Hubbell Incorporated — 2011 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2011, Hubbell designed, manufactured and sold electrical and electronic products for construction, industrial and utility markets. Its reportable segments are Electrical (70% of sales) and Power (30%). This is an annual filing; quarterly figures below are unaudited.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $2,871.6 million | $2,541.2 million |
| Gross profit / margin | $923.7 million / 32.2% | $828.7 million / 32.6% |
| Operating income / margin | $423.8 million / 14.8% | $367.8 million / 14.5% |
| Net income attributable to Hubbell | $267.9 million | $217.2 million |
| Diluted earnings per share | $4.42 | $3.59 |
| Cash from operating activities | $335.0 million | $266.2 million |
| Capital expenditures | $55.4 million | $47.3 million |
Cash from operations less capital expenditures was approximately $279.6 million in 2011. At year-end, cash and cash equivalents were $569.6 million; cash plus investments totaled $624.4 million. Total debt was $599.2 million, debt to total capitalization was 29%, and reported net debt (debt less cash and investments) was negative $25.2 million. The $500 million revolving credit facility was undrawn, and the company reported compliance with its covenants. Working capital was $861.4 million.
Fourth-quarter 2011 sales were $740.0 million, net income attributable to Hubbell was $70.0 million, and diluted EPS was $1.17; the comparable 2010 amounts were $639.3 million, $49.7 million and $0.81.
Changes versus comparable periods
- Full-year sales rose 13%; management attributed ten percentage points to volume, two to price realization and one to foreign currency translation.
- Operating income increased 15% and operating margin expanded 30 basis points. Gross margin declined 40 basis points as commodity costs outweighed price realization and productivity benefits.
- Electrical sales increased 11% and operating margin rose to 14.1% from 13.8%. Power sales increased 18% and operating margin edged up to 16.3% from 16.2%.
- Operating cash flow increased from 2010, helped by higher earnings and lower working-capital usage. Financing activities used $198.3 million, mainly reflecting $137.7 million of share repurchases and dividends.
- The pension funded deficit widened to $184.8 million from $100.5 million, principally reflecting actuarial losses and lower discount rates.
Outlook, risks and notable items
For 2012, management expected sales growth of 4%–6%, operating-margin expansion of approximately 50 basis points, and free cash flow approximately equal to net income. It expected a tax rate of about 32.5%, modest utility-market growth, continued industrial expansion at a slower pace than 2011, strong retrofit and relighting demand, and no significant residential-market improvement. Management cited ongoing productivity, sourcing and lean initiatives, while anticipating higher commodity, pension, healthcare and other inflationary costs.
- Markets were mixed in 2011: non-residential new construction and residential demand were weak, while industrial, utility and retrofit/relight demand improved. Price realization did not offset commodity-cost increases for the full year, though it exceeded those increases in Q4 versus Q4 2010.
- Key risks include economic and end-market weakness, competition and pricing pressure, commodity and component availability or cost, foreign sourcing and political disruption, customer credit deterioration, tax audits, acquisition integration, information-system disruption, and litigation and environmental exposure. The top 10 customers represented about 33% of trade receivables.
- Hubbell acquired two Electrical product lines for $29.6 million in Q4 2011; their combined contribution to quarterly sales was about $5 million and earnings were not significant. Backlog rose to $288.2 million from $271.5 million.
- Environmental liabilities were $13.0 million; management said legal and environmental matters were not expected to materially affect consolidated results, but acknowledged that liabilities could exceed recorded amounts. The 2010 comparison included a $14.7 million pretax debt-extinguishment charge, absent in 2011.
- The board approved a quarterly dividend increase from $0.38 to $0.41 per share, beginning in April 2012. A new $200 million repurchase authorization remained unused at year-end. Class A shares held about 73% of common-stock voting power while representing approximately 11% of equity value.
Important facts for investors to verify
- Whether 2012 sales and margin guidance was achieved, especially given uneven construction-market demand and expected cost inflation.
- Whether price increases and productivity gains kept pace with commodity, pension and healthcare costs.
- Whether pension funding and expense assumptions changed materially; the filing estimated $16.8 million of 2012 pension expense from amortization of losses and prior service cost.
- Whether customer receivables, environmental/legal exposures, tax audits or foreign-sourcing risks resulted in additional losses or cash requirements.
- How management deployed cash among dividends, repurchases, acquisitions and investment, and whether the stated free-cash-flow outlook was met.