Hubbell Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparison is with Q1 2021 unless noted. Hubbell manufactures electrical products and utility solutions, reported in Electrical Solutions and Utility Solutions. The C&I Lighting business was sold on February 1, 2022 and is reported as discontinued operations.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Net sales | $1,156.1 million | $956.3 million | Up 20.9%; organic growth was 21.2%, driven primarily by pricing and higher volume. |
| Gross profit / margin | $323.1 million / 27.9% | $262.2 million / 27.4% | Margin up 50 basis points; pricing above material-cost inflation and higher volume partly offset freight, logistics and manufacturing costs. |
| Operating income / margin | $142.9 million / 12.4% | $109.9 million / 11.5% | Margin up 90 basis points. |
| Continuing net income attributable to Hubbell | $102.5 million | $73.3 million | Up 39.8%. |
| Diluted EPS from continuing operations | $1.88 | $1.33 | Adjusted diluted EPS was $2.12 versus $1.63; adjusted measures exclude acquisition-related intangible amortization. |
| Discontinued-operations income, net of tax | $77.7 million | $4.4 million | Includes an $88.5 million pretax gain on the C&I Lighting sale. |
| Net income attributable to Hubbell | $180.2 million | $77.7 million | Includes discontinued operations and the sale gain. |
| Operating cash flow from continuing operations | $(14.4) million | $53.1 million | Lower mainly from working-capital investment, including receivables and inventories. |
| Capital expenditures | $21.4 million | $19.3 million | Investment included automation and productivity initiatives. |
Segments
- Electrical Solutions: Sales of $504.3 million, up 18.9%; operating income of $54.8 million, up 11.4%. GAAP operating margin fell to 10.9% from 11.6%; adjusted margin fell to 11.6% from 12.4%, reflecting higher freight, logistics, manufacturing and restructuring costs.
- Utility Solutions: Sales of $651.8 million, up 22.5%; operating income of $88.1 million, up 45.1%. GAAP margin rose to 13.5% from 11.4%; adjusted margin rose to 15.7% from 14.8%, helped by pricing, volume and productivity savings.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $359.0 million, versus $286.2 million at year-end; cash and investments totaled $444.3 million.
- Total debt was $1,443.9 million, including $1,436.1 million of long-term debt and $7.8 million of short-term debt. Net debt was $999.6 million, compared with $1,080.5 million at December 31, 2021.
- Total debt to total capital was 39%; net debt to total capital was 27%, versus 29% at year-end. The $750 million revolving credit facility was undrawn, and Hubbell reported compliance with its 65% debt-to-capital covenant.
- Investing cash flow from continuing operations was $317.9 million, including $348.6 million in net proceeds from the business sale. Financing cash flow was $(210.4) million, including $144.0 million of share repurchases and $56.9 million of dividends.
- Quarterly dividend per common share was $1.05, up from $0.98. Hubbell repurchased $150 million of stock under its program and had $138.8 million of authorization remaining at quarter-end.
Material changes, outlook and risks
- The February sale of C&I Lighting generated $350 million of cash consideration, subject to customary working-capital adjustments. The reported $77.7 million of discontinued-operations income includes the disposal gain and $2.1 million of transaction and separation costs. A transition-services and supply agreement produced reported income of $2.8 million in Note 2; MD&A cites $3.2 million of transition-services income in explaining other expense.
- Management said pricing exceeded material-cost inflation, while freight, labor, commodity and manufacturing costs remained pressures. It expects restructuring and related activities to continue in 2022, including footprint consolidation and cost reductions; disclosed remaining expected restructuring and related costs were $8.8 million.
- The filing gives no specific numerical full-year revenue, earnings or cash-flow guidance. Management cautioned that supply-chain disruptions, inflation and the continuing effects of COVID-19 could affect operations and results, and that Q1 performance is not necessarily indicative of full-year results.
- Other disclosed risks include raw-material and freight availability and cost, demand and pricing, execution of productivity and restructuring initiatives, foreign exchange, access to capital, cyber and operational disruptions, and legal, environmental and warranty exposures. Hubbell reported no material change in risk factors from its 2021 Form 10-K; guarantees were not material, and legal proceedings are described as arising in the ordinary course.
Important facts for investors to verify
- How much of the 21.2% organic sales growth reflects sustainable volume versus price, and whether pricing continues to offset input-cost inflation.
- Whether working-capital use and negative continuing-operations operating cash flow improve as backlog is fulfilled.
- The durability of Utility Solutions margin gains and the drivers of Electrical Solutions’ margin decline.
- Final proceeds and any continuing costs or benefits from the C&I Lighting sale, including transition and supply agreements.
- Actual spending and results from restructuring, capital expenditures, dividends and remaining share repurchases.