Hubbell Incorporated — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Hubbell designs, manufactures, and sells electrical and electronic products for construction, industrial, and utility markets. Its reporting segments are Electrical and Power.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $835.9 million | $789.7 million | $2,377.3 million | $2,291.9 million |
| Gross margin | 34.8% | 34.0% | 33.6% | 33.3% |
| Operating income | $151.6 million | $135.1 million | $381.4 million | $361.3 million |
| Operating margin | 18.1% | 17.1% | 16.0% | 15.8% |
| Net income attributable to Hubbell | $96.5 million | $87.1 million | $244.5 million | $227.8 million |
| Diluted EPS | $1.62 | $1.45 | $4.09 | $3.80 |
Q3 sales rose 6%; acquisitions contributed five percentage points, organic volume two points, and foreign currency translation reduced sales by about one point. Nine-month sales increased 4%, primarily from acquisitions. Management attributed margin improvement mainly to productivity and lower material costs, partly offset by other cost increases.
Segments
- Electrical: Q3 sales increased 8% to $597.6 million and operating margin rose to 17.5% from 16.4%. Nine-month sales increased 5% to $1,677.4 million; margin improved to 15.2% from 14.8%.
- Power: Q3 sales were essentially flat at $238.3 million; margin increased to 19.8% from 18.7%. Nine-month sales were essentially flat at $699.9 million; margin edged up to 18.1% from 18.0%. Utility demand remained weak, with lower distribution and transmission sales.
Cash flow, balance sheet, and capital
- Nine-month operating cash flow was $225.9 million, versus $192.0 million in 2012. Capital expenditures were $40.4 million, compared with $31.3 million. Cash used in investing was $133.3 million, including $96.5 million for acquisitions; cash used in financing was $103.9 million, including $79.9 million of dividends and $31.0 million of share repurchases.
- Cash and cash equivalents were $630.4 million at September 30, 2013, down from $645.0 million at year-end 2012. Cash and investments totaled $676.6 million. Total debt was $597.2 million, including $597.1 million of long-term debt and $0.1 million of short-term debt. The company reported net cash of $79.4 million under its non-GAAP net-debt measure.
- Total assets were $3,141.2 million; total equity was $1,803.9 million. Accounts receivable and inventory increased from year-end to $499.5 million and $401.9 million, respectively, contributing to working-capital use.
- The $500 million revolving credit facility was undrawn, extended to March 2018, and its financial covenant was met. The company had $93.4 million remaining under its share repurchase authorization at quarter-end.
Changes, outlook, and risks
- During 2013, Hubbell acquired Norlux, CMC, and Continental for aggregate consideration of $96.5 million, adding them to the Electrical segment. Their reported contribution to consolidated sales and earnings was not significant for the periods presented.
- For 2013, management expected sales growth of approximately 5%, including three percentage points from acquisitions; operating-margin expansion of about 40 basis points; a tax rate of approximately 31.2%; and free cash flow approximately equal to net income. It expected about $6 million of facility-consolidation costs for the year.
- Management described non-residential renovation and relight demand as supportive, new construction as slow, utility demand as weak, industrial markets as mixed, and residential markets as strengthening. For 2014, it anticipated modest sales growth amid some global-market weakness and expected further margin expansion.
- Key risks cited include demand and pricing pressure, raw-material and purchased-component costs, execution of productivity and consolidation initiatives, acquisition integration and expected synergies, foreign exchange, customer and distributor conditions, pension assumptions, and legal, environmental, and tax contingencies. Management reported no material change in previously disclosed risk factors or market-risk exposure.
- In October 2013, the board approved an increase in the quarterly dividend from $0.45 to $0.50 per share, beginning with the December 2013 payment.
Important facts for investors to verify
- Whether the expected 2013 sales growth, margin expansion, tax rate, and free-cash-flow target were achieved.
- Whether higher receivables and inventory convert to cash and whether working-capital demands ease.
- Whether the acquisitions deliver expected growth and synergies without materially diluting margins.
- How weak utility demand, material costs, foreign exchange, and facility-consolidation costs affect subsequent results.
- Whether cash held outside the United States, debt maturities, dividends, and future acquisitions affect capital allocation or liquidity.