SHELTON, CT. – Hubbell Incorporated today reported operating results for the third quarter ended September 30, 2020.
“Hubbell delivered another quarter of operating margin expansion and robust free cash flow generation, with strength in Electrical T&D driven by secular grid modernization trends partially offsetting continued softness in most other end markets,” said Gerben W. Bakker, President and Chief Executive Officer. “We continue to effectively manage through significant economic uncertainty by focusing on what we can control, and our ongoing operational transformation is producing sustainable productivity savings. These benefits, along with lower operating expenses and execution on price/cost, drove margin expansion in the quarter despite volume declines. Additionally, we again generated robust cash flow in the quarter and expect to deliver approximately $550 million in free cash flow for the full year.”
Bakker continued, “Grid hardening and modernization initiatives, along with ongoing renewable energy trends, drove strength in demand for T&D components and led to high single digit organic growth in our Power Systems business. Power Systems volumes also benefited from increased storm activity, which we estimate contributed approximately 4 points to year-over-year volume growth in the third quarter. As anticipated, Aclara revenues continued to be affected by regulatory restrictions on certain project deployments and installations as a result of the COVID-19 pandemic, although these headwinds moderated as the third quarter progressed. While our Electrical volumes improved sequentially relative to the second quarter, these end markets continued to face broad-based weakness as expected. Residential lighting markets were a notable exception, with double-digit organic growth in the quarter driven by strength in e-commerce and retail channels.”
Bakker concluded, “Hubbell’s third quarter results demonstrate strong execution in an uncertain environment. While we remain cautious in our near-term volume outlook, we see continued runway for operational improvement ahead of us, and are confident in Hubbell’s ability to drive consistent and differentiated performance. Our high quality portfolio of electrical and utility solutions with strong brand value and best in class reliability positions us well for long-term success.”
THIRD QUARTER FINANCIAL HIGHLIGHTS
The comments and year-over-year comparisons in this segment review are based on third quarter results in 2020 and 2019.
Electrical segment net sales in the third quarter of 2020 was $591 million compared to $689 million reported in the third quarter of 2019. Organic sales declined 14% in the quarter while the net impact of acquisitions and divestitures was neutral. Operating income was $71 million, or 11.9% of net sales, compared to $90 million, or 13.1% of net sales in the same period of 2019. Adjusted operating income was $76 million, or 12.9% of net sales, in the third quarter of 2020 as compared to $96 million, or 13.9% of net sales in the same period of the prior year. The decreases in operating income and operating margin were primarily due to lower volumes, partially offset by productivity savings from restructuring and footprint optimization initiatives, lower operating expenses, and price realization in excess of material costs.
Utility Solutions segment net sales in the third quarter of 2020 increased 0.5% to $517 million compared to $515 million reported in the third quarter of 2019. Organic sales were approximately flat compared to the third quarter of 2019, with acquisitions contributing approximately 1% growth and foreign exchange a modest headwind. Power Systems sales increased 9% and Aclara sales declined by 16%. Operating income was $92 million, or 17.8% of net sales, compared to $83 million, or 16.1% of net sales in the same period of 2019. Adjusted operating income was $105 million, or 20.3% of net sales, in the third quarter of 2020 as compared to $95 million, or 18.4% of net sales in the same period of the prior year. Increases in operating income and operating margin were primarily due to price realization in excess of material costs, lower operating expenses and positive mix.
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. Adjusted third quarter 2019 results exclude $0.24 of amortization of acquisition-related intangible assets, as well as a $0.37 gain on divestiture of our Haefely high voltage test business and a $0.09 investment loss recorded in other expense.
Net cash provided from operating activities was $152 million in the third quarter of 2020 versus $176 million in the comparable period of 2019. Free cash flow was $135 million in the third quarter of 2020 versus $151 million reported in the comparable period of 2019.
SUMMARY & OUTLOOK
For the full year 2020, Hubbell now anticipates earnings per diluted share in the range of $6.30-$6.45 and adjusted diluted earnings per share (“Adjusted EPS”) in the range of $7.45-$7.60. Adjusted EPS excludes amortization of acquisition-related intangible assets, which the Company expects to be approximately $1.00 for the full year. 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 $0.40 per share of anticipated restructuring and related investment. The ranges also incorporate the impact of a previously completed divestiture and previously completed acquisitions, the net of which is expected to be a modest tailwind to 2020 adjusted EPS. The Company expects free cash flow to be approximately $550 million in 2020.
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