Hubbell Incorporated Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Third Quarter Performance: Hubbell achieved double-digit adjusted earnings growth driven by strong high single-digit organic growth in Electrical Solutions and Grid Infrastructure, and a lower year-on-year tax rate. Grid Infrastructure had high single-digit organic growth, with markets and order activity strong. Electrical Solutions saw high single-digit organic growth with margin expansion.
• Acquisition of DMC Power: Announced in October, the acquisition of DMC Power is complementary to Hubbell's utility connector offerings and expected to contribute approximately $0.20 of adjusted earnings per share accretion in 2026.
• Bill Sperry's Retirement: Bill Sperry will retire as CFO at year-end, with Joe Capozzoli set to succeed him as CFO, having held various leadership roles at Hubbell.
• Financial Results: Sales rose 4% to ~$1.5 billion, operating profit increased 4% to $358 million, adjusted diluted EPS grew 12%, and free cash flow jumped 34%.

Segment Performance

• Utility Segment: Sales increased 1% to $944 million. Grid Infrastructure (comprising ~3/4 of the segment) saw high single-digit growth, with transmission (double-digit), substation (mid- to high single-digit), distribution (double-digit) benefiting from grid hardening and resiliency, and Telecom and Enclosures returning to growth. Grid Automation declined 18% in Q3 due to project roll-offs but is expected to fade in Q4.
• Electrical Solutions Segment: Delivered high single-digit organic growth, with continued margin expansion and double-digit adjusted operating profit growth. Data center and light industrial contributed to strong performance, and segment unification efforts are driving outgrowth in key vertical markets.

Guidance

• Full Year 2025: Raised EPS guidance with a narrower range from $18.10 to $18.30 (midpoint increase from $17.90 to $18.20) due to a lower tax rate and margin performance. Anticipates 3-4% organic growth, OP margins expanding 50-100 basis points, with the DMC acquisition neutral to earnings in Q4 and contributing $0.20 in 2026.
• 2026 Outlook: Anticipates strong broad-based organic growth across the portfolio, leveraging grid modernization and electrification trends, with confidence in delivering continued strong performance.

Risks

• Grid Automation Headwinds: Declined 18% in Q3 due to project roll-offs, though expected to fade in Q4.
• Meters and AMI Performance: Previously modest, but repositioning efforts are underway to improve growth and margins.
• Macroeconomic Uncertainty: Impact on certain Electrical Solutions segments like nonresidential construction, heavy industrial, and renewables.

Question and Answer

• Q: Thoughts on 2026 utility growth and Q4 exit rate? A: Bill and Gerben discussed potential strong growth, but emphasized a conservative approach, noting Q4 has easy comps and order strength in T&D markets.
• Q: Visibility on meters, AMI, telecom bottoming? A: Telecom and meters/AMI show signs of growth off low bases, with orders supporting, though modest.
• Q: Pricing breakout by segments and margin outlook? A: Pricing is balanced between segments, with long-term margin outlook to be detailed in January, focusing on price/cost productivity.
• Q: Data center investment impact and Grid Automation CAGR? A: Electrical Solutions benefits directly from data center investments, while Grid Automation has been below targets but repositioning efforts are ongoing.
• Q: Operating margins and top-line commentary? A: Restructuring costs are expected to be part of ongoing productivity, with the top-line in Electrical being mixed but potential for rebound.
• Q: DMC margins and data center control house sales channel? A: DMC has rich margins (~40% EBITDA), and systems control has potential in data center sales channels.