. Adjusted operating income was $138.3 million versus $139.1 million. The filing presents reconciliations to GAAP measures.
Revenue was nearly flat overall: organic sales were approximately flat, with favorable pricing largely offset by lower unit volume. Electrical sales fell 3.8% to $606.1 million; segment operating margin decreased to 9.6% from 10.9%. Utility Solutions sales rose 5.9% to $484.2 million; segment operating margin increased to 12.5% from 11.4%. Foreign currency translation reduced comprehensive income: total comprehensive income attributable to Hubbell was $52.6 million, versus $80.6 million in Q1 2019.
Liquidity, debt and balance sheet
At March 31, 2020, cash and cash equivalents were $300.0 million, short-term investments were $13.5 million, and total debt was $1,704.0 million. Net debt, as defined by the company, was $1,337.3 million; debt to total capital was 47%, compared with 45% at December 31, 2019. Total debt increased from $1,571.4 million at year-end. Current liabilities were $841.3 million and current assets were $1,675.0 million.
Operating cash flow increased year over year, primarily reflecting higher net income, stock-based compensation and improved working capital, including lower inventory, partly offset by higher receivables. Cash increased by $118.0 million during the quarter. Hubbell borrowed $100 million on its $750 million revolving credit facility in March and a further $125 million in April as a precaution; it reported $525 million of remaining facility capacity at April 30. The credit facility covenant requires total debt not to exceed 65% of total capitalization.
Outlook, risks and notable items
- Hubbell withdrew its 2020 guidance because of uncertainty about COVID-19’s duration and effects. It expected significant volume declines in Electrical over the balance of 2020. Utility Solutions’ Power Systems demand remained strong, while Aclara faced near-term project delays.
- The company reported COVID-related plant shutdowns and manufacturing inefficiencies in Q1 and additional work stoppages in April. It warned that closures of two large Mexican facilities could disrupt supply in Q2; the duration was undetermined. The pandemic could materially adversely affect operating results and liquidity.
- Management took cost-containment measures, including executive salary reductions, a mandatory furlough for other salaried employees, discretionary spending cuts and limits on 2020 capital spending to essential investments. Timing of planned restructuring actions could be delayed.
- Receivables were $707.7 million, net of $13.6 million in allowances. The allowance increase included estimates of expected credit losses amid weaker economic conditions, lower oil prices and possible COVID-19 effects on customers.
- Q1 restructuring costs were $3.5 million; management estimated $9.6 million of additional costs for ongoing actions at quarter-end. The company also had approximately $345 million of unsatisfied performance obligations on contracts longer than one year, most expected to be completed over the next three years.
- Management cited risks including demand declines, supply-chain and operating disruptions, customer credit deterioration, raw-material costs, foreign exchange, and potential impairment charges. Legal proceedings arise in the ordinary course; the filing does not provide a clear quantified estimate of potential losses. Guarantees were not material.
Important facts for investors to verify
- Subsequent quarterly filings and disclosures on COVID-19-related demand, shutdowns, supply constraints and segment recovery.
- Changes in receivables, credit-loss allowances and customer collections as economic conditions evolve.
- Debt levels, revolving-credit availability and compliance with the 65% debt-to-capital covenant.
- Whether Utility Solutions growth offsets weakness in Electrical, and whether margins and cash flow remain resilient.
- Actual restructuring costs, capital spending, share repurchases and dividend decisions versus management’s stated plans.