Hubbell Incorporated — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Hubbell manufactures electrical products and utility solutions, reported in Electrical Solutions and Utility Solutions. Effective January 1, 2021, it reorganized its Electrical segment and transferred its Gas Connectors and Accessories business to Utility Solutions; prior-period segment data was recast.
Financial results
| Metric | Q2 2021 | Q2 2020 | First six months 2021 | First six months 2020 |
|---|---|---|---|---|
| Net sales | $1,191.8 million | $949.2 million | $2,270.2 million | $2,039.5 million |
| Operating income | $152.7 million | $131.5 million | $270.3 million | $250.3 million |
| Net income attributable to Hubbell | $95.8 million | $88.2 million | $173.5 million | $163.2 million |
| Diluted EPS | $1.74 | $1.62 | $3.16 | $2.99 |
| Gross margin | 27.8% | 29.6% | 27.3% | 29.1% |
| Operating margin | 12.8% | 13.9% | 11.9% | 12.3% |
- Q2 sales increased 25.6%; organic sales growth was 21.0%. For the first half, sales increased 11.3% and organic sales grew 7.5%. Growth reflected higher volume and favorable pricing, with additional contributions from acquisitions and foreign exchange.
- Margins narrowed despite higher sales. Management cited material inflation exceeding price realization, higher freight and manufacturing costs, and unfavorable Utility Solutions mix. Restructuring savings partly offset those pressures.
- Q2 adjusted diluted EPS, a non-GAAP measure, was $2.36 versus $1.87. The company’s adjusted results exclude acquisition-related intangible amortization and, in 2021, the debt-extinguishment and business-disposal losses. These measures are not substitutes for GAAP results.
Segments and cash flow
- Electrical Solutions: Q2 sales rose 28.5% to $602.9 million; operating income increased to $76.3 million and GAAP operating margin improved to 12.7% from 11.2%. Higher volume and restructuring savings helped, partly offset by inflation and elevated freight and manufacturing costs.
- Utility Solutions: Q2 sales rose 22.8% to $588.9 million, but operating income fell 2.9% to $76.4 million and margin declined to 13.0% from 16.4%. Higher costs and unfavorable mix outweighed volume growth. For the first half, segment margin was 12.6% versus 14.4%.
- First-half operating cash flow was $209.3 million, down from $303.7 million. The company attributed the decrease mainly to working-capital movements, including higher receivables and inventories, partly offset by higher payables and net income. Capital expenditures were $39.1 million.
Debt, liquidity and other balance-sheet items
- At June 30, cash and cash equivalents were $265.4 million; short-term investments were $12.6 million. Current assets were $1,745.1 million and current liabilities $999.4 million.
- Total debt was $1,571.8 million, including $137.6 million of short-term debt. Net debt was $1,224.1 million; total debt to capital was 43% and net debt to capital was 33%.
- Hubbell issued $300 million of 2.300% notes due 2031 and used the proceeds with cash on hand to redeem $300 million of 3.625% notes due 2022. The redemption generated a $16.8 million pretax loss, including a $16.0 million cash premium. The $750 million revolving credit facility was undrawn, and the company reported compliance with its 65% debt-to-capital covenant.
- Dividends paid to common shareholders were $106.5 million in the first half; share repurchases were $11.2 million. The quarterly dividend was $0.98 per share.
Outlook, risks and unusual items
- No quantified full-year financial guidance is provided in the filing. Management said order rates strengthened in the first half and market conditions improved, but the pace of recovery and future demand remained difficult to predict.
- Management highlighted continuing uncertainty from COVID-19, including possible disruption to employees, suppliers and customers; shortages and rising commodity, freight and labor costs; and uncertainty over their duration. Pricing and productivity actions are intended to mitigate inflation, but may not fully offset it.
- Other principal risks include demand and market changes, supply availability and cost, execution of cost savings and acquisitions, goodwill or intangible impairment, access to capital, cybersecurity, foreign exchange, and legal, environmental and pension contingencies. The filing reported no material change in risk factors from the 2020 Form 10-K; no material guarantee exposure was reported.
- In June, Hubbell sold its Consumer Analytics Solutions business for $9.8 million and recorded a $6.8 million pretax loss. The annual goodwill and indefinite-lived intangible impairment tests found no reporting units or assets at risk of failing the tests.
Important facts for investors to verify
- Whether pricing and productivity gains can catch up with material, freight and labor inflation, particularly in Utility Solutions.
- Whether the improvement in orders and project activity persists as pandemic-related delays and supply constraints evolve.
- How working-capital requirements affect operating cash flow, given the first-half decline and increases in receivables and inventory.
- The effect of the refinancing, the $16.8 million extinguishment loss and the $6.8 million disposal loss when comparing reported and adjusted earnings.
- Debt, commercial-paper usage, covenant compliance and the availability of the undrawn revolving facility.
- Management’s non-GAAP adjustments and the underlying reconciliations when assessing adjusted EPS and margins against GAAP performance.