Nov 1, 2021
• Q3 net sales +9% (organic +5%)
• Q3 diluted EPS of $1.98; adjusted diluted EPS of $2.24
• Update FY21 reported diluted EPS to $6.85-$7.05
• Update FY21 adjusted diluted EPS to $8.30-$8.50
Hubbell Incorporated (NYSE: HUBB) reported operating results for the third quarter ended September 30, 2021. “Hubbell successfully navigated through a dynamic operating environment in the third quarter,” said Gerben Bakker, Chairman, President and Chief Executive Officer. “While material inflation, supply chain disruptions, and increased freight and logistics costs caused operational headwinds in the quarter, the Company actively mitigated through price increases and other productivity initiatives. Price realization of +7% in the third quarter represented a significant acceleration from first half levels, and prior restructuring and organizational efficiency initiatives continue to deliver ongoing cost savings.”
Mr. Bakker continued, “Customer demand for reliable and efficient critical infrastructure solutions remained strong across our Utility and Electrical businesses, driving another quarter of significant orders growth. While unit volumes were down slightly year-over-year in the quarter due to supply chain constraints, above average backlog visibility gives us confidence in a strong finish to the full year.”
“In Utility Solutions, demand strength was broad-based across power, gas and water utility customers for T&D components, as well as communications & controls. Although supply chain disruptions limited third quarter shipments, secular trends including grid modernization, hardening of aging infrastructure, and the renewable energy transition are expected to continue driving attractive growth over the long term. In Electrical Solutions, sales and orders growth was led by strong demand for connectors, grounding and wiring products across light industrial verticals, including communications, solar, and industrial manufacturing markets. This strength was partially offset by softness in commercial and residential lighting markets.”
Mr. Bakker concluded, “We are pleased with the results of the third quarter, as our employees across the enterprise executed with urgency and efficiency to operate with discipline while serving our customers with best-in-class quality and reliability. Looking ahead, we are confident in our ability to deliver for our customers and shareholders as we work to fulfill strong demand while continuing to implement price and productivity initiatives.”
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.
THIRD QUARTER FINANCIAL HIGHLIGHTS
The comments and year-over-year comparisons in this segment review are based on third quarter results in 2021 and 2020.
Electrical Solutions segment net sales in the third quarter of 2021 increased 11% to $612 million compared to $551 million reported in the third quarter of 2020. Organic sales increased 9% in the quarter while acquisitions contributed 1% and foreign exchange contributed 1%. Operating income was $72.0 million, or 11.8% of net sales, compared to $65.9 million, or 12.0% of net sales in the same period of 2020. Adjusted operating income was $76.1 million, or 12.4% of net sales, in the third quarter of 2021 as compared to $70.1 million, or 12.7% of net sales in the same period of the prior year. Changes in adjusted operating profit and operating margin were driven primarily by strong price realization, modest volume growth, and restructuring benefits, offset by material inflation and higher logistics and supply chain costs.
Utility Solutions segment net sales in the third quarter of 2021 increased 8% to $602 million compared to $558 million reported in the third quarter of 2020. Organic sales increased 2% in the quarter, with acquisitions, net of dispositions, contributing approximately 6% growth. Total Utility T&D Components sales increased approximately 10% and Utility Communications and Controls sales increased by approximately 4%. Operating income was $83 million, or 13.8% of net sales, in the third quarter of 2021 as compared to $97 million, or 17.4% of net sales in the same period of 2020. Adjusted operating income was $98 million, or 16.3% of net sales, in the third quarter of 2021 as compared to $111 million, or 20.0% of net sales in the same period of the prior year. Decreases in adjusted operating profit and adjusted operating margin were primarily due to lower volumes, material inflation, and higher logistics and supply chain costs, partially offset by strong price realization and restructuring benefits.
Adjusted third quarter 2021 results exclude $0.26 of amortization of acquisition-related intangible assets. Adjusted third quarter 2020 results exclude $0.25 of amortization of acquisition-related intangible assets as well as $0.09 due to a pension settlement charge.
Net cash provided by operating activities was $98 million in the third quarter of 2021 versus $151.9 million in the comparable period of 2020. Free cash flow was $70 million in the third quarter of 2021 versus $135.2 million reported in the comparable period of 2020 as the Company built working capital to secure materials and components to serve strong customer demand.
SUMMARY & OUTLOOK
For the full year 2021, Hubbell anticipates sales growth of 12-13%. This expectation is comprised of 8-9% organic growth, including 5% price realization, bolstered by approximately 3-4% growth from acquisitions and a modest tailwind from foreign exchange.
Hubbell anticipates 2021 earnings per diluted share in the range of $6.85-$7.05 and anticipates adjusted diluted earnings per share (“Adjusted EPS”) in the range of $8.30-$8.50. 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, as well as a loss recognized on the disposal of a business during the second quarter of 2021. The Company believes Adjusted EPS is a useful measure of underlying performance in light of our acquisition strategy and core operations.
The earnings per share and adjusted earnings per share ranges are based on an adjusted tax rate of approximately 21% and include approximately $0.20-$0.25 per share of anticipated restructuring and related investment. The ranges also incorporate the impact of acquisitions, which we anticipate adding approximately $0.20 to full year adjusted earnings. The Company expects full year 2021 free cash flow conversion at approximately 100% of adjusted net income.