Hubbell Incorporated — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also presents unaudited fourth-quarter results. Hubbell manufactures electrical and utility infrastructure products through its Electrical Solutions and Utility Solutions segments. Reported continuing-operations results exclude the Commercial and Industrial Lighting business, which is presented as discontinued operations.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales, continuing operations | $4,194.1 million | $3,682.5 million |
| Operating income / margin | $532.3 million / 12.7% | $494.5 million / 13.4% |
| Gross margin | 27.5% | 29.5% |
| Net income attributable to Hubbell, continuing operations | $365.0 million | $330.0 million |
| Diluted EPS, continuing operations | $6.66 | $6.04 |
| Cash from continuing operating activities | $513.7 million | $602.9 million |
| Free cash flow, continuing operations | $423.5 million | $520.1 million |
Sales rose 13.9%; organic sales increased 9.7%, driven by pricing and higher volume. Adjusted diluted EPS from continuing operations, a non-GAAP measure, was $8.05 versus $7.14. GAAP diluted EPS including discontinued operations was $7.28 versus $6.43.
Fourth-quarter unaudited sales were $1,100.1 million versus $917.1 million. Diluted EPS was $2.14, including $1.81 from continuing operations and $0.33 from discontinued operations; comparable 2020 figures were $1.48, $1.46 and $0.02, respectively.
Segments
- Electrical Solutions: Sales increased 16.0% to $1,859.7 million; operating margin improved to 13.3% from 11.8% (adjusted margin: 14.1% versus 12.7%). Higher volumes and productivity savings more than offset cost pressures in this segment.
- Utility Solutions: Sales increased 12.3% to $2,334.4 million; operating margin declined to 12.2% from 14.7% (adjusted margin: 14.9% versus 17.5%). Inflation and higher freight, logistics and manufacturing costs outpaced price realization.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $286.2 million; cash plus investments were $364.7 million at year-end.
- Total debt was $1,445.2 million and net debt was $1,080.5 million. Debt-to-total-capital was 39%; net debt-to-total-capital was 29%, compared with 43% and 34%, respectively, in 2020.
- The $750 million revolving credit facility was undrawn, with full capacity available; Hubbell reported compliance with its financial covenant. Long-term debt had no maturities due within 12 months.
- Capital expenditures were $90.2 million. Dividends paid were $216.9 million, and share repurchases were $11.2 million. The quarterly dividend was raised from $0.98 to $1.05 per share.
- Operating cash flow and free cash flow declined year over year, mainly because of working-capital investment, including higher receivables and inventory as demand and backlog grew.
Material changes, outlook and risks
- Material inflation exceeded price realization in 2021, while freight, logistics and manufacturing costs also increased, compressing consolidated gross and operating margins. Management said these pressures and supply-chain disruptions could persist through 2022.
- Firm backlog was $1,848.0 million at year-end, versus $1,065.8 million a year earlier. Utility Solutions included $420 million of multi-year contract obligations, primarily Aclara projects; most are expected to be completed over the next two years. Management cautions that most revenue comes from inventoried products or products with short manufacturing lead times.
- Hubbell completed the sale of Commercial and Industrial Lighting to GE Current on February 1, 2022, for $350 million, subject to customary adjustments. The business had 2021 sales of $509.4 million. Hubbell anticipated a pre-tax gain of $80–$100 million in first-quarter 2022 discontinued operations; 2021 discontinued earnings included a $25.1 million one-time tax benefit and $7.0 million of transaction and separation costs.
- Management expects restructuring and related activity to continue in 2022. Remaining expected costs for actions initiated through year-end were $10.9 million, including $9.4 million of restructuring costs and $1.5 million of related costs.
- Key risks include pandemic-related disruption, material and component shortages, inflation and pricing recovery, customer and project demand, supply-chain and freight constraints, tariffs and foreign sourcing, cyber and IT risks, customer concentration, and legal, environmental and tax contingencies. The top ten customers represented approximately 42% of sales.
- Other notable items: Hubbell recorded a $16.8 million pre-tax loss on early extinguishment of debt after redeeming $300 million of 2022 notes, partly offset by issuing $300 million of 2.30% notes due 2031. The effective tax rate fell to 19.2% from 21.2%. The auditor issued an unqualified opinion and reported effective internal control over financial reporting; goodwill impairment testing was identified as a critical audit matter.
Important facts for investors to verify
- Whether pricing and productivity can catch up with materials, freight and manufacturing-cost inflation, particularly in Utility Solutions.
- Whether working-capital investment converts into operating cash flow as backlog is shipped and collected.
- How much of the reported earnings growth reflects continuing operations versus discontinued operations and the one-time tax benefit.
- Final sale proceeds and the realized gain on the lighting-business divestiture, including customary closing adjustments and transition-supply arrangements.
- Backlog conversion, especially the timing and profitability of multi-year Aclara contracts, and whether supply constraints or project delays affect delivery.