Hubbell Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Hubbell designs, manufactures, and sells electrical and electronic products for construction, industrial, and utility markets. Its reportable segments are Electrical and Power.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $1,204.0 million | $1,179.7 million | $3,487.7 million | $3,337.6 million |
| Gross margin | 30.1% | 29.6% | 29.4% | 29.4% |
| Operating income | $172.9 million | $163.8 million | $460.7 million | $420.3 million |
| Net income attributable to Hubbell | $130.7 million | $113.6 million | $299.0 million | $272.2 million |
| Diluted EPS | $2.38 | $2.06 | $5.45 | $4.93 |
Q3 sales rose 2%; management attributed organic growth to favorable pricing, partly offset by lower unit volume, while the Haefely sale reduced reported sales. Q3 adjusted diluted EPS was $2.34, flat year over year; GAAP EPS benefited from the Haefely gain. For nine months, sales rose 4%, GAAP diluted EPS rose 10.5%, and adjusted diluted EPS increased 5% to $6.21. Adjusted measures exclude specified acquisition-related amortization and other items; they are non-GAAP measures.
Segment results: Q3 Electrical sales were $689.3 million, approximately flat, and operating margin declined to 13.1% from 13.7%. Power sales increased 5% to $514.7 million, while operating margin improved to 16.1% from 14.2%. For nine months, Electrical sales increased 1% and Power sales increased 10%, with Power growth reflecting organic volume and Aclara.
Cash flow and balance sheet: Nine-month operating cash flow was $385.1 million, versus $339.2 million; capital expenditures were $72.6 million. Cash and cash equivalents were $300.0 million at September 30, up from $189.0 million at year-end. Total debt was $1.75 billion, cash and investments were $361.3 million, and net debt was $1.39 billion. Debt-to-capital was 48%, versus 50% at year-end; net-debt-to-capital was 38%, versus 43%. Hubbell reported no borrowings under its $750 million revolving credit facility and stated it complied with debt covenants. It paid $137.1 million in common dividends and repurchased $35.0 million of shares during the first nine months.
Material changes, outlook, and risks
- In August, Hubbell sold Haefely for $38.1 million and recognized a $21.7 million pretax gain. The sale reduced Electrical segment sales and margin comparatively.
- A $22.9 million charge was recorded in Q2 for estimated additional multi-employer pension withdrawal liability following another plan employer’s bankruptcy and expected liquidation. Payment is scheduled over 58 years unless settled in a lump sum; $0.8 million had been paid through September.
- Restructuring costs were $15.6 million for the first nine months, with $10.7 million of additional expected costs for the disclosed actions. Management expects restructuring and cost-reduction efforts to continue into 2020.
- Management cited favorable pricing and productivity, but noted mixed Electrical end markets, lower unit volume in some businesses, and weakness in commercial and industrial lighting. No specific full-year financial guidance is provided in the filing.
- Risks identified include demand and market conditions, pricing competition, raw-material and freight costs, tariffs and trade restrictions, execution of productivity and restructuring plans, acquisition integration, pension obligations, foreign exchange, and legal or environmental contingencies. The filing reports no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Underlying growth and margins excluding the Haefely disposal, Aclara timing effects, and other non-GAAP adjustments.
- Whether Power segment growth and margin improvement continue, and whether Electrical volume and lighting weakness persist.
- The final amount, timing, and payment terms of the multi-employer pension withdrawal liability.
- Cash conversion, working-capital requirements, planned restructuring costs, and progress toward debt reduction.
- Management’s outlook and exposure to market, material-cost, tariff, currency, and acquisition-integration risks.