Dan Innamorato:

Thanks, Shannon. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the second quarter of 2024. The press release and slides are posted to the Investors section of our website at hubbell.com. Joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and considered incorporated by reference to this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now let me turn the call over to Gerben.

Bill Sperry:

Thanks, Gerben, very much, and good morning, everybody. Appreciate you joining us recognize there's a number of releases this morning. I'm going to start my comments on Page 4 of the materials. You can see a strong performance in the second quarter by Hubbell exceeded our own expectations, thanks really to contributions from the Electrical segment. I think they came in the form of strong market growth in targeted verticals as well as good execution on the productivity and cost front. So turning to sales, 7% growth to $1.45 billion. That 7% is comprised of 2% organic which is all priced at two points and five points of acquired sales, and that's a net number. Just to remind everybody, we had 8% contribution from acquisitions from three different deals that were closed last year, and we had minus 3% headwind from the divestiture of Residential Lighting that we effected earlier this year. So plus 8% and minus 3% netting to 5% from M&A. Independent of the impact on volumes, you'll see benefits on the margin front from these portfolio reshaping when we get into some of the segment result pages, and I think it's been beneficial to our enterprise to exit lower growth, lower margin businesses and add higher growth, higher-margin businesses. And I think we're getting dividends from that acquisition program. Turning to OP operationally, you see 22.8% margins, expansion of 40 basis points year-over-year, quite important as we finish the year to keep improving on those margins. The margin story was driven by a big performance in Electrical, which we'll talk about in a couple of pages. Utility had sequential improvement in operating profit quarter-over-quarter and favorable price/cost, productivity performance in both segments showing really good execution. We're having success with pricing realization and some of the investments we made last year, resulting in some productivity improvement inside the factories this year. So good performance on the PCP side. Earnings per share, 7% growth to $4.37 adjusted EPS. So up above, we had 8% OP contribution and an increase in interest expense, which aligns to 7% earnings growth. On the free cash flow side, $206 million on track at halfway point here to hit our target of $800 million for the year. Turning to Page 5. I wanted to take advantage of these visual graphs and take us back about 1.5 months to Investor Day and really remind us of what I thought was one of the most important takeaways from that Investor Day, which was to pull the lens back for the last three-year period, remind ourselves of how much improvement there was in Hubbell's performance in 2022 and 2023. And basically, at Investor Day, we described that bigger and better Hubbell being the base off of which we are now going to grow and improve and get even bigger and better. So using Page 5 to illustrate that takeaway. In sales, to remind everybody, in '22 and '23, we had a compound annual growth rate of 14% off of that much higher base, we continue to grow sales 6%. On the upper right of the graph, you see operating profit. I remind everybody that in '22 and '23, that compound growth rate of 38% and off of those higher levels we're growing another 8%. And earnings per share on the lower left, to remind everyone, '22 and '23, we had a compound annual growth rate of 36% and we're continuing to grow 7% off that base. So I just really wanted to illustrate that point of how we're growing off that improved performance level. Page 6, let's start to unpack the performance by segment, and we'll start with the Utility segment. And there's really two halves to the story here, the sales and the OP and I'm going to start with sales, which are up 12% to $927 million. Those sales are comprised -- sales growth is comprised almost entirely of acquisitions with the organic down slightly. And we had a similar shape in the first quarter where both grid infrastructure and grid automation, the two units contributed double-digits to the growth. So let's unpack and start. I'm on kind of the lower left of the page and grid infrastructure being the first unit. Sales are up 12%, and that's really driven by the Systems Control acquisition that we closed in December. To remind everyone that is an integrated solutions provider for substations, for utility businesses. Business is doing really well since we've added, it's growing at attractive margin levels. So the acquisition driving sales, the organic is down mid-single-digit, and that's driven by the Telecom end market that we talked about at some length in the first quarter. And the results are very similar to that first quarter down 40%. I think we're starting to feel the bottom there, and we'll start to look forward to some slightly easier compares in the second half. And I think sometimes over the last two quarters, that performance of the Telecom market has somewhat taken away from the picture of what's going on in our core transmission and distribution business, which is growing organically and expanding margins. So very, very healthy there, the strength this year has been in the transmission and substation side of things. We really see robust project activity involving both new miles of construction as well as grid interconnections. On the distribution side of T&D, we continue to have -- we continue to have to navigate through some end customer destocking. It's not significant enough to prevent T&D from growing, but still a headwind. And that headwinds in particular areas like pole line hardware that are typically more on shelves and in stock. So let's pivot from that top grid infrastructure unit to the grid automation unit at the bottom. You see sales up double-digits, organic growth up at 8%. And we continue to have AMI, which is the comms part and meters conversion of backlog, and there continues to be strength in grid protection and controls demand, resulting in a smarter and more resilient grid. So I want to talk about margins on the right side of the page, which I think is a really important part of Page 6. So importantly, those margins from the first quarter are up sequentially, 220 basis points. So very nice execution from Q1 to Q2. You see an increase of 4% in dollars to $222 million. You see a decline year-over-year in margin from 25.6% to 24%. And basically, of the drivers on the lower right part of the page, you see three of them are headwinds. The most important of which is the decrementals on the Telecom volume which explains essentially the entire drop. In addition to that, we increased our restructuring investments, which was a drag on margins. And I mentioned the Systems Control acquisition being at attractive margin levels happens to be below last year's level slightly. So it creates a little bit of headwind. And so the fact that price/cost productivity is basically offsetting both the restructuring and acquisition effects, we think sets us up importantly for a good second half in Utility margins. So I'm going to continue to Page 7 and talk about the Electrical segment. And you see really strong performance turned in by our Electrical team in Q2. Sales grew 7% organically, while margins expanded 350 basis points to north of 20% level. The growth was driven primarily by our targeted vertical markets, most notably data centers and renewables. And a couple of things of note there. One, obviously, the markets are growing rapidly. Two is, we have a really good suite of products and solutions like connectors and grounding products that fit well with that segment and are helping our customers. And we've made some strides towards competing collectively there, which we think both assists cross-selling, product development and makes us easier to do business with. And we think that's helping us. These are relatively small businesses for us, comprising approximately 15% of the segment sales. But because the growth rates are so significant, they're actually driving a lot of the incremental growth. Beyond the verticals, though, I think the markets are in solid shape. Industrial markets, in particular, solid. We think non-res is pretty steady. And importantly, for us on this Electrical side, we've really exited the period of destocking that we were navigating through last year. On the margin side, you see 18% growth to $109 million and about 350 basis points expansion to 20.8%. I think one of the biggest effects there has been the disposition of the resi lighting business. And in the absence of that, we reduced sales by 9% in the segment, but we added over 50 basis points to this margin story. In addition to the absence of that business, we have incremental drop-throughs on as volumes return post destocking and in particular, in the highly attractive vertical markets of data center and renewables. And we have price cost productivity, favorability, good price realization with stick rates and good productivity. You heard Mark Mikes, our leader of this segment at Investor Day talk about looking to compete collectively and drive efficiencies and looking forward to Mark's continued strong performance here in this segment. With that, I want to turn it back to Gerben to focus on a couple of areas of growth.

Operator:

Thank you. [Operator Instructions]. Our first question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is now open.

Gerben Bakker:

Good morning, Jeff.

Gerben Bakker:

Yes. Let me start that, Jeff. And as we indicated early in the year, the destocking, particularly in the distribution side of utility lasted a little longer than initially anticipated. And it primarily came to the lesser visibility that we have as we look into the end customer. I would say there is evidence that this is improving, but it's very hard to call because it's happening at different levels, different speeds at different customers within different product lines. So certain product lines right now, we're seeing that ending and then we're seeing the demand inflect up, but then others, we still continue to see some of that destocking continuing. And just as a perspective, we dealt with this in the Electrical segment last year. At that time, too, it was hard to predict. But the best sign of it was that when it was over, we saw demand inflecting back up and we returned to growth in that. So we still see end demand strong. We see this through -- if you look at the CapEx budgets for utilities, those are growing, not only in the actual spend, but in the projections out. Discussions that we have with our customers indicate that they continue to invest. And again, in areas of the portfolio where the destock is over, certainly -- certain product lines, but then also other areas like transmission and substation, the demand is very strong. So we have good indication that the end demand in T&D continues to be strong and that this is a period that we'll have to work through over the second half to continue to get through it with the different customers and the different product lines.

Bill Sperry:

Yes. Let's start with the second question. So their margins are at attractive levels. We didn't have them last year, but they're just a little bit below the mid-20s. And so we love adding that kind of margin, Jeff, but it's interesting. It creates a little bit of headwind quarter-over-quarter. And I would say that the transmission and substation growth of double-digits is an organic, not an acquisition impact. It's grown organically at that level.

Bill Sperry:

It is. And again, we didn't own it last year, but it is kind of -- yes, it is compared to what it was doing last year.

Operator:

Thank you. Our next question comes from the line of Steve Tusa with JPMorgan. Your line is now open.

Bill Sperry:

Good morning, Steve.

Bill Sperry:

Yes. Maybe we'll start with pricing. I think that we can still continue to operate, Steve, in an inflationary environment and some materials between copper and steel are moving around in opposite directions sometimes here. But with the other value-add on components and with things like labor and transportation and things like that, we still feel we're operating. And I may be reading into your question too much, but we get the question a lot of, if steel is down, will we have to give up Utility price. And we really aren't feeling that pressure rate at this moment. And we continue to believe that our customers are paying for quality, reliability, on-time delivery, really helping out down in Houston over the last month being reminded of supporting customers with if there's a hurricane outage or something of that like, being there to support them and get their customers back up and turned on as fast as possible. Though part of what we think is the value proposition that ultimately supports our pricing level. So I may be reading too much into it that you're asking about to do commodities impact, but that's -- we're not feeling that pressure at this moment, Steve.

Gerben Bakker:

Let me help you. We expect margins in the second half to improve from the first half with some of that organic volume coming back.

Gerben Bakker:

Yes. I mean I think -- I think the 47% is a pretty gross measure, and I used it to just remind everybody that we'll be -- we would be seasonally something normal. I think if you look back on our last five to 10 years, you see 47%, 48%, 49%. And so I do think that it is a growth -- I think maybe you're pointing out, it's a pretty sensitive and gross way to describe seasonality. So our guide right now, Steve, is more in the 48% plus, closer to 49% expectation.

Operator:

Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Your line is now open.

Bill Sperry:

Yes. I think you're pointing out a variance in steel, which is favorable. There's been some negative variances in copper and higher inflation and things like transportation and wages. And so there's a -- it's hard to try to isolate on a single commodity and try to read that through too much into any kind of favorable PPV if you will.

Bill Sperry:

Yes. So let's see a couple of components there. Let's start with -- you had the price right at a couple of points. And I think your you're kind of extracting the enclosures, the Telecom market correctly to get to attractive growth rates inside of the core transmission and distribution. I think the book-and-bill question is one that we spend some time looking at and it's not yet. It's not at this split second all the way back to one, but you're right to point out it was in couple of years past, it was way north of one, and I think that's still kind of normalizing right now, Nigel.

Nigel Coe:

Great. I'll leave it there. But if you could maybe just clarify, Bill, the proportion of the Utility business with Telecom. So you can just pull that up appropriately, that would be great. Thanks.

Nigel Coe:

Thank you.

Julian Mitchell:

Hi, good morning.

Julian Mitchell:

Good morning. Maybe just wanted to clarify the 3% organic growth for the total company for the year. So is that kind of very low single-digit growth in Utility and then sort of mid-single-digit plus in HES, is that the right framework? And just within Utility, curious what the updated Telecom assumption is for the sales change in the year after down 40% in the first half, please?

Julian Mitchell:

Thanks very much. And then just -- there was some discussion earlier about sort of first half, second half dynamics. But maybe within the second half, just curious around sort of seasonality of third versus fourth quarter. I think sort of typically, it looks like earnings are often flattish sequentially in the third quarter and then down maybe mid-high-single-digit in the fourth quarter sequentially. Is that the right way to think about sort of 2024 as well?

Julian Mitchell:

That's great. Thank you.

Operator:

Thank you. Our next question comes from the line of Brett Linzey with Mizuho. Your line is now open.

Gerben Bakker:

Yes, so maybe I'll start that one. And maybe if you take a step back, as you look at last year, Telecom was up double-digits in the first half of '23. It went down sharply double-digits in the second half of '23. So certainly, as we go into the second half now, we're going to see easier comp. But as you look at maybe first half, I mean second half to second quarter, we see that pretty flattish BEAD money you talk about, that's still an area that we believe will drive growth and need to invest in this area is very clear to us, especially in rural deployment of fiber. So we see that coming. Money is starting to flow to some of the states and the states have got to identify the projects. They got a bid those. So we see that more as a '25 and perhaps later in '25 coming back. So we do believe we're at the bottom here. We believe we'll be along the bottom for a little while, and then we'll see that coming up slowly through the balance of this year and then into next year.

Gerben Bakker:

Yes. And we've clearly seen us work backlogs down here. That was -- I talked about this earlier, where with too much backlog, past-due backlog with all the chip shortages. So certainly the second half of last year and continue going into this year, we've been working the backlogs down. One of the other things that we mentioned that during this period, the new projects were slower, especially the large projects were slower to come to market or to bid. We are seeing increased pipeline. There's pockets particularly where we're seeing that now, for example, in water. We're also excited to have actually gotten some projects, if you look at some of the great resiliency for the grid funding. There's a few customers there that have gotten that funding that's translated into orders for us that we'll ship next year. So I would say we are seeing increased pipeline. We still got a bit on these projects that -- to fill our '25 pipeline. So I'd say it's perhaps a little early to talk about '25 at this point, but we're active in bidding on these projects.

Operator:

Thank you. Our next question comes from the line of Joe O'Dea with Wells Fargo. Your line is now open.

Bill Sperry:

Yes, Joe, as we went from first quarter to second quarter one of the contributors to that incremental drop through sequentially was the absence of the Residential Lighting business. The second was the strong, strong growth in data centers and renewables is occurring in product areas that are very strong margin areas. So you're getting a mix effect there. And then lastly, there have been some productivity improvements and just cost consciousness between first and second quarter that showed up. So that a lot of those us are working together to get those kind of sequential drop throughs.

Gerben Bakker:

Yes, yes.

Bill Sperry:

I don't think we've heard that as any kind of market trend, Joe.

Operator:

Thank you. Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is now open.

Gerben Bakker:

Good morning, Chris.

Gerben Bakker:

Yes, it's a hard question perhaps to do the funding that are spending compete with one another. I'm sure to a certain extent, Utilities have budgets and if they, in one year, direct more one way or another could happen. The good thing is our portfolio is well exposed to both sides. I would say if they're diverting from one area to the other, we'll see the benefit in those areas. I'd say narrowly to your question of residential and starts, I would say it's probably a fairly small effect on our sales and our portfolio much more to us drivers are, things like grid hardening, grid modernization, load growth in general, and those are all good vectors that are helping to grow our markets.

Gerben Bakker:

Yes, you are right.

Operator:

Thank you. Our next question comes from the line of Scott Graham with Seaport Research Partners. Your line is now open.

Bill Sperry:

Yes. I think what we mean is that out in the field, there's product being put up on distribution poles that's exceeding our sales to our customers. And that's the -- where we see the "demand." So maybe we're not talking about like orders. We're talking about demand for the material in the market. And that's where we see the inventory positions getting worked down and think we'll be returning to a more normal book-to-bill kind of relationship there.

Bill Sperry:

Thank you. Two other quick ones, if I may. Is it -- will cloud be up in the second half, very big comparisons there, particularly in the fourth quarter. And if it's at all possible, could you split out data center or renewables and tell us what HES organic look like without them?

Dan Innamorato:

Yes, renewables and data center are up double-digits in the quarter though.

Operator:

Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank Securities. Your line is now open.

Bill Sperry:

Good morning, Nicole.

Bill Sperry:

Yes. I mean, I think we probably aren't banking on sequential pickup in third quarter and then again, by the time we get to fourth quarter, you start to see the shoulder of the head and shoulders shape. So we're sort of in the -- I think already in the second quarter, we're seeing the sweet part of the margin seasonality.

Bill Sperry:

We did actually change the margin. So we had embedded in our guidance originally, kind of flattish margins and explicitly now we're saying up 10 to 50 basis points. So that's how...

Bill Sperry:

No.

Operator:

Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Dan Innamorato for closing remarks.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Daniel Innamorato:

Thanks, Michelle. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the first quarter of 2024. The press release and slides are posted to the Investors section of our website at hubbell.com.

Gerben Bakker:

Great. Good morning, and thank you for joining us to discuss Hubbell's first quarter 2024 results. Hubbell is off to a solid start to '24 and we are well on track to deliver on our full year outlook, which contemplates double-digit adjusted operating profit growth at the midpoint.

Gerben Bakker:

Great. Thanks, Bill. So to sum it up, our performance in the first quarter with Hubbell well on track to achieve our full year 2024 outlook for double-digit adjusted operating profit growth, which we are reaffirming today. Relative to our prior outlook, our electrical markets are off to a stronger start, and we have better visibility to positive price traction across both of our segments, which we believe will enable us to absorb the near-term impact of weaker telecom markets.

Jeffrey Sprague:

A few questions from me. First, just on -- and I'm sorry if I missed it, just hopping between calls. Did distribution actually grow for Hubbell in the quarter? And if so, can you size it? And then whether the answer is yes or no, can you kind of triangulate that to what your view of end demand or sell-through might have been in the quarter in the channel?

Gerben Bakker:

And maybe I'll add some context is what we see even through the first quarter and maybe coming even into April is, the good news is we are seeing a sequential as you look from February to March into April, increase in order rate. And I think that's a reflection of that channel inventory, the distribution channel inventory normalizing.

Jeffrey Sprague:

Your price/cost equation really hasn't changed that much then.

Daniel Innamorato:

Yes, Jeff, it's still a headwind, less than the $150 million year-over-year, I'd say, though.

C. Stephen Tusa:

Can you guys just give us a little bit of color on the second quarter on EPS, just relative to normal seasonality, any kind of sequential color there? And then how you expect the utility margins to trend throughout the year?

William Sperry:

Yes. I think that as we get normal seasonality for us is to pick up volume and margin in second and third quarters, Q4 kind of steps back.

Gerben Bakker:

But the second quarter will be up from the sequential expect margins in the second quarter over the first. Stay elevated and that stays in the third quarter and then declines...

Nigel Coe:

So just going back to the Utility inventory levels. So where are we in terms of the channel inventory? So I think 6 weeks is historically where they've been in the past, just wondering if we're getting down to those levels.

Gerben Bakker:

Yes. Maybe I'll start, Bill, fill in. I would say in the distribution channel, and that's where we have better visibility, right? Because we sell and then we see their sell-out in fairly good amount of them that are stronger partners there.

William Sperry:

Yes. And again, I think as we've tried to put in that little box, we think there's T&D compares get a little bit easier, and some of the automation compares get a little harder. But the larger part of the business is the infrastructure piece, and that's where we think you'll see the back-end growth.

William Sperry:

Yes. The M&A impact from Systems Control was very modest, given that it right, it was 14% of sales and the margins were in the mid-20s that it was kind of comping against. So it did very nicely in its margin, but it had a slightly -- it had a slight drag from there.

Thomas Moll:

I wanted to start on the topic of the supply environment for your utility business. You've invested in response to significant demand in expanding your supply base, but others in the market have as well.

Gerben Bakker:

Yes. I think where we're adding capacity is in the areas where we see visible longer-term growth, right?

William Sperry:

A couple of metrics that support, I think, Gerben, is I think our service levels are reaching very good levels. And our lead times are in most areas coming back to normal. And those 2 facts or outcome, I would say, are pretty demonstrative of an improving supply chain environment.

Thomas Moll:

I wanted to follow up on the comment you made regarding pricing for Telco. Just clarify a bit what you meant? I think, Bill, that was a comment you made in the context of a broader pricing discussion.

Julian Mitchell:

Just apologies I wanted to circle back to Telcom. Just that I see the color on sort of Slide 8. And clearly that exposure was down 40% in the first quarter. But just to try and understand, full year as a whole, kind of what are you dialing in for that Telcom business in terms of year-on-year trends in Telcom?

Brett Linzey:

Yes, I just wanted to come back to the investments. Can you just remind us in size what you're thinking about in terms of investments for the year?

William Sperry:

Yes. So let's characterize the investments maybe first, right? So some of it is in capacity expansion inside of the Utility segment. And that as Gerben sort of highlighted, comp focused in the transmission and substation area.

Brett Linzey:

Okay, great. And then just a quick follow-up, Bill. In your prepared remarks, you noted something about a sequential 30 basis point pickup. Was that 1Q to 2Q? Just the context in what you meant there?

Operator:

One moment for the next question. The next question comes from Nicole DeBlase with Deutsche Bank.

William Sperry:

Yes. I think you've got the outlook right, and I think you also have that we were encouraged by the first quarter. So I think both of your statements, I agree with yes.

William Sperry:

Yes. We were just, Nicole, trying to indicate a flattening there. So you saw pretty impressive growth in the first quarter. And as those comps get harder and we kind of managed through the backlog, we were expecting that to be a lot flatter.

Christopher Glynn:

Nicole, just beat me to the punch on the Electrical question there, but going in a touch further, you talked about electrification driving broad-based strength across industrial markets. Can you talk a little bit about the kind of [indiscernible] in an industrial market. What type of electrification capitalization are you associating with that?

Christopher Glynn:

Okay. Just a little stale on the size of the renewables and the data center businesses, if you could help there.

Operator:

One moment for the next question. The next question comes from Joe O'Dea with Wells Fargo.

William Sperry:

And I was just going to say that the -- we saw the orders start to dip last year and it was coupled with a very large backlog. So we started liquidating that backlog, but watching the low orders suggest that once the backlog kind of got down to book and bill levels that basically, what we need, Joe, is the order pattern to pick back up.

Joseph O'Dea:

And so it sounds like it's more of an inventory normalization headwind than it is in end market activity headwind. Is that fair?

Joseph O'Dea:

Okay. And then just a question related to utility distribution side of things and the degree to which you see any instances of long lead times in certain product categories, not necessarily what you ship that are inhibiting some end market activity.

William Sperry:

I think you point out a good point that our distribution products, by and large, the lead times are quite normalized, very quick to be able to satisfy demand.

Scott Graham:

I have one and one follow-up. On HUS, would it be fair to say second quarter sales volumes flat? Or can they be up? And then obviously, second half is up? Then I have that follow-up.

Scott Graham:

No problem. You made a comment in the HES slide on project activity. Could you elaborate on that a bit?

Gerben Bakker:

Great. I'll take it from Dan. I appreciate everybody's time, as Bill said, on a busy morning. We really look forward to spending time with you in June at our Investor Day, we'll talk a lot more there about where our business is going in the next 3 years.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Dan Innamorato:

Thanks, Phoebe. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the fourth quarter of 2023. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President, and CEO, Gerben Bakker, and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release, considered incorporated by reference to this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now let me turn the call over to Gerben.

Bill Sperry:

Thanks very much, Gerben. Good morning, everybody. Thank you for joining us. I'm pleased to have the chance to discuss with you our financial performance in the fourth quarter, which was very strong, capping a strong year, and frankly a strong two years. I'm going to start my comments on Page 4 of the slides that I hope you found. So the trends have been in place really for the last year and longer, strong sales growth and operating profit growth, including margin expansion being driven by strong markets, as well as strong pricing and strong cash flow is resulting and those fundamental trends are obviously continuing here in the fourth quarter. So, we reported $1.35 billion of sales, 10% growth, 2% of that comes from acquisitions, 8% is organic. This Utility segment little bit stronger than Electrical, but as Gerben noted, quite important for electrical volumes to return to growth as a sign that the inventory in the channel is normalized on that side of the house. Interesting truly sequentially, the fourth quarter seasonally stronger than is typical, so we think that's a good sign. The operating profit margin side, 19.4%, 3 points of expansion, really being driven by price cost and productivity, and creating some source of funding for investments that Gerben had described. Earnings per share of $3.69, 40% increase to prior year, and $284 million in free cash flow helping to fund our CapEx and acquisition investments. So let's double-click on that, on Page 5 and go one layer deeper. So the 10% sales, we said was 8% organic that was comprised of mid-single-digits of price. We think that's good evidence of our quality of service and our brand positioning and low-single-digits of volume, and welcome as I said, the return to Electrical volume growth. The 2% coming from acquisitions were all on the Utility side and we'll talk about those more when we get to the Utility page. On the upper-right, operating profit up 34% to $262 million. The margin expansion of 3 points, really being driven by price as well as materials, which continued to provide a tailwind as they had for each quarter in 2023. So the inflation that we're experiencing is more on the wage and transportation side, that's where we're focusing a lot of productivity efforts, as well as we're absorbing there some operational productivity investments going on. On the lower left, you see earnings per share, up 42%, a slightly higher growth rate than the operating profit, so below the line we benefited from some tax-rate favorability and on the free cash flow side, you see, $284 million, nearly 60% increase and for the full-year, we generated over $700 million of cash flow, and that supported a CapEx of around $165 million, which really help drive some footprint restructuring, productivity, and capacity investing. So let's unpack the enterprise into the two segments and we'll start with Utilities on Page 6, and you'll see another excellent quarter from our utility team, double-digit sales growth and 40% operating profit growth. 13% sales growth is comprised of 9% organic and 4% from acquisitions. The acquisitions to remind everybody included EIG, which was our second quarter of ownership there, Balestro and Systems Control. Systems Control was closed in the middle of December so didn't contribute much yet. And we are reporting both Balestro and Systems Control in our T&D components and EIG is in the comms and control side. We'll talk more about acquisitions in a minute in the last few years plus this year. As we think about the 9% organic growth, you'll see, that it was skewed towards the communications and controls side. If I start with transmission and distribution components, you'll see, organic was at 1% where volume was a drag on price, and if we look inside the components substation and transmission continue to be very strong distribution components. We continue to work-through our second quarter of channel inventory management. I think as we had mentioned before, our Electrical side had experienced that quicker and sooner earlier than Utility side. So we've emerged on the Electrical side still in on the distribution side. And then, Telecom has been weak, a function of some overstocked inventories as well as potential demand impacts from a combination of high interest rates and some customers who are waiting for stimulus dollars to kick off their projects. You see on the communications and controls, surging growth there. We've got both the Aclara and Beckwith businesses there on the Aclara side. Those chips supply chain opening up has really allowed them to satisfy some existing backlog and so we see some great growth there. Also to remind, we have an easy compare there as last year we had a commercial settlement that was a conscious sales item. And Beckwith as well, which makes protective relays and controls, up double-digits in sales. So very strong top-line performance by the segment and even better on the OP side, a growth of 40% to $174 million, over 21% margins, and the price cost story is the same, volume growth contributing and we continue to make investments. So, from a full-year - this is obviously our fourth quarter performance, just at the bottom of the page a full-year comment on profit growth of about 60%, so congratulations to Greg and his team on just a really outstanding year. On Page 7, we've got the Electrical segments, and you see, mid-single-digits sales growth with 2 points of margin expansion, strong performance from the Electrical team, and of that 6% sales growth, it's comprised of about half of that is price and half volume. That volume, as we said, we thought in October that the channel inventories would be normalized and rebalanced and that did occur in the fourth quarter, which is good news. The volume came from some important verticals. Data centers was a big one. Recall, last year we bought PCX, which is performing really strongly, serving that segment. Burndy as well as serving that segment. Burndy is also benefiting from the renewable vertical and a little bit of U.S. reshoring of the industrial side. So some favorable trends there allowing for that volume growth. And on the profit side, you see, 20% growth, 2 points of margin expansion as operating profit reached $88 million. Again, the price cost really helping as well as the return to volume growth. And the full-year comment I'll make on Electrical like I did on the Utility side, we saw 20% growth in operating profit in this segment with 2.5 points of margin expansion. So, I think very successful year for the Electrical, and looking forward to Mark Mikes and his team continuing to push the segment to compete collectively, where we think there's more growth and more margin available to us there. I mentioned that I wanted to talk about the portfolio management, and on Page 8 we've laid out the last few years of activity just to remind ourselves of our intentions here. And I'll start with the divestitures, where we have three companies divested and a fourth under definitive agreement that we're open to close in early February. And you see, those businesses netted us $500 million of proceeds and our intention here is to make sure we're investing in higher growth, higher margin businesses, and you'll see that that $500 million we rolled into $1.7 billion of acquisitions, numbering about 10 over the last few years. And you can see in the large blue bubble of T&D components, where we added Cantega, Ripley, Armorcast, Balestro. And in the yellow bubble there of connection and bonding adding connector products. So, those very intentionally adding businesses to high margin, high growth areas, as well as in specific growth verticals like substation systems, like grid automation, data centers, PCX that I mentioned, and wireless communications of Acceltex. We think we are enhancing the growth and margin profile of the company. I didn't want to pause because of Systems Control's recent closing as well as its size and the impact on capital structure. So that was a $1.1 billion purchase price that we funded with some cash as well as some CPE and a Term Loan A, provided by our supportive bank group. The result of that is a flexible and prepayable capital structure, which we think gives us some optionality and results in a very manageable debt levels of 1.8 times debt-to-EBITDA on a net-debt basis around 1.5. So, we feel like that we're improving the portfolio and I'll talk about the specific impacts of the acquisitions on our guidance in another couple of pages. So, if we switched to outlook, let's start on Page 10 with the markets, and then we'll talk about how those markets roll through our earnings expectations. So, we've got the Utility segment on the left, Electrical segment on the right. You can see the different pieces of the pie here, starting with Electrical distribution, they've been - in the really two quarters now of managing their inventory is relative to the backlog and we think that's normalizing quickly and expecting a healthy mid-single-digit growth rate there. Transmission, substation, and distribution automation, which is up around noon on the pie. We think those are both high-single-digits. Meters and gas in the mid-single-digits, and Gerben talked about Telecom having a very cautious outlook, waiting for orders to restart there. I will just comment, that's a short-term outlook. We do have very attractive medium and long-term outlook for Telecom. So, the result on the Utility side is a mid-single-digit growth rate. On the Electrical, you see, it nets out at 3% to 4%, so low-to-mid. I think the Industrial outlook, you see, both light and heavy is low-to-mid single-digits. We have mid-single-digit growth rates in our verticals and I think non-res, we maybe have a bit of caution at flat to low-single digits. So a constructive market outlook for 2024 and let's go to Page 11 and see how that rolls through our earnings outlook. So, you see, the organic of 3% to 5% in our sales growth combined with 5% net from M&A, one going out, one coming in, to create 8% to 10% sales growth, That generates a 10% growth in operating profit, results in 6% earnings and free cash flow at about 90% of net income, affording a continued increase in CapEx. And let's just walk through the bridge to give you a feel for it. So, we're under contract to sell Residential Lighting. That will lose $20 million of OP. Systems Control, EIG, and Balestro be adding about $90 million, so you can see, almost $1 coming from those before we pay the interest expense, which we have over on the right. We had for organic 3% to 5%, so we've comprised that of 2% to 4% volume, and one point of price, which is in the next column, that's providing a nice lift and we have continued investment, particularly on the Electrical segment side as we compete collectively there and continue to consolidate the footprint under our restructuring programs. You see, on the far right below, OP, an increase in interest expense as a result of the borrowings that we outlined to close on Systems Control, and the result is about 6% of earnings growth to the midpoint of 16, 25. You see some modeling considerations listed there, and I might just add another one on the seasonality for those of you who are modeling. We're anticipating 2024 being quite normal seasonality for the first and fourth quarters, be it a little bit below the second and third quarters, which are seasonally stronger, and that just compares to last year where the first quarter was very strong and contributing to the full-year. So, we think a very constructive year in front of us. We feel well-positioned. We're happy to have the return in volumes and we're happy to have made some portfolio net addition to continue to push profitable growth at Hubbell. And with that, I would like to turn it back to Gerben.

Operator:

[Operator Instructions] And our first question comes from Steven Tusa of JPMorgan.

Gerben Bakker:

Good morning, Steve.

Gerben Bakker:

Yes, so price cost we've got as flat, Steve. We have effectively one point of rollover on price embedded in there, which we're using effectively to offset commodity inflation and then we've got productivity program that we think can help offset non-material inflation in places like transportation, wages, and things like that. So, it's quite a flat expectation. And I think the way segments - I think as a result of that PCP assumption, our margins by segment are reasonably flattish, and I'd say that applies to both segments, I would say, Steve.

Gerben Bakker:

Yes, go ahead.

Gerben Bakker:

Yes, I'd say flat, as you think about.

Gerben Bakker:

Maybe the two moving pieces on that I'll give you, if you think about the addition of Systems Control that's actually a little bit dilutive to the margin even though it's - we've provided those numbers and very attractive addition. And if you think about volume, it's a little bit accretive. And if you think the net of those with PCP flat, it's roughly flat. If you look at maybe a little bit color on the Electrical because the Electrical I think it's a slight expansion, but that is with a pretty good step-up on the restructuring, so if you take that out, it's actually a nice expansion of that, and Bill referred to it earlier of the opportunity still in that segment as they work through organizing that better, competing collectively, there's more room for margin expansion there.

Operator:

Thank you. One moment for our next question. And our next question comes from Jeffrey Sprague of Vertical Research. Please go ahead.

Bill Sperry:

Yes. So, maybe let's start with Utility margins first, and I would say for Aclara, you're right to say their margins are below the transmission and distribution component margins, largely because of the amount of R&D investing that we're doing, working on developing the Next-Gen comms package. So, I would say, in '23 and particularly in this fourth quarter where you saw them outgrowing, I would - I think where you're going is, is that create a mix drag and it did in the fourth quarter. I think growth rates next year, we maybe anticipate more balanced, Jeff, so I don't think we'll have a big mix effect in Utility margins in '24. And your second question was on Telecom. Maybe provide a little context there, Jeff, and we really saw that slowing down towards the latter part of the year, particularly the fourth quarter, specifically was down 20%. The first quarter, we still expect that to be down double-digits. And what happened early in the year, we're still working through a lot of backlog in that which kind of shielded us a little bit. So we certainly expect after the first quarter, the second quarter sales to be down, and then we expect that to rebound in the second half and some of that stimulus funding frees up.

Gerben Bakker:

Yes, I'd say more to do, Jeff. Some of those projects take time to get some of that equipment in and online. So, if you think about, for example, our transmission and substation markets, particularly strong last year and this coming year as well as you saw, and that requires some capital that still need to come online, and I feel good about our ability to do that. We've done that very well over the last year, so that's going to support some of that growth that we have embedded in our guidance.

Gerben Bakker:

Please go.

Bill Sperry:

Yes. I think that we just aren't - we don't do EPS in the - by the quarterly guide basis. I just would say I'd anticipate our Q1 earnings to be in line with contributing to the full-year at our typical seasonality and more so than it did last year so.

Operator:

Thank you. One moment for our next question. And our next question comes from Tommy Moll of Stephens. Please go ahead.

Gerben Bakker:

Hi, Tommy.

Tommy Moll:

I wanted to start on the Utility side of the business. It seems like for most of last year it was more a discussion around availability rather than price. With that said, given some of the inventory destocking, particularly around distribution, has that conversation changed at all? Is price a bigger factor at this point?

Tommy Moll:

Good to hear. Thank you. I guess that then begs a follow-up where in your full-year outlook you contemplate, I think you said, Bill, a point of wraparound price, but you did highlight some uncertainty in certain pockets, what are those pockets you were referencing there?

Gerben Bakker:

And maybe to your point, there may be some headwinds, I'd also say that we built into the guidance to carry over, but we also announced price increases early this year, it's early to tell at this stage, only a few weeks in on to stick rates, but again the conversations that we're having are very positive to those taken hold. So, we have levers against potential headwinds by taking price too.

Operator:

Thank you. One moment for our next question. And our next question comes from Nigel Coe of Wolfe Research. Please go ahead.

Bill Sperry:

Yes, little. I would have said 21% if you ask me, yes.

Bill Sperry:

Yes, I'm not sure - I'm not sure I'm getting the essence of what you're asking. We did find that vertically data centers and renewables were both good that benefited our PCX business and our Burndy business. And I do think we saw from our big customers, if that's - if that's where you're pushing, in areas where they had been managing their inventories we saw a return to growth in those as well. So, I'm not sure if you're getting that customer behavior end-markets there, but we had a kind of a little bit of a mix of both.

Bill Sperry:

I do agree. I do agree, they were sort of at double-digits versus what you see is a better margin at the segment, so I do agree.

Bill Sperry:

Yes, pretty consistent in the quarter, Nigel.

Operator:

Thank you. One moment for our next question. Our next question comes from Julian Mitchell of Barclays. Please go ahead.

Bill Sperry:

Yes, Julian, first of all, welcome to the call, nice to have you, and I would say, that the Utility destock we'll see, but we could - if you - we couldn't be at the point of kind of having be done with that as well and I would say on the Electrical side we feel more confident than we are. Your Telecom point is right. I think we do anticipate a weaker start. And as you think about, you're sort of introducing sequential seasonality and how that's going to look VPY compare. And I think what on the VPY basis, some of the second half compares because of the destocking could actually be a little bit easier, for example, first quarter last year was actually quite strong. And I think seasonality-wise, we upped our investments at the second half of last year, as those wrap around that creates a more consistent and easier second half. So, I think as those things net against each other, that's kind of how we're getting to a more typical seasonal year even though, I hear you, there's obviously puts and takes and forces at work here.

Julian Mitchell:

Thanks very much. And then just a quick follow-up, that Slide 10, the non-residential vertical within electrical, the flat to plus low single guide for the year, you understand fully on the channel stocking largely having run its course, but maybe just the market outlook. You use that word uncertain, just any sort of color you could put around that, what you're seeing in different verticals in that non-resi bucket?

Julian Mitchell:

That's great. Thank you.

Brett Linzey:

Hi, good morning, all. Just wanted to come back to the investments and you talked about some of the carryover in the first half, just wanted to clarify, are these embedded within the volume portion of the bridge and separate from the footprint? I'm just trying to understand if you could quantify the investment versus restructuring and what those paybacks might look like.

Brett Linzey:

And then anything you can share in terms of the paybacks on these footprints? Is something embedded this year or is that a little bit longer term?

Bill Sperry:

Maybe the other thing that I would say is embedded is some of those investments will drive a higher level of productivity that's embedded in our guidance. So when you look at the construct of flat price cost productivity, it has a higher level of productivity and higher level of inflation in it to offset it. So that's where some of those investments are going.

Bill Sperry:

Yes, I mean, you'd be kind of maybe asking a little bit about a speculative sensitivity analysis, right, so, you can see, each point - each point of price gets us north, obviously, of $50 million of price and it's that - that's a lot of leverage if there is no corresponding inflation to that. Conversely, if you have to give a little it equally has kind of this 100% sort of drop through, and so as Gerben sort of outlined, I think we have because of the investments we made last year, we have a more ambitious productivity target level and we certainly see some inflation on wage transportation area as well as in kind of a material-related areas. So, I think getting the rigor that we need to focus on all of those levers to come out even or ahead is sort of a - it's an obsession. We review it really carefully every month at Gerben and my level and continue to push enough initiatives to make sure we stay even or ahead.

Operator:

Thank you. One moment for our next question. Our next question comes from Joe O'Dea of Wells Fargo. Please go ahead.

Bill Sperry:

Yes, so I think we - you could put in about $40 million of incremental interest expense and I think the drop through of 25 on volume is reasonable. I'd rather see that more like 30, but somewhere in that high 20s is reasonable I think.

Bill Sperry:

Yes, so we've - you see, we have interest income there as a plus and interest expense as a minus, so we sort of built to construct that, it's either cash that's going to earn or, yes, it's going to be available to pay down, and I guess - so I guess the one thing I'd say is, it's explicit that we're not modeling in our guidance any new acquisitions and so that would be incremental to this guide.

Gerben Bakker:

Yes, overall, I would say, sell-through volumes were down kind of in the high-single to low-double-digits most of the year and I think sell-through was flattish to slightly up, so it got better in the fourth quarter, but overall, I think you can think about it a single-digit impact on a full-year basis.

Bill Sperry:

Yes, the volume was - it was negative, right, so it ate into the price. Volume was slightly positive, Joe, sorry.

Bill Sperry:

Yes, you're asking for whole of Utility, sorry, I thought you were talking about [indiscernible]

Operator:

Thank you. One moment for our next question. And our next question comes from Nicholas Amicucci of TD Cowen. Please go ahead.

Gerben Bakker:

Good morning.

Nicholas Amicucci:

Just had a couple. Wanted to hone in on the Electrical Solutions segment, so obviously, it's going to benefit somewhat this year from the footprint optimization, just wanted to see how much - I mean, how much more headroom do you guys have from an optimization perspective within that segment?

Nicholas Amicucci:

Sure. That's fair. Then did want to touch upon too, so I think the guidance within the press release, it had indicated about $1.60 of the amortization, that's within adjusted EPS, and so if you do the math, that's roughly $86 million for the year. Within Utilities, I mean, I understand that there is a significant step-up in 4Q probably related to the Systems Control, but just wanted to get a better sense of the timing of that amortization and kind of break down between Utilities and Electrical Solutions.

Nicholas Amicucci:

Got it. Perfect. Yes, that's all I got, so thanks, guys.

Gerben Bakker:

Thanks.

Christopher Snyder:

Thank you. I wanted to ask on Utility margins, and - specifically, I guess the expectation that on an organic margins will be flattish for 2024, I'm just asking because you guys are exiting the year well below where you started, and maybe M&A had a bit of a headwind in Q4, but it feels like organic is, in Q4, down a good deal versus the first half. So is it fair to - does the guide assume that Utility organic margins are down year-on-year in the first half and then return to growth into the back half or should we expect them up year-on-year throughout the year?

Christopher Snyder:

Thank you. I appreciate that. And then just as a follow-up on Utility margins, so I know they're always down sequentially into Q4, just lower revenue. This quarter came in quite a deal sharper than we expected, is the company starting to feel the impact of higher metal prices? I know steel has been up a lot over the last three, four months, was that starting to come through in Q4 on those Utility margins or is that still more maybe a '24 dynamic? Thank you.

Christopher Snyder:

Thank you.

Scott Graham:

Hi, good morning. Thanks for squeezing me in. Just really the question I have is about the portfolio management slide, and particularly now with Systems Control in the fold you have a couple of nice size bubbles under which to acquire, what is the outlook there for - what does the pipeline look like? I mean, you've got 1.4 net leverage, which is a really good number to work off of, sort of what are your aspirations in '24, maybe even by telling us, would you be disappointed without another good-size deal this year?

Scott Graham:

Well, fair enough. I guess, I was just wondering also what the pipeline itself looks like, and you can put people off a little bit.

Scott Graham:

Thanks so much.

Operator:

Thank you. At this time, I'd like to turn it back to Gerben Bakker for closing remarks.

Operator:

This concludes today's conference call. Thank you for participating and you may now disconnect.

Dan Innamorato:

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter of 2023. The press release and slides are posted to the Investors section of our Web site at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures, those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now let me turn the call over to Gerben.

Bill Sperry:

Thanks very much, Gerben. Good morning, everybody. I appreciate you taking time to join us this morning. I'm going to start my comments on Page 4 of the materials that I hope you found on the Web site. And you'll see here highlighted strong results for the third quarter with our performance broadly consistent with the themes and trends we've been discussing throughout the year. If I were to try to summarize that neatly in a sentence, I would say we've been enjoying broad based market strength in our key end markets, which has helped support strong margin expansion primarily driven by execution on the price cost front and doing that while absorbing the channel, managing inventories down in response to the supply chain improving from pandemic depths. And you'll hear us talk about, I think, a lot of those themes throughout the day as we discuss our performance with you. So you see sales of about $1.4 billion, a 5% increase, 4% organic, 1% from acquisition. And again, that's basically in line with how we've been guiding you. The OP margins at 21.4% plus 440 basis points for last year, marking the third quarter in 2023 where we've had margins above 20%, again, very strong execution particularly on the price lever there. And I'd say that we -- it gave us the extra margin to help invest that we think will really help us both grow in future years as well as be more efficient. So I think as we think about earnings and profit essentially in line with our expectations, a little bit stronger on margin, maybe a little bit lighter on sales growth. So maybe getting there a little bit differently, but certainly in line with our expectations. You see $3.95 of earnings, 28% year-over-year increase, obviously, the strong operating performance driving those results. And free cash flow of $159 million higher income in the quarter but also higher CapEx, higher investment in trade working capital. And we are confident in the year getting to $700 million, so fourth quarter is a very seasonally strong as it typically is. So I think the way we were thinking about cash flow in Gerben's comments, he talked about multiyear trends. So we're talking about cash flow from '21 to '22 to '23, going from $425 million to $500 million to $700 million. And we're excited about the high quality earnings giving us that cash flow, because it allows us to lean into investing and making our great company even better in the future. Let's go to Page 5 and we'll see performance graphically a rate against prior year here. And I'm going to start in the upper left on sales, you see 5% increase to just under $1.4 billion. We had talked about organic being 4%, acquisitions being 1%. The acquisitions, PCX, our data center acquisition as now we've kind of lapped out of that. So the incremental is coming from both EIG and Ripley, which were component manufacturers in the utility space, so helping drive utility growth there mostly. On the organic 4%, price was 6% and units were down 2%. As we think about the units, there was two soft end markets that we're managing through. One is the resi side, where we've had double digit declines, I think interest rates having a big effect there. And second is on the telecom side, and we can talk a little bit more about that where we still have very strong medium-term outlook expectations for telecom. But to balance where we see units being driven down, we believe is coming from channel actions to manage their inventories in a very natural response to this kind of multiyear cycle of having our lead times gap out during pandemic problems where we had both material and labor shortages. We forced our customers, therefore, to over-order and now they're managing that inventory back down to target at normal levels, meaning they're selling through to our end market at a higher rate than they're buying from us. And as Gerben said, we're starting to see that come to an end on the electrical side around now and we're expecting the power side to be done by year end. So I think '24 should start to look like a much more normal order pattern year for us with healthy markets. On the upper right, you see operating profit $295 million for the quarter, 21.4% OP margin, 31% increase in dollars and a very healthy increase in basis points of margin expansion. Interestingly, as we look at trajectory and we see sequentially those margins are down versus the second quarter, that's primarily due to investments that we're making, essentially on the growth side, where we're pushing hard on new product development, innovation and also making some capacity expansions as well as on the efficiency side, where we're focusing on sourcing. I think we've shared with you in the past pie charts of our cost structure and a lot of our cost in the material side. So our sourcing actually has to be very efficient and as well as supply chain efficiency. So we're happy to have the margin to make these investments, because we think they're going to make us more profitable in the future as we go forward. And earnings per share on the lower left, you see a $0.28 increase to $3.95, basically in line with OP growth. We had some tax headwinds that were largely offset by interest income. So one of the interesting impacts of higher interest rates where we have significant cash balances, we've been earning about 5% on that cash and even better, more towards 5.5% in the US. So help offset that tax headwind to keep keep earnings growth in line. And then you see the free cash flow down 18% to prior year. We obviously had more income but we have higher CapEx, higher working capital investment in inventory. But one big driver was the timing of receipts, which flooded in, in early October. And so October has proved to be a very cash rich month, we think going to drive a very cash rich fourth quarter, which will get us over $700 million of cash flow for the year. So again, that three year walking cash really supporting us being able to be in a net investment position. So now I want to unpack the results between our two segments. And on Page 6, I wanted to start with the Utility segment. So another strong quarter for our utility franchise, you see 8% growth in sales and nearly 40% growth in OP dollars with 5 points of operating profit margin expansion. So strong performance by the franchise here. We'll focus on sales first, up 8% to $838 million. 7 points of that is organic, 1 being via acquisition. The organic is essentially all price, so units effectively flat. And interesting, we're starting to really see -- we report to you in these two different business units between the components for transmission and distribution versus the comms and controls business unit. And we're starting to see the portfolio effect here where for the past couple of years, the T&D components business has been outgrowing communications and controls. Last quarter, the growth was quite balanced. In this quarter, you see comps and controls outgrowing components. I think both effects being driven effectively by supply chain disruption becoming more normalized, and let's talk through that for a minute. So on the T&D side, we'll talk about three components

Operator:

[Operator Instructions] Our first question comes from the line of Jeff Sprague of Vertical Research.

Bill Sperry:

Jeff, I think you almost answered your own question, but it is significant to us that the electrical side has been facing some of this overstock situation for a few quarters now. So we think that's nice to see that inflecting into a growth position and sort of getting that period back to -- back to a normal book and bill sort of fourth quarter and really '24, and I think that's that's kind of the story.

Bill Sperry:

I think we're -- frankly, we'll be much more -- give you much more granularity when we're together in January, and we give you our guidance. But I think you're putting your finger on some important things basically, you've got the expectation that volumes will be positive. And in those cases, it's the fixed cost absorption and the incrementals helping push margins up. I think the investment point, we're still calibrating exactly how much we're going to do. I think, from Gerben’s and my perspective, the great news is to see how creative and aggressive our teams have been in coming up with investment ideas. So it's more a function of Gerben and I regulating that and as opposed to, gee, we don't have any ideas as to how to improve the franchise. I think on the price comment that you made, there is a little bit of wrap around embedded from the timing of price increases in '23, but that's pretty small, certainly compared to the last two years. And will be whether there's any new price beyond that will remain to be seen, and we'll share that with you as we get to year end. I think we do expect productivity because you mentioned the inflation side and we've been pretty simplistically trying to maintain a balance between price and material cost on one hand and productivity and nonmaterial inflation on the other. When a nonmaterial inflation gets 5%-ish , right, it's a little bit harder to rely on just productivity to do that. That being said, we have a lot of this investment that we've been talking about is aligned towards being more productive. So we're going to continue to target that price/cost productivity to be balanced. But again, I think we'll be a lot more clear with you and granular with you, Jeff, when we're together next time.

Gerben Bakker:

And we're obviously very excited to bug deals, but obviously, the systems control, the size and the scale that it adds to the franchise we're really excited about. The good news with this business coming in that it's historically been high growth and it's very profitable, as you can see. So that's certainly a nice position coming into the portfolio. As we look and we diligence this business there's some really nice trends that I think will serve this business right. One is that they've been for 60 year a relining control panel manufacturing, but over the last 10 or 20 years, they've moved into more turnkey systems. And in essence, what that does is take labor of putting these systems together traditionally in the field to a more controlled environment in the factory where they can not only have a better control environment, they test them and it takes a lot of time out of the field. So this is a trend that we're actually seeing in the business started when we acquired PCX, that similar dynamics, some of the new products that we're developing have those features in place. So it's an area that we believe will see outsized growth coming in. What we can add to it is, we looked at who their customers are, it aligns extremely well with where some of our customers are with the exception that they still have a much smaller share of those customers. And I think this is where we really see that with our sales or with our people, we can add to complementing that. So I do believe it's more about the sales growth than probably typical cost synergies that we would see smaller tuck-ins coming in, but really excited about having this in the portfolio on what we can do with it.

Steve Tusa:

So just on the -- can you update us on the price cost productivity numbers? And then Bill, you always have like a pretty good balanced view of the macro here. I remember back in the day, you would talk about how things were either kind of trending as you would expect with a rhythm to it or whether things were kind of choppy in a low growth world. How would you kind of characterize the demand you're seeing today into '24, like just from a consistency and visibility perspective across your portfolio?

Steve Tusa:

And then is price cost and productivity for the year, like what that new number is if there's an update to it [Multiple Speakers] yes, price cost productivity…

Steve Tusa:

Can you get an absolute number?

Operator:

[Operator Instructions] Please standby for our next question, which comes from the line of Nigel Coe of Wolfe Research.

Bill Sperry:

So we've been using backlog -- Nigel, let's say that to simplify your question, Electrical is already in the position of being kind of book and bill, okay? So we've used backlog in the second and third quarters of this year, and we still have more backlog than we traditionally do. I would say, pre-pandemic, we would think about backlog being in the six week range as being very normal and typical of our book-and-bill kind of enterprise. I'd say we're sort of in the quarter and half of backlog now, so it's maybe 2.5 times typical size. So we still have the backlog on the power side. And I think that the models that we've built and the way that we're looking at those specific businesses who have gone to a much more normal lead time and we see those are the areas where we think they're shipping more than they're receiving from us. And as we talk to our customers and the models that we've created, it feels to us like that burns off that whole phase burns off by the end of the year. And we're kind of using what we saw in Electrical because it's -- that's a good precursor, we think. And so those -- all that stuff combines but I do appreciate I think there's maybe some art and some science mixed together in that answer.

Nigel Coe:

And then just on the Electrical Solutions margins, I think with all this noise in the utility, I think we're forgetting that these are continuing to like inflate to record levels, especially when we consider the residential business would be obviously well below that the average. So when volumes inflect, I think you're calling for volume to reflect in the fourth quarter and then obviously into 2024. Do you think you can actually build on these margins or is there going to be some offsets that I can't think of any, but are you confident you can push margins into maybe the [Indiscernible] levels?

Operator:

Our next question comes from the line of Brett Linzey of Mizuho.

Bill Sperry:

Let me start with the first one -- or the second one, I'll let Gerben comment maybe on the overall picture. But yes, we think the momentum of having the chip supplies saw is really helping us get some backlog from the meter side out and as well on the AMI side. So it's a welcome surge of momentum that certainly will carry us through fourth quarter, Brent, maybe I’ll let Gerben talk back really about the positioning of…

Brett Linzey:

And then just a follow-up, I think you noted the additional manufacturing capacity, the two recent deals could be favorable. I guess, how does this change your current capacity plans or what you're thinking in terms of '24 budgeting? And can you absorb some of the acquired capacity, any context there?

Gerben Bakker:

And I'd say, on the kind of specific to Balestro, helps with the investment needs even into next year because that was one of the areas we were contemplating having them make investments in to grow that block or this capacity, but it's not the only one why not constraints in other areas. If you look at our transmission business and other parts of the businesses, we clearly still need to invest into next year to be able to capture that growth over the next few years [indiscernible] but it's not unique.

Chris Snyder:

I wanted to just ask about confidence and the ability to hold utility margins at around these levels into next year. Obviously, up a lot year-on-year, and it felt like a big piece of that expansion was obviously on price cost. So kind of just talk about expectations there into next year.

Chris Snyder:

And then maybe just on the price side of utility. I mean it seems like, obviously, there's been a lot of price the past couple of years. It seemed like the drivers of that was obviously metal -- raw materials inflating higher? And then also just supply couldn't keep up with the strong demand, but now with deflation and it seems like some supplies in a better place, allowing the channel to destock. Any change around price push back in the channel?

Operator:

Our next question comes from the line of Joe O'Dea of Wells Fargo.

Bill Sperry:

I mean I think on -- let me take the second question first. Transmission and substation growth, I think is being impacted quite a bit by renewables as well as electrification trends. So you need a new substation if you're doing a utility size solar farm that needs to be generated and then transmitted and then step down again, to the extent you had some kind of massive data center or battery factory, so electrification impacts like that that kind of increases the demand on substations. And in addition, you just have those 53,000 substations, you just have some aging equipment that needs to be updated. So it's not that that distribution has bad growth outlook. It's just that the projects on the T and substation side, we just think are going to outgrow a little bit. We did a little deep dive last quarter on that because we think it's an interesting little subset of the space. As far as interest rate impact on project management, I think, it obviously is weighing on people's consideration of cost of capital. And I just think the returns on their projects are just higher than the cost of capital. So we just -- we haven't seen the dialog step down because of interest rates but that means -- I don't know, we're not -- we just haven't seen that yet.

Joe O'Dea:

And then just on the sequential margin trends in utility. I think clearly a mix impact with the comms and control strength within the power side and anything from a mix side there to be mindful of in terms of the sequential move, or was it really just the comps and controls mix?

Operator:

Thank you. I would now like to turn the conference back to Dan Innamorato for closing remarks. Sir?

A - Gerben Bakker:

Thank you.

Dan Innamorato:

Thanks Michelle. Good morning everyone and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the second quarter of 2023. The press release and slides are posted to the Investors section of our Web site at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore please note the discussion of forward-looking statements in our press release considered and incorporated by reference to this call. Additionally comments may also include non-GAAP financial measures. These measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now, let me turn the call over to Gerben.

Bill Sperry:

Thanks very much, Gerben and good morning everybody. Thanks for joining us. Congratulations to Greg and Mark and on a personal note from me, very, very excited to partner with both of you as we drive to future success with Hubble. They're both off to excellent starts in their new responsibilities. I'm going to start my comments on Page 5 of the materials that you hopefully grabbed. It's really just a summary of a very strong financial performance in the second quarter. Most of the compares we'll show you in this deck are against the second quarter of prior year of 2022. We find it instructive also to look sequentially to the first quarter of '23. And I think that we see a lot of continuation of the positive trends that we experienced in Q1. And things played out quite similarly in the second quarter, it was 6% sequential top line growth and point and half or so of margin added. So a lot of the same themes that you'll remember from our first quarter call. You see sales at $1.37 billion, 9% growth with 3% coming from acquisition, 6% organic. The organic being driven primarily by price, which is a theme again you guys saw in the first quarter with us going back to last year. OP margin reaching the 22% level, a very attractive level, nearly 6 point improvement over last year, really result of the price cost being favorable as well as some productivity from the supply chain normalization of some of the efficiencies coming with that. Earnings per share above the $4 level, also very attractive 45% growth rate. That increase in earnings resulting being driven by the sales growth and the margin expansion of the OP level. Free cash flow of $192 million, really driven by the strong net income growth, and that number is absorbing continued investment in CapEx and working capital. So I think that we're very pleased with this cash flow, it's allowed us to strengthen the balance sheet. If you look at the balance sheet at the midway point here of 2023, you've got nearly $0.5 billion of cash, about $1.4 billion of long term debt. So our net debt to EBITDA being less than one, we think really positions our balance sheet to be supportive of being in an investment profile. And we think that can come both in the form of CapEx, OpEx as well as acquisition. And on the acquisition front, very pleased to announce in the second quarter we were able to close on our acquisition of Electro Industries, a very typical Hubbell size bolt on of $60 million. It fits into the utility segment, products are in the distribution automation area, sensing and controls, power quality, metering, fits very well with other products of ours in that space. So we welcome our new associates from Electro to the Hubbell family. I'm going to switch now to Page 6, which lays out our performance in this bar chart format, and we'll drill a little bit into each item. So the sales growth of 9%. We said 3% acquisition, 6% organic. The organic is really all price. Volumes were down slightly overall as electrical volumes were down and partially offset by the growth in utility volumes. We'll talk about each segment in subsequent pages a little bit more. The acquisitions from 3 points came from two major contributors, one from each segment, and I think a good reflection of our intentional investment strategy. On the Electrical side, contribution comes from PCX, which was a data center acquisition we made. We just passed our first anniversary of owning PCX, off to a great start, growth and margin wise. On the Power Systems side, Ripley Tools, very good extension on the component side for us for Power Systems. So again, good signals of how we intend to deploy our capital here. On the upper right, you see operating profit up 47% and above the 22% level. Price cost really the biggest driver there. And interestingly, both levers contributing to the margin expansion, I think you've seen our price story play out over the last couple of years or so. But also this quarter, we had material cost flipping to a tailwind, so actual deflation in both the raws and our component costs there, helping drive strong margins. We believe our pricing success has been driven by our differentiated service levels. We get consistent feedback from our customers that we're outperforming competitors in that regard. And that continues to inform us as we continue to invest. We want to push that differentiated performance and make sure we're able to support those pricing levels and continue to make our margins durable and truly emerge from the pandemic as a more profitable company. Besides price cost, there also was productivity. I think we're finding that our factories are performing better in '23 than in '22. Really as supply chains normalizing, we're getting a lot of those inefficiencies we experienced last year to be ironed out, and that's helping drive margins for us. We don't think they're all the way back but certainly a contributor. On lower left, you have earnings per share. Again, the $4 level and a 45% increase, really all operating profit driven. Below the line was a slight drag as taxes were up just a little bit, but that was partially offset by a decline in interest expense, really net interest expense as our cash, I mentioned we're up to close to $500 million, and that cash is actually starting to earn interest income to help offset the expense. On the lower right, you see free cash flow. This page depicts the three months of the second quarter, up 14% to $192 million. I find a little more instructive to widen the lens and talk about the first six months where we've got $272 million of free cash flow, which is more than a doubling of what it was last year, and that's been absorbing a higher CapEx level or CapEx for the first six months of the year. It's up about two thirds from what it was last year to almost $70 million in the first half as well as an increase in working capital investment as we continue to need the inventory to support our customer service. So I think given the fact that we're investing and increasing the cash flow shows a good relationship there. Let's unpack the performance by segment. And on Page 7, we'll start with Utility. Utility has really been the engine of the Hubbell enterprise financial performance of late. We think really a leading business model, unique positioning across components, communications and controls and very worthy of continued investment, as we'll discuss a little bit more later. So on the sales side, see 14% increase to $831 million. That's comprised of 1 point from acquisition, I mentioned Ripley Tools before and 13% organic. That organic is comprised of roughly double digit price and low single digit volume increase. And we believe we've got really nice end market demand construct here and it's really complemented across the two segments we're talking about here, the two business units between the transmission distribution components growing at 13% and the comms and controls growing at mid-teens. That comms and controls piece is the Aclara, largely the Aclara business. I think most of you following it will remember they've been held back by a shortage of chips over the last year and half or so. And as we saw easing of that chip supply in the second quarter, and for us, we got our comms business out of the gates first and they had a really strong second quarter. We see because of their supply now they had a nice backlog of demand from their customers. And with the supply chain improving on the chip side, we see a very good second half for the comps. That happens to be a nice -- a very attractive gross margin business, so a very mix friendly development. And the meter side, we see exiting the quarter with the same kind of supply trend. So we think meters will have a good second half visibility as well. So I think good news to see the comms half kind of returning to not being held back by supply constraints. And on the Power Systems side, you've seen that over the recent quarters really having strong growth. I think you'll remember last quarter we showed you a chart that had a three year review of orders and shipments. And that chart essentially showed a relentless buildup of backlog over that time frame that was starting to peak at the end of that period. And as we discussed then the orders were reflecting, yes, strong demand but they are also reacting to the shortage of supply and the need of our customers to be ordering farther ahead in order to keep themselves stocked. That obviously was not sustainable and especially in light of improving supply chain and shortening of promised delivery dates. And as we've seen those lead times start to normalize, I would say, in two particular segments of the components area, we've really started to see customers adjust their order pattern to reflect the fact that they can work off of inventory and can moderate their order pattern until that inventory gets to the proper levels. So that's both the distribution side of Power Systems as well as the telecom end market. Both of those have very attractive backlogs. So we'll be navigating a period of using the backlog as those order patterns adjust. And as Gerben had mentioned, in raising our guidance we feel that we've got the momentum to clearly carry us through the second half of the year. And on the right side of the page, you see the operating profit story, just a very impressive performance of 70% increase north of 25% margins. Really good price cost there, improved productivity. The factories are getting rid of some of those prior year inefficiencies. I mentioned the mix with Aclara has been quite favorable. And we are investing on the OpEx side as well as the CapEx side and we anticipate increasing those investments in the second half, and we'll talk a little bit about that on the next page. So Page 8, we wanted to highlight for you the transition space. And this is kind of defined more narrowly. As transmission, we often lump in substation here but this is kind of the more narrow transmission piece, smaller than the distribution side of the components world. But nonetheless, a really critical area to enable the grid modernization, hardening electrification and really getting renewable generation to the point where the user is. So we think the trends here are very attractive. We see long term growth rates in the high single digit range. Right now, we're seeing -- in contrast to what I described in telco and distribution, we're seeing orders and quotes up over 50% over prior year. We think there's some support here from stimulus packages, from government policy where IRA is helping spurred development through the provision of the tax credits versus the IIJA providing harder funding dollars to really spend on the project. So we think really nice growth dynamics in the area. We also think that we are really well positioned. We feel we have the best depth and breadth of products, quality and reliability. We also feel helping the problem solving and design area plays to Hubbell's strengths. And ultimately, to help with the complexity of getting material to these projects, I think there's a tendency to want fewer suppliers. So that plays very well to our positioning. So we feel very well positioned in very effective markets such that we'll get our fair share and at the point where that's going to require investment on our part to help support our customers. The graph is of the total Hubbell enterprise CapEx but you see over a couple of years, a very strong increase in that capital. On the Electrical side, going a little bit more to productivity and on the Utility side, I'd say, it's tending more to the growth side. And I'd say the distribution part of utility was earning the early CapEx raises. And now we're starting to shift our focus onto T, you'll see we've put a little plus sign to the right of the [160]. As those dynamics play out over the second half of the year, I don't think we would shy away from investing even more if the dynamics require it. We think we are -- so we have attractive growth. We're well positioned and we're prepared to invest to earn more than our fair share. As we map out these projects, they have excellent ROI when you just analyze the financials. But I also think it's a really good way for us to continue to differentiate our customer service and solutions that we provide to our customers, which ultimately helps support the sustainability of our utility margins to last just beyond a big quarter. And so that kind of underlies one of our rationales for continuing to want to support our customers in a differentiated way. Page 9 is the Electrical segment. And you can see 1% growth year-over-year to $535 million, that's also a 6% sequential growth, so a little bit better than typical seasonality there. The acquisition of PCX that I had talked about added 5 points. So the organic is actually down 4% and that included a mid-single digit of price. From a markets perspective, the industrial end markets showing a strong demand, I think the reshoring trend is providing strength in US manufacturing, oil and gas, steel and transportation, all being strong contributors to growth for us. The verticals that we focused on between data centers and renewables, we've been very successful growing there. And in the more commercial arena, we're seeing similar, as I described in the power systems where the D and the telecom customers were starting to adjust their order patterns. We've seen that in our Electrical segment on the -- more on the commercial side. And the customer anecdotes are suggesting that their days of inventory are getting in line with targets they have. And therefore, we may be we think nearer to the end of that adjustment period and our expectation is second half will be a little more balanced between book and bill. And on the OP side on the right, you see an improvement of 12% growth. It's obviously not the volume that's driving it. The price cost has been very positive and the productivity has been good right there. And I think it sort of points out where Mark is going to be focused with us as he takes over this segment. He was incredibly successful on the power side, bringing together multiple brands and multiple acquisitions to compete collectively as a business. And I think he'll be able to help us do the same inside of the Electrical segment, and we'll continue to support Mark in acquiring higher growth, higher margin businesses. We're going to be focused on innovation where new product development should come in at higher margins and the vertical focus can help us pull a lot of balance of system product into high growth areas and continue to focus on that productivity and try to, again, make those margins durable as we go forward. So those are the -- that's the financial performance in the two segments, and I'll give it back to Gerben to share with you how that affects our outlook as we stand here at the halfway point.

Operator:

[Operator Instructions] The first question comes from Tommy Moll with Stephens.

Gerben Bakker:

Yes, maybe I'll make a couple of comments, and Bill, I'm sure, will help me with this as well. You're right to point out the comments and of what Bill highlighted in transmission. It's an area that we've seen elevated investment of many years. It's probably one of the earliest areas where we really saw the Utility, started investing with renewables and the integration of the -- interconnection of the grid. We have visible signs of that continuing to grow, and it's the reason why we're so optimistic about this business. I still believe, if you add it all together, to count on mid single of this whole market is the right way to look at it. But certainly, we're optimistic. And that's why perhaps we make that comment is to say mid single digits and there may be times or pockets where we can grow that. But Bill, maybe you have something too.

Tommy Moll:

Shifting to Electrical. Qualitatively, it feels like the commentary is about the same as last quarter, but I'm just curious if anything has gotten better or worse there. And Bill, you referenced the destocking is potentially shifting to a rearview mirror item by the back half of this year. But any additional detail you could provide there would be helpful, maybe any insight you have into the sell through would shine some light?

Operator:

The next question comes from Josh Pokrzywinski with Morgan Stanley.

Bill Sperry:

Yes, I'm not sure exactly if you were making a statement or a question. I would say, for us, the commercial side, we reduced our exposure to commercial pretty dramatically as we sold our C&I lighting business. We have a balance that we would describe, Josh, as being more exposed to some of these specific verticals like renewables and data centers. The balance of commercial is where we were kind of going through this adjustment where our customers -- our lead times are now -- they were out at I'd say, Gerben, towards the 50 week range, and they're now down to two, three weeks range. And so that's had an impact, we think, Josh, ultimately on how our customers have been ordering for us for the past couple of quarters. And that's been affecting, as you see the unit volumes that we're shipping. But it does just feel like that adjustment period on Electrical, we're getting a little bit closer to the balance point.

Bill Sperry:

I think that's -- two parts to that question. The first is M&A market. And I do -- it is interesting, Josh, there are more assets coming to market than we typically see. And there's more assets kind of above this little average $60 million tuck-in that is quite typical for us. So yes, I maybe feel that is in response to owners figuring this is a good time to get a good valuation. And I think we see the competition in those processes. It's interesting, the acquisition finance market is a little bit different, right, you have higher interest rates and that's kind of affecting how some financial buyers approach the market. But we are seeing a little bit more assets kind of in the pipeline, which is interesting. I think your second question is around the balance sheet. And I think we do view that as a major strategic asset right now and we feel we can certainly invest aggressively. And PCX is an interesting one, I think because you were specifically asking about multiples. And so if we were buying PCX in the 12, 13 times range, we've had it for a year, it's both grown really impressively and the margins have done better because of what we do with it, and we find that we own it in the single digits. And so I think part of your question was a higher multiple, we think, can be justified given the growth and margin potential of some of the businesses that are put in. So I'm hoping not too many investment bankers are listening right now but I do think there's probably some upward drift in multiple as a result of what you're asking.

Operator:

The next question comes from Nigel Coe with Wolfe Research.

Gerben Bakker:

Maybe I'll start with the inventory on the distributors. It's actually -- it's maybe a little bit anecdotal, but also a little bit from inside, I would say, is the smaller distributors probably have felt less pressure to reduce inventory than the larger distributors, particularly the public companies that we saw that actually when the pandemic started that those may have actually been heavier on the inventory. They've kept those longer in place really to serve customers. I think the larger probably have been a little more disciplined in adjusting their inventories to the market when the pandemic started, and then now again adjusting after they've been loaded because of the supply chain constraints. So I would argue it may actually be the opposite, Nigel.

Bill Sperry:

On lighting, Nigel?

Bill Sperry:

So the resi piece that we still have did have significantly negative volumes. And so they were impacted on the top line that way. But interestingly, the productivity like we described, some of the supply chain normalizing, one of the biggest drivers for that resi business has been the transportation cost. It's imported product from Asia and those container costs have really gone from a pandemic [capped] out container cost up in the mid-teens of thousands of dollars back down to $2,000, $3,000. And so that's really, despite the volume drop, allowed that resi business to earn a margin again. So they kind of have two big cross currents there between volume and cost structure.

Bill Sperry:

So the product line is a traditional one. So if you're driving on a highway and you look up at one of those steel towers and you see the insulators up there and the hardware up there, that's the part where Hubbell plays. And right now, if you exclude the substation, which we usually kind of lump in, we're talking in the ballpark of $200 million of exposure for Hubbell. So in the kind of 10%-ish range of the segment, a larger percentage of the kind of components piece. But we see that could be an area of acquisition investment, certainly capacity investment. And again, I think we see organic growth there, Nigel, certainly in the high single digits for the foreseeable future for that and continues to be supply constrained environment versus demand just because of all the, I think, the drivers for hooking up to renewables and potential interconnects between FERC regions, et cetera.

Joe O'Dea:

I wanted to start on Utility and just -- I mean, you've talked about service levels being a differentiator for you. As we do see supply chain improving, just curious whether or not you're seeing some of those differentiation opportunities diminish a little bit, and maybe any sort of anecdotes as even when we get to sort of normalized supply chain environment where that service will remain a competitive opportunity for you?

Joe O'Dea:

And then I wanted to ask on the deflation comment where you're seeing it in both raws and components, specifically on the components side. Is that a function of efforts that you are making and going to market and any supplier consolidation is translating to some of it, or is it something that you're seeing broadly in the market on component deflation? And then related to that, I mean, historically, when you do see some of it, what would generally be the lag time before you would start to see that filter into the conversation around price?

Operator:

The next question comes from Steve Tusa with JPMorgan.

Bill Sperry:

So let's start with price, Steve. And we talked about it being more than all of the organic for the quarter. So you're talking about 8 points roughly of price in the quarter. We're getting to the point where we're not pulling a lot of price in the last quarter. So we're sort of riding out and lapping the previous price increases. So one of the things that you'll see in our second half, as you squeeze the second half expectation that's embedded in the guide is the fact that, that price starts to moderate a little bit in the second half, and the cost is a little bit harder for us to predict. But it just looks like that dynamic will kind of on a year-over-year compare basis to start to narrow just a little bit. And so it gets to -- your utility question is related to that. And I think we're going to be doing some more investing, this incrementally in transmission in the second half. We're going to be investing in areas like supply chain resiliency. And innovation continues to be an area of focus. And so as we get, I think, to our third quarter call with you all in October, we'll maybe start to have a better view of what some of our expectations into '24 will be. But I think by the fact that you saw us raise our guide, right? If you go to our mindset in April when we raised our guide by a couple of dollars, we were describing having some second half conservatism because we just weren't sure what to expect. I think by our raise of $1.75 midpoint here to midpoint, you're hearing us say we actually see momentum that gives us better visibility in the second half and some of that caution has been taken away. I think maybe now you're extending that six months and saying, as you end the year with the momentum that you've got, ultimately, how will that appear in '24. And we'd really like to make those margins as durable as we can, Steve. And we're going to do a lot of work to try to do that and we'll be talking more about that, obviously, over the next call or so.

Bill Sperry:

No. I think I agree with you that the D is smaller projects, the T are bigger projects, but our margin profile is actually reasonably consistent across the two despite that difference. And we did see a mix benefit in the second quarter from Aclara comms kind of outperforming. And so that's sort of interesting to watch that trend. Just their gross margins are high as part of our -- relative to our portfolio. So if we can get some good momentum behind that, that could be an interesting mix contributor.

Chris Snyder:

I wanted to follow up to some of the commentary in the prepared remarks about customers on the utility side changing their order patterns. Should we take that to mean that orders for utility were down in the June quarter, and did the backlog come down alongside that? And did that have any impact on Q2 revenue or is this -- we won't hit revenue for a bit longer, just given backlog is still elevated?

Gerben Bakker:

And I think the really the important part because this for a period as they adjust it makes it harder year-over-year. So if you think back of last year, during the first half, our orders increased over 50% and within quarter, 70%. So even then, we said that's just not a sustainable level. That's not a reflection of real demand at the time that lead times going out. So those are the comps to which we now compare. So even when orders are down, it's still at a very elevated level. Our backlog in utility came down very modestly last quarter. It's still well above historical levels. And the other thing I would say, it's very much timed to us taking our lead times down. So it's in the areas where we're taking our lead times down that we see this adjustment. So it's all as we anticipated and, I would say, pretty predictable.

Bill Sperry:

Chris, we're not anticipating giving price. But as we go year-over-year, we are anticipating that price cost to be a little narrower. And we did have some mix richness in the second quarter and we are anticipating increasing our investments on the OpEx side inside of the segment. So that all -- is contributing, as you say, a high level of margin, just kind of off of a nice comp there.

Christopher Glynn:

So curious about Utility's kind of capacity to run fixes and upgrade and modernize on the distribution side. Is there anything in terms of plateauing and their ability to consume the products yourself? I know it's kind of a mixed sort of question against the dynamic of the lead time adjustments. But hopefully, I asked clearly enough.

Christopher Glynn:

And on the Aclara, you referenced the gross margin mix favorability and I think total margin favorability. At one point, we consistently thought of that as dilutive mix within the Utility segment. And then we haven't had a clean read through the pandemic and more extended semiconductor dynamics there. So just curious what changed there that we're talking about Aclara is mix favorable now?

Operator:

At this time, I show no further questions. I would now like to turn the call back to Dan for closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Dan Innamorato:

Thanks operator. Good morning everyone and thank you for joining us. Earlier this morning we issued a press release announcing our results for the first quarter of 2023. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President, and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore please note the discussion of forward-looking statements in our press release and considered incorporated by reference to this call. Additionally comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now, let me turn the call over to Gerben.

Bill Sperry:

Thank you, Gerb and good morning everybody. I appreciate your interest in Hubbell. I wanted to start by reminding us, when we were together in January, talking about our full year outlook. We established a couple of important components of a framework of that outlook. First was that, we were confident in our end markets that they would outgrow GDP, a function of some of the key electrification megatrends. We were confident that we were well positioned in those end markets with brands and solutions and people processing technology to continue to satisfy and service the customer. We felt that our pricing which is in response to a couple of year impact of some inflation had us set up well for 2023 with a couple of points of wraparound. And we also stated that our visibility to the first half was better than the second half and so it's important for us to get off to a good start and we were trying to be explicit that we had a front half-loaded outlook as a result of that second half uncertainty. And as Gerben had said my comments, I'm starting on page five of the materials we exceeded our expectations significantly in the quarter. You see sales of $1.29 billion, 11% growth was the sixth consecutive quarter of double-digit growth in sales for us. I think pretty good indication of solid demand out there. Right now that, demand is notably skewed towards the utility side of our business versus the electrical and we'll talk a little bit more about that as we unpack the results. OP margin of 20.7% that 20% level kind of a milestone achievement for us and really driven by some of the price cost drivers that -- and productivity that Gerben had mentioned. Earnings up 70% to $3.61, nearly $1.50 almost of new earnings generated versus the prior year period end. Cash flow this is typically a seasonal low for us at the very beginning first quarter, but a nice amount of cash being generated because of the income that we generated. So on page 6, let's drill down a layer into that strong performance. Starting in the upper left with sales, the 11% growth is comprised of high single-digit price increase and low single-digit volume increase. The volume varied by segment where it was quite flat in electrical and very strong growth in utility. The OP on the upper right, you see an increase to $267 million of OP, a 66% increase over the prior year. And again, at that 20% benchmark level. Earnings per share grew just a little bit more than the operating profit driven obviously by that profit, but also taxes were just slightly lower this period. And on the net interest expense line we have our interest cost in the form of our bonds are fixed versus the cash we have earns variable rates. And with rates rising, we earn more income so reduced the net interest expense. So you got a little bit favorability below the line and inside of earnings. And the cash flow there you can see the compare to last year. Right above it you see the amount of income becoming more cash flow. And quite important for us to have the cash to leave us in a position where we're poised to support our investment. We are keen to continue to increase CapEx. We think there's excellent growth opportunities for us on the utility side and continues to be good productivity opportunity on the electrical side, as well as to have more capital to support investing in acquisitions and we'll talk about a couple of the acquisitions we've done and how they're doing since we've brought them on. Let's unpack those results by segment, and you'll see different profile here as we go through. Utility right now is the engine driving the Hubbell enterprise. We find ourselves with a very constructive set of market dynamics coupled with a really excellent positioning and a best-in-class leading franchise that we've constructed over the decades here with components, communications and controls really from the backbone to the edge and a really, really strong franchise that's performing really well in these market conditions. So starting with sales, the 20% growth in sales to $782 million is comprised roughly half from price increase and half from volume gains. The volume was skewed more towards the transmission and distribution component side versus the comms and control side. We feel that the CapEx that we've been investing to add capacity has allowed us to grow sequentially and year-over-year. And that's been really helpful. I think besides helping us grow, it's helped us manage service levels. And the feedback we keep getting from customers is that, service level is beating that of the competition. And I think, those service levels in turn are reinforcing our value proposition and help us support a pricing environment as well as we believe leading to some share gains on the volume side. On the Communications & Controls you see 4% growth there. You'll recall that through much of last year that was bumping along flat. And so we may be starting to see a little bit of buying in the supply of chips, allowing those meters to get built and installed. And we're looking forward to more of that as we go forward. On the operating profit side, 87% growth to $191 million, you see almost $90 million of new profit generated by the segment, just a really impressive financial performance for them. You have lots of things going right. You have price and material being positive. On the pricing side, that's a multi-quarter trend that you all have seen. On the material side, actually a little bit new to see that there was actually some tailwind that came from materials as opposed to we had been facing inflation all of last year on that side, so both of those contributing tailwinds which as you see pushed up margins impressively. The volume that we enjoyed dropped through at attractive incrementals that helps push the margin up. And we've been talking to you about the impact of disrupted supply chains on -- impairing our productivity last year. And we're seeing some return to normalcy in some of those dimensions where that productivity is starting to come back and be positive, so a lot of drivers really helping lift the margin and propel the results of the utility segment. We thought it would be helpful on Page 8 to maybe give a multiyear view of how the demand pattern has looked and we've shared with you here a picture of the backlog. And what you can see is starting really at the beginning of 2021, a very significant and sustained increase in the backlog on the utility side of distribution and transmission components. It's obviously driven by the fact that the demand exceeded our ability to be able to make and ship a like amount of material. And one of the reasons we wanted to show you the page is we feel that that level of demand is not the norm and would not be a sustainable level over the long time. Essentially, I think we see their pattern was responding to longer lead times and the fact that we were in an increasing price environment both of those phenomena I think caused people to put their orders in earlier than they otherwise might, and that's evidenced and supported by the fact that there's quite a bit of content in this backlog that's dated longer than 90 days. And so what we expect is that as we start to get the supply chain normalized, get our lead times normalized and bring those factors down, we think we'll be enabling our customers to get their orders put in with the anticipation that get the material much faster. And so our anticipation is that the order rate can come down and we'll be reducing this backlog to get it back into balance and what we feel over the medium and long-term is a mid-single-digit sustainable book-and-bill order and ship rate. And so we really wanted to show you this page. It's part of what gives us the conviction to raise our guidance that Gerben mentioned at the top. We think this momentum you start to create visibility through the better part of this year. And so it gave us the confidence that we could give you that increase in guidance. On Page 9, we switch to the electrical segment. And you'll see very strong profit performance an increase of 30% to 15% margins, $76 million of OP on flat sales. That flat sales includes an acquisition of PCX, which just to remind you was a very intentional increase in our exposure to the data center space. That business is based down in Raleigh. And Gerben and I and some of our partners had the opportunity to go visit the team last week in Raleigh and it's great to see them fly in the Hubble flag at their facility and see how excited they are to be part of the Hubbell family and the greater resources that we have, which they believe is going to enable them to be a more capable competitor. So welcome those folks to our family. The counter is that the organic part of electrical was down a little bit. We saw softness in residential at the double-digit level. We had strength in our industrial markets and notably some of the verticals we've been calling out in renewables and data center and telecom. And I think one way in a time like this, besides the compare to prior year is to also look at the sequential trend in demand and sales. And typical seasonality for us is to have the fourth quarter lead to a slight decline in the first quarter of a couple of points. That would be typical seasonal progression. And the fact that it's flat this year is a favorable compared to that typical season and leads us to believe that demand is in fairly healthy shape there. But I think more impressive for us on the electrical side was the margin performance and similar to utility, very good price material performance, same improved productivity where the plants are becoming more efficient after dealing with some of the inefficiencies forced on them by the pandemic. We also thought on page 10, it would be worthwhile to show you how we are building around some of these identified verticals. And you'll remember at Investor Day and Gerben mentioned in his comments, we're trying to compete collectively in the electrical segment. And at Investor Day we shared some of the benefits of transitioning from a three vertical silo segment to a single segment. We think there's efficiency gains, but also importantly effectiveness gains. This is an example of the ability to be more effective. So we organize around the renewable in this example, the renewable vertical. And again to remind you, so this is solar and wind applications. We're not making solar panels. We're not making wind turbines. Our approach is around the balance of system of components that those applications require. And those balance of systems, can come from different business units across our electrical segment. So, the trick is to get the sales force to be very effective at cross-selling to get the marketing team, focused on helping to solve customer problems to get the capital flowing toward new products development that can come out of that improved voice of customer that the newly organized sales force get. And Gerben mentioned, a couple of these products but good examples of us being able to serve a vertical more capably when we compete collectively as an electrical segment. We thought it noteworthy to show you that in just three years at the bottom, we've been able to double our performance in the vertical to about $100 million of exposure and we anticipate similar amount of growth as we move forward. I think also think of this as a model of other verticals that we're intending to become more vertically oriented around, including data centers, telecom and electric vehicles, all of which we're using similar techniques to become better and more effective. So how does this performance and all that we're doing how does it compare to what we said when we were together in January and where does it take us as we look out? And to us important for us to share with you where do we see improvement, where do we see things the same and what is still uncertain. And on the improvement side, it clearly starts with the pricing actions. So actions that we were contemplating at the end of the year and implemented in the new year had stick rates far above historical averages and far above our expectations. I think it's an example of the channel really endorsing and embracing these pricing actions and that created a big improvement. Additionally, you recall our CapEx has gone from about $100 million to the ballpark of $130 million last year. We're anticipating taking it up to $160 million this year. Those big improvements in CapEx are paying off and our ability to ship more volume. And certainly the productivity that was impaired a little bit last year by our labor being not available on a consistent basis, materials not being available on a consistent basis and transportation likewise not being available on a consistent basis made it very difficult to plan and execute inside our plants. And we're seeing those conditions improve and we're seeing as a result productivity improvement. So all of that is causing us to raise our sales and margin outlook. What's the same is utility demand and the market strength we see continuing. We showed you evidence of that order pattern in the backlog page. The electrical markets continue to trend. And as we said, having a favorable compare sequentially to the fourth quarter, we think is a good sign of demand. And we still believe that we have a significant part of the portfolio is going to show resistance to consumer-led recession effects that includes both utility side transition and distribution components, but it also includes elements on the electrical side where both industrial and some of those verticals inside renewable telecom and data centers we expect to grow through any macro. But on the uncertain side on the right, we still have uncertainty in the second half. We think we see good momentum to the second quarter, which gives us some confidence. We still are working through channel inventory levels and making sure that what our customers have on the shelves is aligned with what they know they can move and making sure they have the confidence to keep putting orders in with us to sell through. I think the non-res end markets whether they're impacted by any macro uncertainty, again, we don't see signs of that yet. But we read the papers just like you all and know there are concerns out there. So that's causing us to have some conservatism as we think about the second half. In other words our guidance that Gerben is about to talk through is not the first quarter seasonally extrapolated through the year. It involves good momentum into the second and then some caution around the second half. So I'll turn it to Gerben to quantify our outlook for you.

Operator:

Certainly. [Operator Instructions] One moment for our first question. And our first question comes from the line of Jeffrey Sprague from Vertical Research. Your question please.

Gerben Bakker:

Good morning, Jeff.

Jeffrey Sprague:

Hey, just a couple of things. First just on utility. Is your remark about mid single-digit kind of the continuation off this new hire base, or do you foresee a time frame pick a year maybe next year where revenues actually have to sag a bit to kind of normalize things?

Jeffrey Sprague:

And then just on electrical margins are we beginning to see also some of the kind of restructuring and plant realignment coming to bear here in these margins, or is it just really more kind of a very favorable price cost dynamics and maybe...

Jeffrey Sprague:

And I'll leave the utility question to someone else. Gerben, lighting. This would seem like an ideal time to execute an exit of lighting, while you're just crushing it in utility. I just wonder your thoughts on that how important the business is? Is there kind of a way to at least make it less important even less so important than it's been recently?

Jeffrey Sprague:

Great. Thanks. Much appreciate it.

Steve Tusa :

Hi, guys. Good morning.

Bill Sperry:

Good morning.

Bill Sperry:

Well, let's -- so let's start maybe with your first half, which was thinking about the bridge to the year. We had started in January thinking that there would be about two points of wraparound price. That's obviously improved. And as Gerben said about half of our new sales guide is price. So that's a step-up from a couple to more in the single-digit of absolute. And I think that's a pretty big thing. As long as -- it's been interesting watching the cost curves where we basically we follow steel the most closely, Steve, and copper and aluminum have behaved a little bit like it where you saw a peaking back in the fall 2021 and a troughing at the end of 2022 and then a kind of reinflating now in the new year. And that's kind of coming through now finally, as actual tailwind. But it's possible ultimately that that could -- as we're seeing inflation, that could kind of inflect a little bit. So, it's easy for us to isolate price, little harder to nail down price cost because of that cost dynamic. But I think that's the biggest, absolute piece that's in there.

Bill Sperry:

It's -- we got it positive in Q1. The way we're looking at it, we're anticipating a reasonably flat and benign contribution, from the cost. So, it makes the price a little more drop-through rather than being absorbed. Now, you still have other inflation obviously, in nonmaterial places like wages and things like that. But the material and pricing equation has really improved, quite a bit.

Bill Sperry:

No. Resi – yes, your calculation is right, resi at double digits and being the percentage of the segment that it is, represents a couple of points plus of that. But that still leaves others. And so there was spots inside the commercial business Steve, where we started to reduce our lead times. And we started to see our customers managing their inventory. And kind of that sort of relates to I think Jeff's first question, right, where as the customer gets their inventory normalized, is there a period where you see maybe an underordering of a couple of weeks that affects things. And I think, that's what we saw in some of our commercial businesses.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Tommy Moll from Stephens. Your question, please.

Bill Sperry:

Good morning, Tommy

Bill Sperry:

Yes, we've been quite careful to not reparse this framework into the two segments. But between them, we're thinking that volumes can be mid-singles. And I think that will be, obviously, skewed towards utility being the heavy contributor there.

Bill Sperry:

Yes. We're not -- I'd say, let me just restate a couple of things. One is, I don't think we are increasingly cautious on the second half. I don't think we have that. Secondly, I think that one of the interesting elements of seeing the electrical contract a little bit in Q1 is a function of the fact that they grew quite dramatically in the first quarter 2022. And their sequential ramp up from the fourth quarter, which, as I said, typically comes down, was up significantly last year. So we had this really hard compare, Tommy. And so, to answer your question, to me, it starts to get a little more reliant on sequential analysis and the fact that, we were flat from 4Q to 1Q suggests to me some favorability. But as the compare won't be as hard as we go forward. So, I think, that informs sort of our outlook. But I wouldn't say we've increased our caution in the second half.

Tommy Moll:

I appreciate it and I'll turn it back. Thank you.

Josh Pokrzywinski:

Hi. Good morning, guys.

Josh Pokrzywinski:

So, apologies, I missed a little bit in the prepared remarks, the call kept dropping. But I just want to dig a little bit more on the utility side. I think even at the start the year there was some signaling that maybe things could be a little bit better. You saw like the EEI CapEx forecast looks pretty healthy, which is seasonally atypical. But just trying to get maybe my arms around how much of this is customers kind of preparing to do work and maybe building up some inventory. How much of this is maybe stimulus-related something like IRA. Because we've been in this environment of grid hardening and grid investment for a while and this is just a big step function change. So trying to pin down how much of this is kind of episodic versus run rate?

Bill Sperry:

I think Josh if you -- we were thinking it should be mid-single. If you take price out this is sort of high single to double-digit volume. So I do think can't prove this, but I think we have a little share gain involved in this. So partially, I think we're outperforming the market just because our service levels and our capacity is a little bit better because we've supported it with the investments that we needed to. You asked about projects which is an interesting question, because I do think the transmission side is quite healthy. Transmission tends to be more project-driven. It has a more forward look to it. But net-net, do I think utilities are like stockpiling long-term project partial inventories before they install it? We don't really see any evidence of that. So I think it's -- I guess I would say -- I'm not sure if this is -- but I would respond to your question saying I think the demand is a little bit stronger than the mid-single that we think is the long run. I think we've got a little bit of share and that's kind of working out to our advantage and is frankly compelling us to continue to invest the CapEx in the business because the margins are there to generate really good returns for this incremental volume that we can get.

Bill Sperry:

Yeah, I think the answer to that is it's about two-thirds new and the balance is rental. And I agree, yeah, that's an estimate on our part.

Operator:

Thank you. One moment for our next question. And our next question comes from the line of Joe O'Dea from Wells Fargo. Your question please.

Bill Sperry:

Good morning Joe.

Bill Sperry:

Yeah, Joe, so let's start with your first point, which is that we do see momentum into the second quarter that we think is first quarter-like in terms of that, so yes. Secondly, the way this guide works, you're right it's not just seasonally taking the first half and using the typical growth in margins off of that. So we've injected caution just because we don't know. One of the things we're expecting is to invest more in the second half and that will be a combination of growth investing in and productivity investing. But just I think we felt, we have decent visibility to the second quarter. And it feels like it gets more opaque to us. I think if I were to maybe rephrase your question and say if the trends continue as they are in the first half into the second, we would actually do better than this guide. So the guide is just has a cautious second half. We think out of prudence, we don't want to get our cost structure out too far ahead at the same time. If there is growth in volume there, we're going to -- we feel very confident we can get our share and more than that. So I think your observations are very accurate.

Joe O'Dea:

I appreciate all those details. And then also just wanted to ask about, sort of, maybe more opportunities on the cost side when you talk about commodities getting a little bit better obviously monitoring that, but also just smoother operations. Presumably your suppliers are seeing some of the same types of benefits. And so just wondering how you're approaching that dynamic if you see opportunities to, sort of, go to your suppliers and sort of look for a little bit better kind of cost profile.

Operator:

Thank you. One moment for our next question. And our next question comes from Nigel Coe from Wolfe Research. Your question please.

Gerben Bakker:

Good morning, Nigel.

Nigel Coe:

I want to probably rethread some of the -- maybe re-ask the seasonality question in a slightly different way. Obviously, utility margins were gang busters. When you go back in time you'll see the 1Q margin utilities is normally the low point for the year. Clearly, the guide doesn't embed that. So just curious what could basically happen to materially break that trend in the margin? Is there anything funky or onetime issue in the 1Q margin utilities? Just really curious what are you seeing on the margin line for utilities as we go through the year?

Nigel Coe:

No, I agree with that. Thanks for the color Bill. And then we talked about residential and commercial. Data center is a relatively small market for you guys but it's growing and obviously will continue to grow. What are you seeing in that market? Because there's a lot of chatter about weakening trends. Just curious what your perspective is on data center?

Operator:

Thank you. And our next question comes from the line of Chris Snyder from UBS. Your question please.

Bill Sperry:

Yes, Chris. So maybe let's start with your price cost. Yes so, the pricing actions that we were taking at the end of the year that we didn't have insight into their stickiness, when we shared our full-year outlook at the end of January, it was a much better take-up than we expected and much better than historical average on price increase take-up. So the price side of that is quite a bit bigger. And then it really does dominate and overwhelm what will happen from the amount of inflation that we've seen in the New Year on the materials side. And as I think, Joe was asking beyond materials, we've got to do a really good job of working our suppliers and making sure that any lower material cost they got in 2022 that we're – that's getting passed through to us. So we've got to do a really good job to make sure that that cost side is managed Chris. But I do think – I do think that the price cost, which we had two of price when we last talked about this we've added a couple of points to that and that's quite meaningful.

Bill Sperry:

Yes. I think the – Josh had asked about stimulus and we're not seeing a ton of direct impact of the stimulus. Yes there's lots of planning around it. I think it is true that our customers are feeling that there's funding there. And so maybe in the absence of the stimulus Chris, we might see that mid-single digits maybe materialize in 2024. It's also possible stimulus will give us a little lift for a couple of years. But that's a – that's a little bit outside of our crystal ball right now.

Christopher Glynn:

Thanks for squeezing me in and congrats on rocking start to the year. So just had a follow-up on the accelerated price realization in the quarter, particularly in Utility Solutions. There's a long-term dynamic where the utilities get rate increases to fund regulatory required CapEx imperative. So, I'm curious you're talking about expanding capacity a lot there. Is that dynamic starting to shift to you where utilities are kind of goading you in a sense to continue that capacity investment?

Gerben Bakker:

Yes, absolutely. And the nice thing about our position in this is that, we have direct engagement with a lot of the end users, right? So we have firsthand insights and Bill mentioned an example of a CEO. That actually happened a couple of weeks ago in the conversation, but we have many of these conversations. So our insight into where the demand is up and how sustainable or not that is quite good. And that's why we're making the kind of levels of investments that we are right now in that -- particularly in the utility business, so.

Operator:

Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Dan Innamorato for any further remarks.

Operator:

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Dan Innamorato:

Thanks operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the fourth quarter and full year 2022. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and considered incorporated by reference on this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now let me turn the call over to Gerben.

Bill Sperry:

Thanks very much, Gerben. And thank you all, for joining us this morning, looking forward to talking about fourth quarter full year, and in particular, our outlook for 2023. I'm going to start my comments on page 5 of the materials that Dan referenced. And we'll start with the fourth quarter results for the Hubble Enterprise. You see sales growth of 11%, up over $1.2 billion, that 11% is comprised of high single digits of price, low single digits of volume. And one point from acquisition. We look at our sales performance through a few different lenses here. The first is against prior year. There’s double digit growth against double digit growth and last year's fourth quarter shows good compounding, and good robust levels of demand. We also look at it through the lens of comparing it to the third quarter. We're down sequentially, about 7% roughly in line with fewer days and the per day shipment level reasonably flat to the third quarter sequentially. And we also believe that there was some, the channel was managing their inventory levels and we'll talk more about that in a couple of pages when we get to the electrical segment. The operating profit on the upper right of the page very impressive growth of 27% very healthy margin expansion of two points to 16%. And when we look at the incremental drop through on the growth, you see about mid-30s dropped through which we think is quite good. Price is really a very important part of the success of this financial performance. The price is sticking, Gerben made reference to the critical products in our customers, adding to their structural solutions and having this sticking price is really helping us as inflation is continuing to affect us in the non-material and value added places. And when we talked about next year, we'll give you a little bit more breakdown about how we're anticipating price costs. On the lower left, you see earnings per share growing at 26% in line with the profit growth. On the non ops side, we had some headwinds from taxes as well as from pension. But Gerben had referenced that we started last year with the disposal of the C&I Lighting business and we use some of the proceeds of that sale to buy back shares, which partially offset these non op headwinds. The free cash flow, you see is down 9% That's -- that more than explains the CapEx increase that Gerben described. So the OCF side here is quite healthy, and we're being quite intentional. I'm making these investments in order to position Hubble for the future to be successful. Page 6, we'll switch to breaking the fourth quarter down between our two segments. And page 6 starts with the utility segment. And you see a really strong finish to an outstanding year by our utility franchise set up for success for 2023. You see total sales growth here of 17% to about $716 million of sales, that 17% of sales is comprised of a low double digit increase in price and a mid-single digit increase in volumes. Demand continues to be very robust despite high double-digit shipments here, we continue to add to the backlog in the fourth quarter. You'll see that the T&D Components, the historical Hubble power systems infrastructure business, showing the most growth at 27%. The trends continue to be driven by the need for grid hardening and for renewables, and continues to reinforce the shift that we've seen from mere kind of GDP type replacement levels of spending to the need for our customers to really upgrade the grid. And I think you'll see the evidence of our strong positioning, as utilities continue to turn to us with these critical needs. That's really helping inform and drive some of our CapEx decisions that Gerben had mentioned, to continue to support our customers here. On the Communications and Control side, you'll see a decrease of 10% in sales while demand was still strong. There are two drivers to that contraction. Number one is the persistent shortage of chips from the supply chain that's really preventing us from growing and that's been a persistent problem for the last few quarters and has kept our communications and controls business relatively flat. In addition, we had a onetime event in the fourth quarter where we recognize the commercial resolution. This was stemming from a legacy dispute that preceded Hubble's acquisition. And it became obvious it was time to resolve that so that we could move forward with a constructive relationship with a big customer and to our mutual benefit we believe, but that had the impact of driving down sales in the quarter for the communications and control segment. We expect this chip situation to improve during 2023. So while the quarter was down, we have expectations of the comms business growing, that it may still be a little choppy in Q1. But we're anticipating getting this chip supply situation to improve during the course of the year. And we're looking forward to returning that business to growth. You can see on the right side of the page, very impressive operating profit growth of 42%, adding three points to operating profit margin, up over 17% in the fourth quarter by the utility team. That performance being driven by price, which we've really needed to overcome inflation, as well as inefficiencies in our plans that coming from some of the disruptions from the supply chain, the mid-single digit volume growth is also dropping through at attractive levels. So really good year by our utility franchise, and you can see a good quarter setting us up for a good year next year. On page 7, we've got the electrical solutions results, and you'll see 3% sales growth more modest than on the utility side, but a good 60 basis points margin expansion, 8% op growth to a 14.3% margin. That 3% is comprised of mid-single digits price, and volume compared unfavorably to last year. We think that the fourth quarter results significantly impacted by some of our mix. So you see residential sales down significantly. So strong double-digit decline for resi as consumers continue to struggle with high interest rates. And we saw some growth in some of the verticals we've been investing in, namely datacenters, renewables and telecom and the balance being more exposed to the non res cycle. And so, we also thought that we were able to perceive some destocking activity in the quarter. We've mentioned this before with you all. Some of that observation is based on anecdotes and discussions with our customers. And other places, we have hard data where we can analyze point of sale and point of purchase data and see that our replenishment orders given to us or below what's going out the door. We believe that the way the channels incentives or structure, whether on the volume side those incentives may have maxed out, or on the cashflow side, where obviously managing inventories in December becomes very important to our customers. So I think there's a little bit of distortion in the fourth quarter. As we've seen the first several weeks of January, we've seen a nice rebound in orders. And so we'll continue to watch that quite carefully obviously. On the operating profit side, you see the nice margin expansion and again, price and material tailwinds enough to overcome the impact of lower volumes and enable us to operate very well through the operating disruptions, but also overcoming some of the drag coming from the resi lighting business. We thought to be constructive on page 8, to step back and discuss the full year’s performance and really illustrates some of the trends that Gerben highlighted in his opening remarks. Sales of 18% very strong growth, mid-single digit volume and double-digit price, very robust demand environment for us. You see the 140 basis points of margin expansion to just under 16% on the OP side 29%, growth in OP, diluted earnings per share growing a little bit better than in line with that operating profit and the cash flow being up 20% year-over-year, being held back a little bit with the heavy investment in CapEx that we had mentioned, as well as significant investment in inventory, as we continue to try to support our customer service, but you really see the trends for the whole year that have persisted strong demand number one. Number two, a tough operating environment where the availability of our people, materials and transportation has been inconsistent throughout the year and leads to operating inefficiencies. Three is the execution on price, which was excellent job by the Hubble team really required to counter inflation, as well as those inefficiencies. And the fourth trend was investment, acquisitions, CapEx and inventory all sources of investment. On the acquisition side, we closed on three deals in the year, we invested about $180 million to do so. We were quite intentional about adding exposure to desirable verticals that are exhibiting higher growth and higher margin potential than our average. So we added to our utility tool business, we added datacenter exposure, and we added a nice bolt-on to our [inaudible] grounding, business and connect her business that, again, is supporting high growth high margin there. So we'll switch now from 2022, wrap a bow on that and start to look forward to ’23 in our outlook, we were proposing to go through this a little bit differently than we have in the past, we've got a little more granularity in our discussion of the different pieces and parts. So that we can help provide a little more context to why we're guiding the way we see it. So on page 10, we're starting with our markets outlook. And you'll see on the yellow call out box at the bottom of the page, a mid-single digit expectation of organic growth. And you'll see from that's driven, really by the strength of the utility business on the left of the page, those growth drivers remain intact. We see our customers continuing to need material, continuing to install it at a high rate in response to the need to modernize their grid and respond to renewable needs. We starting the year with a highly visible backlog. And in addition, we've got some support for funding from the policy side here and without line away where we believe that the IIGA probably gives us a lift of a point or two above what otherwise the markets who would give us. So we're anticipating the utility markets giving us mid-single digit plus. More modest on the electrical side. And we've decomposed our exposure in this pie graph here to try to give you a sense of residential, really, we think is the starting point of the cycle they're in a point of contraction right now, will continue to be in ’23 we believe. Consumers dealing with high mortgage rate high interest rates affecting demand there, usually non res follows the resi cycle, and then into industrial. And you see, we've added this blue segment where we think our electrical business is exposed in a much less cyclical, much more resilient set of end markets, namely the datacenters, renewables and telecom as well as some of the enclosures we sell as connectors to the to the utility businesses there. So if we continue to believe resi will contract that gives us a low single digit outlook for the electrical segment. Our visibility, frankly is better to the first half than it is the second half. And we may even argue that the first quarter better visibility than the first half. So we've got a little bit of caution built in there for what'll happen second half in the non res markets. We also on page 11 wanted to peel back our view of price cost productivity. And at the bottom, you'll see we're anticipating about $50 million of tailwind coming out of our price cost productivity management scheme here, we'll start on the edges where it's a little bit more straightforward on price. We believe we've got about two points wrapping around from our actions we've taken in ‘22. And we continue to hear feedback from our customers that despite on time service being below where we typically are that we're still leading in those service levels. And so we anticipate that price sticking on the productivity side, we're anticipating in the ballpark of about a point of contribution from productivity. And this cost pie, you'll see we've disaggregated into two halves, the material and the non-material half. On the right, in the blue section, the non-material, mostly labor, and manufacturing costs, we're anticipating mid-single digit inflation there. Likewise, on the material side, you'll see that the raw materials were anticipating there to be benefits and tailwinds as there's deflation in the raws. But our component pie where there's value add is larger than that. And we're anticipating the same mid-single digit inflation rate there. So the netting of all that gets us to about $50 million. And on page 12, you'll see we're anticipating investing about half of that benefit in the future success. And so page 12 shows our investments, starting with footprint and successful multiyear restructuring program that Hubble has implemented, where we spent about $17 million in 2022, which was an increase from $10 million in ‘21. So our margin performance absorbed, extra expense in ‘22, we're anticipating to keep that flat in ‘23. So nothing incremental, as far as the income statement is concerned. But still good activities with good projects that typically give us we find in that three-year average payback range. As for capacity, we continue to find in the utility side and parts of electrical that we need to invest in our capacity. So we've got our CapEx has moved impressively from $90 million in ‘21, to about $130 million in ’22. And we're anticipating this year up to about $150 million. And that ultimately results in about $15 million incremental operating expense, that we would add another $10 million or so of innovation expense. And those of you who joined us for Investor Day, saw some of those innovation ideas. And we continue to be encouraged by early results. But for us to get impact, it's still going to take us some time. But we've got a good business case of getting about 0.5 point of growth above our markets from those activities. So those pieces we thought we'd give you the puts and takes. And let Gerben on our last page kind of sum it out and netted out in our typical waterfall format that you're used to see.

Operator:

[Operator Instructions] Our first question comes from Jeff Sprague with Vertical Research Partners.

Gerben Bakker:

Yes, I mean, I think, Jeff, ultimately, the dollars ultimately are fungible. But certainly, the customers, we've spent a good deal of time talking to have very specifically increased their CapEx assumptions because of it so. But that's so for us, it's important to kind of quantify it, though. It's ultimately contributing a pointer. So to a mid-single digit. So I agree with you there's a little bit of fungibility there at the end of the day.

Bill Sperry :

Yes, I think it's important that it is on uncorking bottlenecks. So one of our specific areas has been on enclosures, Jeff, which has been a really high growth, high margin area. And there are we feel very good that the return on capital of that is going to be because we have such good visibility on that demand is going to be there. So we were -- we feel real good about it and excited about being able to serve our customers better. And I think they're rewarding us relationship wise as we're doing that.

Jeff Sprague:

And then just one last one for me, if I could, could you just elaborate a little bit more? What happened with the Clara in the quarter, I guess, I tend to think of a quote unquote, commercial resolution being a cost item, not a revenue item. But the way you're laying it out, you're at some kind of adjustment to revenues, or headwinds to revenues. So they'll expect you to name the customer, but maybe you could give us a little bit more color on what actually happened and what you resolved.

Operator:

Our next question comes from Steve Tusa with JPMorgan.

Bill Sperry :

No, it's, you're right on the two. That's basically been layered in throughout ‘22. So as it wraps around, it sort of does have a tapering effect. But when you think about price cost, some of the commodities are coming down to and so really, how it nets, it does net a little more favorable early, in a little bit more favorable first quarter, first half. And but that's, Steve, ultimately, the net will be determined. I mean, we have a little more confidence in what we see in the price, but the cost side is obviously kind of what we'll have to react to.

Bill Sperry :

No.

Bill Sperry :

Where do you see the most price pressure?

Bill Sperry :

Yes, my guess is it would show up maybe on our electrical side, and maybe some of the more current, first of all resi products, there is sort of seeing contracting demand there with commercial that would maybe be most cyclical, responsive to that some of the more rough and electrical that might be where we will be paying a lot of attention, Steve.

Steve Tusa:

Great, thanks for the caller. As always, all the details are helpful and I echo what Jeff said on the IRA stuff giving us a little bit of precision on that versus other companies that you just say it's great. So we appreciate it. Thanks.

Tommy Moll:

Good morning, and thanks for taking my questions. Also really appreciate the price cost productivity, glad you provided with all the details, especially because now we get to keep asking you about it.

Tommy Moll:

But jokes aside, here, the pie chart is very helpful. And you called out two, and the larger two of the components that are on your cost side, you continue to expect inflationary pressure, but on the raws, obviously, there's some easing anticipated there. And my suspicion might be, that would be the most visible and most talked about from the customer standpoint. And so my question is, if you're going to realize the two points wrap, which is really I think, just to hold price through the year, have you had to reframe or provide any increased visibility to your customers, as you're facing more than quarters of your costs is inflationary. They're not going to see that as much. How do we get confident you can hold?

Tommy Moll:

Appreciate that, Bill. As a follow up here on the electrical solutions, and market visibility you provided, it sounds very similar to the early peak you gave us for 2023 a quarter ago, at least in terms of the direction. But has anything changed versus a quarter ago? It sounds like your visibility is pretty limited first quarter, maybe first half? But is there any change versus what we heard from you last quarter?

Operator:

Next question comes from Josh Pokrzywinski with Morgan Stanley.

Gerben Bakker:

Yes, I would say, Josh, the IRA impacts us to a lesser extent, but it does benefit us as well and here rather than direct funding, this is more about tax credits. But if you think about it, they extended the renewable tax credits for solar and wind. And that's an area that both our utility and electrical businesses benefit from the EV incentives. And while we're not directly in EV the balance of systems that goes around with this infrastructure, we benefit well, of as well. So I would say it does affect and coming back to it's so difficult to pinpoint what exactly what percentage of our growth will be tied to this. I would say it's helpful as well.

Bill Sperry :

Yes, I mean, I think it was fairly broad based. I think if you interviewed our customers, they were feeling a little overstocked. I think, Josh, some of that, driven by when promise dates were extended, they had customers who wanted materials. So they were just making sure their shelves were stocked, I think there's also been places where they may be bundling or kidding something, and they may have a decent chunk of inventory that needs one last part to the bundle, and then that'll get shipped. And so I think what we care a lot about is our orders going to come to a sustainable level through a nice, orderly overtime process as promised delivery dates get shorter. Or is there going to be something a little more sharp or reactionary. And I think through the fourth quarter, and now through one month in the third, the first quarter of New Year that feels, it just feels manageable. So the breath that you're talking about is preventing any real spiky kind of problematic situation right now. So for us the way that it's kind of evolving here is it feels manageable to us right now.

Brad Lindsey:

Good morning, all. Hey, I just want to come back to the communications controls business. So down 10% driven by chip supply, could you just talked about the timing of the chip situation improving, and really anything the team is doing in terms of redesigns or reengineering to help monetize some of that backlog?

Brad Lindsey:

Thanks for that, I guess just a follow up, I imagine there's a lot of labor underutilization factory and efficiencies and so on in that business. Have you tried to size what that magnitude could be? And really, if you can uncork some of the backlog improve continuity of supply and so on what the earnings power could be as part of the clear recovery.

Operator:

Next question comes from Nigel Coe with Wolfe Research.

Bill Sperry :

Yes.

Bill Sperry :

No, that's too high.

Bill Sperry :

Correct.

Bill Sperry :

Yes, I would say much more generalized. So utility, which is -- had very impressive growth, but we invested in utility inventory too right, so trying to, we're still going to have our AA items on time delivery, performance levels where we want them, Nigel, so that inventory has been kind of across the board. It's skews at this point, if you looked at our yearend balance sheet, it skews in a raw versus finished good or [inaudible] maybe that's obvious, because if it was finished, we would have shipped it but so is that still has to work its way through the factories and get converted. And so that's kind of part of what Gerben saying, we should be able to run the factories a little bit hotter and get some efficiencies as we burn through a lot of that raw material.

Bill Sperry :

Yes. So both of those you saw when Gerben walks through the waterfall, we've got this red bar at the end. So the nonrecurrence of the PSA is part of it and the pension, while we've benefited from our liabilities going down with higher interest rates, the gap between return. expected return on assets and discount rates it has narrowed and so that creates a cost headwind for next year, that's its pension that is not cash, but it does create an income statement headwind for us and that other.

Christopher Glynn:

Thanks. Good morning, guys. Just curious your thoughts on the acquisition pipeline, couple angles, anything in electrical or focused pretty much on utility and part of the thought there is maybe more premium on the utility side deals, but obviously, you can add lots of value. And also, should we be thinking exclusively along the lines of the typical bolt-on sizes?

Christopher Glynn:

Great. Thanks for that. And other question was on the electrical margin. Historically, you have a little bit more of a seasonal margin tail off in the fourth quarter over the third quarter. But last year was moderate too. Are there any particular sequential factors that ease that? Or is the last couple of years really a better guidepost to your margin even historically?

Operator:

Our next question comes from Chris Snyder with UBS.

Bill Sperry :

Yes, I mean, I think that's a sequential fact from the fourth quarter. Do you think the fourth quarter is a little distorted by that? They're very well could be destocking throughout ‘23, though, as well. Hopefully, that's kind of measured. But I think that if you just look year-over-year and you go kind of high-end market, we're anticipating resi contracting significantly. That's creating ultimately a drag. We think those blue markets that line up, that we think are going to be quite resilient to a consumer led recession and some of the inflation and interest rate problems that consumers are having. We think those are a little more secularly driven right now and then the balance of non res and industrial we see industrial being in slightly probably stronger shape and the non res being a little more, maybe quick to follow resi. And so, I think we have kind of a range like that Chris of kind of confidence. And that's you'll hear us maybe be a little bit more confident in the first half a little more visibility and a little more uncertainty in the second half, I think.

Gerben Bakker:

Yes, but I think when you talk about datacenters, you think about the two segments of that market, the mega centers and being run by the fangs in the big tech world. And you certainly see them reacting with headcount reductions, for example. And could that lead to some slowing of growth on the capital side? I think it's, that's possible, and it could, I think, the telecom side, we still see the build out. So we're still, I'd say, in the medium term, we're both -- we're very bullish on both of those factors. Even though I do agree that there could be because the second side of datacenters, outside of the mega, all these colos, I think there's probably going to be demand at that part of it. So could be maybe a reshaping of mix inside of datacenters. And so I do think your questions important to figure out what net effect it has, but I think we're still anticipating growth out of both of those.

Operator:

I would now like to turn the call back over to Dan Innamorato for any closing remarks.

Operator:

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Dan Innamorato:

Thanks, Lisa. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our third quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and considered incorporated by reference on this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures ad are included in the press release and slides. And with that, I'll turn the call over to Gerben.

Bill Sperry:

Good morning, everybody. Thanks for taking the time to be with us. I also want to welcome Akshay to the team. I'm personally excited to partner with him. I think we can add a lot of value by ramping up our operational intensity. So looking forward to that. My comments are going to start on Page 6 and really summarize the very strong financial quarter that Hubbell team turned in, in the third quarter of 2022. So on the upper left, we'll start with sales. You see an increase of 21% to just over $1.3 billion in sales. That -- 21% increase is comprised of 20% organic, 2% from M&A and one-point of drag from FX. The 20% organic is comprised of about a 13% price and approximately 7% volume. So, actually, quite impressive contributions from both volume and price, which will filter through all of our comments around our performance, and those are obviously comparisons to prior year. We find it instructive to track sales on a sequential basis as well. And for sales to be up mid-single digits from the prior quarter where there's kind of equal contributions to that mid-single-digit growth sequentially from both price and volume. I think that's a pretty good sign that we may be seeing some modest easing in the supply chain. In other words, I would say we were trying to operate at capacity in the second quarter, a function of a high backlog and the need to serve our customers who wanted our material -- and for us to be able to grow the volume part of that from second quarter to third quarter sequentially. I think there's a little bit of sign of easing across the availability of staffing, availability materials and transportation as well. So, as we think about the demand underlying that sales growth, I would characterize it as broad-based growth both Electrical and Utility experiencing impressive growth and inside of the segments, quite a broad-based contribution to growth inside of each segment. Orders continue to outpace sales, and we are building backlog through the third quarter. That skews towards the Utility segment as our Electrical segment has a much more balanced book and bill feel to it now starting to get back in line and balance there, which I think is also good news as we track. So, on the upper right, you'll see operating profit, a growth of 37% and operating profit dollars to $224 million and nearly two points of margin expansion in the quarter. That margin expansion is really driven by price/cost favorability and that favorability is needed to overcome the other inflation as well as some of the inefficiencies that the supply chain disruptions are causing inside of our factories. The results here indicate incremental drop-through in the mid-20s, and that maybe gives you a little bit of a feel for -- that's quite normal incremental. So if it was just price cost, favorability, I think we'd see better than mid-20s incremental. So you can see that we've really needed that price to help us overcome the non-material inflation as well as the other inefficiencies. And then in the bottom left, you see the EPS quadrant, a 45% increase to $3.08 a share. And that roughly $0.95 increase in earnings year-over-year is largely driven by the improvement in operating profit, but there are also some below-the-line contributions. Tax is quite comparable. We did some share repurchases with the proceeds from the sale of C&I Lighting and there was some slight non-op contribution as well. Free cash flow for the quarter, $194 million, extremely favorable comparison to last year. I think maybe more instructive to look at the year-to-date performance on cash flow, where we feel very good about where we stand relative to delivering on our full year promise, and we'll update you on our guidance slide as to how that's going. But we're making very purposeful and intentional investments in working capital, given the growth in demand. So both receivables and inventory are requiring investment for us to satisfy our customers. We also are keen to invest in CapEx and the flavor of that CapEx difference by segment. We'll talk about in each segment, but it's skewed in Electrical, the CapEx investing towards productivity. On the Utility side, the CapEx is skewed towards expansion and capacity. So a very strong performance. And I'd like to now unpack that by segment. On Page 7, let's start with the Utility Solutions segment and just a really strong quarter turned in by our Utility franchise performing extremely well in these market conditions. You can see sales increasing 29% and operating profit dollars up 53% on with nearly three points of margin expansion. So very, very strong performance from the segment. Let's look at sales a little more closely. You see a 29% increase to $775 million. That's really mostly organic, small 1% contribution from acquisitions. I ordinarily would like to tell you a lot about the acquisitions. Ripley Tools is new to the portfolio, is performing extremely well, but you can see kind of pales in comparison to what's going on organically. And that organic performance, I would say, is comprised of volumes in the low double-digit range and price in the mid-teens range to get to that 28% organic. So very, very healthy market conditions there as well as a testament to our very, very strong positioning in those -- in this attractive market. The growth is really skewed towards the T&D Components rather than towards the comms and controls. We had 38% growth from the T&D Components. Gerben highlighted the trends there, really have aging infrastructure that requires upgrades and hardening. We have -- the move towards renewables and that -- those new sources of generation need to be transmitted, need to be distributed and need to be integrated into the system and certainly modernizing with smarter and more controls, all of which being supported by some infrastructure legislation that I think is giving our customers the confidence that there's funding for their demand. The communications & controls side, you see up a more modest 3% and that's really being skewed towards the automation controls area, which is up double digits as the comms component still being constrained by the lack of chip availability. So while we see healthy demand, we're having a lot of trouble satisfying that demand. On the operations side, I see a 50% improvement in operating profit dollars, very impressive performance to $144 million and the three points of margin expansion. Price and material being a strong contributor, but let's not lose sight of the fact that we've got double-digit volume, and that provides obviously good operating leverage lift and incrementals. And at the same time, there are headwinds coming from non-material inflation and just supply chain inefficiencies, but net-net, really strong contribution from our Utility segment. On Page 8, we unpack the Electrical Solutions segment. Also strong performance, albeit not at the same high levels, but you see -- see an impressive 12% growth to $542 million in sales. That's comprised of low single digits in unit volume and high single digit in price. So, I think you'll remember that our Electrical team started pulling price a little sooner than our Utility team and so see the Utility team experiencing higher price now as it came on a little bit later. The demand here is broad-based across various product lines and across various end markets. The exception is the resi market, where we're experiencing double-digit contraction and thinking about order of magnitude, about 15% of the segment being down double digits, gives us a couple of points of drag in this segment from that resi market. But some of the verticals, namely data centers, renewables and comms, performing very well and the industrial markets also doing very well, both on the light and the heavy side, so again, broad-based support for that 12% growth ex resi. And on the right side, you see quite a nice improvement in operating profit of 15% to $80 million. You see the margin expansion of 30 bps driven by the price material favorability and the volume growth with the supply chain creating -- and headwinds along with non-material inflation. I think it's worth a little bit commenting on orders here. We've had orders in line with sales, so balanced between book and bill. We get a lot of questions from investors if we have seen slowing here in the order pattern? And we have not. We -- but we're obviously very aware of what's happening to the consumer out there. And so that's causing us to watch our order pattern very carefully. It's causing us to invest in productivity, and it's causing us to contingency plan in case we do see a slowdown. As we think about watching carefully, it's become -- it will become a little challenging as we get closer to year-end, customer behavior in a year like this can get distorted. They each have incentive plans with their employers. It's very common for those incentive plans for the executives to have growth component as well as an inventory component. And in a year when people have reached their growth targets, they can switch towards managing inventories down. So, it's not unusual in a year like this for us to see kind of distorted year-end order pattern. So as we watch orders, we have to be careful not to overreact to one week or one month and be thoughtful and understand exactly what we're seeing, but again, for now, not seeing any slowdown. We also said we're investing in productivity. And you can see that -- on the right side, in the last bullet, we've had extra investing in productivity and restructuring in this segment. That's caused about an 80-point drag in margin. So there -- had we not been doing that investing you'd have seen a better margin expansion. But I think investments in both automation and footprint consolidation that we're doing there, proving to be very important for a successful future in the segment. So on Page 9, I wanted to transition to how the two segments performance, which you just discussed as influenced our view of the outlook for the balance of '22. And based on our better-than-expected performance in Q3 which we had talked about that a couple of weeks ago or last month in Laguna. We outperformed our expectations and are thus raising our guidance. The effect of that is to take EPS from a previous range of $940 million to $980 million and we're taking that up to $10.25 to $10.45. That's really been a consistent outperformance throughout the year. Qs one, two and three, all showing both volume and maybe even especially price being able to do better than expected. If you look at the left-hand column on Page 9, we started the year with expectations of 8% to 10% sales growth which was centered at four points of volume and five points of price. And we've done considerably better than that on price and better on volume as well. And that's kind of been consistently shown throughout the quarters of the year. And as you look at -- I like this visual of our performance because you can see that the volume is dropping through and adding nicely to last year's level of EPS. But you can really see how important our pricing strategy has been in order to get price to overcome the costs in any of the inefficiencies. Good to see the M&A program when we had a couple of additions during the second quarter. In the form of PCX, which is a data center business performing really, really nicely since we've owned it. Ripley Tools on the Utility side, extending our brands there also performing really well. So good to see them, contribute to earnings this year. And since they were midyear acquisitions, they'll contribute incrementally next year as well. I think important to note, we're not harvesting all of the earnings we could. We continue to believe it's really important to invest to make sure our future success is as bright as it can be. And the three principal areas there include productivity. That's as I said, automation and plant consolidation. It's capacity additions in the Utility segment, and there's innovation spending across both segments that we're trying to accelerate our new product development growth and allow us to outperform our end markets and do better in the future. The non-op items are offsetting here where some share repurchases and other income are offset by higher taxes, slightly higher taxes. And I'd add at the bottom, our free cash flow we had been centered at a 95% conversion rate and as the growth has exceeded our expectations, we believe we need to invest more heavily in inventory and receivables to support our customers. We also feel the need to invest in CapEx. And so, we're bringing that free cash flow down around 90% conversion. But with the increase in earnings, we're going to get to the dollars we are expecting in -- we just had a lower conversion rate. And I think as we get to next year, we'd probably be able to manage the working capital accounts on the balance sheet more efficiently and continue to improve on our customer service. So, we've got some nice trends that we think we're finishing the year with, and I'll hand it to Gerben to talk about how that informs our outlook for next year.

Operator:

[Operator Instructions] Coming to the stage now we have Jeffrey Bradley of Vertical Research Partners. Please go ahead. Your line is open.

Gerben Bakker:

Yes, I'd say, Jeff, the short answer to that is absolutely not. Certainly, I'm not going to comment on specific personnel matters. But as you look at the environment, generally, it's an environment in our organization, many organizations of higher turnover. And I would say that while we've lost people, we've also attracted very talented people. I think we're actually in a very good position. If you look at the strength of our business where we play the markets that we're in and the potential of this business as we look to bring on people and Akshay is a good example of that, they're very attractive to join a company like Hubbell. So, I'd say it's part of what us and many others are just dealing with, but we are continuing to be able to attract good talent to Hubbell and continue to develop talent within Hubbell. I'd say to the second question of is this somehow an indication on our strategy. The answer is no. And in Akshay's case, it's refilling, backfilling that position. There's a lot of work you heard Bill talk about particularly in the Electrical segment, what we need to do still on our footprint. But equally, in the Utility business as we look to expand capacity, there's a lot of operational execution in those things as well. If you look specifically at the strategy on our two segments, it's something that we started to put in place, if you recall when I was COO. It was a model after the Utility business where we proved that to be very successful in bringing all those brands under a common structure. So, I would say a couple of years into that. I feel really good where we stand. There's still a lot of work to be done. And even as I've spent a little more time with those GMs here, as I kind of overlook at that business, why we look for a new leader there. I'm really impressed with the talent there. And so I'm very bullish on being able to execute that strategy in unifying that segment, and that will lead to a higher margin profile for that business going forward. And I think growth that we're also seeing that we'll be able to get out of that by operating more as a unified segment. So reinforcement to my answer of no.

Gerben Bakker:

Yes. Yes. Great. Let me answer the first one and maybe hand to Bill the second question. Clearly, there was an impact of storm. I highlighted that in actually highlighting our team that really supports those efforts. If you look at the order impact, it was about $15 million, 1-5 million as a result of those two stores, that straddles a little bit. If you recall, the last one of those hit right at the end of the quarter. So that straddles a little bit -- two quarters. So certainly, there is always an impact to our business when we service that. As I've said, though, in the past, if you look at our overall business, it's less of a driver of growth than it is for us an opportunity to showcase to our customers. Why they do business with us? Why we matter to them? Because that's really where we shine is how we take an even during a time when our capacity is constrained, we really go above and beyond to service those customers with needed materials to rebuild the grid. So, a little bit of an impact to sales, but I'd say, more importantly, an opportunity for us to showcase our capabilities. And Bill, maybe, if you...

Operator:

Thank you. One moment for the next question. I have the next question coming up. The next question will come from Steve Tusa of JPMorgan. Please go ahead.

Bill Sperry:

Yes. So let's maybe start with the pricing half of it, Steve. I think that -- there's a reasonably small percentage that is specifically indexed and it's been much more kind of working with our customers to get the price increases through. And so, I think about your question on stickiness, there's probably a couple of points of price that can wrap around next year and be part of the incremental sales. And I think that's supported by the incremental price experienced in the third quarter. That's maybe an interesting gauge of given some of that stickiness to the price. And certainly, to the extent we come up on year-end and is a typical time we talk to customers about program pricing and blankets and all that. So again, at the start of the year when we get together to give you our formal '23 guidance, I think we can -- we can be finer on what we expect from price. But from the actions and indexing amount that we have in place, I think we see towards a couple of points. And on the basket of costs, if we were to simplistically describe that half of our costs are materials and that the inside of materials, there's a proportion that's raw and we can all see those prices every day. And then there's a proportion that has some bit of value add. At the far end, it would be a purchase for resale item at the skinny year end, it would be some kind of component that's been assembled or has some kind of value add to it. And I think on the raws, to your point, super variable comes right through, we can all track that. I think on the value-add part of materials plus the non-material part of our costs sitting there at CPI of 8% inflation gives you an idea of the math that we're trying to move around and why we're putting so much emphasis on pricing, right? Because typically, if I talk to you, I would have set up a paradigm that we're trying to have price offset material and productivity offset non-material inflation. And in this environment, when that non-material inflation is in the 8% range, it's just -- I think it's asking too much to find that much productivity. So we've put that incremental burden back on the pricing side. And so as we kind of contemplate our plans for 2023, we're very focused. I think the exact way you're thinking about it of planning our cost to have inflation in a very significant portion, even though the raws are coming down. And so, we are trying really hard to retain the discipline, I think we found in towards the end of '21 and throughout '22 on pricing. And I think you're putting your finger on an incredibly important part of our operating model is to make sure we can price effectively for all these other costs that seem to be going in different directions with the raws going down and all the other stuff going up.

Bill Sperry:

Yes, I would expect it to be green, but obviously smaller, yes.

Steve Tusa:

Sorry, one last quick one. What's the fourth quarter embedded margin? And is that normal seasonality? That's my last one for the total company. Thanks.

Operator:

Thank you. One moment for the next question. For our next question, it will come in to you today, Thomas Moll of Stephens. Please go ahead with your question.

Gerben Bakker:

Yes. I think you're looking at that in the correct way, Tom. And maybe I'll take a step back and first start to say what happened in the last time we saw slow because that's actual data that we have in the business. And what we tended to see in the Utility business compared to Electrical that it lags the Electrical by a quarter or two and then the decline was shallower and it came out quicker. So I would say that, that -- and that was driven at the time, too, by the need to invest in this area, there was infrastructure investments that were coming out as a result of that slow and that really benefited our business. So I would absolutely see that the same way. And I could argue that it's actually intensified the need to continue to invest in this grid, no matter what the macroeconomic conditions are. Of course, I don't think it's immune from it, when there is depending on how deep and how long and whether it's a consumer-led or whether that goes into commercial and industrial eventually, I would expect it to be affected but to a much lesser extent. And I do see the possibility that you kind of explored of can you continue to grow to an environment that there's a scenario that I could see that happening.

Gerben Bakker:

Yes. So as we indicated in the press release, I believe this is an area where we're looking both internal and external. These are, of course a very important position on my leadership team. And I'm very pleased, both with the internal and external talent that we're seeing. I think an element of it is what I described earlier of that we're an attractive company. And I would say maybe we haven't always done the best job in describing what we do both to our investors as well as our employees. And I think as we get sharper and really highlighting why it is that were matter and what it is that we do. We find people interested in coming to join us. So, we are very active in this process right now. And I would expect that here in the fourth quarter, we will backfill that position.

Nigel Coe:

Gerben, I'll send my resume. I'll put my hand in the. So just wanted to -- obviously, the residential down double digits, I think 20%, if I'm not mistaken -- 15%. Can you just maybe delegate between Lighting and Components? Was that largely just lighting or do you see pressure in components as both?

Nigel Coe:

And then if we then looked at ex-lighting, how are the margins are booked in natural systems?

Nigel Coe:

No, no, no. Well, yes, residential margins, but if we look at the segments and lighting, any sense on how that would look?

Nigel Coe:

Okay. That's helpful. And then just one more for me. The restructuring, the upsize in the destruction, I think $0.10, if not taken. Is that -- should we think of that as a pull-forward from '23 actions?

Operator:

Thank you. One moment while we prepare for the last question. Next question is coming from Christopher Glynn of Oppenheimer. Please go ahead with your question.

Bill Sperry:

Look, I do think there's some timing involved in wind deployment, decision-making. Some of the policies are getting involved there. And it kind of gives Chris, I would say, a little bit brighter near-term visibility on solar and yet I do think the wins in the medium term still is quite positive. I don't see that as having any special kind of predictive and I think renewables is an area that's been driving really good growth for us. And for us, it's just a question of -- is there a wind in there? Is there a solar in there? And we would say for the foreseeable future, there's -- we see renewable tailwinds on a combined basis with wind maybe getting -- maybe it's the wrong way to say a little more tailwind for wind in the medium term.

Bill Sperry:

No. As you observed, I think the costs are changing, coming back a little bit normal. I think they're little bit higher than they had been, but that will work itself through our chain, Chris. And so -- and you're right, it's a big variable to the business.

Bill Sperry:

Well, there's benefit to that comes down then I'm not sure if you're looking for a net effect because you also have volumes coming down, which has a decremental effect. So you got -- you got a generally bad top line scenario and that kind of offset is in the COGS that you're mentioning, but the outlook is still is a little challenged.

Gerben Bakker:

Great. Thank you, everyone, for your support, your interest and your questions on our third results and the discussion we just had. And we look forward to reconnecting with everyone again in the new year. So thanks again and we will see you in January.

Daniel Innamorato:

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our second quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. And with that, I'll turn the call over to Gerben.

William Sperry:

Thanks very much, Gerben, and appreciate you all joining us this morning. I'm going to kick off my remarks with a shout out to Stones fans and recognizing Mick Jagger's birthday today. I'm going to start on Page 4 of the materials that Dan referenced, and I hope you found those. Starting with sales, $1.26 billion, 20% organic growth over last year, with very healthy contributions from both price and volume. OP margins of 16.6%, 130 basis points of margin expansion there. Really getting the drop through from incremental volumes and the price/cost tailwind. Earnings per share of $2.81. We saw the OP contributions to those earnings below the line. We have tailwinds from non-OP. And we bought some shares that reduced the share count and helped EPS. Those were offset by a more normalized tax level in '22 versus a lower level in the prior year. And then for cash flow, $168 million in the quarter resulting -- driven by higher income but with investments in both CapEx and in working capital, which we'll talk more about. So really a very strong quarter, high-quality beat of our own expectations. There's a lot of moving pieces as you see, but the simple part of our story is better volume and better price/cost. And that's really the driver that you'll hear a lot about in our time this morning. Page 5, the enterprise results laid out here. Again, see the sales of 19% to $1.256 billion. That's comprised of 14% price, 6% units and a point of drag from foreign exchange. So the 19% is obviously very strong compared to last year. When we do a sequential look back to the first quarter also, a very strong compare with sales up high single digits and about half of that driven by price and half driven by incremental volume. So I think strong top line in both perspectives. And I'd say that the fact that we're able to get more volume out in the second quarter is a good sign, implies that our factories were able to improve their capacity slightly even though the headwinds inside the supply chain still persist with labor materials and transportation, all being a little bit inconsistent and continuing to cause inefficiencies on the part of our manufacturing operations. But the order pattern remains solid. Really, really good broad-based demand, and we'll talk more about that in each segment. On the upper right of Page 5, our operating profit up 29% to $208 million, 16.6%, about 130 basis point margin expansion. Decent incrementals in the mid-20s being driven by 6 points of volume and the drop-through there. Tailwind from price/cost, but some partial offsets from nonmaterial inflation as well as some of the plant inefficiencies and other returning costs. So we tend to focus purely on the materials, but the nonmaterial inflation is still an important factor in our financial performance here in the second quarter. EPS, up 27% to $2.81 and growth roughly in line with the operating profit growth. And free cash flow growing to $168 million, 41%. Looks like good growth, but in order for us to continue to meet our full year target, we need to have a very strong second half of cash flow collection as is typical for us. Fourth quarter tends to be our largest quarter. So that measure is quite back-end loaded. It is noteworthy though, I think the amount of -- that we're investing in CapEx is up about 16% in the quarter. So that's a claim on these cash flows and continue to invest in working capital. Receivables, naturally up with sales. And inventory, up as we continue to try to support our customers and have inventory on hand to support the 20% sales growth. So good cash flow growth despite some strong investments and continue to need to focus on some cash flow in the second half. Now I wanted to talk about each segment and their performance, and I was going to start with the Electrical segment on Page 6. Sales up in the Electrical segment, 13%. Nice solid growth rate. About 10 points of price, about 4 of volume and a 1 point of drag from foreign exchange. Really saw broad strength across the Electrical segment with the very notable exception of the resi business, which I'll come to in a second. But the various components of the nonresi part of the segment. Good strength in nonres, good strength in light industrial, both of the Burndy and Wiring Device brands doing very well in those markets. The heavy industrial markets also doing very well for us. And I think Gerben noted some of the verticals and communications and data centers, providing some really nice growth for us there across the segment. Resi, definitely the notable exception to that good news. Resi, for us, representing about 15% of the segment sales, and they were down double digits. So it had a significant effect on performance here. On the operating profit side, you see $83 million of adjusted operating profit, generated a 14% growth to the prior year at 15.7% OP margins, slight improvement over last year. So the volume growth of 4 points dropped through at attractive incrementals. We have positive price cost. Those are offset partially by the supply chain inflationary headwinds, and we also had higher restructuring investment in the segment. I think that it's worth noting if without the resi drag on margins, the segment would have had about 1 point of margin expansion. So slightly being 15% of the segment resi's impacting the performance there. On Page 7, I want to switch to talking about the Utility Solutions segment. And you can see just an excellent quarter turned in by our partners in the utility segments driven mostly by the performance of Hubbell Power Systems within the segment. So overall, $729 million of sales, representing a 24% increase from prior year. That's got price in the mid-teens and volume in the high single digits. We've experienced robust demand on the T&D Components side. That's really the legacy Hubbell Power Systems and you see 32% growth there, just a lot of demands from utilities to continue to satisfy their needs to harden their infrastructure against environmental impact, integrate renewables and upgrade their networks. So a very strong demand and a position in the industry where we enjoy a lot of strength. And we continue to get very positive customer feedback that despite the fact that our services right now below our standards and our lead times are longer than we'd like, representing some of the supply chain difficulties. We're getting feedback from our customers that we are outperforming the competition. And I think that's serving us very well. The second part of the segment after the T&D Components is the Communications & Controls. You'll see that's up more modestly at 3% and the meters continue to be constrained by chip shortages. And though there's adequate backlog to support a lot more growth, the supply chain is just not cooperating to let us satisfy all that. So on the right side of the page in operating profit, you see this segment generated $125 million of adjusted operating profit, 40% increase from the prior year and over a 200 basis point margin expansion to 17.2%. That margin expansion is being driven by the drop-through on the incremental volume, which is substantial plus the price material cost favorability. And they're overcoming the supply chain headwinds in order to drive that margin performance. So a really nice job by our utility team and really helping drive performance of the whole enterprise. On Page 8, I wanted to recall us for a minute to Investor Day just a couple of months ago where we introduced a very simple construct, which started with, first of all, us feeling that our high-quality products and solutions would be able to grow as the end markets they are exposed to grow. And we are anticipating that those end markets would outgrow GDP. Part of the reason is we highlighted these 6 growth verticals where we have an outsized exposure, about 40% of the sales exposed to these markets. And we think each of these will outperform GDP. We also introduced the second construct, which is that we had management levers to help us outgrow the end markets, which we think will outgrow GDP. Specifically, there we're going to use innovation, acquisitions and some sales and marketing initiatives. And the third bucket of levers was to manage price/cost productivity as well as restructuring, and we'll talk about those at the moment as well. So Gerben had indicated 2 acquisitions, and it just helps illustrate the point we're making at Investor Day, which is while we're exposed to these markets, we think they're going to outgrow the GDP. We also are going to be directional and intentional with our investment and invest specifically in these verticals. And in July, closing on 2 acquisitions. So they are subsequent events to the second quarter, but we will enjoy their performance for the second half of this year and then the full year next year. We're very excited to have both of these fine companies in the portfolio. The first one is Ripley Tools, and Ripley is a bolt-on for our utility segment. A Connecticut-based company founded in 1936. So very well-established brands, high-quality products that are primarily focused to the communications area where they're working on fiber optic and telecom applications, some specialized tools required for that as well as some tools for the power -- the T&D industry that are a full complement to some tools that Hubbell has in its portfolio. So last year's sales of about $20 million. We paid ballpark of about $50 million for the business. High-growth, high-margin, exact example of getting exposure to markets where we think we can win, and we think we can outgrow the economy. On the right side, is PCX. And I know you've heard us talk about an interest in increasing our exposure to data centers, and PCX represents a significant step forward for us in that regard. They make prefabricated electric rooms for data centers. Basically, provide the power, power quality, uninterrupted supply. They do so by using manufactured labor in a plant rather than needing specialized labor on site. And so you're picking up a number of themes here with this investment. One is the data center growth. Two is the arbitrage and labor from on-site specialty to manufactured labor inside of a plant. And the third is the dramatic reduction in the cycle time that results from using these modular prefab units. And that's really of interest to the owner operators of the mega centers and in the colos as well. So we think we're smart investment there, sales of about $50 million and a little bit less than $130 million investment. So when you look at the 2 together, we spent about $175 million, invested. We think they will have about a 1 point impact on growth in 2022. We think for the balance of the year, they will contribute roughly $0.10 of earnings and have a bigger impact next year in '23. And I think as we stand back and evaluate '22, at the halfway point, we've had some important portfolio reshapings where we sold our C&I Lighting business for about $350 million. We've added these 2, and we bought about $150 million worth of shares earlier at the end of the first quarter. So we have essentially deployed the cash from that sale, replaced the earnings and positioned ourselves with much higher growth, much higher margin businesses. So I think a good example in just 6 months of the power of focusing on the portfolio. So with that, I'd like to turn it back to Gerben to talk about the outlook for the remainder of 2022.

Operator:

[Operator Instructions]. And our first question comes from the line of Jeff Sprague from Vertical Research Partners.

William Sperry:

Yes, I think it starts with they do manufacture a number of the products that goes in. But you're right, there is an awful lot of sourcing. But the design elements of it, Jeff, that is done in very close concert with the owner/operator of the data center is a very sticky process and one that we think really enables the margin to be earned. And so it is a little different in that there is quite a bit of purchase for resale content in the end product. But I think the way -- the nature of the interaction with the customer is quite intimate and design intensive and that's very appealing to us.

Gerben Bakker:

Yes, Jeff, maybe I'll start with some comments, and I'm sure Bill will have some as well. But I would say our approach to pricing has been to, a, not tie it specifically only to commodities, but to general inflation. So while we see on commodities a pullback, right now, general inflation is still tremendously high, and we feel that in our business. So as we have these discussions with our customers, it's around the broader inflation and need to price. If you looked at last year, we were on the negative on that, I'd say, despite very good traction. And if you think about the chart that we've shown you in the past of how over time we manage that, we still need more positive price/cost to claw back from the negative of last year, and those are discussions we have with our customers. I would say the other part in our portfolio is we're generally a small portion of the total cost of the systems. So the discussion around availability and quality and reliability, generally are more prominent than on price. Now all that said, with commodities, when they do come down at the magnitude at which they are coming down, and that's sustainable over time, sure, we're going to feel eventually pressure to have discussions with pricing the other way. But I'd say that's still out for us a little bit.

William Sperry:

Yes. As we -- there's a couple of elements to your question. First is yes, there's a ton of backlog there. So I think we're starting to hear rumblings that the supply chain may be falling a bit and may be improving. We haven't anticipated that, that happens until the start of next year. And it's not clear to me that, that shape would enable a spring like you're describing, or will it be -- so it will be dependent on how those chips come back. If you're -- but you're right to characterize the demand is there to buy a lot of smart meters, absolutely.

Thomas Moll:

I want to start off at a high level on your revised guidance, specifically around EPS. And just help me if I'm missing something here, but looking at the typical seasonality, first half to second half, it would appear at first glance that even the revised outlook may be conservative for second half, just given that price material appears to be a positive now underlying demand, particularly on the utility side, where you called out great organic growth and backlog build. It just -- it raised the question for me, could there still be some conservatism baked in? So any context you could give there would be helpful.

Thomas Moll:

That's helpful. As a follow-up, I wanted to ask about the EV charging solution that you talked at Investor Day earlier this summer. So I guess a couple of parts to the question. Just in terms of the model here, is the idea that you go in as a preferred partner with your incumbent utility customers for some base rate budget? I guess that's the first question. And then second question would be just on timing and magnitude towards a meaningful P&L impact. If all goes well, what kind of time frame are we looking at here?

Gerben Bakker:

Yes. And maybe -- as we talked about it in Investor Day as an example of where we're investing in what we refer to as NPX, which is new products that are magnitudes larger than our traditional. This kind of solution different from the chargers that are available is very unique. So I would say, while certainly, we're very excited about it, it's very early days of development of what's a completely new solutions to the market. And some of these are going to be successful and some of them won't be, and I think that's one of the reasons why more uncertain on the timing and the magnitude of the impact. But these are projects that are, if successful and unsuccessful, are a much larger scale than we would traditionally see with our new product development processes.

William Vranka:

This is Will Vranka on for Nigel. So first on the backlog. I was wondering if you could talk about the dynamic of orders that are greater than versus less than 90 days dated, how that performed in the quarter and how you see that trending through the back half of the year?

William Vranka:

Got it. And then what are your expectations? Could you provide any detail on how you're thinking about gross margins for the rest of the year?

Operator:

And our next question comes from the line of Josh Pokrzywinski from Morgan Stanley.

Gerben Bakker:

Yes. Yes, I'd say in general, in inventory, and that's a topic that we cover with our customers quite often every opportunity we have with them to do checks on that. We also validate on sell-in and sell-out to have a look at real demand. I would say that generally still our products are selling through. Certainly, in this supply chain crunch, distributors are trying to get their hands on products. I would say there has been a level of getting inventory in. So I would say at this point, our distributors are perhaps appropriately stocked rather than overstocked. I would say they were probably understocked for a period of time. So there has been stocking going on. But in our products, no signs of any overstock position. Now the one thing that remains to be seen if there is a slowdown are the levels that they have too high for what they need, then you could see a correction in that with inventory level. But at this point, we don't see big risk of overstocking and the consequences of destocking in the absence of a significant slowdown.

William Sperry:

Yes, it's an interesting way to look at it. I thought you were going to talk about how our exposure would perform in a consumer-led recession as opposed to financial institution-led crisis or an industrial recession. I'm not sure I have -- I think maybe Dan and I should follow with you. I'm not sure I have good analysis at my fingertips of some of those levels versus kind of '18, '19.

William Sperry:

Yes. I mean I think we're anticipating that it's going to affect our Electrical segment first, that our Electrical segment will feel it with a little more severity, that our utility segment might have a 1 or 2 quarter lag versus our Electrical and that it would probably be shallower and shorter in duration. And I think the -- some of the underlying demand provided, we're talking a little bit about the infrastructure bill, and does that provide a little ballast or not. But the fact is we don't believe, Josh, that we're immune to this macro by any means. And that we're sitting here at halfway mark of the first year with roughly 20% sales growth and margin expansion we recognize, and price in the double digits, right? We know that, that's -- those are not kind of sustainable, like steady state kind of performance. So we're trying to be very, very cautious and looking at these markets with a keen eye. We've chosen to invest in inventory because we see enough backlog that we feel good about being able to clear that inventory. Gerben kind of also commented on, we feel like the balance sheet is poised to invest and it's a really good time to help support the utility business with some growth capital and support the Electrical segment with some productivity capital, and that's how -- that's kind of how we're operating going forward. We think the time for us to make those investments is the second half of this year to help support '23 and '24.

Christopher Snyder:

I was just hoping for more color around the back half margin drivers. So relative to Q2, the guidance calls for a pretty material falloff in margins into the back half. It just seems more significant than what would be implied by the $20 million back half restructuring spend. So I understand there's maybe slight volume declines as well. So I would have expected a more material offset from improving price/cost with LIFO accounting and the recent decline in steel. Any color on these buckets would be helpful.

Christopher Snyder:

No, I really appreciate the back color. And I think the strategy makes sense for the macro at hand. So to your kind of response, there's obviously been a lot of moving parts and just an overall difficult to manage macro for 2-plus years now. But I guess if we think about 1 day going back to a normalized environment, what do you view as kind of normalized incrementals for the 2 segments?

Operator:

And our next question comes from the line of Christopher Glynn from Oppenheimer.

William Sperry:

Yes. I wouldn't say that our estimates have changed in the last couple of months. I'd say there continues to be a lot of uncertainty. But it does feel to us like our relationships with that top tier of channel partners is really strong. I think Gerben was alluding to it and talking about pricing. It's been a very hand in glove and close relationship process over the last couple of years. And they've required us to communicate early. They've required us to be coordinated in how we do things as opposed to try to disrupt how their systems load prices. And I think the grades certainly, that Gerben and I get when we meet with senior leadership are quite favorable in terms of helping manage through this pricing environment. And I would say maybe underlying this is the obvious point that this price increases have not damage demand in any way, right? We haven't hit some elasticity point as such that demand would go down. And therefore, maybe it's been easy that we and our channel partners are on the kind of the same side of the table as it were. But I would say that the sales and marketing teams doing some -- have some interesting initiatives about utilizing better tools for cross-selling, organizing better materials for vertical market sales and getting kind of humbled to compete collectively with solutions in some of those markets rather than one-off product sales. And I think I'd say, Chris, we feel really good about that. But I wouldn't say we've upped our forecast in the last 2 months, really.

William Sperry:

Yes. I mean I think it's -- I think what you're asking is if we're gaining share right now, would we expect to keep that? I would say, we would. I think we feel that we're supporting our customers by investing in new products, investing in capacity. We hear feedback from them that others aren't doing that. And so yes, Chris, I mean I expect that there's stickiness and reward for support during a choppy and challenging operating environment. So we think so.

Charles Tusa:

Anyway, and I think you guys are kind of an easy one. So it's nice not to have to jump up and down here. The price cost spread, I mean, have you guys kind of detailed how you expect that to trend over the next couple of quarters? And would some of that potentially carry into next year?

Charles Tusa:

Yes, into next year, okay. And as far as the trends in nonresi are concerned, what's -- what are you seeing most recently there?

Charles Tusa:

And on the resi side, I think you said that it was down 20% or something. Did I miss that?

Charles Tusa:

Right. So that volume would be down then strong double digits, like 20%-ish?

Operator:

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Gerben Bakker, Chairman, President and Chief Executive Officer for any further remarks.

Operator:

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Dan Innamorato:

Thanks, Operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our first quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I’m joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note that our comments this morning may include statements related to the expected future results of our company and our forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. And with that, I’ll turn the call over to Gerben.

Bill Sperry:

Thanks, Gerben. Good morning, everybody. Appreciate you joining. I'm aware of how busy the day is, and I'll try to keep my comments short and sweet and open with a happy birthday to our own Dan Innamorato today. And as Gerben said, really off to a strong start to the year. And there's really two notable management accomplishments that are driving the results, and you'll hear us comment several times. The first is price. I know you're all aware that we got behind last year, and as inflation persisted throughout the last of the five quarters, we relentlessly kept working with our channel partners to raise price. And I think the fact that we caught up and created a tailwind in the first quarter of ’22, is really the good evidence of the high quality of our products and how well positioned they are, both in front and behind and at the meter where essentially at low-cost relative to the value that they add. The second besides price was our production levels. I think as you know, we've been operating for a while constrained, not by orders, but constrained by supply chain. And so, it was a great sign to see sequential increase from Q4 to Q1, which is typically a decline in output and for us to increase the units there, some evidence that getting better and fighting through some of the supply chain constraints. And when you have both that price and production level raise, and with the backdrop of strong orders, you're going to see very high growth in sales and earnings, which is what you'll see in our results released today. I'm going to start on Page 4 of the materials. You can see sales increase of 21% to $1.16 billion. That 21% was driven by organic growth as well as price. As I mentioned, that's a comparison to the prior year. Sequentially as well, we saw mid-single digit growth versus the fourth quarter of last year, with both units and price being up sequentially. At the operating profit level, you see 20 basis points of margin expansion to 13.9%. Welcome to see that return to margin expansion, and we really have the price material tailwind complementing the volume growth to help drive that. Earnings per share, you see an increase of 30% year-over-year to $2.12, driven by the operating profit growth, as well as some other income tailwind. On the cashflow side, we had a use of $36 million in the quarter. The extraordinary high level of sales required a large investment in receivables, and we also invested aggressively in inventory. And we continue - Gerben pointed out the customer awards that we received. We continue to try to serve the customer, make sure we've got inventory on hand, and keep our service levels as high as possible, given some of the choppy operating environment that we're in. On Page 5, you see the results laid out a little more graphically. That 21% sales growth unpacks into 12 points of price, and nine points of units. That skews slightly higher for the utility segment, which we'll talk about separately, both in units and price, but the Electrical segment also showed very strong growth. So, a very broad-based demand profile here. And despite the 21% increase in shipments, orders were up 25%. So, we actually built more backlog in the quarter. At the operating profit level, you see the impressive 22% growth to $160 million in the quarter. And that volume growth and price material tailwind really combining to create some nice lift. On the margin side, there's a partial offset for the non-material inflation. Think of things like compensation costs and transportation costs eating into some of those gains, as well as some inefficiencies in the factory where the supply chain and consistency, think of both labor and material not being available as consistently as is typical. And so, when you're operating with high levels of volume, there are some inefficiencies in spending that are going on inside of our plants. The EPS is up 30%, just under $0.50 of new earnings coming from all this growth to $2.12. The growth rate is higher than the OP growth rate because of some - we have interest expense lower as a result of a bond refinancing we did last year, as well as transition services income, but the taxes were comparable in the periods. So, not a tax driver there. Here, you see the cash flow use laid out compared to a small source of cash last year. Typically, the first quarter is our weakest cash flow year - or sorry, weakest cash flow quarter in the year, and we still anticipate meeting our initial targets on free cashflow. This is just early investment in the year at a time of high growth in receivables first and inventory second. We're going to now unpack our results by segment, and we'll start on Page 6 with our Electrical segment. You can see the impressive growth of 19%, all organic. 10 points from price, nine points from volume. Quite a broad-based contribution to the demand profile. Light industrial, up in the mid-20s. Data centers and telecom, I would note as verticals inside of that space. Non-res similarly up, strong in the mid-20s. Heavy industrial up in the mid-20s. Strong commodity prices that we see in both steel, for example, and oil and gas are good indicators for our heavy industrial business customers still pushing demand up. And the exception to the really strong outlook is on the residential side. We had some tough compares to a very heavy amount of home remodeling done last year, as people were spending more time in their house than they wanted to, no travel, not commuting to work. We saw a lot of attention spent remodeling, which has been difficult to compare against. On the OP side, double digit growth for the Electrical segment at 11% to $58 million. You see that the margins, though, did not expand in sympathy with the company, and though we got good drop-through on our incremental volumes and price material was favorable, that was more than offset by the inflation in transportation. And that was really most acutely felt by our residential business, which is essentially a purchase for resale, and the container costs, transportation costs become a very large hit to that business as those costs spiked up. And as well as extra spending on restructuring. So, if the residential business had had a comparable year to last year, you would have seen comparable margins and the extra investment in restructuring, which will create productivity and higher margin in the future, cause an additional half point drag. So, I think the underlying business is very healthy here. And Page 7, we transition to showing the utility segments, and very strong performance. We've built quite a strong franchise here on the utility side. 22% growth, which is actually 23% organic. We sold a very small product line from inside the Aclara business. And that 23% organic unpacks to 13 points of price and 10 points of volume. Again, kind of note that the volume was 7% higher sequentially versus the fourth quarter of last year. And inside the utility Solutions segment is where we have the more pronounced buildup of backlog. And so, getting the bottlenecks eased out and our production capacity up, has been a very welcome sign. And you can see that drop through on the operating profit side. But finishing on sales, really saw strength from the power system side and the transmission and distribution components, as well as gas components. We had growth in the 30% range. And on the communications and control side, the Aclara AMI and meters business continues to be constrained by the lack of availability of chips, and we expect that condition to persist throughout the year. And - but the entire segment is still powering with very strong growth. And you see the drop-through effect of having price material tailwind, which this was the quarter that the power team caught up on that. And you see the welcome lift in margin expansion of a nearly a point. And so, you’ve got above 20% sales growth, with 90 bps of margin expansion. You get a lot of OP lift, and really helping add to our earnings per share story. So, that gets me to Page 8 and the impact of those trends and results on our outlook. And I would say, usually we would consider this to be too early a point in the year to consider a raise, especially with as much macro uncertainty as there is, but we started with a higher-than-normal backlog. We added to that backlog, despite shipping 21% increase in sales. And the prices really seem to be sticking, and we're going to get some incremental price. And so, that's causing us to anticipate higher sales than we had initially guided you to, and we're going to reflect that new outlook in this guidance. So, when we came out in January, we were describing an expected sales growth of 8% to 10%, which was comprised of 5% price and 3% to 5% of volume. And so, given what we've seen through the first quarter on price sticking, as well as some anticipated incremental price that we're going to ask for, we believe that price will be more in the range of 7% for the year. And that volume which we had anticipated at 3% to 5%, we feel now would be coming through at 4% to 6%. And the effect of this change at the sales side, effectively imagining the price being absorbed by incremental inflation, so it leaves us an extra point of volume. That extra point of volume we think should drop on the order of $0.20 to the year. And so, what we've done is raised the midpoint of our outlook range from $9 to $9.20. So, in other words, we've kind of maintained our margin outlook, and we've maintained the percentage drop-through of free cashflow that we're expecting between 90% and 100%. Worth noting, I think, that there are no new incremental acquisitions included in this guidance. We are pleased that that pipeline seems to be refilling, and we feel we’re quite intentional in finding verticals that have high growth and high margins in them. And so, just a comment there that acquisitions are not included in this outlook. So, with that, I will turn it back to Gerben for some closing remarks.

Operator:

Thank you. [Operator Instructions]. Your first question comes from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.

Gerben Bakker:

Yes. Jeff, let me maybe break those down into two sides. One is on the demand side and one is on the supply side. Fundamentally, demand is strong in the utility market, right? We've talked about the need to harden the grid, upgrade the grid. And that's still absolutely fundamentally there. And as Bill stated, we continue to see orders exceed shipments. So, we’re building a backlog. Now, of course, there's an element of lead times extending, and that creates maybe a little bit of a unnatural demand, but it so far exceeds a supply right now that we believe, even if that moderates, that at the levels that we're producing, we can maintain those and continue to see growth. The second part of it is, we were able to increase our productive output. And no small feat, I would say. It’s part of why I'm so proud of the team. We’re being recognized for some of these service awards. Our customers are truly telling us that during this time, we are outperforming in delivering. It's a real focus for us. I would say the things that we are doing on the supply chain side, make us more resilient, right? So, we spend a lot of time approving alternate materials and design, qualifying new suppliers for redundancy, making capacity investments, particularly in the utility business. We’re making some investment there because that business really seemed to grow throughout the pandemic, and automation. So, I would say the investments that we're making into the business are helping us improve in what we've seen, not at the rate we've wanted it to be, but we have seen quarter-over-quarter continued improvement, despite what are still very, very challenging times, whether you look at containers or supply chain or the Omicron that we dealt with in the first quarter. So, I think we're just building a more resilient operation, but still plenty of chance. So, hopefully, I answered both sides of the equation there for you.

Bill Sperry:

Yes, I think - I don't know that we have any particularly acute insight into the balance there. I mean, I think it's quite an important question as to how supportive the PUCs can be, and if the consumer starts getting quite pinched here. I do think you're right that utilities have been quite effective in getting a lot of their spend into capital and away from O&M such that they can be - they ultimately would get reimbursed with a return on capital for that. But I think your question is one that we'll have to keep watching because it's not something that's evidencing itself yet in any of our demand profile.

Operator:

Your next question is from Steve Tusa with JPMorgan. Please go ahead.