Hubbell Misses Street 3Q Forecasts

  • Net sales down 2% (-2% FX, +2% acquisitions, -2% organic)
  • Adjusted diluted EPS(1) up 1% to $1.53, excluding:
    • Restructuring and related costs ($0.13)
    • Costs associated with proposed share reclassification ($0.13)
  • Acquired natural gas components manufacturer

SHELTON, CT. (October 22, 2015) - Hubbell Incorporated (NYSE: HUBA, HUBB) today reported operating results for the third quarter ended September 30, 2015.

Net sales in the third quarter of 2015 were $877.0 million, a decrease of 2% compared to the $895.3 million reported in the third quarter of 2014. Operating income in the quarter was $131.0 million as compared to $142.8 million in the same period of 2014. Excluding $11.9 million of restructuring and related costs, adjusted operating income was essentially flat year over year (1). The effective tax rate in the quarter was 35.1% compared to 32.9% in the third quarter of 2014. Excluding the impact of $7.4 million of non-deductible reclassification costs recorded in the third quarter of 2015, the adjusted effective tax rate for the quarter was 33.0% (1). Net income in the third quarter of 2015 was $73.3 million compared to $89.6 million reported in the comparable period of 2014. Earnings per diluted share for the third quarter of 2015 were $1.27, compared to $1.51 reported in the third quarter of 2014. Excluding restructuring and related costs and the costs associated with the proposed share reclassification, adjusted earnings per diluted share increased 1% to $1.53 (1).  Free cash flow (defined as cash flow from operations less capital expenditures) was $76.6 million in the third quarter of 2015 versus $121.6 million reported in the comparable period of 2014.

For the first nine months of 2015, net sales were $2.6 billion, an increase of 2% compared to the same period last year. Operating income was $362.7 million compared to $391.3 million for the comparable period of 2014 and included $32.2 million of restructuring and related costs (1). The effective tax rate for the first nine months of 2015 was 33.1% compared to 32.9% reported in the first nine months of 2014. Excluding the impact of $7.4 million of non-deductible reclassification costs recorded in the third quarter of 2015, the adjusted effective tax rate was 32.4%(1). Net income in the first nine months of 2015 was $215.8 million compared to the $244.0 million for the comparable period of 2014. Earnings per diluted share were $3.71, compared to $4.10 reported for the comparable period of 2014. Excluding restructuring and related costs and the costs related with our proposed share reclassification, adjusted earnings per diluted share were $4.21(1). Free cash flow was $140.8 million compared to $195.7 million reported in the first nine months of 2014.

 

OPERATIONS REVIEW

"In the face of challenging end markets, we continued to execute on our One Hubbell strategy," said David G. Nord, Chairman, President and Chief Executive Officer. "During the quarter, we made investments to grow the business, took actions to improve our cost structure, and announced a plan to reclassify our common stock into a single class structure. We saw mixed results in our end markets, with expansion of construction-related markets and declines in certain industrial and energy-related markets.

"While macro trends continue to impact the business, we are focused on what we can control and, importantly, our cost reduction initiatives have begun to yield savings in line with our expectations. We continue to exit facilities, totaling eight this year. Additionally, actions to better align staffing levels with demand in weak markets are well underway, and we continue to execute plans to realize efficiencies in process and back-office activities.

"Our long-term strategy of supplementing market growth with acquisitions continued during the quarter with the purchase of a natural gas components manufacturer, and we are excited about its future contributions to Hubbell. We look forward to continuing to execute our strategic growth initiatives to drive enhanced value for our shareholders," continued Mr. Nord.

 

SEGMENT REVIEW

The comments and year-over-year comparisons in this segment review are based on third quarter results in 2015 and 2014.

Electrical segment net sales in the third quarter of 2015 were $617.5 million compared to $641.6 million reported in the third quarter of 2014. Acquisitions added 2% to net sales in the quarter while the unfavorable impact of foreign currency translation reduced sales by 3%. Organic volume declined by 3% due to lower shipments in industrial and energy-related businesses partially offset by higher shipments in construction-related businesses. Operating income was $78.8 million, or 12.8% of net sales, compared to $92.6 million, or 14.4% of net sales, in the same period of 2014. Excluding restructuring and related costs, adjusted operating income was $88.8 million, or 14.4% of net sales (1). Excluding restructuring and related costs, the decrease in operating income was primarily due to lower volumes(1).

Power segment net sales in the third quarter of 2015 increased 2% to $259.5 million compared to $253.7 million reported in the third quarter of 2014. Acquisitions added 4% to net sales in the quarter while foreign currency translation reduced net sales by 2%. Organic sales were flat, with strength in telecommunications largely offset by lower transmission shipments. Compared to the third quarter of 2014, operating income increased 4% to $52.2 million, or 30 basis points to 20.1% of net sales. Excluding restructuring and related costs, operating income increased 8% and margin expanded 100 basis points (1). Both increases were primarily due to the favorable impact of material costs and price.

 

SUMMARY & OUTLOOK

Mr. Nord commented, "Recent order trends continue to show weakness, primarily in industrial businesses, and support our expectation of flat organic sales for the year.  In addition, we anticipate acquisitions will contribute 3% to our net sales and foreign exchange will reduce our net sales by 2% on a full year basis. We now expect full year 2015 diluted earnings per share in the range of $4.95 to $5.05, which reflects the lower end of our prior range and includes approximately $0.45 of restructuring and related costs. The range excludes the costs related to the proposed share reclassification. If the transaction is completed by year end, we expect related costs to be approximately $0.35, of which $0.13 was incurred in the third quarter (1).

"For 2016, we expect end markets to continue to be mixed, with modest growth in the aggregate. Strength in construction and growth in utility are expected to be partially offset by weak industrial and oil markets," Mr. Nord continued. "We expect continued restructuring and related initiatives to impact diluted earnings per share by approximately $0.25 to $0.35, as we reduce our variable and structural costs to better position the Company for sustainable profitable growth. And we expect to continue realizing the benefits of our cost reduction efforts, with $0.30 of incremental savings expected in 2016."

Previously Announced Proposed Share Reclassification

Mr. Nord said, "As announced in August, we are undertaking a plan to simplify our equity capital structure by creating a single class of Common Stock. The proposed reclassification will align voting rights with the economic interests of our shareholders and achieve the efficiencies associated with a single-class structure. Pending shareholder approvals and the satisfaction of other customary closing conditions, we expect the proposed reclassification of Hubbell`s shares to close in late 2015 or early 2016. As previously announced, we intend to execute share repurchases of up to $250 million following the shareholder vote on the transaction."

Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements about expectations regarding our financial results, the completion of our proposed reclassification, completed and future acquisitions, restructuring actions, improving our cost structure to support earnings growth, market conditions, foreign exchange rates, intent to repurchase shares, shareholder value creation, and other statements that are not strictly historic in nature. In addition, all statements regarding anticipated growth or improvement in operating results, anticipated market conditions, and economic recovery are forward-looking.  These statements may be identified by the use of forward-looking words or phrases such as "improved", "leading", "improving", "continuing growth", "continued", "ranging", "contributing", "primarily", "plan", "expect", "anticipated", "expected", "expectations," "should result", "uncertain", "goals", "projected", "on track", "likely", "intend" and others. Such forward-looking statements are based on the Company`s reasonable current expectations and involve numerous assumptions, known and unknown risks, uncertainties and other factors which may cause actual and future performance or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: failure to receive the requisite approvals of our shareholders necessary to complete the reclassification; any other delays with respect to, or the failure to complete, the reclassification achieving sales levels to fulfill revenue expectations; unexpected costs or charges, certain of which may be outside the control of the Company; expected benefits of process improvement and other lean initiatives; the expected benefit and effect of the business information system initiatives and streamlining programs; the availability and costs of raw materials and purchased components; realization of price increases; the ability to achieve projected levels of efficiencies and cost reduction measures; general economic and business conditions; competition; and other factors described in our Securities and Exchange Commission filings, including the "Business", "Risk Factors", and "Quantitative and Qualitative Disclosures about Market Risk" Sections in the Annual Report on Form 10-K for the year ended December 31, 2014.

Additional Information

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.  On September 11, 2015, the Company initially filed with the U.S. Securities and Exchange Commission a registration statement on Form S-4, as amended, which contains a proxy statement/prospectus in connection with the proposed reclassification.  Shareholders are urged to read the proxy statement/prospectus in its entirety because it contains important information.  Shareholders will be able to obtain a free copy of the definitive proxy statement/prospectus (when available), as well as other filings containing information about the Company, without charge, at the SEC`s website, www.sec.gov, and on the Investor Relations page of Hubbell`s web site at http://www.hubbell.com/Investor/SECFilings.aspx. Copies of the proxy statement/prospectus and other Company filings with the SEC can also be obtained, without charge, by directing a request to Hubbell Incorporated Investor Relations, by phone to (475) 882-4000, or in writing to Hubbell Incorporated, 40 Waterview Drive, Shelton, Connecticut, 06484.

The directors and executive officers of the Company and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed reclassification.  Information regarding the Company`s directors and executive officers is available in the Company`s most recent proxy statement, dated March 18, 2015, for the Annual Meeting of Shareholders held on May 5, 2015, which was filed with the SEC on March 18, 2015, and the Company`s other filings with the SEC.  Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests will be contained in the definitive proxy statement/prospectus when it becomes available.

About the Company

Hubbell Incorporated is an international manufacturer of quality electrical and electronic products for a broad range of non-residential and residential construction, industrial and utility applications. With 2014 revenues of $3.4 billion, Hubbell Incorporated operates manufacturing facilities in the United States, Canada, Switzerland, Puerto Rico, Mexico, the People`s Republic of China ("China"), Italy, the United Kingdom, Brazil and Australia. Hubbell also participates in joint ventures in Taiwan and Hong Kong, and maintains sales offices in Singapore, China, India, Mexico, South Korea and countries in the Middle East. The corporate headquarters is located in Shelton, CT.