SHELTON, Conn. — Hubbell Incorporated reported operating results for the first quarter ended March 31, 2017.
Net sales in the first quarter of 2017 were $852 million, an increase of 2% compared to the $835 million reported in the first quarter of 2016. Operating income in the quarter was $104 million as compared to $102 million in the same period of 2016. Excluding restructuring and related costs in both periods, adjusted operating income was $112 million in the first quarter of 2017, compared to $109 million in the first quarter of 2016. Net income attributable to Hubbell in the first quarter of 2017 was $63 million compared to $61 million reported in the comparable period of 2016. Earnings per diluted share for the first quarter of 2017 were $1.13 compared to $1.08 reported in the first quarter of 2016. Excluding restructuring and related costs in both periods, adjusted earnings per diluted share were $1.23 in the first quarter of 2017, compared to $1.16 in the first quarter of 2016.
Net cash provided from operating activities was $63 million in the first quarter of 2017 versus $62 million in the comparable period of 2016. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $49 million in the first quarter of 2017 versus $47 million reported in the comparable period of 2016.
“Sales growth from end markets in the quarter was complemented by our acquisition activity,” said David G. Nord, Chairman, President and Chief Executive Officer. “While performance was more consistent across end markets than it had been over the past several quarters, we continued to see commercial construction and residential markets outgrow higher margin oil and core industrial markets. Notably, global oil markets showed signs of stabilization while the North American luminaire lighting market was soft. Electrical T&D markets expanded in the quarter, driven by distribution.
“Acquisitions remain an important contributor to our growth strategy, and in April, we acquired two businesses. The first is Advance Engineering Corporation (AEC), a gas components manufacturer that complements our existing offering in the natural gas distribution vertical. AEC joins our recent acquisitions of GasBreaker and Lyall to bolster our leadership position in main-to-meter mechanical solutions in this area. The second acquisition is iDevices, a developer with embedded firmware and app development expertise with custom-built Internet of Things Cloud infrastructure. iDevices accelerates our capabilities and expertise in IoT technology, propelling us more quickly toward our vision of providing Tier 3 energy management solutions via connected hardware with a software front-end. Both acquisitions provide tremendous opportunity to differentiate and enhance our broad base of products and solutions in growing markets.
“Operating with discipline also continues to be a focus area,” commented Nord. “Adjusted operating margins in the quarter improved year-over-year, despite price and material cost headwinds across the Company. Strong performance at Power more than offset softness at Electrical. We invested $0.10 of diluted EPS in the quarter in cost reduction actions, and while the necessary restructuring efforts resulted in temporary inefficiencies in Lighting’s distribution and manufacturing capabilities, our realized savings are on track with our full year outlook.” Nord added, “We also repurchased $53 million of shares in the quarter.”
The comments and year-over-year comparisons in this segment review are based on first quarter results in 2017 and 2016.
Electrical segment net sales in the first quarter of 2017 increased 1% to $588 million compared to $583 million reported in the first quarter of 2016. Organic sales grew 1% in the quarter while acquisitions added 1% and offset foreign currency headwind. Operating income was $50 million, or 8.5% of net sales, compared to $55 million, or 9.5% of net sales, in the same period of 2016. Excluding restructuring and related costs, adjusted operating income was $57 million, or 9.7% of net sales compared to $62 million, or 10.6% of net sales in the same period of 2016. The decreases in adjusted operating income and adjusted operating margin were primarily due to unfavorable price, material costs and mix, partially offset by savings from cost actions.
Power segment net sales in the first quarter of 2017 increased 5% to $265 million compared to $252 million reported in the first quarter of 2016. Acquisitions added 4% to net sales in the quarter, while organic sales grew 1% and the impact of foreign currency translation was immaterial. Compared to the first quarter of 2016, operating income increased 16% to $54 million, or 200 basis points to 20.4% of net sales. Excluding restructuring and related costs, adjusted operating income was $56 million, or 21.0% of net sales compared to $47 million, or 18.6% of net sales in the same period of 2016. Changes in adjusted operating income and adjusted operating margin were primarily due to productivity in excess of cost increases.
SUMMARY & OUTLOOK
For the full year 2017, Hubbell anticipates end markets will grow approximately 2% to 3% in the aggregate and acquisitions completed to date will contribute approximately 2% to net sales. This end market outlook includes growth in the oil and gas, as well as industrial, markets of 2% to 4%, compared with 0% to 2% previously; expectations for the other markets are unchanged at 4% to 6% growth for residential, 2% to 4% growth for non-residential, and flat to 2% growth for Electrical T&D. This higher growth is expected to partially offset the restructuring-driven inefficiencies at Lighting. In addition, the Company expects its recent iDevices acquisition will be approximately $0.10 dilutive to 2017 EPS.
In light of the headwind at Lighting and the acquisitions completed to date, including the investment in IoT capabilities via iDevices, the Company is reducing its expectation for 2017 diluted earnings per share by $0.20 to $5.40 to $5.60. This expectation still anticipates approximately $0.25 of restructuring and related costs and $0.20 of incremental savings from restructuring and related actions. Hubbell continues to expect free cash flow to equal net income in 2017.
“We are encouraged by the improved outlook in our end markets, while we continue to experience softness at Lighting as we work through costs related to restructuring initiatives, including facility consolidations and supply chain management, over the next several months. Fixing Lighting’s challenges is a critical priority in the near-term, and we have dedicated resources working to develop and implement action plans,” Nord added. “While our recent iDevices acquisition is expected to be dilutive to 2017 EPS, we are confident that our investment in IoT engineering and R&D resources and know-how will drive significant value over time. Our product innovation, customer relationships and complementary acquisitions position us well to capitalize on expanding end markets. Combined with savings from cost actions and effective capital deployment, we are focused on delivering significant shareholder value over the long-term.”
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