SHELTON, Conn. —Hubbell Incorporated today reported operating results for the fourth quarter and full year ended December 31, 2018.
Net sales in the fourth quarter of 2018 were $1,144 million, an increase of 25% compared to the $918 million reported in the same period of 2017. Operating income in the quarter was $137 million, or 11.9% of net sales, as compared to $127 million, or 13.8% of net sales, in the same period of 2017. Excluding Aclara acquisition-related costs, adjusted operating income was $144 million in the fourth quarter of 2018 as compared to $133 million in the same period of 2017(1). The effective tax rate in the fourth quarter of 2018 was 22.2%. Net income attributable to Hubbell in the fourth quarter of 2018 was $88 million as compared to $20 million reported in the same period of 2017. Adjusted net income, which excludes U.S. Tax Reform charges from 2017 and Aclara acquisition-related costs from 2017 and 2018, was $94 million in the fourth quarter of 2018, compared to $83 million in the same period of 2017(1). Earnings per diluted share for the fourth quarter of 2018 were $1.60, compared to $0.37 in the fourth quarter of 2017. Adjusted earnings per diluted share for the fourth quarter of 2018 were $1.72 compared to $1.50 in the same period of 2017(1).
Net cash provided from operating activities was $178 million in the fourth quarter of 2018 versus $150 million in the comparable period of 2017. Free cash flow (defined as cash flow provided by operating activities less capital expenditures) was $152 million in the fourth quarter of 2018 versus $124 million reported in the comparable period of 2017(3).
Net sales for the full year 2018 were $4.5 billion, an increase of 22% compared to the full year 2017. Operating income was $557 million compared to $519 million for the comparable period of 2017. Excluding Aclara acquisition-related costs, adjusted operating income was $607 million compared to $526 million in the same period of 2017(1). Net income attributable to Hubbell for the full year 2018 was $360 million compared to the $243 million reported in 2017. Adjusted net income was $402 million in 2018, compared to $312 million in the same period of 2017(1). Earnings per diluted share were $6.54 for 2018 and $4.39 for 2017. Adjusted earnings per diluted share for the full year 2018 were up 29% to $7.29, compared to $5.64 in the same period of 2017(1).
Net cash provided from operating activities was $517 million for the full year 2018 compared to $379 million reported in 2017. Free cash flow (defined as cash flow from operating activities less capital expenditures) was $421 million for the full year 2018 compared to $299 million reported in 2017(3).
OPERATIONS REVIEW
“Continued strength in end markets and improved traction on price realization drove another strong quarter of 5% organic growth,” said David G. Nord, Chairman, President and Chief Executive Officer. “All major end markets once again expanded and we saw notable strength in core industrial, outside-plant-telecommunications, and gas distribution. Lighting markets were stronger than initially anticipated, primarily driven by strength in Residential, while C&I saw modest volume growth and overall Lighting price was slightly positive. In addition, acquisitions contributed 20 points to sales growth. We are encouraged by the continued strength in demand for Aclara’s products, with strong revenue performance in 2018 and a robust backlog and project pipeline.
“In both Electrical and Power segments, we are achieving continued traction on pricing initiatives, and price realization in the quarter increased on a sequential basis. While higher year over year material costs, including tariffs, were a headwind to our operating margins as expected, the gap between price recovery and these costs improved sequentially. Consistent with our initiative to drive savings and operational efficiencies, we accelerated cost actions into the fourth quarter to actively combat broader inflationary pressures.” Nord continued, “The Aclara acquisition was again accretive in the quarter, although it continued to be unfavorable to Power segment margins, as expected.”
Nord added, “Free cash flow performance was once again a highlight, with full year free cash flow of $421 million, up 41% versus 2017 and representing 117% conversion on reported net income.(3) The Company’s ongoing focus on working capital is increasingly visible in better inventory management, while maintaining high levels of customer service and delivering higher volumes. We expect to continue driving improvements in this area in the future.”
SEGMENT REVIEW
The year-over-year comparisons in this segment review are based on fourth quarter results in 2018 and 2017.
Electrical segment net sales in the fourth quarter of 2018 increased 5% to $667 million compared to $635 million reported in the fourth quarter of 2017, with organic sales growth of 5% in the quarter. Operating income was $74 million, or 11.1% of net sales, compared to $79 million, or 12.4% of net sales in the same period of 2017. The decrease in operating income and operating margin was primarily due to material cost inflation and tariffs in excess of price, as well as cost increases in excess of productivity.
Power segment net sales in the fourth quarter of 2018 increased 69% to $478 million compared to $283 million reported in the fourth quarter of 2017. Acquisitions added 66% to sales in the quarter, while the unfavorable impact of foreign currency translation reduced sales by 1%. Organic growth was up 4% in the quarter. Operating income in the fourth quarter of 2018 was $62 million, or 13.0% of net sales, compared to $48 million, or 16.9% of net sales in the same period of 2017. Excluding Aclara acquisition-related costs, adjusted operating income was $70 million, or 14.6% of net sales in the fourth quarter of 2018 as compared to $54 million, or 19.2% of net sales in the same period of 2017. Changes in operating income and operating margin were due to the impact of acquisitions, increases in material costs and tariffs in excess of price, and the absence of a one-time insurance recovery benefit in the fourth quarter of 2017.
SUMMARY & OUTLOOK
For the full year 2019, Hubbell expects end market growth of approximately 2% to 3% in the aggregate and approximately 1% growth from acquisitions, driven by Aclara. The end market outlook includes growth of 1 – 3% in non-residential markets, 0 – 2% in residential markets, 3 – 5% in oil and gas markets, 2 – 4% in Electrical T&D markets, and 2 – 4% in industrial markets.
The Company expects 2019 reported diluted earnings per share in the range of $6.80 to $7.20 and adjusted diluted earnings per share (“Adjusted EPS”) in the range of $7.80 to $8.20(1). Adjusted EPS excludes all intangible amortization, which the company expects to be approximately $1.00 for the full year. The Company believes Adjusted EPS is an insightful measure of underlying financial performance in light of our acquisition strategy.
These ranges are based on a tax rate of 23% to 24% and include approximately $0.40 of restructuring and related investment, primarily driven by footprint consolidation efforts. These ranges also include the impact of Section 301 Tariff Lists 1, 2 and 3, and related remediation actions.
Hubbell also expects free cash flow to be ~110% of reported net income in 2019(3).
“Hubbell achieved strong organic growth, earnings growth, and free cash flow in 2018, while also successfully integrating the largest acquisition in the Company’s history. Inflationary pressures, including tariffs, were a challenge, but we have exited the year with positive momentum and are committed to offsetting material cost inflation with price in 2019,” concluded Nord. “Looking forward, we are increasing our investment in footprint consolidation to accelerate benefits from operational efficiencies and cost reduction; as a result, we expect to double our restructuring and related investment to approximately $0.40 per year in each of 2019 and 2020. We are taking aggressive and decisive actions today to position Hubbell to outperform. With pricing and innovation initiatives, as well as productivity and cost takeout efforts, we are confident in our ability to get ahead of anticipated challenges, while remaining committed to producing quality products, providing reliable service for our customers, and deploying capital effectively.”
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