Hubbell Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Hubbell manufactures electrical products and utility solutions through its Utility Solutions and Electrical Solutions segments. Comparisons are with 2021; the C&I Lighting business is presented as discontinued operations following its sale on February 1, 2022.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,316.2m | $1,083.4m | $3,728.3m | $3,094.0m |
| Gross margin | 30.3% | 27.8% | 29.6% | 27.8% |
| Operating income | $203.6m | $145.9m | $537.1m | $398.0m |
| Operating margin | 15.5% | 13.5% | 14.4% | 12.9% |
| Continuing-operations net income attributable to Hubbell | $150.3m | $103.4m | $388.4m | $265.5m |
| Diluted EPS from continuing operations | $2.78 | $1.88 | $7.16 | $4.84 |
| Total net income attributable to Hubbell | $139.1m | $108.4m | $441.3m | $281.9m |
| Total diluted EPS | $2.57 | $1.98 | $8.14 | $5.14 |
- Q3 sales rose 21.5%; organic sales increased 20.2%, driven by pricing and higher unit volume, partly offset by foreign exchange. Nine-month sales increased 20.5%, with organic growth of 20.3%.
- Q3 gross margin improved 250 basis points. Management attributed the improvement chiefly to price realization exceeding material-cost inflation and higher volume; freight, labor, manufacturing and other inflationary costs, investment spending and restructuring costs were offsets.
- Q3 segment results: Utility Solutions sales were $774.5m, up 28.7%, with operating margin of 16.8% versus 13.2%. Electrical Solutions sales were $541.7m, up 12.5%, while operating margin edged down to 13.6% from 13.8%.
- Q3 S&A was $194.9m, or 14.8% of sales, versus $155.2m and 14.3%. Nine-month S&A was $567.7m, or 15.2%, versus $463.6m and 14.9%.
- Q3 discontinued operations recorded an $11.2m loss, including a $7.0m disposal loss and $3.0m of transaction and separation costs. Nine-month discontinued-operations income was $52.9m, including a $73.7m disposal gain and $9.7m of transaction and separation costs.
Cash flow, liquidity and debt
- Nine-month cash from continuing operating activities was $393.8m, up from $288.2m. The increase reflected higher earnings, partly offset by working-capital investment to support customer demand and backlog.
- Continuing investing activities provided $92.6m, including $332.8m net proceeds from the C&I Lighting sale, offset in part by $163.6m spent on acquisitions and $67.2m of capital expenditures. Continuing financing activities used $340.3m, including $169.6m of dividends and $150.0m of share repurchases.
- Cash and cash equivalents were $366.9m at September 30, 2022, compared with $286.2m at year-end 2021. Cash from discontinued operations used $51.8m over the nine months.
- Total debt was $1,441.3m and cash plus investments were $446.0m; reported net debt was $995.3m. Debt to total capital was 38%, and net debt to total capital was 26%.
- The $750m revolving credit facility was undrawn, with full capacity available; Hubbell reported compliance with its 65% debt-to-capital covenant. Current assets were $1,994.5m and current liabilities $1,062.5m.
Material changes, outlook and risks
- Hubbell completed the $332.8m net-cash sale of C&I Lighting in February. It acquired PCX, a modular power solutions business serving data centers, and Ripley Tools, serving utility and communications markets, for approximately $114.0m and $49.6m net of cash acquired, respectively.
- Management said supply-chain disruptions and higher freight, labor and commodity costs were expected to persist through the remainder of 2022 and into 2023. It expected to continue pricing actions, subject to demand and market conditions, but cautioned that further inflation could pressure margins.
- No specific financial guidance or quantified full-year outlook is provided in the supplied filing text. Management noted that nine-month results are not necessarily indicative of full-year results.
- Key disclosed risks include inflation and the effectiveness of pricing, economic slowdown and interest-rate increases, volatile demand, supply availability and delivery constraints, foreign exchange, and the ability to realize productivity savings and integrate acquisitions. The company also identifies regulatory, cyber, litigation, pension and other execution risks.
- Other notable items: Q3 included a $1.5m pension settlement charge; nine-month continuing operations included $5.9m of pension settlement charges. Hubbell initiated restructuring actions with $9.7m of costs in the first nine months and estimated $8.1m of remaining costs for actions underway at September 30.
- On October 21, 2022, after quarter-end, the board authorized a new $300m share-repurchase program, expiring in October 2025. The existing program had $138.8m of authorization remaining.
Investor verification priorities
- Assess how much reported sales and margin growth reflects sustainable pricing and volume versus inflation, cost recovery, acquisitions and discontinued-operation effects.
- Track working-capital requirements, particularly receivables and inventory, and whether operating cash flow continues to convert earnings into cash.
- Review the final purchase accounting for PCX and Ripley Tools, acquisition integration and expected returns; purchase allocations were preliminary.
- Monitor the C&I Lighting disposal adjustments, remaining transition and supply agreements, and any further costs associated with the divestiture.
- Verify progress on restructuring savings against the estimated remaining costs, and the scale and timing of repurchases relative to liquidity and investment needs.
- Review subsequent filings for updated guidance, inflation and supply-chain trends, demand conditions, and any developments in legal or other contingencies.