SHELTON, Conn. — Hubbell Incorporated reported operating results for the fourth quarter and full year ended December 31, 2016.
Net sales in the fourth quarter of 2016 were $854 million, an increase of 3% compared to the $830 million reported in the same period of 2015. Operating income in the quarter was $108 million, or 12.6% of net sales, as compared to $112 million, or 13.5% of net sales, in the same period of 2015. Excluding $16.0 million and $6.7 million of restructuring and related costs in 2016 and 2015, respectively, adjusted operating income increased 4%(1) in the fourth quarter. Net income attributable to Hubbell in the fourth quarter of 2016 was $64 million as compared to $62 million reported in the same period of 2015. Earnings per diluted share for the fourth quarter of 2016 were $1.16, compared to $1.06 in the fourth quarter of 2015. Excluding restructuring and related costs in both periods and the costs associated with the Common Stock reclassification in 2015, adjusted earnings per diluted share for the fourth quarter of 2016 were $1.35 compared to $1.31 in the same period of 2015(1).
Net cash provided from operating activities of $138 million in the fourth quarter of 2016 included $16 million of voluntary contributions to defined benefit pension plans and was flat to the prior year’s fourth quarter. Free cash flow (defined as cash flow provided by operating activities less capital expenditures) was $116 million in the fourth quarter of 2016 versus $113 million reported in the comparable period of 2015(3).
Net sales for the full year 2016 were $3.5 billion, an increase of 3% compared to the full year 2015. Operating income was $478 million compared to $475 million for the comparable period of 2015. Excluding restructuring and related costs, adjusted operating income was $513 million compared to $514 million in the same period of 2015(1). Net income attributable to Hubbell for the full year 2016 was $293 million compared to the $277 million reported in 2015. Earnings per diluted share were $5.24 for 2016 and $4.77 for 2015. Excluding restructuring and related costs in both years and the costs associated with the Common Stock reclassification in 2015, adjusted earnings per diluted share for the full year 2016 were up 3% to $5.66, compared to $5.52 in the same period of 2015(1). Net cash provided from operating activities was $398 million compared to $331 million reported in 2015. Free cash flow was $331 million compared to $254 million reported in 2015(3).
OPERATIONS REVIEW
“End markets trended largely as expected in the fourth quarter,” said David G. Nord, Chairman, President and Chief Executive Officer. “Flat year-over-year organic sales reflected moderating declines in core industrial and oil markets, robust growth in residential demand, modest increases in non-residential construction, and flat distribution markets. Acquisitions drove sales growth in both the quarter and the year.
“In response to the ongoing shift to LED products in the Lighting market, we intensified our efforts in the fourth quarter to better align our operations with the needs of our business. As a result, we incurred higher restructuring and related costs than previously expected due to the proposed consolidation of two Lighting facilities,” Nord commented. “More generally, restructuring and related activities across the Company are exceeding return expectations, with incremental savings greater than $0.30 per diluted share realized in 2016. Since we began our restructuring and related program in late 2014, we’ve realized cumulative savings of more than $0.45 per diluted share from investment of $0.93 per diluted share and exited 20 manufacturing and warehouse facilities, representing almost 10% of square footage.”
In association with the aforementioned proposed Lighting facility consolidation, the Company expects to incur approximately $0.30 of restructuring and related costs per diluted share, of which approximately $0.19 were recognized in the fourth quarter of 2016; the remainder is expected to be incurred in 2017. The costs of the proposed consolidation were partially offset by a gain on the sale of a real estate asset associated with a separate Lighting restructuring action.
The charges related to the Lighting facility consolidation consist primarily of employee-related costs, including an anticipated withdrawal liability associated with a multi-employer pension plan obligation. The Company is currently bargaining with the union about the proposed consolidation plan, and certain aspects of the activities related to the consolidation plan may require adjustments, including expected costs and timing.
SEGMENT REVIEW
The year-over-year comparisons in this segment review are based on fourth quarter results in 2016 and 2015.
Electrical segment net sales in the fourth quarter of 2016 increased 3% to $602 million compared to $586 million reported in the fourth quarter of 2015. Acquisitions added 3% to sales in the quarter. Organic growth of 1% offset the unfavorable impact of foreign currency translation of 1%. Operating income was $54 million, or 9.0% of net sales, compared to $62 million, or 10.6% of net sales in the same period of 2015. Excluding restructuring and related costs, adjusted operating income was $69 million, or 11.5% of net sales compared to $69 million, or 11.7% of net sales in the same period of 2015(1).
Power segment net sales in the fourth quarter of 2016 increased 4% to $253 million compared to $244 million reported in the fourth quarter of 2015. Acquisitions added 6% to sales in the quarter while organic sales decreased 2% due to lower telecom shipments and transmission project delays. Compared to the fourth quarter of 2015, operating income increased 9% to $54 million, or 100 basis points to 21.3% of net sales. Excluding restructuring and related costs, adjusted operating income also increased 9% and margin expanded 100 basis points(1). Both increases were primarily due to productivity in excess of cost inflation, including the reduction of an environmental liability.
SUMMARY & OUTLOOK
“Looking back on 2016, we navigated choppy end markets while our acquisition program delivered three percentage points of sales growth,” stated Nord. “Savings from cost actions helped support operating margins and partially offset unfavorable price, foreign exchange, and mix impact of industrial and oil market declines. We also benefited from a lower tax rate, as well as share repurchases completed early in the year. Adjusted diluted earnings per share were within the range we expected. We also absorbed higher restructuring and related costs than previously communicated. Free cash flow was greater than net income. All told, solid and steady performance.
“In 2017, we expect growth across end markets to be more consistent than in 2016; we also expect continued improvements in our cost structure, as well as a number of anticipated challenges. We are planning to outperform a slow-growth macroeconomic environment of approximately two percent in the aggregate, comprised of low to mid single digit growth in non-residential and residential markets and modest growth in transmission and distribution, industrial and energy markets. We anticipate tailwinds from cost actions and lower restructuring spend, in addition to incremental profit from higher sales. Pricing challenges are expected to continue at Lighting, as are headwinds from foreign exchange and material costs across the Company.” Nord added, “We anticipate full year earnings per diluted share in the range of $5.60 to $5.80, up 7% to 11% compared to 2016 and including approximately $0.25 of restructuring and related costs. This range incorporates approximately $0.20 of incremental savings in 2017 from restructuring and related actions initiated prior to year-end 2016. We also expect free cash flow to equal net income in 2017.”
Nord concluded, “Our long-term strategy remains focused on serving our customers with reliable and innovative solutions delivered through a competitive cost structure and allocating capital effectively, including funding acquisitions that complement organic growth, to create sustainable shareholder value.”
The full report can be viewed here.
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