Hubbell Reports First Quarter Results; Net Sales of $991 Million and Earnings Per Diluted Share of $1.05, Including $0.34 of Aclara Acquisition-Related and Transaction Costs
- Net sales up 16% (acquisitions +13%, organic +3%, FX <+1%)
- Closed $1.1B acquisition of Aclara Technologies on February 2, 2018
- Q1 diluted EPS of $1.05; adjusted diluted EPS (1) of $1.39
- Adjusted excludes Aclara acquisition-related costs ($0.19), transaction costs ($0.15)
- Includes legacy intangible asset amortization ($0.12)
Net sales in the first quarter of 2018 were $991 million, an increase of 16% compared to the $852 million reported in the first quarter of 2017. Operating income in the quarter was $100 million as compared to $108 million in the same period of 2017. Excluding Aclara acquisition-related and transaction costs (which affected only the 2018 period), operating income was $122 million in the first quarter of 2018 (1). Net income attributable to Hubbell in the first quarter of 2018 was $58 million compared to $63 million reported in the comparable period of 2017. Earnings per diluted share for the first quarter of 2018 were $1.05 compared to $1.13 reported in the first quarter of 2017. Excluding Aclara acquisition-related and transaction costs (which affected only the 2018 period), earnings per diluted share were $1.39 in the first quarter of 2018 (1).
Net cash provided from operating activities was neutral in the first quarter of 2018 versus $63 million provided in the comparable period of 2017. Free cash flow (defined as cash flow from operating activities less capital expenditures) was an outflow of $22 million in the first quarter of 2018 versus an inflow of $49 million reported in the comparable period of 2017 (3).
“Highlights of the first quarter included 3% organic net sales growth; expansion in our Electrical margins, notably in our Lighting business; and the completion of our acquisition of Aclara,” said David G. Nord, Chairman, President and Chief Executive Officer. “Year-over-year trends in the quarter were consistently favorable across our major markets, in line with our expectations. Continued recovery in oil markets and strength in gas distribution complemented growth in electrical Transmission & Distribution markets. In the aggregate, non-residential and residential demand grew as well, although Lighting markets were soft and continued to face price headwind. Industrial volumes were up from prior year as we saw growth in both the light and heavy based businesses.
“Operating margins in the first quarter were significantly impacted by higher material costs across Hubbell. Electrical segment operating margins expanded despite this headwind, negative price in Lighting, and our investment in IoT capabilities. The benefits of productivity exceeding cost increases and incremental volume supported Electrical margins,” Nord commented. “As expected, operating margins in the Power segment declined year-over-year, mostly due to the inclusion of acquisitions, primarily Aclara. Excluding acquisitions, Power segment margins declined approximately 2 points from material costs headwinds.
“In February, we closed the previously announced Aclara acquisition. The integration is on track and the business is performing as anticipated. We’ve heard positive customer feedback and continue to be excited about the combination of Aclara’s technology and strong relationships with Hubbell’s broad product portfolio and customer reach.
“Historically, Q1 is seasonally our lowest contributor to free cash flow. This year, free cash flow was also impacted by a working capital investment due to atypically higher sales late in the quarter, as well as unusual items related to the Aclara transaction and tax reform payments.”
The comments and year-over-year comparisons in this segment review are based on first quarter results in 2018 and 2017.
Electrical segment net sales in the first quarter of 2018 increased 5% to $618 million compared to $588 million reported in the first quarter of 2017. Organic sales grew 3% in the quarter while acquisitions and foreign currency each added 1%. Operating income was $61 million, or 9.9% of net sales, compared to $53 million, or 9.0% of net sales, in the same period of 2017. The increases in operating income and operating margin were primarily due to productivity in excess of cost increases and higher volume, partially offset by increases in material costs and the ongoing investment in IoT capabilities.
Power segment net sales in the first quarter of 2018 increased 41% to $373 million compared to $265 million reported in the first quarter of 2017. Acquisitions added 38% to net sales in the quarter, while organic sales grew 3%. Operating income was $38 million, or 10.3% of net sales, compared to $55 million, or 20.8% of net sales, in the same period of 2017 (1). Excluding Aclara acquisition-related and transaction costs (which affected only the 2018 period), operating income was $60 million, or 16.2% of net sales, in the first quarter of 2018 (1). Changes in operating income and operating margin were primarily due to the impacts of acquisitions and increases in material costs.
SUMMARY & OUTLOOK
For the full year 2018, Hubbell anticipates end markets will grow approximately 2% to 4% in the aggregate and acquisitions completed to date will contribute approximately 15% to net sales. This end market outlook includes growth in the oil and gas markets of 5% to 7%, compared with 3% to 5% in our prior guidance; expectations for the other markets are unchanged at 2% to 4% growth for residential, Electrical T&D and industrial markets, and 1% to 3% growth for non-residential markets.
The Company continues to expect 2018 reported diluted earnings per share in the range of $6.10 to $6.50 and adjusted diluted earnings per share (“Adjusted EPS”) in the range of $6.95 to $7.35. Adjusted EPS excludes approximately $0.85 of acquisition-related and transaction costs of the Aclara acquisition. The Company believes Adjusted EPS is an insightful measure of underlying financial performance and cash flow generation given the impacts of the Aclara acquisition. These ranges include approximately $0.50 of legacy intangible asset amortization.
The Company continues to expect free cash flow for the year to exceed net income.
Nord further commented, “As we discussed at our Investor Day last month, we are excited at our prospects for sustainable high-single-digit earnings growth in our base business for 2018 and beyond, plus additional growth from Aclara. We are well positioned to benefit from growth across our end markets with a broad array of reliable product solutions and strong customer relationships, as well as tailwinds from the restructuring actions we’ve taken over the last three years and inclusion of Aclara and other recent acquisitions into our portfolio. We are focused on execution to overcome price/material cost headwinds and improve our cash flow conversion to create value for employees, customers and shareholders.”Tagged with financial results, Hubbell