HUBBELL INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Electrical Solutions: Strong quarter with mid-single-digit growth, margin expansion. Segment unification and competitive strategy driving growth in key verticals like data centers. Light industrial (Birdy brand) saw strong growth from mega projects and industrial reshoring.
• Utility Solutions: Grid infrastructure returned to organic growth, transmission and substation markets strong. Distribution markets showing positive order trends and emerging from customer inventory normalization. Grid automation sales flattening with smaller projects and MRO activity.
• Cost Management: Hubbell is U.S.-centric, implemented actions to offset raw material inflation, tariffs, and reciprocal tariffs. Has a playbook to manage cost inflation cycles.
• Long-Term Positioning: Confident in achieving full-year 2025 outlook, with markets bolstered by growth megatrends and resilience during economic uncertainty. Balance sheet in good shape, plans for acquisitions and share repurchases.

Segment Performance

• Electrical Solutions: Achieved mid-single-digit organic growth with adjusted operating margin expansion and strong core adjusted operating profit growth. Data centers were the largest contributor with double-digit growth. Balance of systems (connectors, grounding, wiring devices) and PCX business also showed healthy growth. Sales of $1.365 billion, with mid-single-digit growth excluding M&A impact of residential lighting divestiture. Margin expanded by 70 basis points.
• Utility Solutions: Sales of $857 million, down 4% year-over-year. Grid infrastructure returned to organic growth, transmission and substation markets up double-digit. Grid automation sales faced tough prior-year comps. Operating profit $180 million, margin down 80 basis points due to cost inflation and LIFO impact.

Guidance

• Maintained 2025 adjusted EPS outlook range of $16.85 to $17.35, with organic growth of 6% to 8% (3% to 4% from volume, 3% to 4% from price).
• Free cash flow expected to be 90% or greater of net income. Sensitivity of $0.50 around guidance due to LIFO accounting and tariff uncertainties. Anticipate ramp in second quarter with seasonal lift and price realization.

Risks

• Impact of raw material inflation and tariffs in first quarter, though actions are in place to offset.
• Macro-economic uncertainty and potential volatility in grid automation sales.
• Tariff reciprocity and potential elasticity in certain product lines.

Question and Answer

• Q: Clarification on guidance sensitivity A: Gerben Bakker confirmed the $0.50 sensitivity around the EPS range of $16.85 to $17.35.
• Q: Q2 margin and cost mitigation A: William Sperry provided insights on top-line seasonal growth, LIFO lag impact, and price realization timing.
• Q: Utilities budget shifts A: Gerben Bakker noted utilities are spending more, budgets are increasing, and the portfolio is positioned to benefit regardless of budget shifts.
• Q: Price elasticity and surcharging A: Gerben Bakker and William Sperry discussed price elasticity in tariff impacts, with first round having low elasticity and second round potentially having some, and preference for price increases over surcharging.
• Q: M&A environment and sourcing from China A: William Sperry mentioned active M&A pipeline, and Gerben Bakker discussed reducing China exposure through onshoring and supply chain diversification.
• Q: Grid automation and utility distribution A: William Sperry and Gerben Bakker addressed grid automation softness and utility distribution order trends, noting smaller projects and MRO activity for grid automation, and strong orders with inventory normalization for distribution.