Hubbell Incorporated — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. Unaudited interim results. Hubbell reports Electrical Solutions and Utility Solutions. Effective January 1, 2021, it reorganized its Electrical businesses and moved its Gas Connectors and Accessories business to Utility Solutions; prior-period segment figures were recast.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $1,078.4 million | $1,090.3 million | Down 1.1%; organic sales down 4.2% |
| Gross profit / margin | $289.8 million / 26.9% | $313.5 million / 28.8% | Margin down 190 basis points |
| Operating income / margin | $117.6 million / 10.9% | $118.8 million / 10.9% | Income down $1.2 million; margin flat |
| Net income attributable to Hubbell | $77.7 million | $75.0 million | Up 3.6% |
| Diluted EPS | $1.42 | $1.37 | Up 3.6% |
| Adjusted diluted EPS | $1.72 | $1.64 | Up 4.9%; non-GAAP measure excluding acquisition-related intangible amortization |
| Operating cash flow | $58.9 million | $108.4 million | Down $49.5 million, primarily reflecting working-capital movements |
| Capital expenditures | $19.6 million | $17.8 million | Investing cash outflow was $15.3 million |
| Cash and cash equivalents | $433.8 million | $259.6 million at Dec. 31, 2020 | Cash plus investments totaled $513.6 million |
| Total debt / net debt | $1,794.5 million / $1,280.9 million | $1,590.0 million / $1,250.0 million at Dec. 31, 2020 | Total debt to total capital 46%, versus 43%; net debt to total capital 33%, versus 34% |
Segment results
- Electrical Solutions: Sales of $546.2 million, down 3.1%; organic sales fell 4.5%. Operating income was $53.0 million, up from $52.5 million; GAAP operating margin increased to 9.7% from 9.3%. Adjusted margin was 10.5%, versus 10.2%.
- Utility Solutions: Sales of $532.2 million, up 1.1%, driven by acquisitions; organic sales declined 3.9%. Operating income was $64.6 million, down from $66.3 million; GAAP operating margin declined to 12.1% from 12.6%. Adjusted margin was 15.5%, versus 15.4%.
Material changes and drivers
- Lower organic volume weighed on sales. Acquisitions added 3.0% to consolidated sales and foreign exchange added 0.1%.
- Gross margin contracted as material inflation exceeded favorable price realization, alongside higher transportation costs and lower organic volume. Productivity and restructuring savings partly offset these pressures.
- Selling and administrative expense fell $22.5 million, reflecting cost reductions, pandemic-related lower costs, restructuring savings, and a gain on sale of a facility. The effective tax rate declined to 22.1% from 24.2%, primarily due to favorable stock-compensation tax effects and the absence of a prior-year deferred tax valuation allowance.
- Utility Communications and Controls sales declined 8.4%, with organic sales down 14.8%, as pandemic-related restrictions and delays continued to affect project deployments and installations. Utility T&D Components sales increased 5.6%.
- Operating cash flow was lower year over year, primarily due to changes in receivables, other current liabilities, and inventories, partly offset by higher accounts payable.
Liquidity, debt, and capital allocation
- Current assets were $1,827.5 million and current liabilities were $1,148.7 million at March 31, 2021. The company had $360.8 million of short-term debt and current maturities, including $299.3 million related to 2022 Notes scheduled for redemption.
- Hubbell issued $300 million of 2.300% senior notes due 2031 on March 12, receiving approximately $295.5 million net. On April 2, 2021, it used the proceeds and cash on hand to redeem $300 million of 3.625% notes due 2022. The redemption will result in a $16.8 million extinguishment loss recognized in Q2 2021, including a $16.0 million cash premium.
- A new five-year $750 million revolving credit facility, expandable to $1.25 billion, was undrawn at quarter-end. Hubbell reported compliance with its 65% total-indebtedness-to-total-capital covenant.
- Q1 financing cash flow was $132.4 million, including $298.7 million of long-term debt borrowings and $91.6 million of net short-term debt repayments. The company paid $53.2 million in common dividends and repurchased $10.0 million of shares. Its remaining authorization under the $300 million repurchase program was $290 million.
Outlook, risks, and unusual items
- The filing provides no specific full-year 2021 revenue or earnings guidance. Management said order rates strengthened through Q1 and market conditions had moderated, but the pace and extent of recovery remained difficult to predict.
- Management highlighted uncertainty from COVID-19, including potential effects on employees, suppliers, customers, project activity, and end-market demand. Material-cost inflation, freight costs, and availability of raw materials and purchased components are also risks; pricing and productivity initiatives are intended to offset cost pressures.
- Restructuring and related actions are expected to continue in 2021. At quarter-end, $6.5 million of additional restructuring costs and $2.4 million of restructuring-related costs were expected for ongoing prior-year actions.
- Approximately $380 million of long-term unsatisfied performance obligations, primarily in Utility Solutions, were outstanding; most were expected to be completed and recognized over the next three years.
- Management reported no material changes to the risk factors in its 2020 Form 10-K and no significant change in market-risk exposures. Legal proceedings arise in the ordinary course; the filing does not provide a clear quantified estimate of potential losses. Guarantee exposure was described as not material.
- The company’s January 1 goodwill impairment assessment found reporting-unit fair values significantly above carrying values; no reporting unit was identified as at risk of failing the impairment test.
Key facts for investors to verify
- Whether volume and organic demand recover, particularly in Utility Communications and Controls, and whether delayed utility projects resume.
- Whether pricing and productivity savings can offset material and transportation inflation and support gross margins.
- How working-capital movements affect cash conversion after the marked year-over-year decline in operating cash flow.
- The Q2 recognition and cash impact of the $16.8 million debt-extinguishment loss and the April 2021 redemption of the 2022 Notes.
- Progress and realized savings from restructuring, and use of the remaining share-repurchase authorization alongside dividends and investment needs.