HUBBELL INC Q4 FY2024 earnings call

• Lever 1: Made significant progress in unifying the Electrical Solutions segment in 2024, achieving above-market growth in attractive verticals with an integrated service model and driving business simplification and operational efficiencies despite the residential lighting divestiture, resulting in double-digit adjusted operating profit growth.
• Lever 2: Effectively captured opportunities from secular growth trends across Utility and Electrical markets, including double-digit growth in transmission and substation markets in front of the meter, and renewables and data center balance of system solutions behind the meter.
• Lever 3: Proactively managed price cost productivity in 2024, with favorable price realization across segments, accelerated productivity in factories and supply chain, and active management of cost structure and discretionary spending.
• Lever 4: Strong balance sheet and differentiated capital deployment strategy contributed significantly, including the successful acquisition and integration of Systems Control.

Utilities Segment: In the fourth quarter, there was 10% operating profit growth and approximately 1.5% margin expansion. Sales growth was 4%, driven by the acquisition of Systems Control, double-digit growth in transmission and substation product areas, but telecom enclosures were down 20% and utility distribution products were affected by customer inventory rationalization. For the full year 2024, there was mid-single-digit sales growth, 9% adjusted operating profit growth, and 90 basis points of adjusted operating margin expansion. Electrical Segment: Fourth quarter had 10% operating profit growth and about 3.5 points of margin expansion. Top-line was slightly down excluding the resi lighting divestiture and PCX acquisition impact, but was strong in renewables, data center balance of system, and light industrial markets; commercial and heavy industrial were softer. Full-year 2024 saw mid-single-digit sales growth and 9% adjusted operating profit growth.

• 2025 outlook anticipates mid-single-digit organic growth with continued margin expansion. Adjusted earnings per share expected to be $17.35 to $17.85, and free cash flow conversion of at least 90% of adjusted net income. Utility Solutions segment: Anticipates 4% to 6% organic growth, capitalizing on electrification-driven load growth and interconnection projects. Electrical Solutions segment: Anticipates 3% to 5% organic growth, with data center expected to have mid-teens growth, and renewables and electrical T&D markets mid-single-digit growth.

• Inventory and Market Challenges: Temporary headwinds from utility customer destocking and telecom market softness, but both are inflecting positively for 2025. - Tariffs: Uncertainty around Canadian and Mexican tariffs, with limited Chinese exposure post divestitures, and a fluid situation that could impact COGS, but preparing to absorb and neutralize effects through pricing and productivity moves.

Q: Just back to kind of the channel inventory situation. Obviously, been frustrating for us and I'm sure for you how long this has taken on, taken to kind of correct itself. I just wonder, if you could really speak to your level of visibility...

A: Jeff, good morning. Let me maybe start with that and you're right to point out, it's been frustrating to try to pinpoint this down. I would say, we break it down between IOU and public market, a, because our visibility is better on the IOU and that's where we believe it to be most pronounced right here...

Q: Hi, guys. Good morning. Bill, respectful of the answer you gave to Jeff, it is sort of a key topic in the market right now. I mean, there are some out there with like a mid-teens proportion of Mexico COGS. Is that in the right ballpark? Too high, too low? I mean, any sense would be helpful.

A: Yes. You're in the right ballpark.

Q: Good morning, guys. Would you say it's closer to 20% or no? I'm just kidding. On pricing, what was price in the quarter for each of the segments and what are you assuming for each end of this year?

A: It's a positive in both segments, Steve. Less than a point overall, a little bit more in Electrical than Utility.

Q: Good morning and thank you for taking my questions. I wanted to start on the topic of inventory management and Electric distribution. A lot has been discussed already. But one item we haven't explored is, with these VIP customers that you referenced, are you able to tell, let's say, in 2024, what their, I'll call it consumption rate or install rate of these SKUs was? If we're really trying to get to what the market demand looks like last year, do you feel like that was still a positive trend?

A: Yes. I'd say, one of the things that we have discussed and maybe not on an SKU basis of what they're installing, but we look at their CapEx and OpEx budgets, those are generally the conversations we have with them, on what they're installing...

Q: Thank you. Good morning, guys. You've talked a bit about the Hubbell unification process for ATS and multi-year of efficiencies coming ahead. We could see it very visibly in the renewables and data center growth trends. Curious, if you could comment on where you're seeing other benefits play through, or maybe the balances coming through, but I'm thinking in terms of pricing power realization, service levels, what other instances of yield are you seeing on the unification currently?

A: Yes. I think you're mentioning some of it. It's what we call competing collectively. So not just in the high growth verticals, but overall in our portfolio, where you have strong positions with some of our really leading brands and can those help pull through other brands of Hubbell...

Q: Hi, good morning. Can you talk about the again on the kind of electrical distribution, but thinking through the mid-single-digits growth expectation in 2025? And if you could just frame, how much it was down in 2024. It would seem like you've got a relatively easy comp in that mid-single-digits growth is something that, we think about as potentially being more like through cycle growth. And so, just trying to think through the upside potential to that, but also some of the dynamics in the market, and if you're still seeing kind of budget prioritization toward T and more sophisticated D that could be a pressure point?

A: That's an interesting question, because I do agree, there's something sort of in the long-term mid-single-digits and the compare is easier. Is there a path to do better? Certainly, if the market and orders are there, we think we'll, get our fair share. So, it's an interesting question.

Q: Hi. Good morning guys. Thanks for taking my question. So, my question is on the telecoms business. Just trying to get a sense for how much margin pressure you've seen since that business was at its height. And then, I guess what are your thoughts on potentially rightsizing the business versus keeping scale to capture incremental growth?

A: Yes. I would say, at its height the margins were at the high end of our portfolio. Now they're still attractive and we have been rightsizing throughout 2024. And so, we feel where we sit at this split second is rightsized and we're looking forward to as that volume comes back being able to grow off of our current base, which is a substantially lower cost structure than we started the year with.