Hubbell Incorporated — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 11, 2021. This is an annual report, not a standalone Q4 filing. Hubbell manufactures electrical products and utility infrastructure solutions. Electrical Solutions generated 54% of 2020 revenue and Utility Solutions 46%.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $4,186.0 million | $4,591.0 million |
| Gross profit / margin | $1,209.3 million / 28.9% | $1,352.7 million / 29.5% |
| Operating income / margin | $533.0 million / 12.7% | $596.6 million / 13.0% |
| Net income attributable to Hubbell | $351.2 million | $400.9 million |
| Diluted EPS | $6.43 | $7.31 |
| Operating cash flow | $648.0 million | $591.6 million |
| Capital expenditures | $88.4 million | $93.9 million |
| Free cash flow (non-GAAP) | $559.6 million | $497.7 million |
Organic sales declined 9.1%; reported sales declined 8.8%. Adjusted operating margin was 14.5% versus 14.6%, and adjusted diluted EPS was $7.58 versus $8.12. These adjusted figures are non-GAAP measures and exclude acquisition-related amortization and certain other items.
Q4 context: Quarterly data show sales of $1,037.9 million versus $1,103.3 million in Q4 2019, Hubbell-attributable net income of $80.9 million versus $101.9 million, and diluted EPS of $1.48 versus $1.85.
Liquidity, debt and capital allocation
- At year-end, cash and cash equivalents were $259.6 million; cash and investments totaled $340.0 million. Working capital was $639.4 million, down from $729.3 million.
- Total debt was $1,590.0 million, compared with $1,571.4 million. Net debt, a non-GAAP measure, was $1,250.0 million versus $1,319.5 million; debt-to-total-capital was 43% versus 45%.
- The company had $153.1 million of short-term debt, including $150 million of commercial paper, and no borrowings on its $750 million revolving facility, which was fully available at year-end. The remaining $90.6 million Term Loan principal was repaid in Q3.
- 2020 cash uses included $239.6 million for acquisitions, $201.4 million of dividends and $41.3 million of share repurchases. The quarterly dividend was raised from $0.91 to $0.98 per share in October.
Changes versus the prior year
- COVID-19-related disruption and weaker demand drove a 13.6% organic sales decline in Electrical Solutions; its operating margin fell to 10.4% from 12.2%.
- Utility Solutions organic sales declined 3.1%, partly reflecting delayed Aclara meter installations and project deployments. Stronger transmission and distribution demand helped; segment operating margin increased to 15.5% from 14.1%.
- Operating cash flow rose, largely reflecting working-capital movements and deferral of certain employer payroll taxes under the CARES Act. Free cash flow increased by $61.9 million.
- Hubbell acquired Armorcast, Beckwith Electric and AccelTex in Q4 for a combined reported net consideration of approximately $236.2 million; annual acquisition cash outflow was $239.6 million.
Outlook, risks and unusual items
The filing gives no specific numerical 2021 revenue or earnings guidance. Management expected pandemic-related demand pressure, project delays and operational inefficiencies to remain uncertain; Aclara headwinds had moderated in the second half of 2020, with that moderation expected to continue in 2021. Management also expected to continue restructuring and related cost-reduction efforts in 2021.
- COVID-19 caused temporary manufacturing stoppages and meter-installation delays, lower volume and reduced manufacturing cost absorption. The filing warns that further disruption could materially affect results and liquidity.
- Other principal risks include price and availability of materials and components, tariffs and trade restrictions, customer credit quality, foreign exchange, competition, cybersecurity and data privacy, pension assumptions, and legal, environmental and tax contingencies. The top ten customers accounted for approximately 42% of sales.
- FY2020 included a $7.6 million pension settlement charge. FY2019 included a $21.7 million gain on the Haefely sale and an $8.5 million net multi-employer pension withdrawal charge. Restructuring and related costs were $30.6 million in 2020; $10.7 million of additional costs were expected for initiated actions.
- Effective January 1, 2021, Hubbell reorganized Electrical Solutions and moved its Gas Connectors and Accessories business to Utility Solutions. That business contributed $157.1 million of 2020 sales and $19.4 million of operating profit; future segment comparisons will reflect the change.
- Environmental liabilities were $7.6 million at year-end; the company said it did not expect environmental matters, based on experience and reserves, to have a material adverse effect. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control; recently acquired businesses were excluded from the control assessment.
Important facts for investors to verify
- Whether the recovery in Electrical Solutions demand and the moderation of Aclara project delays continued after year-end.
- How the January 2021 segment reorganization affects reported growth and margins, particularly the transfer of Gas Connectors and Accessories.
- Commercial paper levels, cash generation and use of the revolving credit facility, alongside the timing of scheduled debt maturities.
- Whether restructuring savings offset costs and inflation, and whether acquisition integration supports expected returns.
- Assumptions underlying goodwill valuation, pension funding and customer credit-loss allowances; goodwill and other intangible assets totaled approximately $2.7 billion.