SHELTON, Conn. — Hubbell Incorporated today reported operating results for the first quarter ended March 31, 2020.
“Hubbell delivered another quarter of solid operating performance,” said David G. Nord, Chairman and Chief Executive Officer. “Grid hardening and modernization initiatives, along with ongoing renewable energy trends, continued to drive strong demand for T&D components in our utility markets. Electrical end markets were softer, driven by weakness in C&I lighting and heavy industrial markets, partially offset by pockets of strength in residential and certain light industrial verticals. Operationally, we faced challenges from disruptions related to the COVID-19 pandemic, including temporary closures of manufacturing facilities and project delays, which we estimate had an impact of ~$0.10 per diluted share in the quarter. However, we were able to overcome these headwinds through footprint optimization savings and positive price/cost. We also continued to generate strong free cash flow in the quarter, driven by working capital management.”
Nord continued, “Hubbell’s first quarter results reflect continued execution in an uncertain and volatile environment. Despite this uncertainty, we are confident that 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.”
Hubbell also today provided an update on actions the Company is taking in response to current and anticipated impacts of the COVID-19 pandemic.
“At Hubbell, our priority is the safety and well-being of our employees, their families, our customers and suppliers, and our communities,” said Chairman and CEO Dave Nord. “Hubbell provides mission-critical electrical and utility solutions that enable our customers to operate critical infrastructure safely, reliably and efficiently. We are committed to supporting our customers with high quality and reliable products, and are continuing work in our manufacturing locations where possible, while protecting the safety of our employees by implementing expanded cleaning, safety and social-distancing protocols in our plants and warehouses, mandating remote work where possible, and offering emergency paid leave related to COVID-19.”
Manufacturing and Operations Impact
As a leading supplier of critical infrastructure components, Hubbell is generally deemed an essential manufacturer by various authorities in the localities where we operate, and therefore almost all of our facilities remain open and fully operational. However, local regulatory closures in the first quarter temporarily impacted a limited number of our sites which have since returned to full operation. We currently expect further disruptions in the second quarter, including recent local regulatory closures in late April of two large Mexico facilities, which may temporarily impact our supply chain in the second quarter.
End Market and Commercial Impact
We anticipate that the disruption in economic activity as a result of the COVID-19 pandemic will have an adverse impact across most of our Electrical end markets, and orders in the Electrical segment are down approximately 20% month-to-date in April. In our Utility Solutions segment, our Power Systems business continues to see strong demand for T&D components, supported by double digit orders growth in the first quarter and month-to-date in April. We expect our Aclara business to face near-term revenue headwinds from project delays on smart infrastructure deployments.
Hubbell Responses and Countermeasures
“As we consider the anticipated challenges we expect to face as a result of COVID-19, we have reviewed all aspects of our business to determine a series of cost management actions to sustain the organization through this economic uncertainty,” said Mr. Nord. These actions include:
- The Board of Directors will forego its quarterly retainer payments for the second quarter
- Senior executives will take a 25% salary reduction in the second quarter
- All other executives will take a 15% salary reduction in the second quarter
- Salaried employees will take a 2 week furlough sometime during the second quarter
- Various other discretionary cost reduction and cash preservation actions
Concurrent with these cost actions, we are also providing additional support to our hourly employees who manufacture the products that are essential to our communities. To that end, we are paying all applicable hourly employees with additional appreciation bonus pay during the second quarter.
To maximize our financial flexibility, the Company has also drawn $225 million of an available $750 million on its revolving credit facilities. $125 million of this revolver draw was executed following the close of first quarter financial results, and therefore is not reflected in our March ending balance sheet. These were proactive measures to further bolster our strong liquidity position.
Mr. Nord concluded, “We are committed to ensuring we come out on the other side of this challenging period in a position of strength to meet the needs of our customers. These steps, along with reducing discretionary and non-essential spending, will help protect Hubbell’s ability to serve the critical infrastructure needs of our customers in the future. We will continue to evaluate our next steps as the situation evolves.”
FIRST QUARTER FINANCIAL HIGHLIGHTS
The comments and year-over-year comparisons in this segment review are based on first quarter results in 2020 and 2019.
Electrical segment net sales in the first quarter of 2020 of $606 million compared to $630 million reported in the first quarter of 2019. Organic sales declined 3% in the quarter while the net impact of acquisitions and divestitures subtracted 1%. Operating income was $58 million, or 9.6% of net sales, compared to $69 million, or 10.9% of net sales in the same period of 2019. Adjusted operating income was $64 million, or 10.6% of net sales, in the first quarter of 2020 as compared to $74 million, or 11.8% of net sales in the same period of the prior year (1). The decreases in adjusted operating income and adjusted operating margin were primarily due to lower volumes, the previously announced change in timing of long-term incentive compensation, operational disruptions related to COVID-19, and increased investment in restructuring and related activities. These headwinds were partially offset by price realization in excess of material costs and productivity from footprint optimization initiatives.
Utility Solutions segment net sales in the first quarter of 2020 increased 6% to $484 million compared to $457 million reported in the first quarter of 2019. Organic sales grew 5% compared to the first quarter of 2019, with acquisitions contributing approximately 2% and foreign exchange a headwind of <1%. Power Systems grew low double digits and Aclara was down mid single digits on a difficult prior year comparison. Operating income in the first quarter of 2020 was $61 million, or 12.5% of net sales, compared to $52 million, or 11.4% of net sales in the same period of 2019. Adjusted operating income was $74 million, or 15.3% of net sales, in the first quarter of 2020 as compared to $65 million, or 14.2% of net sales in the same period of the prior year (1). The increases in operating income and operating margin were primarily due to volume growth, as well as price realization and productivity in excess of cost inflation. These tailwinds were partially offset by the previously announced change in timing of long-term incentive compensation, as well as disruptions related to the COVID-19 pandemic.
Adjusted first quarter results exclude $0.27 of amortization of acquisition-related intangible assets.
Net cash provided from operating activities was $108 million in the first quarter of 2020 versus $78 million in the comparable period of 2019. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $91 million in the first quarter of 2020 versus $55 million reported in the comparable period of 2019 (3).Tagged with financial results, Hubbell