Hubbell Reports First Quarter 2020 Results
Shelton, CT, April 30, 2020 (GLOBE NEWSWIRE) —
HUBBELL REPORTS FIRST QUARTER 2020
EARNINGS PER DILUTED SHARE OF $1.37 AND
ADJUSTED EARNINGS PER DILUTED SHARE OF $1.64(1)Q1 net sales flat (organic flat)Q1 diluted EPS of $1.37; adjusted diluted EPS of $1.64(1)Includes restructuring and related investment ($0.08)Q1 Free Cash Flow of $91 million(3)2020 guidance withdrawn due to uncertainty relating to COVID-19 pandemicHubbell Incorporated (NYSE: HUBB) today reported operating results for the first quarter ended March 31, 2020.“Hubbell delivered another quarter of solid operating performance,” said David G. Nord, Chairman and Chief Executive Officer. “Grid hardening and modernization initiatives, along with ongoing renewable energy trends, continued to drive strong demand for T&D components in our utility markets. Electrical end markets were softer, driven by weakness in C&I lighting and heavy industrial markets, partially offset by pockets of strength in residential and certain light industrial verticals. Operationally, we faced challenges from disruptions related to the COVID-19 pandemic, including temporary closures of manufacturing facilities and project delays, which we estimate had an impact of ~$0.10 per diluted share in the quarter. However, we were able to overcome these headwinds through footprint optimization savings and positive price/cost. We also continued to generate strong free cash flow in the quarter, driven by working capital management.”Mr. Nord continued, “Hubbell’s first quarter results reflect continued execution in an uncertain and volatile environment. Despite this uncertainty, we are confident that our high quality portfolio of electrical and utility solutions with strong brand value and best in class reliability positions us well for long-term success.”COVID-19 UPDATEHubbell also today provided an update on actions the Company is taking in response to current and anticipated impacts of the COVID-19 pandemic.“At Hubbell, our priority is the safety and well-being of our employees, their families, our customers and suppliers, and our communities,” said Chairman and CEO Dave Nord. “Hubbell provides mission-critical electrical and utility solutions that enable our customers to operate critical infrastructure safely, reliably and efficiently. We are committed to supporting our customers with high quality and reliable products, and are continuing work in our manufacturing locations where possible, while protecting the safety of our employees by implementing expanded cleaning, safety and social-distancing protocols in our plants and warehouses, mandating remote work where possible, and offering emergency paid leave related to COVID-19.”Manufacturing and Operations ImpactAs a leading supplier of critical infrastructure components, Hubbell is generally deemed an essential manufacturer by various authorities in the localities where we operate, and therefore almost all of our facilities remain open and fully operational. However, local regulatory closures in the first quarter temporarily impacted a limited number of our sites which have since returned to full operation. We currently expect further disruptions in the second quarter, including recent local regulatory closures in late April of two large Mexico facilities, which may temporarily impact our supply chain in the second quarter.End Market and Commercial ImpactWe anticipate that the disruption in economic activity as a result of the COVID-19 pandemic will have an adverse impact across most of our Electrical end markets, and orders in the Electrical segment are down approximately 20% month-to-date in April. In our Utility Solutions segment, our Power Systems business continues to see strong demand for T&D components, supported by double digit orders growth in the first quarter and month-to-date in April. We expect our Aclara business to face near-term revenue headwinds from project delays on smart infrastructure deployments.Hubbell Responses and Countermeasures“As we consider the anticipated challenges we expect to face as a result of COVID-19, we have reviewed all aspects of our business to determine a series of cost management actions to sustain the organization through this economic uncertainty,” said Mr. Nord. These actions include:The Board of Directors will forego its quarterly retainer payments for the second quarterSenior executives will take a 25% salary reduction in the second quarterAll other executives will take a 15% salary reduction in the second quarterSalaried employees will take a 2 week furlough sometime during the second quarterVarious other discretionary cost reduction and cash preservation actionsConcurrent with these cost actions, we are also providing additional support to our hourly employees who manufacture the products that are essential to our communities. To that end, we are paying all applicable hourly employees with additional appreciation bonus pay during the second quarter.To maximize our financial flexibility, the Company has also drawn $225 million of an available $750 million on its revolving credit facilities. $125 million of this revolver draw was executed following the close of first quarter financial results, and therefore is not reflected in our March ending balance sheet. These were proactive measures to further bolster our strong liquidity position.Mr. Nord concluded, “We are committed to ensuring we come out on the other side of this challenging period in a position of strength to meet the needs of our customers. These steps, along with reducing discretionary and non-essential spending, will help protect Hubbell’s ability to serve the critical infrastructure needs of our customers in the future. We will continue to evaluate our next steps as the situation evolves.”FIRST QUARTER FINANCIAL HIGHLIGHTSThe comments and year-over-year comparisons in this segment review are based on first quarter results in 2020 and 2019.Electrical segment net sales in the first quarter of 2020 of $606 million compared to $630 million reported in the first quarter of 2019. Organic sales declined 3% in the quarter while the net impact of acquisitions and divestitures subtracted 1%. Operating income was $58 million, or 9.6% of net sales, compared to $69 million, or 10.9% of net sales in the same period of 2019. Adjusted operating income was $64 million, or 10.6% of net sales, in the first quarter of 2020 as compared to $74 million, or 11.8% of net sales in the same period of the prior year (1). The decreases in adjusted operating income and adjusted operating margin were primarily due to lower volumes, the previously announced change in timing of long-term incentive compensation, operational disruptions related to COVID-19, and increased investment in restructuring and related activities. These headwinds were partially offset by price realization in excess of material costs and productivity from footprint optimization initiatives.Utility Solutions segment net sales in the first quarter of 2020 increased 6% to $484 million compared to $457 million reported in the first quarter of 2019. Organic sales grew 5% compared to the first quarter of 2019, with acquisitions contributing approximately 2% and foreign exchange a headwind of <1%. Power Systems grew low double digits and Aclara was down mid single digits on a difficult prior year comparison. Operating income in the first quarter of 2020 was $61 million, or 12.5% of net sales, compared to $52 million, or 11.4% of net sales in the same period of 2019. Adjusted operating income was $74 million, or 15.3% of net sales, in the first quarter of 2020 as compared to $65 million, or 14.2% of net sales in the same period of the prior year (1). The increases in operating income and operating margin were primarily due to volume growth, as well as price realization and productivity in excess of cost inflation. These tailwinds were partially offset by the previously announced change in timing of long-term incentive compensation, as well as disruptions related to the COVID-19 pandemic.Adjusted first quarter results exclude $0.27 of amortization of acquisition-related intangible assets.Net cash provided from operating activities was $108 million in the first quarter of 2020 versus $78 million in the comparable period of 2019. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $91 million in the first quarter of 2020 versus $55 million reported in the comparable period of 2019 (3).CONFERENCE CALLHubbell will conduct an earnings conference call to discuss its first quarter 2020 financial results today, April 30, 2020 at 10:00 a.m. ET. A live audio of the conference call will be available and can be accessed by visiting Hubbell’s “Investor Relations – Events/Presentations” section of www.hubbell.com. Audio replays of the recorded conference call will be available after the call and can be accessed two hours after the conclusion of the original conference call by calling (855) 859-2056 and using passcode 9341227. The replay will remain available until May 30, 2020 at 11:59 p.m. ET. Audio replays will also be available at the conclusion of the call by visiting www.hubbell.com and selecting “Investors” from the options at the bottom of the page and then “Events/Presentations” from the drop-down menu.FORWARD-LOOKING STATEMENTSCertain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements about expectations regarding our financial results, condition and outlook, anticipated end markets and anticipated effects of the COVID-19 pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, end markets, results of operations and financial condition and anticipated actions to be taken by management to sustain the Company during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historic in nature. In addition, all statements regarding anticipated growth, changes in operating results, market conditions and economic conditions are forward-looking, including those regarding the adverse impact of the COVID-19 pandemic on the Company’s end markets. These statements may be identified by the use of forward-looking words or phrases such as “believe”, “expect”, “anticipate”, “plan”, “estimated”, “target”, “should”, “could”, “may”, “subject to”, “continues”, “growing”, “projected”, “if”, “potential”, “will likely be”, and similar words and phrases. Such forward-looking statements are based on our current expectations and involve numerous assumptions, known and unknown risks, uncertainties and other factors which may cause actual and future performance or the Company’s achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: our ability to effectively execute our business plan in light of the COVID-19 pandemic; the effectiveness of the actions that we take to address the effects of the COVID-19 pandemic; the outcome of contingencies or costs compared to amounts provided for such contingencies, including those with respect to pension withdrawal liabilities; achieving sales levels to meet revenue expectations; unexpected costs or charges, certain of which may be outside the Company’s control; the effects of tariffs and other trade actions taken by the U.S. and other countries; changes in product sales prices and material costs; expected benefits of productivity improvements and cost reduction actions; effects of unfavorable foreign currency exchange rates; the impact of U.S. tax reform legislation; general economic and business conditions; the impact of and the ability to complete and integrate strategic acquisitions; the impact of certain divestitures, including the sale of the Haefely business; the ability to effectively develop and introduce new products, expand into new markets and deploy capital; and other factors described in our Securities and Exchange Commission filings, including the “Business”, “Risk Factors”, and “Quantitative and Qualitative Disclosures about Market Risk” Sections in the Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form 10-Q.About the CompanyHubbell Incorporated is a global manufacturer of quality electrical products and utility solutions for a broad range of applications in the Electrical and Utility Solutions segments. With 2019 revenues of $4.6 billion, Hubbell Incorporated operates manufacturing facilities in the United States and around the world. The corporate headquarters is located in Shelton, CT.In the first quarter of 2020 our Power segment was re-named to become Hubbell Utility Solutions (“Utility Solutions”) reflecting the depth and breadth of our industry-leading offering for electric, water, gas and telecom utilities ranging from components to full-scale smart infrastructure solutions.#######HUBBELL INCORPORATED
Condensed Consolidated Statement of Income
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Restructuring and Related Costs Included in Consolidated Results
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Footnotes(1) References to “adjusted” operating measures exclude the impact of certain costs, gains or losses. Management believes these adjusted operating measures provide useful information regarding our underlying performance from period to period and an understanding of our results of operations without regard to items we do not consider a component of our core operating performance. Adjusted operating measures include adjusted operating income, adjusted operating margin, adjusted net income, adjusted net income available to common shareholders, adjusted net income attributable to Hubbell, adjusted earnings per diluted share, and adjusted EBITDA, which exclude, where applicable:Amortization of acquisition-related intangible assets associated with all of our business acquisitions, including inventory step-up amortization associated with those acquisitions,Adjusted EBITDA also excludes the Other income (expense), net, and Interest expense, net, captions of the Condensed Consolidated Statement of Income.Each of these adjusted operating measures are non-GAAP measures. Management uses the adjusted measures when assessing the performance of the business. Reconciliations of each of these non-GAAP measures to the most directly comparable GAAP measure can be found in the tables within this press release.(2) Net debt (defined as total debt less cash and investments) to total capital is a non-GAAP measure that we believe is a useful measure for evaluating the Company’s financial leverage and the ability to meet its funding needs.(3) Free cash flow is a non-GAAP measure that we believe provides useful information regarding the Company’s ability to generate cash without reliance on external financing. In addition, management uses free cash flow to evaluate the resources available for investments in the business, strategic acquisitions and further strengthening the balance sheet.(4) In connection with our restructuring and related actions we have incurred restructuring costs as defined by U.S. GAAP, which are primarily severance and employee benefits, asset impairments, accelerated depreciation, as well as facility closure, contract termination and certain pension costs that are directly related to restructuring actions. We also incur restructuring-related costs, which are costs associated with our business transformation initiatives, including the consolidation of back-office functions and streamlining our processes, and certain other costs and gains associated with restructuring actions. We refer to these costs on a combined basis as “restructuring and related costs”, which is a non-GAAP measure.
HUBBELL REPORTS FIRST QUARTER 2020
EARNINGS PER DILUTED SHARE OF $1.37 AND
ADJUSTED EARNINGS PER DILUTED SHARE OF $1.64(1)Q1 net sales flat (organic flat)Q1 diluted EPS of $1.37; adjusted diluted EPS of $1.64(1)Includes restructuring and related investment ($0.08)Q1 Free Cash Flow of $91 million(3)2020 guidance withdrawn due to uncertainty relating to COVID-19 pandemicHubbell Incorporated (NYSE: HUBB) today reported operating results for the first quarter ended March 31, 2020.“Hubbell delivered another quarter of solid operating performance,” said David G. Nord, Chairman and Chief Executive Officer. “Grid hardening and modernization initiatives, along with ongoing renewable energy trends, continued to drive strong demand for T&D components in our utility markets. Electrical end markets were softer, driven by weakness in C&I lighting and heavy industrial markets, partially offset by pockets of strength in residential and certain light industrial verticals. Operationally, we faced challenges from disruptions related to the COVID-19 pandemic, including temporary closures of manufacturing facilities and project delays, which we estimate had an impact of ~$0.10 per diluted share in the quarter. However, we were able to overcome these headwinds through footprint optimization savings and positive price/cost. We also continued to generate strong free cash flow in the quarter, driven by working capital management.”Mr. Nord continued, “Hubbell’s first quarter results reflect continued execution in an uncertain and volatile environment. Despite this uncertainty, we are confident that our high quality portfolio of electrical and utility solutions with strong brand value and best in class reliability positions us well for long-term success.”COVID-19 UPDATEHubbell also today provided an update on actions the Company is taking in response to current and anticipated impacts of the COVID-19 pandemic.“At Hubbell, our priority is the safety and well-being of our employees, their families, our customers and suppliers, and our communities,” said Chairman and CEO Dave Nord. “Hubbell provides mission-critical electrical and utility solutions that enable our customers to operate critical infrastructure safely, reliably and efficiently. We are committed to supporting our customers with high quality and reliable products, and are continuing work in our manufacturing locations where possible, while protecting the safety of our employees by implementing expanded cleaning, safety and social-distancing protocols in our plants and warehouses, mandating remote work where possible, and offering emergency paid leave related to COVID-19.”Manufacturing and Operations ImpactAs a leading supplier of critical infrastructure components, Hubbell is generally deemed an essential manufacturer by various authorities in the localities where we operate, and therefore almost all of our facilities remain open and fully operational. However, local regulatory closures in the first quarter temporarily impacted a limited number of our sites which have since returned to full operation. We currently expect further disruptions in the second quarter, including recent local regulatory closures in late April of two large Mexico facilities, which may temporarily impact our supply chain in the second quarter.End Market and Commercial ImpactWe anticipate that the disruption in economic activity as a result of the COVID-19 pandemic will have an adverse impact across most of our Electrical end markets, and orders in the Electrical segment are down approximately 20% month-to-date in April. In our Utility Solutions segment, our Power Systems business continues to see strong demand for T&D components, supported by double digit orders growth in the first quarter and month-to-date in April. We expect our Aclara business to face near-term revenue headwinds from project delays on smart infrastructure deployments.Hubbell Responses and Countermeasures“As we consider the anticipated challenges we expect to face as a result of COVID-19, we have reviewed all aspects of our business to determine a series of cost management actions to sustain the organization through this economic uncertainty,” said Mr. Nord. These actions include:The Board of Directors will forego its quarterly retainer payments for the second quarterSenior executives will take a 25% salary reduction in the second quarterAll other executives will take a 15% salary reduction in the second quarterSalaried employees will take a 2 week furlough sometime during the second quarterVarious other discretionary cost reduction and cash preservation actionsConcurrent with these cost actions, we are also providing additional support to our hourly employees who manufacture the products that are essential to our communities. To that end, we are paying all applicable hourly employees with additional appreciation bonus pay during the second quarter.To maximize our financial flexibility, the Company has also drawn $225 million of an available $750 million on its revolving credit facilities. $125 million of this revolver draw was executed following the close of first quarter financial results, and therefore is not reflected in our March ending balance sheet. These were proactive measures to further bolster our strong liquidity position.Mr. Nord concluded, “We are committed to ensuring we come out on the other side of this challenging period in a position of strength to meet the needs of our customers. These steps, along with reducing discretionary and non-essential spending, will help protect Hubbell’s ability to serve the critical infrastructure needs of our customers in the future. We will continue to evaluate our next steps as the situation evolves.”FIRST QUARTER FINANCIAL HIGHLIGHTSThe comments and year-over-year comparisons in this segment review are based on first quarter results in 2020 and 2019.Electrical segment net sales in the first quarter of 2020 of $606 million compared to $630 million reported in the first quarter of 2019. Organic sales declined 3% in the quarter while the net impact of acquisitions and divestitures subtracted 1%. Operating income was $58 million, or 9.6% of net sales, compared to $69 million, or 10.9% of net sales in the same period of 2019. Adjusted operating income was $64 million, or 10.6% of net sales, in the first quarter of 2020 as compared to $74 million, or 11.8% of net sales in the same period of the prior year (1). The decreases in adjusted operating income and adjusted operating margin were primarily due to lower volumes, the previously announced change in timing of long-term incentive compensation, operational disruptions related to COVID-19, and increased investment in restructuring and related activities. These headwinds were partially offset by price realization in excess of material costs and productivity from footprint optimization initiatives.Utility Solutions segment net sales in the first quarter of 2020 increased 6% to $484 million compared to $457 million reported in the first quarter of 2019. Organic sales grew 5% compared to the first quarter of 2019, with acquisitions contributing approximately 2% and foreign exchange a headwind of <1%. Power Systems grew low double digits and Aclara was down mid single digits on a difficult prior year comparison. Operating income in the first quarter of 2020 was $61 million, or 12.5% of net sales, compared to $52 million, or 11.4% of net sales in the same period of 2019. Adjusted operating income was $74 million, or 15.3% of net sales, in the first quarter of 2020 as compared to $65 million, or 14.2% of net sales in the same period of the prior year (1). The increases in operating income and operating margin were primarily due to volume growth, as well as price realization and productivity in excess of cost inflation. These tailwinds were partially offset by the previously announced change in timing of long-term incentive compensation, as well as disruptions related to the COVID-19 pandemic.Adjusted first quarter results exclude $0.27 of amortization of acquisition-related intangible assets.Net cash provided from operating activities was $108 million in the first quarter of 2020 versus $78 million in the comparable period of 2019. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $91 million in the first quarter of 2020 versus $55 million reported in the comparable period of 2019 (3).CONFERENCE CALLHubbell will conduct an earnings conference call to discuss its first quarter 2020 financial results today, April 30, 2020 at 10:00 a.m. ET. A live audio of the conference call will be available and can be accessed by visiting Hubbell’s “Investor Relations – Events/Presentations” section of www.hubbell.com. Audio replays of the recorded conference call will be available after the call and can be accessed two hours after the conclusion of the original conference call by calling (855) 859-2056 and using passcode 9341227. The replay will remain available until May 30, 2020 at 11:59 p.m. ET. Audio replays will also be available at the conclusion of the call by visiting www.hubbell.com and selecting “Investors” from the options at the bottom of the page and then “Events/Presentations” from the drop-down menu.FORWARD-LOOKING STATEMENTSCertain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements about expectations regarding our financial results, condition and outlook, anticipated end markets and anticipated effects of the COVID-19 pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, end markets, results of operations and financial condition and anticipated actions to be taken by management to sustain the Company during the economic uncertainty caused by the pandemic and related governmental and business actions, as well as other statements that are not strictly historic in nature. In addition, all statements regarding anticipated growth, changes in operating results, market conditions and economic conditions are forward-looking, including those regarding the adverse impact of the COVID-19 pandemic on the Company’s end markets. These statements may be identified by the use of forward-looking words or phrases such as “believe”, “expect”, “anticipate”, “plan”, “estimated”, “target”, “should”, “could”, “may”, “subject to”, “continues”, “growing”, “projected”, “if”, “potential”, “will likely be”, and similar words and phrases. Such forward-looking statements are based on our current expectations and involve numerous assumptions, known and unknown risks, uncertainties and other factors which may cause actual and future performance or the Company’s achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: our ability to effectively execute our business plan in light of the COVID-19 pandemic; the effectiveness of the actions that we take to address the effects of the COVID-19 pandemic; the outcome of contingencies or costs compared to amounts provided for such contingencies, including those with respect to pension withdrawal liabilities; achieving sales levels to meet revenue expectations; unexpected costs or charges, certain of which may be outside the Company’s control; the effects of tariffs and other trade actions taken by the U.S. and other countries; changes in product sales prices and material costs; expected benefits of productivity improvements and cost reduction actions; effects of unfavorable foreign currency exchange rates; the impact of U.S. tax reform legislation; general economic and business conditions; the impact of and the ability to complete and integrate strategic acquisitions; the impact of certain divestitures, including the sale of the Haefely business; the ability to effectively develop and introduce new products, expand into new markets and deploy capital; and other factors described in our Securities and Exchange Commission filings, including the “Business”, “Risk Factors”, and “Quantitative and Qualitative Disclosures about Market Risk” Sections in the Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form 10-Q.About the CompanyHubbell Incorporated is a global manufacturer of quality electrical products and utility solutions for a broad range of applications in the Electrical and Utility Solutions segments. With 2019 revenues of $4.6 billion, Hubbell Incorporated operates manufacturing facilities in the United States and around the world. The corporate headquarters is located in Shelton, CT.In the first quarter of 2020 our Power segment was re-named to become Hubbell Utility Solutions (“Utility Solutions”) reflecting the depth and breadth of our industry-leading offering for electric, water, gas and telecom utilities ranging from components to full-scale smart infrastructure solutions.#######HUBBELL INCORPORATED
Condensed Consolidated Statement of Income
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Restructuring and Related Costs Included in Consolidated Results
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Additional Non-GAAP Financial Measures
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(in millions)Ratios of Total Debt to Total Capital and Net Debt to Total CapitalFree Cash Flow ReconciliationHUBBELL INCORPORATED
Footnotes(1) References to “adjusted” operating measures exclude the impact of certain costs, gains or losses. Management believes these adjusted operating measures provide useful information regarding our underlying performance from period to period and an understanding of our results of operations without regard to items we do not consider a component of our core operating performance. Adjusted operating measures include adjusted operating income, adjusted operating margin, adjusted net income, adjusted net income available to common shareholders, adjusted net income attributable to Hubbell, adjusted earnings per diluted share, and adjusted EBITDA, which exclude, where applicable:Amortization of acquisition-related intangible assets associated with all of our business acquisitions, including inventory step-up amortization associated with those acquisitions,Adjusted EBITDA also excludes the Other income (expense), net, and Interest expense, net, captions of the Condensed Consolidated Statement of Income.Each of these adjusted operating measures are non-GAAP measures. Management uses the adjusted measures when assessing the performance of the business. Reconciliations of each of these non-GAAP measures to the most directly comparable GAAP measure can be found in the tables within this press release.(2) Net debt (defined as total debt less cash and investments) to total capital is a non-GAAP measure that we believe is a useful measure for evaluating the Company’s financial leverage and the ability to meet its funding needs.(3) Free cash flow is a non-GAAP measure that we believe provides useful information regarding the Company’s ability to generate cash without reliance on external financing. In addition, management uses free cash flow to evaluate the resources available for investments in the business, strategic acquisitions and further strengthening the balance sheet.(4) In connection with our restructuring and related actions we have incurred restructuring costs as defined by U.S. GAAP, which are primarily severance and employee benefits, asset impairments, accelerated depreciation, as well as facility closure, contract termination and certain pension costs that are directly related to restructuring actions. We also incur restructuring-related costs, which are costs associated with our business transformation initiatives, including the consolidation of back-office functions and streamlining our processes, and certain other costs and gains associated with restructuring actions. We refer to these costs on a combined basis as “restructuring and related costs”, which is a non-GAAP measure.