May 4, 2021
Hubbell Incorporated reported operating results for the first quarter ended March 31, 2021.
“Hubbell achieved year-over-year earnings growth and adjusted operating margin expansion in the first quarter,” said Gerben Bakker, President and Chief Executive Officer. “We continue to see improvement in demand across each of our end markets, reflected in sequential sales growth in the quarter, as well as strengthening orders across both segments. In Utility Solutions, renewables projects and grid modernization initiatives in electrical transmission and distribution markets continue to drive strong demand for T&D Components. While Communications & Controls deployments remained affected by project delays as a result of the COVID-19 pandemic, we saw significant order growth in AMI and meters during the first quarter, supporting our expectations for a return to growth over the balance of the full year. In Electrical Solutions, markets continue to steadily improve. Non-residential markets remained stable in the quarter, while light industrial verticals strengthened, driving increased demand for our Connectors & Grounding and Wiring Systems products.”
“Operationally, our prior investments in restructuring initiatives are producing sustainable productivity savings and contributing to adjusted operating margin expansion. We also continue to actively manage our cost structure and benefited from lower year-over-year operating expenses in the quarter. While we achieved positive price realization in the quarter, these tailwinds were more than offset by inflationary pressures in commodities and freight.”
Mr. Bakker concluded, “Looking ahead, we are confident that our markets are rebounding and that Hubbell is successfully positioned to benefit from near-term economic recovery, as well as long-term electrification and grid modernization megatrends. While we expect inflationary pressures to persist, we have already taken significant pricing and productivity actions, with further initiatives set to be implemented. We also continue to actively manage our cost structure to drive operational efficiencies while ensuring Hubbell’s continued ability to provide our customers with safe, reliable and efficient critical infrastructure solutions.”
Certain terms used in this release, including “Net debt”, “Free Cash Flow”, “Organic net sales”, “Organic growth”, “Restructuring-related costs”, “EBITDA”, and certain “adjusted” measures, are defined under the section entitled “Non-GAAP Definitions.” See page 8 for more information.
FIRST QUARTER FINANCIAL HIGHLIGHTS
The comments and year-over-year comparisons in this segment review are based on first quarter results in 2021 and 2020.
Electrical Solutions segment net sales in the first quarter of 2021 was $546 million compared to $564 million reported in the first quarter of 2020. Organic sales declined 4% in the quarter while acquisitions contributed 1%. Operating income was $53.0 million, or 9.7% of net sales, compared to $52.5 million, or 9.3% of net sales in the same period of 2020. Adjusted operating income was $57.2 million, or 10.5% of net sales, in the first quarter of 2021 as compared to $57.3 million, or 10.2% of net sales in the same period of the prior year. Expanding operating margins were driven primarily by lower operating expenses and restructuring benefits, partially offset by lower volumes and headwinds from price/cost.
Utility Solutions segment net sales in the first quarter of 2021 increased 1.1% to $532 million compared to $527 million reported in the first quarter of 2020. Organic sales declined 4% in the quarter, with acquisitions contributing approximately 5% growth. Foreign exchange was a modest headwind. Utility T&D Components sales increased approximately 6% and Utility Communications and Controls sales declined by approximately 8%. Operating income was $65 million, or 12.1% of net sales, compared to $66 million, or 12.6% of net sales in the same period of 2020. Adjusted operating income was $83 million, or 15.5% of net sales, in the first quarter of 2021 as compared to $81 million, or 15.4% of net sales in the same period of the prior year. Increases in adjusted operating income and operating margin were primarily due to lower operating expenses, partially offset by lower organic volumes and headwinds from price/cost. Acquisitions contributed to increased operating profit in the quarter.
Adjusted first quarter 2021 results exclude $0.30 of amortization of acquisition-related intangible assets. Adjusted first quarter 2020 results exclude $0.27 of amortization of acquisition-related intangible assets.
Net cash provided by operating activities was $59 million in the first quarter of 2021 versus $108 million in the comparable period of 2020. Free cash flow was $39 million in the first quarter of 2021 versus $91 million reported in the comparable period of 2020 as the Company built working capital to serve strengthening market demand.
SUMMARY & OUTLOOK
For the full year 2021, Hubbell anticipates sales growth of 8-10%, consisting of 5-7% organic growth and approximately 3% growth from acquisitions. By end market, the Company expects growth of 3-5% in Utility T&D Components, 4-6% in Utility Communications and Controls, 4-6% in Industrial, 3-5% in Residential, and (1-3%) in Non-Residential.
Hubbell anticipates 2021 earnings per diluted share in the range of $6.80-$7.20 and anticipates adjusted diluted earnings per share (“Adjusted EPS”) in the range of $8.20-$8.60. Adjusted EPS excludes amortization of acquisition-related intangible assets, which the Company expects to be approximately $1.15 for the full year. Adjusted EPS also excludes a loss on the early extinguishment of debt from the 2022 Notes that were redeemed by the Company on April 2, 2021. The Company believes Adjusted EPS is a useful measure of underlying performance in light of our acquisition strategy.
The earnings per share and adjusted earnings per share ranges are based on an adjusted tax rate of 22-23% and continue to include approximately $0.30 per share of anticipated restructuring and related investment. The ranges also incorporate the impact of acquisitions, which we continue to anticipate adding approximately $0.25 to full year adjusted earnings. We continue to expect full year 2021 free cash flow conversion of approximately 110% on adjusted net income.
As previously announced, the Company successfully priced an offering of $300 million aggregate principal amount of 2.300% senior notes maturing in 2031. Net proceeds from the offering, together with cash on hand, were used to redeem in full all of the Company’s outstanding 3.625% senior notes due 2022 in an aggregate principal amount of $300 million. Mr. Bakker commented, “This successful refinancing further bolsters our strong liquidity position, and enables Hubbell to continue investing in attractive growth opportunities to better serve our customers and add value for our shareholders.”