SHELTON, Conn.—Hubbell Incorporated (HUBB) today reported operating results for the second quarter ended June 30, 2017.
Net sales in the second quarter of 2017 were $948 million, an increase of 4% compared to the $909 million reported in the second quarter of 2016. Operating income in the quarter was $131 million as compared to $132 million in the same period of 2016. Excluding restructuring and related costs in both periods, adjusted operating income was $137 million in the second quarter of 2017, compared to $138 million in the second quarter of 2016 (1). Net income attributable to Hubbell in the second quarter of 2017 was $79 million compared to $81 million reported in the comparable period of 2016. Earnings per diluted share for the second quarter of 2017 were $1.43 compared to $1.45 reported in the second quarter of 2016. Excluding restructuring and related costs in both periods, adjusted earnings per diluted share were $1.51 in the second quarter of 2017, compared to $1.53 in the second quarter of 2016 (1).
Net cash provided from operating activities was $69 million in the second quarter of 2017 versus $64 million in the comparable period of 2016. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $50 million in the second quarter of 2017 and in the comparable period of 2016 (3).
For the first six months of 2017 net sales were $1.8 billion, an increase of 3% compared to the same period of the prior year. Operating income was $235 million compared to $234 million for the comparable period of 2016. Excluding restructuring and related costs, adjusted operating income for the first six months of 2017 was $249 million, compared to $247 million for the comparable period of 2016 (1). Net income attributable to Hubbell was $142 million in the first six months of 2017 compared to $142 million for the comparable period of 2016. Earnings per diluted share for the first six months of 2017 were $2.56 compared to $2.53 reported for the first six months of 2016. Excluding restructuring and related costs in both periods, adjusted earnings per diluted share for the first six months of 2017 were $2.74 compared with $2.69 for the comparable period of 2016 (1). Net cash provided from operating activities was $132 million for the first six months of 2017 versus $127 million in the comparable period of 2016. Free cash flow was $99 million compared to $97 million reported in the first six months of 2016 (3).
OPERATIONS REVIEW
“Organic sales growth across all five key markets was a highlight of the quarter,” said David G. Nord, Chairman, President and Chief Executive Officer. “We saw strength in electrical T&D markets, primarily due to small- and mid-sized transmission projects and higher capital spend, respectively. Notably, oil markets expanded, marking the second consecutive quarter of year-over-year stabilization. Growth in the residential market was broad-based across renovation and new construction, as were modest increases in non-residential. Industrial markets were up slightly in the aggregate, with strength in telecommunications and consumer-driven areas offsetting moderating weakness in heavy industry.
“Beyond organic growth, we continue to grow through acquisitions. As previously disclosed, we acquired two businesses early in the quarter: Advance Engineering Corporation (AEC) and iDevices. With regard to AEC, we continue to see great opportunity for our comprehensive product offering in the gas distribution market, driven by the replacement of aged infrastructure.” Mr. Nord continued, “The addition of iDevices to Hubbell is already proving to be mutually beneficial. The complementary combination of iDevices` Internet of Things engineering capabilities with the broad resources of Hubbell allows us to accelerate innovation and, ultimately, better serve our customers.
“Operationally, we continue to focus on productivity and cost control as we face rising material costs and pricing pressure in certain markets. Automation in our factories, ongoing cost discipline, and restructuring initiatives are a few examples.” Mr. Nord added, “With regard to Lighting, we are encouraged by the unit growth of the market and the continued stabilization of our operations. The remediation efforts we put in place to address the restructuring-driven inefficiencies identified in the first quarter are progressing as expected. We are on course to have these issues largely behind us by the end of the third quarter. Factories are performing well and, while we are not yet ready to claim victory, we are seeing improvement in our greenfield national distribution center.” Mr. Nord concluded, “In addition to acquisitions, we put our free cash flow to work funding capital expenditures, paying dividends, and repurchasing shares in the quarter.”
SEGMENT REVIEW
The comments and year-over-year comparisons in this segment review are based on second quarter results in 2017 and 2016.
Electrical segment net sales in the second quarter of 2017 increased 2% to $656 million compared to $641 million reported in the second quarter of 2016. Organic sales grew 2% in the quarter while acquisitions added 1% and offset foreign currency headwind. Operating income was $71 million, or 10.8% of net sales, compared to $77 million, or 12.0% of net sales, in the same period of 2016. Excluding restructuring and related costs, adjusted operating income was $76 million, or 11.6% of net sales compared to $83 million, or 12.9% of net sales in the same period of 2016 (1). The decreases in adjusted operating income and adjusted operating margin were primarily due to unfavorable price/cost/productivity at Lighting and the dilutive impact of recent acquisitions, partially offset by savings from cost actions and the benefit of higher volume(1).
Power segment net sales in the second quarter of 2017 increased 9% to $292 million compared to $267 million reported in the second quarter of 2016. Organic sales grew 5% while acquisitions added 4% to net sales in the quarter. Compared to the second quarter of 2016, operating income increased 8% to $60 million, and was down 20 basis points to 20.4% of net sales. Excluding restructuring and related costs, adjusted operating income was $61 million, or 20.9% of net sales compared to $56 million, or 20.9% of net sales in the same period of 2016 (1). The increase in adjusted operating income was primarily due to productivity gains in excess of cost increases and the increased volume. Adjusted operating margins were in line with 2016 as productivity gains in excess of cost increases were tempered by price and material cost headwinds.
SUMMARY & OUTLOOK
For the full year 2017, Hubbell is modestly increasing its expected range for end market growth to 2.5% to 3.0% in the aggregate, while acquisitions completed to date are still expected to contribute approximately 2% to net sales. This end market outlook includes growth of 1% to 3% for T&D compared with 0% to 2% previously. All other end market expectations remain unchanged: growth in oil and gas, industrial and non-residential markets of 2% to 4%; growth in residential of 4% to 6%.
The Company continues to expect 2017 diluted earnings per share in the range of $5.40 to $5.60. This expectation reflects the improved market outlook, as well as restructuring and related costs of approximately $0.30 (compared with $0.25 previously). Hubbell continues to expect free cash flow to equal net income in 2017.
“We are optimistic about accelerating organic growth across end markets and our ability to benefit from these trends. Our portfolio of strong, high quality brands is prepared to satisfy increasing customer demand. We expect the higher growth in T&D will more than offset the lingering softness in heavy industry, which is recovering a bit more slowly than we anticipated.” Mr. Nord added, “The traction we are realizing on restructuring and related savings supports our vision of a more efficient and flexible cost structure going forward. I am confident we are taking the appropriate and necessary steps to position the Company for continued success.”
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