October 31, 2022
- Q3 diluted EPS of $2.78; adjusted diluted EPS of $3.08
- Q3 net sales +21% (organic +20%)
- Operating margin expansion of 200 bps; adjusted operating margin expansion of 190 bps
- Raise FY22 diluted EPS to $9.10-$9.30; adjusted diluted EPS of $10.25-$10.45
Hubbell Incorporated recently reported operating results for the third quarter ended September 30, 2022. The Company is reporting its diluted earnings per share data and adjusted diluted earnings per share data on a continuing operations basis.
“Hubbell delivered another strong quarter of operating performance,” said Gerben Bakker, Chairman, President and Chief Executive Officer. “Grid modernization and electrification continue to drive strong demand for Hubbell products in front of and behind the meter, while solid execution on price/cost contributed to significant operating margin expansion and operating profit growth in the quarter.”
Mr. Bakker continued, “Utility Solutions orders continue to outpace robust shipment levels as utility customers actively invest to harden and modernize critical grid infrastructure and telecommunications customers actively invest in broadband and fiber network upgrades. In Electrical Solutions, broad-based industrial growth and strong performance across datacenter, communications and renewables markets more than offset continued weakness in residential markets.”
Mr. Bakker concluded, “From an operating standpoint, we continue to effectively navigate a dynamic environment. Supply chain headwinds and significant non-material inflation persist, but price traction remains strong and material costs eased in the quarter. Overall, we are pleased with the year-to-date execution, and remain confident in our ability to continue delivering attractive near-term and long-term results for our shareholders.”
Certain terms used in this release, including “net debt”, “free cash flow”, “organic net sales”, “organic net sales growth”, “restructuring-related costs”, “Adjusted EBITDA”, and certain other “adjusted” measures, are defined under the section entitled “Non-GAAP Definitions.”
THIRD QUARTER FINANCIAL HIGHLIGHTS
The comments and year-over-year comparisons in this segment review are based on third quarter results in 2022 and 2021.
Utility Solutions segment net sales in the third quarter of 2022 increased 29% to $775 million compared to $602 million reported in the third quarter of 2021. Organic net sales increased 28% in the quarter while acquisitions added 1%. Total Utility T&D Components net sales increased approximately 38% and Utility Communications and Controls net sales increased by approximately 3%. Operating income was $130 million, or 16.8% of net sales, in the third quarter of 2022 as compared to $80 million, or 13.2% of net sales in the same period of 2021. Adjusted operating income was $144.1 million, or 18.6% of net sales, in the third quarter of 2022 as compared to $94 million, or 15.7% of net sales in the same period of the prior year. Increases in adjusted operating profit and adjusted operating margin were primarily due to volume growth and price realization in excess of material cost inflation, partially offset by higher logistics and supply chain costs, cost increases in excess of productivity, as well as increased investment in the business.
Electrical Solutions segment net sales in the third quarter of 2022 increased 12% to $542 million compared to $482 million reported in the third quarter of 2021. Organic net sales increased 10% in the quarter while acquisitions added 3%, and foreign exchange caused a 1% decrease. Operating income was $73.8 million, or 13.6% of net sales, compared to $66.3 million, or 13.8% of net sales in the same period of 2021. Adjusted operating income was $80.3 million, or 14.8% of net sales, in the third quarter of 2022 as compared to $69.6 million, or 14.5% of net sales in the same period of the prior year. Changes in adjusted operating profit and operating margin were driven primarily by volume growth and price realization in excess of material cost inflation, partially offset by higher logistics and supply chain costs, cost increases in excess of productivity and increased restructuring investment.
Adjusted EPS in the third quarter 2022 results exclude $0.28 of amortization of acquisition-related intangible assets and $0.02 due to a pension settlement charge. Adjusted EPS in the third quarter 2021 results exclude $0.25 of amortization of acquisition-related intangible assets. Results from discontinued operations are presented on a GAAP basis and include amortization of acquisition-related intangible assets, transaction and separation costs and gain on disposal of business.
Net cash provided by operating activities from continuing operations was $219.6 million in the third quarter of 2022 versus $98.4 million in the comparable period of 2021. Free cash flow was $194.3 million in the third quarter of 2022 versus $72.5 million in the comparable period of 2021.
SUMMARY & OUTLOOK
For the full year 2022, Hubbell anticipates diluted earnings per share in the range of $9.10-$9.30 and anticipates adjusted diluted earnings per share (“Adjusted EPS”) in the range of $10.25-$10.45. Adjusted EPS excludes amortization of acquisition-related intangible assets, which the Company expects to be approximately $1.05 for the full year and approximately $0.10 due to a pension settlement charge. The Company believes Adjusted EPS is a useful measure of underlying performance in light of our acquisition strategy and core operations.
Hubbell anticipates full year 2022 total sales growth of +18-19% and organic net sales growth of +17-18%, as compared to full year 2021. The Company anticipates net M&A contributing +1% to full year sales growth and approximately $0.10 of full year Adjusted EPS.
Updated 2022 guidance also incorporates the anticipation of accelerated investments in the fourth quarter of 2022. These investments include an acceleration of planned restructuring and footprint optimization initiatives, targeted capacity expansion in areas with high visibility to strong demand, and innovation initiatives in strategic growth verticals. The Company expects approximately $0.30-$0.40 per share of restructuring and related investments for the full year 2022.
The earnings per share and adjusted earnings per share ranges are based on an adjusted tax rate of ~22%. The Company expects full year 2022 free cash flow conversion of approximately 90% of adjusted net income.
Hubbell will conduct an earnings conference call to discuss its third quarter 2022 financial results today, October 25, 2022 at 10:00 a.m. ET. A live audio of the conference call will be available and can be accessed by visiting Hubbell’s “Investor Relations – Events/Presentations” section of www.hubbell.com. Audio replays will also be available at the conclusion of the call by visiting www.hubbell.com and selecting “Investors” from the options at the bottom of the page and then “Events/Presentations” from the drop-down menu.
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