HUBBELL INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Hubbell delivered strong operating performance in Q3 with 14% year-over-year adjusted earnings per share and operating profit growth, along with 180 basis points of adjusted operating margin expansion.
• Grid modernization and electrification drive growth in Utility Solutions' transmission, substation, and grid automation markets as utility customers invest in grid infrastructure.
• Electrical Solutions shows strong core performance led by data center and renewable markets, with margin expansion.
• Operational execution was strong, with simplification efforts to drive productivity. Hurricanes Helene and Milton impacted manufacturing facilities, but all returned to full operation; storms highlight the need to harden critical infrastructure.

Segment Performance

• Utility Solutions: In the third quarter, sales grew 11% to $933 million, with 15% from acquisition and -4% organic. Margin expanded 130 basis points to over 25%, reaching $236 million in operating profit. Systems Control acquisition contributes strongly. Telcom markets remain weak, and utility distribution is still working through inventory normalization.
• Electrical Solutions: Recorded 3% organic growth, with 190 basis points of margin expansion. Driven by data center and renewable markets, light industrial is solid, but heavy industrial and commercial contribute less.

Guidance

• Raised full-year 2024 guidance to $16.35 to $16.55, representing mid-single-digit growth. Expect continued growth in sales and operating margin, with levers like acquisitions and price cost productivity driving performance.

Risks

• Telcom market weakness persisting longer than expected.
• Utility distribution still working through inventory overstock.
• Impact of extreme weather events on manufacturing and business operations.
• Macroeconomic conditions affecting certain market segments.

Question and Answer

Q: About Systems Control revenues and organic growth in grid automation.

A: Systems Control had ~$120M in Q3 revenues, grid automation organic growth was 4%.

Q: Confidence in flushing out channel inventory.

A: Yes, storms help flush out inventory as customers prepare for storms, aiding in normalizing inventory levels.

Q: Pricing in utility negotiations.

A: Price traction good in most segments, modest inflation, focus on service and value while maintaining competitive pricing.

Q: Telcom decline and 2025 outlook.

A: Telcom down ~30% in 2024, expecting steady growth in 2025, with transmission remaining strong and distribution expected to bounce back.

Q: Inventory levels at major customers.

A: Destocking driven by large IOUs, smaller customers seeing growth, storms helping, expect improvement exiting 2024.

Q: Aclara's growth outlook.

A: Aclara has the ability to grow, with meter projects rolling off but offset by growth in AMI and protection controls.

Q: Heavy industrial and commercial markets.

A: Modest contributions, more detail will be provided in the 2025 outlook.

Q: BEAD program impact.

A: Limited contributions in 2024, likely later 2025 when funding flows from the program.

Q: COGS U.S.-based percentage.

A: Significant portion of COGS is North American based, reduced exposure via portfolio changes to manage tariff risks.