Hubbell Incorporated — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Hubbell manufactures electrical products and utility solutions and reports Electrical Solutions and Utility Solutions segments. Figures are unaudited; dollar amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,213.6 | $1,108.6 | $3,483.8 | $3,148.1 |
| Gross profit | $330.3 | $329.6 | $950.9 | $923.6 |
| Gross margin | 27.2% | 29.7% | 27.3% | 29.3% |
| Operating income | $155.3 | $162.9 | $425.6 | $413.2 |
| Operating margin | 12.8% | 14.7% | 12.2% | 13.1% |
| Net income attributable to Hubbell | $108.5 | $107.1 | $282.0 | $270.3 |
| Diluted EPS | $1.98 | $1.96 | $5.14 | $4.95 |
| Operating cash flow | Not separately provided | Not separately provided | $306.8 | $455.6 |
- Sales and earnings: Q3 sales increased 9.5% year over year; organic sales grew 5.4%. GAAP diluted EPS rose 1.0%. For the first nine months, sales increased 10.7%, organic sales grew 6.8%, and diluted EPS increased 3.8%.
- Margins and costs: Q3 gross margin fell 250 basis points and operating margin fell 190 basis points. Management attributed margin pressure principally to material-cost inflation exceeding price realization, plus higher freight, logistics and manufacturing costs. Productivity and restructuring savings partly offset these pressures.
- Cash flow: Nine-month operating cash flow declined $148.8 million, mainly because receivables and inventory increased as Hubbell funded customer demand and order-backlog growth. Capital expenditures were $66.5 million, versus $51.7 million a year earlier.
- Liquidity and debt: September 30 cash and cash equivalents were $257.9 million; short-term investments were $9.9 million. Short-term debt was $128.9 million and long-term debt was $1,434.9 million. The company reported total debt of $1,563.8 million, net debt of $1,223.9 million, and total-debt-to-capital of 42%. Its $750 million revolving facility was undrawn, and Hubbell reported compliance with its 65% debt-to-capital covenant.
- Shareholder returns: Nine-month common dividends paid were $159.8 million; share repurchases were $11.2 million. The quarterly dividend was $0.98 per share.
Material changes and segment results
- Electrical Solutions: Q3 sales grew 11.0% to $611.9 million, with 9.0% organic growth. Operating income rose to $72.0 million, but operating margin decreased to 11.8% from 12.0%. Nine-month sales grew 11.2%, and operating margin improved to 11.4% from 10.8%.
- Utility Solutions: Q3 sales grew 7.9% to $601.7 million, but organic growth was 1.9%; supply constraints limited shipments. Operating income declined to $83.3 million from $97.0 million, and operating margin fell to 13.8% from 17.4%. Nine-month sales grew 10.1%, while operating margin declined to 13.0% from 15.5%.
- Reported Q3 GAAP net income rose slightly, but adjusted diluted EPS declined 2.6% to $2.24. For the first nine months, adjusted diluted EPS increased 8.6% to $6.31. Adjusted measures exclude specified acquisition-related amortization and unusual items and are non-GAAP.
- Hubbell reorganized its Electrical segment effective January 1, 2021, and moved its Gas Connectors and Accessories business to Utility Solutions; prior-period segment figures were recast.
Outlook, risks and unusual items
- No quantified full-year earnings or revenue guidance is provided in the filing. Management said supply-chain disruption and increased freight, labor and commodity costs may persist through Q4 2021 and into 2022; disruptions also constrained shipments against customer demand.
- COVID-19, labor availability, inflation and supply-chain disruption remain risks. Hubbell highlighted possible effects from U.S. vaccination or testing requirements on workforce retention, labor availability and compliance costs.
- In March 2021, Hubbell issued $300 million of 2.300% notes due 2031 and redeemed $300 million of 3.625% notes due 2022. The redemption generated a $16.8 million pretax extinguishment loss, including a $16.0 million cash premium.
- The June sale of Consumer Analytics Solutions for $9.8 million resulted in a $6.9 million pretax loss. On October 26, after quarter-end, Hubbell agreed to sell its Commercial and Industrial Lighting business for $350 million, subject to customary adjustments and closing conditions; closing was expected in Q1 2022.
- Legal proceedings arise in the ordinary course of business; the filing does not provide a clear quantified estimate of potential losses. Management stated guarantee exposures were not material.
Important facts for investors to verify
- Whether pricing and productivity can catch up with materials, freight, labor and manufacturing-cost inflation, and whether supply constraints ease.
- Whether Utility Solutions margins stabilize after the substantial year-over-year decline, and how much growth is organic versus acquisition-related.
- Whether working-capital investment unwinds and operating cash flow recovers after the year-to-date decline.
- Closing conditions, final proceeds and expected financial effects of the Commercial and Industrial Lighting sale.
- Potential workforce and cost effects of COVID-19 vaccination or testing requirements, and the status of other disclosed risks and contingencies.