Hubbell Incorporated — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. Hubbell designs, manufactures and sells electrical and electronic products. Its reporting segments are Electrical and Power.
Financial performance
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net sales | $658.1 million | $570.5 million |
| Gross profit / margin | $205.2 million / 31.2% | $175.7 million / 30.8% |
| Operating income / margin | $83.6 million / 12.7% | $65.7 million / 11.5% |
| Net income attributable to Hubbell | $50.3 million | $38.6 million |
| Diluted EPS | $0.82 | $0.64 |
| Operating cash flow | $53.5 million | $23.9 million |
- Sales increased 15%, driven principally by organic volume growth; foreign currency translation and price realization each contributed approximately one percentage point.
- Gross margin improved 0.4 percentage points, and operating margin rose 1.2 points. Higher volume and expense leverage helped; commodity and other inflationary costs offset some productivity and pricing benefits.
- Other expense increased $1.5 million, primarily due to higher foreign-currency transaction losses. The effective tax rate fell to 31.5% from 32.3%, primarily reflecting reinstatement of the federal R&D tax credit.
- Electrical sales rose 14%; operating income increased 44% to $57.6 million and margin improved to 12.4% from 9.8%. Power sales rose 19%, but operating margin declined to 13.5% from 15.9%, mainly due to commodity costs and growth-related spending.
Cash, debt and liquidity
- Cash and cash equivalents were $496.9 million at March 31, down from $520.7 million at year-end. Cash used in investing was $19.0 million, including $22.0 million of capital expenditures; the company cited a roughly $13 million purchase of a previously leased Swiss facility as the main reason for higher capital spending.
- Cash used in financing was $62.1 million, primarily reflecting $59.9 million of share repurchases and dividend payments. Net cash decreased $23.8 million during the quarter.
- Total debt was $597.8 million, including $596.0 million of long-term debt and $1.8 million of short-term debt. Net debt, the company’s non-GAAP measure, was $61.5 million versus $38.0 million at year-end; net debt to total capital was 3% versus 2%.
- Current assets were $1,267.2 million and current liabilities $485.6 million. The undrawn committed bank facility was $350 million. Management said available cash, internal cash generation and borrowing facilities should cover operations, dividends, capital spending and higher working-capital needs.
- Quarterly dividends paid were $21.9 million. The board raised the quarterly dividend rate from $0.36 to $0.38 per share, effective with the April 2011 payment. The share-repurchase program had approximately $78 million remaining authorization at quarter-end.
Outlook, commentary and risks
- For 2011, management forecast sales growth of approximately 5%–7% versus 2010, operating-margin expansion of approximately 50 basis points, a tax rate of approximately 31.5%, and free cash flow approximately equal to net income.
- Management expected power-product demand to grow in the mid-single digits and industrial markets to continue improving. Non-residential construction was expected to be comparable to 2010; residential markets were expected to decline slightly.
- Commodity, fuel, pension, healthcare and other costs were expected to rise. Management planned broad price increases but said competitive conditions made matching price increases to commodity inflation a challenge. Productivity, sourcing and lean initiatives were expected to help offset costs.
- Key uncertainties include demand and market conditions, pricing and cost recovery, raw-material and freight costs, execution of productivity and IT initiatives, foreign exchange, pensions, acquisitions, and legal, environmental and tax contingencies. Management reported no material change in risk factors from the 2010 Form 10-K.
- The Japan earthquake and related events had not materially affected results through the filing date; management said it would continue monitoring potential effects. The $350 million credit facility was undrawn, and debt covenants were met. No material changes to contractual obligations were reported.
Important facts for investors to verify
- Whether projected 5%–7% sales growth and 50-basis-point margin expansion were achieved, particularly given commodity inflation and competitive pricing.
- Whether the Power segment’s margin decline persisted despite strong sales growth.
- Whether operating cash generation and working-capital trends supported the full-year free-cash-flow expectation.
- The pace and cost of share repurchases, remaining authorization, and the effect of repurchases and dividends on cash and net debt.
- Any subsequent changes in market demand, raw-material and freight costs, foreign exchange exposure, or Japan-related supply and demand effects.