SHELTON, Conn. — Hubbell Incorporated today reported operating results for the third quarter ended September 30, 2017. Net sales in the third quarter of 2017 were $951 million, an increase of 5% compared to the $907 million reported in the third quarter of 2016. Operating income in the quarter was up 8% to $146 million as compared to $136 million in the same period of 2016. Excluding restructuring and related costs in both periods, adjusted operating income was $152 million in the third quarter of 2017, compared to $142 million in the third quarter of 2016. The Company refinanced and redeemed $300 million of Senior Notes due in 2018 and recognized a $10 million loss in connection with the early extinguishment. The effective tax rate in the third quarter of 2017 was 33% compared to 29% in the comparable period of 2016. Net income attributable to Hubbell in the third quarter of 2017 was $81 million compared to $87 million reported in the comparable period of 2016.
Excluding the loss on debt extinguishment in the third quarter of 2017 and restructuring and related costs in both periods, adjusted net income attributable to Hubbell was $91 million in the third quarter of 2017, compared to $91 million in the third quarter of 2016. Earnings per diluted share for the third quarter of 2017 were $1.47 compared to $1.56 reported in the third quarter of 2016. Excluding the loss on debt extinguishment in the third quarter of 2017 and restructuring and related costs in both periods, adjusted earnings per diluted share were $1.65 in the third quarter of 2017, compared to $1.63 in the third quarter of 2016. Net cash provided from operating activities was $97 million in the third quarter of 2017 versus $143 million in the comparable period of 2016. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $76 million in the third quarter of 2017 versus $127 million in the comparable period of 2016.
For the first nine months of 2017 net sales were $2.8 billion, an increase of 4% compared to the same period of the prior year. Operating income was $381 million compared to $370 million for the comparable period of 2016. Excluding restructuring and related costs in both periods, adjusted operating income for the first nine months of 2017 was $402 million, compared to $389 million for the comparable period of 2016. Net income attributable to Hubbell was $223 million in the first nine months of 2017 compared to $229 million for the comparable period of 2016. Earnings per diluted share for the first nine months of 2017 were $4.02 compared to $4.08 reported for the first nine months of 2016. Excluding the loss on debt extinguishment in the third quarter of 2017 and restructuring and related costs in both periods, adjusted earnings per diluted share for the first nine months of 2017 were $4.39 compared with $4.31 for the comparable period of 2016. Net cash provided from operating activities was $229 million for the first nine months of 2017 versus $269 million in the comparable period of 2016. Free cash flow was $175 million compared to $223 million reported in the first nine months of 2016.
OPERATIONS REVIEW
“We saw strong sales and margin performance in the third quarter, and we took advantage of favorable capital markets to refinance some of our debt,” said David G. Nord, Chairman, President and Chief Executive Officer. “Hubbell's organic sales growth of 4% was led by Power, which grew 8% fueled by domestic T&D markets and storm-related sales. Expansion of oil markets contributed to double digit growth in our Harsh & Hazardous business. Growth in non-residential markets decelerated modestly from what we saw earlier in the year; for Lighting markets specifically, unit growth was offset by continued price pressure. Residential markets were flat, and core industrial markets remained sluggish, weighed down by declines in heavy industry.
“Cost discipline and productivity are ongoing focus areas, while our restructuring program continues to yield incremental and recurring savings across the Company. As a result, Hubbell's adjusted operating margin of 16% in the quarter reflected year-over-year expansion in both segments,” Mr. Nord stated. “Remediation efforts at Lighting have been successful at addressing restructuring-driven inefficiencies, and we believe these issues are largely behind us. Production is flowing, service levels have improved, and distribution costs have stabilized.” Mr. Nord added, “Our margin also absorbed our R&D investment in the Internet of Things via iDevices. Customers have reacted very favorably to the anticipated inclusion of iDevices' smart technology into our products and solutions.”
Mr. Nord concluded, “Our balance sheet remains healthy and, in the quarter, we refinanced $300 million of Senior Notes due next year at a lower interest rate. In addition, last week, our Board of Directors approved an increase of 10% in our quarterly cash dividend and authorized a new three-year share repurchase program of up to $400 million of Common Stock.”
SEGMENT REVIEW
The comments and year-over-year comparisons in this segment review are based on third quarter results in 2017 and 2016.
Electrical segment net sales in the third quarter of 2017 increased 3% to $654 million compared to $635 million reported in the third quarter of 2016. Organic sales grew 2% in the quarter while acquisitions added 1%. Operating income was $86 million, or 13.1% of net sales, compared to $81 million, or 12.7% of net sales, in the same period of 2016. Excluding restructuring and related costs, adjusted operating income was $90 million, or 13.8% of net sales compared to $86 million, or 13.6% of net sales in the same period of 2016 (1). The increases in adjusted operating income and adjusted operating margin were primarily due to savings from cost actions and the benefit of the higher volumes, partially offset by the impact of recent acquisitions and a net headwind from price and cost increases in excess of productivity gains.
Power segment net sales in the third quarter of 2017 increased 9% to $297 million compared to $273 million reported in the third quarter of 2016. Organic sales grew 8% while acquisitions added 1% to net sales in the quarter. Compared to the third quarter of 2016, operating income increased 10% to $61 million, and was up 30 basis points to 20.5% of net sales. Excluding restructuring and related costs, adjusted operating income was $62 million, or 20.9% of net sales compared to $56 million, or 20.5% of net sales in the same period of 2016. The increases in adjusted operating income and adjusted operating margin were primarily due to productivity gains in excess of cost increases and higher volume, partially offset by price and material cost headwinds.
Further Lighting segment insight was posted on lightEDmag.com.
SUMMARY & OUTLOOK
For the full year 2017, Hubbell continues to expect end market growth in the range of 2.5% to 3.0% in the aggregate, while acquisitions completed to date are still expected to contribute approximately 2% to net sales. This end market outlook includes growth of 2% to 3% for T&D and Industrial, 4% to 5% for residential, and 2% to 4% for non-residential and oil and gas markets.
The Company now expects 2017 diluted earnings per share in the range of $5.40 to $5.50. This expectation includes restructuring and related costs of approximately $0.30 and refinancing costs of $0.11. Hubbell continues to expect free cash flow to equal net income in 2017.
“The strong operating performance in the third quarter gives us confidence to raise and tighten our earnings outlook for 2017. Recent organic growth combined with margin traction bodes well as we turn to 2018.” Nord added, “Next year, we expect end markets to grow approximately 2% to 4% in the aggregate, with consistency across markets. In addition to top line growth, we expect tailwinds resulting from the recent refinancing, lower spend and incremental savings from restructuring, and the absence of Lighting's restructuring-driven inefficiencies. Despite anticipated pricing challenges at Lighting and rising commodity costs, we are targeting to report double digit EPS growth in 2018.”
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