Manufacturers

Hubbell Beats Wall Street 4Q Forecasts

SHELTON, Conn. — Hubbell Incorporated today reported operating results for the fourth quarter and full year ended December 31, 2017.

Net sales in the fourth quarter of 2017 were $918 million, an increase of 7% compared to the $854 million reported in the same period of 2016. Operating income in the quarter was $123 million, or 13.4% of net sales, as compared to $108 million, or 12.6% of net sales, in the same period of 2016. Excluding $3 million and $16 million of restructuring and related costs in 2017 and 2016, respectively, and $7 million of Aclara transaction costs in 2017, adjusted operating income increased 7% in the fourth quarter. The effective tax rate in the fourth quarter of 2017 was 80.0% and included a charge of approximately $57 million related to the U.S. Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”). The tax charge included amounts primarily related to the deemed mandatory repatriation and the benefit of a revaluation of our net deferred tax liabilities. The adjusted effective tax rate in the fourth quarter of 2017 was 28.7%, compared to 32.9% in the comparable period of 2016. Net income attributable to Hubbell in the fourth quarter of 2017 was $20 million as compared to $64 million reported in the same period of 2016. Adjusted net income, which excludes U.S. Tax Reform and Aclara transaction costs from 2017 as well as restructuring and related costs in both periods, was $85 million in the fourth quarter of 2017, compared to $75 million in the same period of 2016.  Earnings per diluted share for the fourth quarter of 2017 were $0.37, compared to $1.16 in the fourth quarter of 2016. Adjusted earnings per diluted share for the fourth quarter of 2017 were $1.54 compared to $1.35 in the same period of 2016.

Net cash provided from operating activities was $150 million in the fourth quarter of 2017.  Free cash flow (defined as cash flow provided by operating activities less capital expenditures) was $124 million in the fourth quarter of 2017 versus $120 million reported in the comparable period of 2016.

Net sales for the full year 2017 were $3.7 billion, an increase of 5% compared to the full year 2016. Operating income was $504 million compared to $478 million for the comparable period of 2016. Excluding restructuring and related costs and Aclara transaction costs, adjusted operating income was $534 million compared to $513 million in the same period of 2016. The effective tax rate in 2017 including U.S. Tax Reform was 43.6%. The adjusted effective tax rate in 2017 of 30.8% was flat compared to 2016. Net income attributable to Hubbell for the full year 2017 was $243 million compared to the $293 million reported in 2016. Earnings per diluted share were $4.39 for 2017 and $5.24 for 2016. Excluding restructuring and related costs in both years, as well as Aclara transaction costs, U.S. Tax Reform, and refinancing costs in 2017, adjusted earnings per diluted share for the full year 2017 were up 5% to $5.93, compared to $5.66 in the same period of 2016. Net cash provided from operating activities was $379 million compared to $411 million reported in 2016. Free cash flow was $299 million compared to $344 million reported in 2016.

OPERATIONS REVIEW

“We had a strong and active finish to 2017, with 5% organic growth in the fourth quarter, solid margins, and the announcement of our intention to acquire Aclara, in addition to the passage of U.S. Tax Reform,” said David G. Nord, Chairman, President and Chief Executive Officer. “Year-over-year market trends in the fourth quarter were generally consistent with our experience in the third quarter.  Continued recovery in oil markets and strength in gas complemented utility capex and storm-related activity in electrical Transmission & Distribution markets. Non-residential and residential demand grew as well, although in Lighting markets, unit growth was once again dampened by price headwind. Industrial volumes were mixed with declines in heavy industrial based businesses, and improvement in telecom.

“The highlight of adjusted operating margin performance in the fourth quarter was expansion in the Electrical segment, despite material cost headwind across Electrical and negative price in Lighting. The benefits of incremental volume; ongoing productivity efforts, including Lighting remediation; and savings from restructuring actions bolstered Electrical margins and more than offset our investment in Internet of Things capabilities,” Mr. Nord commented. “As expected, adjusted operating margins in the Power segment declined year-over-year, primarily from material cost headwind, but remained strong at nearly 20%.

“Beyond operational results, the anticipated impact of U.S. Tax Reform on Hubbell is significant. It will reduce our core operating tax rate going forward and provide us the opportunity to  invest more in our businesses,” stated Mr. Nord. “In the quarter, we incurred charges relating to U.S. Tax Reform that will enable us to repatriate some of our foreign cash over time to fund domestic cash needs.

“Finally, and perhaps most notably, on December 26th, we announced a definitive agreement to acquire Aclara, a leading global supplier of end-to-end, smart infrastructure solutions for electric, gas and water utilities,” concluded Mr. Nord. “We are confident that the addition of Aclara’s capabilities and solutions will strengthen the competitive position of our Power business, and we are on track to close the transaction as expected in the first quarter of 2018, subject to the satisfaction of customary closing conditions.”

SEGMENT REVIEW

The year-over-year comparisons in this segment review are based on fourth quarter results in 2017 and 2016.

Electrical segment net sales in the fourth quarter of 2017 increased 6% to $635 million compared to $602 million reported in the fourth quarter of 2016. Organic growth contributed 3% to sales in the quarter, while acquisitions added 2% and foreign currency translation added 1%. Operating income was $76 million, or 12.0% of net sales, compared to $54 million, or 9.0% of net sales in the same period of 2016.  Excluding restructuring and related costs, adjusted operating income was $77 million, or 12.1% of net sales compared to $69 million, or 11.5% of net sales in the same period of 2016. The increase in operating margin was primarily due to productivity in excess of cost increases.

Power segment net sales in the fourth quarter of 2017 increased 12% to $283 million compared to $253 million reported in the fourth quarter of 2016. Organic growth of 10% reflected strong transmission and distribution growth as well as the favorable impact of storm activity. Acquisitions added 2% to sales in the quarter. Operating income in the fourth quarter of 2017 was $47 million, and includes $7 million of Aclara transaction costs. Excluding Aclara transaction costs in 2017 and restructuring and related costs from both periods, adjusted operating income was $56 million, or 19.7% of net sales compared to $55 million, or 21.6% of net sales in the same period of 2016. The decrease in operating margin was primarily due to material cost headwinds.

SUMMARY & OUTLOOK

For the full year 2018, Hubbell expects end market growth of approximately 2% to 4% in the aggregate and acquisitions, including the Aclara acquisition, assuming a Q1 2018 close, to contribute approximately 15% to net sales. This end market outlook includes growth of 3% to 5% for oil and gas; 2% to 4% for Electrical T&D, Industrial and Residential; and 1% to 3% for non-residential markets.

The Company expects 2018 reported diluted earnings per share in the range of $6.10 to $6.50 and adjusted diluted earnings per share (“Adjusted EPS”) in the range of $6.95 to $7.35. Adjusted EPS excludes acquisition-related and transaction costs of the pending Aclara acquisition. The Company believes Adjusted EPS is an insightful measure of underlying financial performance and cash flow generation given the expected impacts of the Aclara acquisition. The Company anticipates restructuring and related costs will occur at a run-rate level going forward; as such, Adjusted EPS expectations no longer exclude restructuring and related costs.

“The organic growth and margin performance trends in the second half of 2017 position us well for a robust 2018. We expect earnings tailwinds from debt refinancing, restructuring actions, and the absence of Lighting’s restructuring-driven inefficiencies, plus additional benefits from a lower U.S. tax rate and cash earnings from the Aclara acquisition.” Mr. Nord added, “Competitive pricing in Lighting markets and commodity inflation continue to present challenges to be overcome, but I am confident in Hubbell’s ability to handle them while delivering increased value to customers and shareholders.”

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