Both Hubbell and Eaton posted their earnings reports at the end of January, and both reported having positive fourth quarters for 2017.
But during their conference calls to discuss their earnings, both seemed certain of the same thing: there is some uncertainty when it comes to LED lighting. David Nord, Chairman, President and CEO of Hubbell used the word “spotty” when discussing the lighting market today. Craig Arnold, Chairman and CEO of Eaton, used the word “conundrum.”
A reporter asked Nord about the lighting business and contractor backlogs translating to firm orders. Nord responded, “I mean there’s nothing enlightening there. It’s pretty spotty. I think the outlooks for lighting and demand are pretty muted. I think we’ve come a long way from the go-go days of double-digit growth expectations. And I think now it’s a case of navigating relatively flat markets, and trying to navigate a tougher pricing environment.”
When asked a similar question during the Eaton conference call, Arnold had a similar response. “It really has been a bit of a conundrum, the market that has pretty consistently grown and grown faster than many of the other end markets that we saw this period of retrenchment or flatness in 2017,” Arnold responded. “We do think the market itself is probably more competitive today than it has been in the past as LED technology becomes more proven and more of a standard. We think certainly if you are probably seeing more competition, more price competition in that market than we have seen historically. And so we will have to wait and see how that plays through.”
One certainty is both Hubbell and Eaton are seeing increases in LED and connected lighting sales. “We are certainly continuing to see the ramp in connected and controlled lighting. In fact our growth in that segment of the market was very handsome and very much consistent with what you heard from others,” Arnold told the media. “The other thing I would say on the positive side… we continue to see growth in LED. In fact our LED business continue to grow nicely in Q4. Today LEDs represent 79% of our revenues and so that continues to be a positive for us. We take a lot of confidence in the fact that buildings are built, they need lights and the end markets that we are serving continue to be quite robust.”
But both CEOs said they will be looking closely at their lighting segments, just like they will closely monitor any other segments. “We are clearly focused on making sure that we’re participating in the markets that make sense for us,” Nord said. “That’s always been our strategy to focus on the more specified products where you can have a better capability of holding and commanding a price that makes our profit profile scream. So there’s a lot of questions out there, but we think at least our business has stabilized, and we think where we see the market has stabilized. And that’s our plan for the year.”
“The way we think about lighting is no different in the way we think about the rest of the portfolio,” Arnold said. “We have set very specific goals with respect to every one of these businesses have to be good businesses in their own right. They have to stand on their own two feet. And so lighting is no different than the way we view hydraulics or vehicle or anything else. And we constantly look at these businesses and say is it a good business in it’s own way, will it add to our growth, can it deliver the margin targets that we anticipate and so every one of our businesses go through that screen. Are there some synergies associated with going through similar distributors, sure there are some. But even having said that, every business has to stand on its own two feet and that’s the way we view lighting and it’s very much consistent with the way we view every piece of the portfolio.”
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