Hubbell Incorporated Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Grid Infrastructure: Saw strong organic growth in Q2, driven by higher-margin T&D components. Transmission and substation markets remain robust, while distribution markets rebounded from inventory normalization. Orders in grid infrastructure were up high teens in the first half, supporting strong growth in the second half.
• Electrical Solutions: Demonstrated mid-single-digit organic growth with adjusted operating margin expansion. Segment unification efforts and strategies to compete collectively are driving outgrowth in key vertical markets, particularly data centers. The company continues to simplify its business to enhance productivity and operating efficiencies.
• Inventory Accounting: Adopted a unified FIFO-based inventory accounting standard, harmonizing methods for better cost matching and consistency. This led to a $29 million decrease in COGS in Q2 and $20 million in the first half, with benefits including simplified business reviews and better expense-revenue matching during inflationary periods.

Segment Performance

• Utility Solutions: Generated $936 million in revenue, 1% growth (all organic). Grid infrastructure, making up 3/4 of the segment, saw 7% growth with double-digit growth in transmission and substation, and mid-single-digit growth in distribution. Grid automation contracted 13%. Operating profit for the segment grew 7% to $239 million, with margins up 140 basis points.
• Electrical Solutions: Achieved $545 million in revenue, 4% sales growth (largely organic, with a small contribution from the Ventev acquisition). Experienced mid-single-digit organic growth, 9% adjusted operating profit growth, and margins expanded by 1 point to 22.5%.

Guidance

• Raised full year adjusted earnings per share outlook to a range of $17.65 to $18.15, a $0.30 increase at both the low and high ends. Anticipates 4% to 6% organic growth and full year adjusted operating margin expansion, driving high single-digit adjusted earnings per share growth at the midpoint. Confident in navigating near-term macroeconomic and inflationary uncertainties to deliver attractive financial performance.

Risks

• Macroeconomic and Inflationary Pressures: Raw material inflation and tariffs are driving incremental cost inflation. The company must proactively manage its cost structure and pricing actions to address these challenges.
• Grid Automation Volatility: Grid automation performance was weaker than anticipated due to roll-off of large projects not backfilled. However, the company expects grid automation to stabilize and grow in the future, with a focus on MRO and smaller projects initially.

Question and Answer

Q: On electrical distribution return to mid-single-digit growth. Is it sustainable?

A: Yes, mid-single digit is the underlying growth rate, reflecting end user demand with MRO replacement and grid hardening.

Q: Copper and commodities impact on earnings?

A: Use price lever to hedge, feel well covered. Copper movements require additional pricing, but FIFO gives time to price accordingly.

Q: Grid automation trajectory and Aclara growth?

A: Aclara last 3 quarters flat sequentially, expecting low single to mid-single-digit growth from new lower base. Larger projects in pipeline, but MRO and smaller projects dominate now.