Hubbell Reports Fourth Quarter and Full Year 2020 Results
Feb 2, 2021
Hubbell Incorporated reported operating results for the fourth quarter ended December 31, 2020.
“Hubbell’s full year 2020 results demonstrate a strong year of operating performance and consistent execution,” said Gerben Bakker, President and Chief Executive Officer. “Despite considerable end market and operational challenges resulting from the COVID-19 pandemic, the Company achieved full year adjusted operating margins that were down only ten basis points versus the prior year, as well as free cash flow generation of $560 million, reflecting 12% growth over 2019 levels. We accomplished this through a rigorous focus on productivity, as well as disciplined operating expense and working capital management. Hubbell’s ongoing operational transformation and footprint optimization investments are producing sustainable savings which we expect to continue providing significant benefit to our shareholders and customers in the future.”
Mr. Bakker continued, “In the fourth quarter, Utility facing markets remained resilient, with grid modernization and renewable energy trends driving ongoing strength in demand for T&D components and mid single digit growth in Power Systems. Aclara continued to be affected by regulatory delays on certain project deployments as a result of the COVID-19 pandemic, though we expect these headwinds to continue moderating into 2021 as the business returns to its prior growth trajectory. While Electrical volumes remained soft, order patterns steadily picked up exiting the fourth quarter, with strength in light industrial verticals and continued growth in residential markets driven by e-commerce and retail channels.”
Mr. Bakker concluded, “Robust free cash flow generation allows the Company to pursue a balanced capital deployment strategy to drive shareholder returns. Bolt-on acquisitions are a critical component of Hubbell’s strategy, and we are pleased to announce the acquisitions of Beckwith Electric and Armorcast Products to our portfolio. These businesses are strong strategic fits with the Hubbell Utility Solutions platform, adding to our capabilities in distribution controls and specialty enclosures. Together with our previously announced acquisition of AccelTex in October, the Company deployed $236 million to three accretive bolt-on acquisitions in the fourth quarter, bolstering our growth strategy while expanding our ability to serve customers with best in class, reliability, quality and efficiency.”
Certain terms used in this release, including “Net debt”, “Free Cash Flow”, “Organic net sales”, “Organic growth”, “Restructuring-related costs”, “EBITDA”, and certain “adjusted” measures, are defined under the section entitled “Non-GAAP Definitions.” See page 8 for more information.
FINANCIAL HIGHLIGHTS
The comments and year-over-year comparisons in this segment review are based on fourth quarter results in 2020 and 2019.
Electrical Solutions segment net sales in the fourth quarter of 2020 of $559 million decreased 10% from $618 million in the fourth quarter of 2019. Organic sales decreased 11% in the quarter while acquisitions added 1%. Electrical Solutions segment operating income in the fourth quarter was $49 million, or 8.8% of net sales, compared to $73 million, or 11.9% of net sales in the same period of 2019. Adjusted operating income was $55 million, or 9.9% of net sales, in the fourth quarter of 2020 as compared to $79 million, or 12.8% of net sales in the same period of the prior year. Decreases in adjusted operating income and adjusted operating margin were primarily due to lower volumes and the non-repeat of a discrete benefit in the prior year from tariff mitigation, partially offset by productivity from restructuring and footprint optimization initiatives, as well as lower operating expenses.
Utility Solutions segment net sales in the fourth quarter of 2020 decreased 1% to $479 million compared to $485 million reported in the fourth quarter of 2019. Organic sales declined 2% compared to the fourth quarter of 2019, while acquisitions added 1%. Power Systems sales increased 5% and Aclara sales declined 14%. Utility Solutions segment operating income in the fourth quarter was $71 million, or 14.7% of net sales, compared to $63 million, or 12.9% of net sales in the same period of 2019. Adjusted operating income was $84 million, or 17.5% of net sales, in the fourth quarter of 2020 as compared to $75 million, or 15.4% of net sales in the same period of the prior year. The increases in adjusted operating income and adjusted operating margin were primarily due to price realization in excess of material cost inflation, lower operating expenses and positive mix.
Adjusted fourth quarter 2020 results exclude two items: $0.27 of amortization of acquisition-related intangible assets as well as $0.01 due to pension settlement charges.
Net cash provided from operating activities was $192 million in the fourth quarter of 2020 versus $207 million in the comparable period of 2019. Free cash flow (defined as net cash provided by operating activities less capital expenditures) was $156 million in the fourth quarter of 2020 versus $185 million reported in the comparable period of 2019.
SUMMARY & OUTLOOK
Beginning in the first quarter of 2021, the Company will report results of its Gas Connectors and Accessories business as part of the Utility Solutions segment. This realigned operating structure better reflects Hubbell’s comprehensive offerings of utility components and communications solutions across common electric, water and gas utility customers. Recast segment results reflecting the shift of this business from Electrical Solutions to Utility Solutions are included at the end of this press release.
For the full year 2021, Hubbell anticipates sales growth of 6-8%, comprised of 3-5% organic growth and approximately 3% growth from acquisitions. By end market, the Company expects growth of 2-4% in Utility T&D Components, 4-6% in Utility Communications and Controls, 3-5% in Industrial, 3-5% in Residential, and (2-4%) in Non-Residential.
Hubbell anticipates 2021 adjusted diluted earnings per share (“Adjusted EPS”) in the range of $8.10 to $8.50 and GAAP diluted earnings per share expectations in the range of $6.95 to $7.35. Adjusted EPS excludes amortization of acquisition-related intangible assets, which the Company expects to be approximately $1.15 per share for the full year. The Company believes Adjusted EPS is a useful measure of underlying financial performance in light of our acquisition strategy.
The earnings per share and adjusted earnings per share ranges are based on an adjusted tax rate of 22-23% and include approximately $0.30 of anticipated restructuring and related investment. The ranges also incorporate the impact of acquisitions, which we anticipate adding approximately $0.25 to full year adjusted earnings. The Company expects full year 2021 free cash flow conversion of approximately 110% on adjusted net income.
