“Hubbell delivered another solid quarter of operating performance,” said David G. Nord, Chairman and Chief Executive Officer. “The Company essentially achieved our target to deliver $500 million of free cash flow by 2020 a year earlier than previously committed, driven by effective working capital management. We also continue to deploy this cash to attractive bolt-on acquisitions, two of which closed in December. Cantega Technologies is a provider of asset protection solutions to the power grid, an attractive market niche with strong growth and margin characteristics. Connector Products is a designer and manufacturer of electrical connectors and accessories, with high margins and a strong track record of growth, providing a strong complement to our Burndy brand.”
Nord continued, “End market trends were mixed overall. Our utility facing markets remain strong, with ongoing strength in T&D components more than offsetting the impact of difficult prior year comparisons at Aclara. Electrical segment end markets were softer, driven by weakness in C&I lighting, along with continued softening in industrial and oil markets.”
“We continued to be proactive by accelerating our investment in restructuring actions over and above our full year guidance, which we expect to generate significant cost savings in 2020 and beyond. We also remained effective in driving price and productivity to offset inflationary headwinds as price/cost continued to be a positive contributor to another quarter of adjusted operating margin expansion.”
Nord concluded, “Hubbell’s fourth quarter and full year results reflect continued execution in an uncertain environment. We remain cautious on near-term volume expectations, but with aggressive cost actions already underway and continued opportunity for operational improvement ahead of us, we are confident in our 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.”
The comments and year-over-year comparisons in this segment review are based on fourth quarter results in 2019 and 2018.
Electrical segment net sales in the fourth quarter of 2019 of $618 million decreased 7% from $667 million in the fourth quarter of 2018. Organic sales decreased 6% in the quarter while a divestiture subtracted less than 2%. Electrical segment operating income in the fourth quarter was $73 million, or 11.9% of net sales, compared to $74 million, or 11.1% of net sales in the same period of 2018. Adjusted operating income was $79 million, or 12.8% of net sales, in the fourth quarter of 2019 as compared to $80 million, or 12.0% of net sales in the same period of the prior year. Changes in adjusted operating income and adjusted operating margin were primarily due to lower volumes, increased investment in restructuring and related activities, and a divestiture, offset by price realization and productivity in excess of cost inflation, as well as a discrete tariff exclusion benefit. The company recognized this benefit of ~$0.15 in the quarter as certain product categories previously subject to Section 301 List 1 and List 2 tariffs have been granted a temporary exclusion, which applies to tariff costs incurred on those product categories in 2018 and 2019.
Power segment net sales in the fourth quarter of 2019 increased 2% to $485 million compared to $478 million reported in the fourth quarter of 2018. Organic sales grew 2% compared to the fourth quarter of 2018, with legacy Power Systems growing mid single digits and Aclara down mid single digits. Acquisitions added less than a point to sales growth. Power segment operating income in the fourth quarter was $63 million, or 12.9% of net sales, compared to $62 million, or 13.0% of net sales in the same period of 2018. Adjusted operating income was $75 million, or 15.4% of net sales, in the fourth quarter of 2019 as compared to $72 million, or 15.2% of net sales in the same period of the prior year. The increases in adjusted operating income and adjusted operating margin were primarily due to price realization and productivity in excess of cost inflation, partially offset by increased investment in restructuring and related activities.
Adjusted fourth quarter results exclude two items: $0.25 of amortization of acquisition-related intangible assets, and a non-recurring gain of $0.20 related to the Company’s settlement of a previously disclosed obligation associated with the withdrawal from a multi-employer pension plan.
Net cash provided from operating activities was $207 million in the fourth quarter of 2019 versus $178 million in the comparable period of 2018. Free cash flow (defined as net cash provided by operating activities less capital expenditures) was $185 million in the fourth quarter of 2019 versus $152 million reported in the comparable period of 2018.
SUMMARY & OUTLOOK
For the full year 2020, Hubbell anticipates end markets will grow approximately 1 – 3%. The Company expects 3 – 4% growth in electrical T&D markets, 1 – 2% in non-residential markets, – 2% in industrial markets, 2 – 4% in residential markets, – 2% in oil markets and 1 – 3% in gas distribution markets. Sales growth from previously completed acquisitions is expected to fully offset the impact of divestitures.
Hubbell anticipates 2020 adjusted diluted earnings per share (“Adjusted EPS”) in the range of $8.50 to $8.80 and GAAP diluted earnings per share expectations in the range of $7.50 to $7.80. 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 financial 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 ~23% and include approximately $0.40 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 ~110% of adjusted net income in 2020.Tagged with financial results, Hubbell