Hubbell(HUBB) - 2019 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This part presents Hubbell Incorporated's unaudited condensed consolidated financial statements and management's discussion for the first quarter of 2019, along with market risk disclosures and control procedures ITEM 1 Financial Statements (unaudited) This section presents Hubbell Incorporated's unaudited condensed consolidated financial statements for the three months ended March 31, 2019 and 2018, including statements of income, comprehensive income, balance sheets, and cash flows. It also includes detailed notes explaining the basis of presentation, recent accounting pronouncements, revenue recognition, business acquisitions, segment information, and other financial details Condensed Consolidated Statements of Income This section provides Hubbell's unaudited condensed consolidated statements of income for the three months ended March 31, 2019 and 2018 Condensed Consolidated Statements of Income (Three Months Ended March 31) | (in millions, except per share amounts) | 2019 | 2018 | | :------------------------------------ | :--- | :--- | | Net sales | $1,087.3 | $991.2 | | Cost of goods sold | 780.0 | 708.3 | | Gross profit | 307.3 | 282.9 | | Selling & administrative expenses | 186.4 | 183.3 | | Operating income | 120.9 | 99.6 | | Income before income taxes | 98.0 | 75.8 | | Provision for income taxes | 24.2 | 16.0 | | Net income | 73.8 | 59.8 | | Net income attributable to Hubbell | $72.3 | $58.3 | | Earnings per share - Basic | $1.32 | $1.06 | | Earnings per share - Diluted | $1.32 | $1.05 | | Cash dividends per common share | $0.84 | $0.77 | Condensed Consolidated Statements of Comprehensive Income This section presents Hubbell's unaudited condensed consolidated statements of comprehensive income for the three months ended March 31, 2019 and 2018 Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31) | (in millions) | 2019 | 2018 | | :------------ | :--- | :--- | | Net income | $73.8 | $59.8 | | Other comprehensive income | 8.3 | 12.1 | | Total comprehensive income | 82.1 | 71.9 | | Comprehensive income attributable to Hubbell | $80.6 | $70.4 | Condensed Consolidated Balance Sheets This section details Hubbell's unaudited condensed consolidated balance sheets as of March 31, 2019, and December 31, 2018 Condensed Consolidated Balance Sheets (as of March 31, 2019 and December 31, 2018) | (in millions) | March 31, 2019 | December 31, 2018 | | :------------------------------------ | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $205.3 | $189.0 | | Accounts receivable, net | 716.2 | 725.4 | | Inventories, net | 663.0 | 651.0 | | Total Current Assets | 1,650.6 | 1,643.7 | | Property, Plant, and Equipment, net | 504.5 | 502.1 | | Goodwill | 1,786.8 | 1,784.4 | | Intangible assets, net | 802.1 | 819.5 | | TOTAL ASSETS | $4,976.1 | $4,872.1 | | LIABILITIES AND EQUITY | | | | Short-term debt and current portion of long-term debt | $77.3 | $56.1 | | Accounts payable | 403.7 | 393.7 | | Total Current Liabilities | 847.9 | 839.3 | | Long-Term Debt | 1,731.5 | 1,737.1 | | Total Hubbell Shareholders' Equity | 1,808.1 | 1,780.6 | | TOTAL LIABILITIES AND EQUITY | $4,976.1 | $4,872.1 | Condensed Consolidated Statements of Cash Flows This section outlines Hubbell's unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | (in millions) | 2019 | 2018 | | :-------------------------------------------------- | :--- | :--- | | Net cash provided by (used in) operating activities | $78.1 | $(0.4) | | Net cash used in investing activities | (20.1) | (1,139.8) | | Net cash (used) provided by financing activities | (43.7) | 975.0 | | Effect of foreign currency exchange rate changes on cash and cash equivalents | 2.0 | 6.5 | | Increase (decrease) in cash and cash equivalents | 16.3 | (158.7) | | Cash and cash equivalents - End of period | $205.3 | $216.3 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes supporting the condensed consolidated financial statements, covering accounting policies, revenue, acquisitions, and segment data NOTE 1 Basis of Presentation This note explains the accounting policies and recent pronouncements adopted, including ASU 2016-02, ASU 2018-02, and ASU 2017-04 - The Company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing ROU assets and lease liabilities of $109.3 million, with no material impact on retained earnings, income, or cash flows[18] - The Company early adopted ASU 2018-02 in Q1 2019, reclassifying $30.0 million of stranded tax effects from AOCI to retained earnings[23] - The Company early adopted ASU 2017-04 in Q1 2019, simplifying the goodwill impairment test, with no material impact[24] NOTE 2 Revenue This note details the company's revenue recognition policies and disaggregated revenue by business group and geographic location - Revenue is primarily recognized upon transfer of control for products, typically at shipment. Service contracts and post-shipment obligations account for less than four percent of total revenue[27] Disaggregated Revenue by Business Group (Three Months Ended March 31) | in millions | 2019 (Electrical) | 2018 (Electrical) | 2019 (Power) | 2018 (Power) | 2019 (Total) | 2018 (Total) | | :-------------------------- | :------------------ | :------------------ | :----------- | :----------- | :----------- | :----------- | | Hubbell Commercial and Industrial | $221.3 | $215.5 | — | — | $221.3 | $215.5 | | Hubbell Construction and Energy | 188.4 | 186.4 | — | — | 188.4 | 186.4 | | Hubbell Lighting | 220.5 | 216.2 | — | — | 220.5 | 216.2 | | Hubbell Power Systems | — | — | 457.1 | 373.1 | 457.1 | 373.1 | | Total net sales | $630.2 | $618.1 | $457.1 | $373.1 | $1,087.3 | $991.2 | Disaggregated Revenue by Geographic Location (Three Months Ended March 31) | in millions | 2019 (Electrical) | 2018 (Electrical) | 2019 (Power) | 2018 (Power) | 2019 (Total) | 2018 (Total) | | :------------ | :------------------ | :------------------ | :----------- | :----------- | :----------- | :----------- | | United States | $565.7 | $546.7 | $431.2 | $348.4 | $996.9 | $895.1 | | International | 64.5 | 71.4 | 25.9 | 24.7 | 90.4 | 96.1 | | Total net sales | $630.2 | $618.1 | $457.1 | $373.1 | $1,087.3 | $991.2 | - Contract liabilities increased by $4.5 million to $32.2 million as of March 31, 2019, primarily due to timing of advance payments[31] - Unsatisfied performance obligations for contracts over one year totaled approximately $500 million as of March 31, 2019, mainly from the Power segment, expected to be recognized over the next 3 years[32] NOTE 3 Business Acquisitions This note provides details on significant business acquisitions, including the Aclara Technologies acquisition in February 2018 - On February 2, 2018, Hubbell acquired Aclara Technologies for approximately $1.1 billion, expanding the Power segment's smart infrastructure solutions[34] - Aclara contributed $90.4 million in sales and an operating loss of $4.9 million from acquisition date through March 31, 2018[36] Pro-forma Consolidated Results (Three Months Ended March 31, 2018) | | Pro-forma Three Months Ended March 31, 2018 | | :-------------------------- | :------------------------------------------ | | Net sales | $1,037.9 million | | Net income attributable to Hubbell | $67.7 million | | Earnings Per Share - Basic | $1.23 | | Earnings Per Share - Diluted | $1.22 | NOTE 4 Segment Information This note presents financial information by business segment, Electrical and Power, including net sales and operating income - The Electrical segment sells stock and custom electrical and electronic products for industrial, commercial, institutional, and residential applications, primarily through distributors[40] - The Power segment designs and manufactures distribution, transmission, substation, and telecommunications products for the electrical utility industry, expanded by the Aclara acquisition to include smart infrastructure solutions[41] Financial Information by Business Segment (Three Months Ended March 31) | (in millions) | Net Sales 2019 | Net Sales 2018 | Operating Income 2019 | Operating Income 2018 | Operating Income as a % of Net Sales 2019 | Operating Income as a % of Net Sales 2018 | | :------------ | :------------- | :------------- | :-------------------- | :-------------------- | :---------------------------------------- | :---------------------------------------- | | Electrical | $630.2 | $618.1 | $68.6 | $61.2 | 10.9% | 9.9% | | Power | 457.1 | 373.1 | 52.3 | 38.4 | 11.4% | 10.3% | | TOTAL | $1,087.3 | $991.2 | $120.9 | $99.6 | 11.1% | 10.0% | NOTE 5 Inventories, net This note provides a breakdown of the company's inventories, net, as of March 31, 2019, and December 31, 2018 Inventories, net (in millions) | | March 31, 2019 | December 31, 2018 | | :-------------------------- | :------------- | :---------------- | | Raw material | $228.0 | $220.2 | | Work-in-process | 115.8 | 110.3 | | Finished goods | 401.4 | 402.3 | | Total | 745.2 | 732.8 | | Excess of FIFO over LIFO cost basis | (82.2) | (81.8) | | TOTAL | $663.0 | $651.0 | NOTE 6 Goodwill and Intangible Assets, net This note details changes in goodwill carrying values and the carrying value of other intangible assets Changes in Goodwill Carrying Values (Three Months Ended March 31, 2019) | Segment | Electrical (in millions) | Power (in millions) | Total (in millions) | | :-------------------- | :--------- | :---- | :---- | | BALANCE DECEMBER 31, 2018 | $714.1 | $1,070.3 | $1,784.4 | | Foreign currency translation | 1.7 | 0.7 | 2.4 | | BALANCE MARCH 31, 2019 | $715.8 | $1,071.0 | $1,786.8 | Carrying Value of Other Intangible Assets (in millions) | | March 31, 2019 (Gross Amount) | March 31, 2019 (Accumulated Amortization) | December 31, 2018 (Gross Amount) | December 31, 2018 (Accumulated Amortization) | | :------------------------------------ | :---------------------------- | :---------------------------------------- | :------------------------------- | :------------------------------------------- | | Patents, tradenames and trademarks | $201.9 | $(58.2) | $204.4 | $(58.6) | | Customer/agent relationships and other | 834.2 | (229.3) | 833.0 | (212.6) | | Indefinite-lived: Tradenames and other | 53.5 | — | 53.3 | — | | TOTAL | $1,089.6 | $(287.5) | $1,090.7 | $(271.2) | - Amortization expense for definite-lived intangible assets was $18.2 million in Q1 2019, up from $15.4 million in Q1 2018[45] NOTE 7 Other Accrued Liabilities This note itemizes other accrued liabilities as of March 31, 2019, and December 31, 2018 Other Accrued Liabilities (in millions) | | March 31, 2019 | December 31, 2018 | | :-------------------------- | :------------- | :---------------- | | Customer program incentives | $29.6 | $52.4 | | Accrued income taxes | 5.5 | 3.4 | | Contract liabilities - deferred revenue | 32.2 | 27.7 | | Customer refund liability | 14.6 | 15.3 | | Accrued warranties | 31.0 | 33.5 | | Other (includes $31.4M current operating lease liabilities) | 115.4 | 94.3 | | TOTAL | $228.3 | $226.6 | NOTE 8 Other Non-Current Liabilities This note lists other non-current liabilities as of March 31, 2019, and December 31, 2018 Other Non-Current Liabilities (in millions) | | March 31, 2019 | December 31, 2018 | | :-------------------------- | :------------- | :---------------- | | Pensions | $177.3 | $177.0 | | Other post-retirement benefits | 23.7 | 23.7 | | Deferred tax liabilities | 124.2 | 120.0 | | Accrued warranties long-term | 53.2 | 59.2 | | Other (includes $74.2M non-current operating lease liabilities) | 191.4 | 116.9 | | TOTAL | $569.8 | $496.8 | NOTE 9 Total Equity This note presents the changes in Hubbell's stockholders' equity for the three months ended March 31, 2019 Changes in Stockholders' Equity (Three Months Ended March 31, 2019) | (in millions) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Noncontrolling interest | | :------------------------------------ | :----------- | :------------------------- | :---------------- | :-------------------------------------------- | :--------------------------------- | :---------------------- | | BALANCE AT DECEMBER 31, 2018 | $0.6 | $1.3 | $2,064.4 | $(285.7) | $1,780.6 | $18.3 | | Net income | | | 72.3 | | 72.3 | 1.5 | | Other comprehensive income (loss) | | | | 8.3 | 8.3 | | | Stock-based compensation | | 4.1 | | | 4.1 | | | Reclassification of stranded tax effects | | | 30.0 | (30.0) | — | | | Acquisition/surrender of common shares | | (5.3) | (6.3) | | (11.6) | | | Cash dividends declared ($0.84 per share) | | | (45.7) | | (45.7) | | | Dividends to noncontrolling interest | | | | | — | (1.0) | | Director's deferred compensation | | 0.1 | | | 0.1 | | | BALANCE AT MARCH 31, 2019 | $0.6 | $0.2 | $2,114.7 | $(307.4) | $1,808.1 | $18.8 | NOTE 10 Accumulated Other Comprehensive Loss This note details changes in accumulated other comprehensive loss and reclassifications out of it Changes in Accumulated Other Comprehensive Loss (net of tax) (Three Months Ended March 31, 2019) | (in millions) | Cash flow hedge (loss) gain | Unrealized gain (loss) on available-for-sale securities | Pension and post retirement benefit plan adjustment | Cumulative translation adjustment | Total | | :------------------------------------ | :-------------------------- | :------------------------------------------------------ | :---------------------------------------- | :-------------------------------- | :---- | | BALANCE AT DECEMBER 31, 2018 | $0.8 | $(2.0) | $(158.7) | $(125.8) | $(285.7) | | Current period other comprehensive income (loss) | (0.6) | 0.3 | 1.5 | 7.1 | 8.3 | | Reclassification of stranded tax effects | — | — | (30.0) | — | (30.0) | | BALANCE AT MARCH 31, 2019 | $0.2 | $(1.7) | $(187.2) | $(118.7) | $(307.4) | Gain (Loss) Reclassifications out of Accumulated Other Comprehensive Loss (Three Months Ended March 31) | Details about Accumulated Other Comprehensive Loss Components | 2019 (in millions) | 2018 (in millions) | Location of Gain (Loss) Reclassified into Income | | :---------------------------------------------------- | :--- | :--- | :--------------------------------------------- | | Cash flow hedges gain (loss) net of tax | $0.3 | $(0.2) | Net sales / Cost of goods sold | | Amortization of defined benefit pension and post retirement benefit items net of tax | $(1.5) | $(2.0) | Net periodic pension cost | | Losses reclassified into earnings net of tax | $(1.2) | $(2.2) | | NOTE 11 Earnings Per Share This note explains the computation of basic and diluted earnings per share using the two-class method - The Company computes earnings per share using the two-class method, considering service-based and performance-based restricted stock awards as participating securities[54] Earnings Per Share Computation (Three Months Ended March 31) | (in millions, except per share amounts) | 2019 | 2018 | | :------------------------------------ | :--- | :--- | | Net income attributable to Hubbell | $72.3 | $58.3 | | Less: Earnings allocated to participating securities | (0.3) | (0.2) | | Net income available to common shareholders | $72.0 | $58.1 | | Average number of common shares outstanding | 54.4 | 54.7 | | Potential dilutive common shares | 0.2 | 0.4 | | Average number of diluted shares outstanding | 54.6 | 55.1 | | Earnings per share - Basic | $1.32 | $1.06 | | Earnings per share - Diluted | $1.32 | $1.05 | NOTE 12 Pension and Other Benefits This note outlines the components of net pension and other benefit costs and anticipated contributions Components of Net Pension and Other Benefit Costs (Three Months Ended March 31) | (in millions) | Pension Benefits 2019 | Pension Benefits 2018 | Other Benefits 2019 | Other Benefits 2018 | | :-------------------------- | :-------------------- | :-------------------- | :------------------ | :------------------ | | Service cost | $0.5 | $1.1 | — | — | | Interest cost | 8.7 | 8.6 | 0.3 | 0.2 | | Expected return on plan assets | (7.6) | (8.5) | — | — | | Amortization of prior service cost | — | — | (0.2) | (0.2) | | Amortization of actuarial losses | 2.2 | 2.8 | — | — | | NET PERIODIC BENEFIT COST | $3.8 | $4.0 | $0.1 | — | - The Company anticipates making required contributions of approximately $0.5 million to its foreign pension plans in 2019, with $0.1 million contributed through March 31, 2019[58] NOTE 13 Guarantees This note discusses the company's guarantees, including product warranties and their associated accruals - The fair value and maximum potential payment related to the Company's guarantees were not material as of March 31, 2019, and December 31, 2018[60] - Product warranty costs are accrued at the time of sale based on historical data, covering defects for most products[61] Changes in Accrual for Product Warranties (Three Months Ended March 31) | (in millions) | 2019 | 2018 | | :-------------------------- | :--- | :--- | | BALANCE AT JANUARY 1, | $92.7 | $14.0 | | Provision | 3.5 | 3.2 | | Expenditures/other | (12.0) | (4.5) | | Acquisitions | — | 44.4 | | BALANCE AT MARCH 31, | $84.2 | $57.1 | NOTE 14 Fair Value Measurement This note provides information on financial assets and liabilities accounted for at fair value, including derivative instruments - As of March 31, 2019, the Company held $49.8 million in available-for-sale securities (municipal bonds and redeemable preferred stock) and $17.2 million in trading securities[64] Financial Assets and Liabilities Accounted for at Fair Value (March 31, 2019) | Asset (Liability) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | Total (in millions) | | :------------------------------------ | :-------------------- | :-------------------- | :-------------------- | :------------------ | | Money market funds | $24.8 | — | — | $24.8 | | Time Deposits | — | 21.3 | — | 21.3 | | Available for sale investments | — | 47.3 | 2.5 | 49.8 | | Trading securities | 17.2 | — | — | 17.2 | | Deferred compensation plan liabilities | (17.2) | — | — | (17.2) | | Derivatives: Forward exchange contracts-Assets | — | 0.8 | — | 0.8 | | Derivatives: Forward exchange contracts-(Liabilities) | — | (0.1) | — | (0.1) | | TOTAL | $24.8 | $69.3 | $2.5 | $96.6 | - The Company uses derivative financial instruments, such as forward exchange contracts, to hedge exposure to fluctuating foreign currency rates for anticipated inventory purchases and forecasted sales[74][75] - The estimated fair value of long-term debt was $1,732.8 million as of March 31, 2019, compared to a carrying value of $1,756.5 million[77] NOTE 15 Commitments and Contingencies This note describes the company's involvement in legal proceedings and other contingent liabilities - The Company is involved in various legal proceedings and is self-insured for certain claims, accruing liabilities when probable and estimable[79] - The Company is disputing a $23.3 million demand related to a multi-employer pension plan withdrawal liability, with arbitration stayed due to a participant's Chapter 11 bankruptcy filing[80] NOTE 16 Restructuring Costs and Other This note details the company's restructuring actions, including associated costs and accrued liabilities - Restructuring actions, aimed at cost reduction, include facility consolidation, workforce reductions, and business unit exits[82] Pre-Tax Restructuring Costs (Three Months Ended March 31) | | Cost of goods sold 2019 (in millions) | Cost of goods sold 2018 (in millions) | Selling & administrative expense 2019 (in millions) | Selling & administrative expense 2018 (in millions) | Total 2019 (in millions) | Total 2018 (in millions) | | :-------------------------- | :---------------------- | :---------------------- | :------------------------------------ | :------------------------------------ | :--------- | :--------- | | Electrical Segment | $0.2 | $0.8 | $1.0 | $(0.1) | $1.2 | $0.7 | | Power Segment | 0.5 | — | 1.3 | — | 1.8 | — | | Total Pre-Tax Restructuring Costs | $0.7 | $0.8 | $2.3 | $(0.1) | $3.0 | $0.7 | Accrued Liabilities for Restructuring Actions (in millions) | | Beginning Accrued Restructuring Balance 1/1/19 | Pre-tax Restructuring Costs | Utilization and Foreign Exchange | Ending Accrued Restructuring Balance 3/31/2019 | | :------------------------------------ | :------------------------------------------- | :-------------------------- | :------------------------------- | :------------------------------------------- | | 2019 Restructuring Actions - Total | — | $2.5 | $(1.1) | $1.4 | | 2018 and Prior Restructuring Actions - Total | $21.0 | 0.5 | (3.3) | 18.2 | | Total Restructuring Actions | $21.0 | $3.0 | $(4.4) | $19.6 | Actual and Expected Restructuring Costs (in millions) | | Total expected costs | Costs incurred during 2018 | Costs incurred during first three months of 2019 | Remaining costs at 3/31/2019 | | :------------------------------------ | :------------------- | :------------------------- | :----------------------------------------------- | :--------------------------- | | 2019 Restructuring Actions - Total | $2.6 | — | $2.5 | $0.1 | | 2018 and Prior Restructuring Actions - Total | 19.4 | 12.0 | 0.5 | 6.9 | | Total Restructuring Actions | $22.0 | $12.0 | $3.0 | $7.0 | NOTE 17 Leases This note provides information on the company's operating leases, including right-of-use assets and lease liabilities - Operating leases are primarily for office space, manufacturing facilities, equipment, and vehicles, with terms generally 10 years or less[87] - Rent expense for operating leases was $9.6 million in Q1 2019, with $8.5 million cash paid[88] Operating Lease Balances (March 31, 2019) | (in millions) | March 31, 2019 | | :-------------------------- | :------------- | | Operating lease right-of-use assets | $102.1 | | TOTAL ASSETS | $102.1 | | Other accrued liabilities | $31.4 | | Other Non-Current Liabilities | 74.2 | | TOTAL LIABILITIES | $105.6 | - The weighted average remaining lease term for operating leases was 5 years, with a weighted average discount rate of 3.8% as of March 31, 2019[89] ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Hubbell's business, a detailed analysis of its financial performance for the first quarter of 2019 compared to 2018, and a discussion of its financial condition, liquidity, and capital resources. It highlights key financial metrics, segment performance, strategic initiatives, and critical accounting estimates Executive Overview of the Business This overview describes Hubbell's global business, long-term strategy, ongoing restructuring, and the impact of the Aclara acquisition - Hubbell designs, manufactures, and sells electrical and electronic products for non-residential, residential, industrial, and utility applications globally, employing approximately 19,400 individuals[91] - The Company's long-term strategy focuses on providing reliable and innovative solutions, complementing organic growth with acquisitions, and effective capital allocation[93] - Ongoing restructuring activities aim to optimize manufacturing footprint, cost structure, and workforce efficiency, complementing productivity improvement efforts to offset rising material costs[95][96] - The acquisition of Aclara Technologies in February 2018 for $1.1 billion expanded the Power segment's capabilities into smart infrastructure solutions[98] Results of Operations – First Quarter of 2019 compared to the First Quarter of 2018 This section analyzes Hubbell's consolidated financial performance for Q1 2019 versus Q1 2018, highlighting key revenue, profit, and EPS changes Summary of Consolidated Results (Three Months Ended March 31) | (in millions, except per share data) | 2019 | % of Net sales 2019 | 2018 | % of Net sales 2018 | | :------------------------------------ | :--- | :------------------ | :--- | :------------------ | | Net sales | $1,087.3 | | $991.2 | | | Cost of goods sold | 780.0 | 71.7% | 708.3 | 71.5% | | Gross profit | 307.3 | 28.3% | 282.9 | 28.5% | | Selling & administrative ("S&A") expense | 186.4 | 17.1% | 183.3 | 18.5% | | Operating income | 120.9 | 11.1% | 99.6 | 10.0% | | Net income attributable to Hubbell | 72.3 | 6.6% | 58.3 | 5.9% | | EARNINGS PER SHARE – DILUTED | $1.32 | | $1.05 | | Reconciliation of Adjusted Financial Measures (Three Months Ended March 31) | (in millions, except per share amounts) | 2019 | % of Net sales 2019 | 2018 | % of Net sales 2018 | | :------------------------------------ | :--- | :------------------ | :--- | :------------------ | | Gross profit (GAAP measure) | $307.3 | 28.3% | $282.9 | 28.5% | | Adjusted gross profit | $313.4 | 28.8% | $293.6 | 29.6% | | S&A expenses (GAAP measure) | $186.4 | 17.1% | $183.3 | 18.5% | | Adjusted S&A expenses | $174.3 | 16.0% | $162.9 | 16.4% | | Operating income (GAAP measure) | $120.9 | 11.1% | $99.6 | 10.0% | | Adjusted operating income | $139.1 | 12.8% | $130.7 | 13.2% | | Net income attributable to Hubbell (GAAP measure) | $72.3 | | $58.3 | | | Adjusted net income attributable to Hubbell | $85.9 | | $83.8 | | | ADJUSTED EARNINGS PER SHARE – DILUTED | $1.57 | | $1.51 | | - Net sales increased 10% to $1,087.3 million in Q1 2019, driven by 5 percentage points from acquisitions (Aclara) and 5 percentage points from organic growth, partially offset by foreign exchange[105] - Gross profit margin declined by 20 basis points to 28.3% in Q1 2019, primarily due to the Aclara business operating results and unfavorable net sales mix, partially offset by favorable price realization[106][107] - S&A expense as a percentage of net sales declined by 140 basis points to 17.1% in Q1 2019. Adjusted S&A expense as a percentage of net sales declined by 40 basis points to 16.0% due to volume leverage[108] - Net income attributable to Hubbell increased 24% to $72.3 million in Q1 2019, driven by higher operating income, despite an increased effective tax rate (24.7% vs 21.1%). Diluted EPS increased 26% to $1.32[110][111] Segment Results This section provides a detailed analysis of the financial performance for Hubbell's Electrical and Power segments Electrical Segment This section details the Electrical segment's net sales, operating income, and margin performance for Q1 2019 compared to Q1 2018 Electrical Segment Performance (Three Months Ended March 31) | (In millions) | 2019 | 2018 | | :------------------------------------ | :--- | :--- | | Net sales | $630.2 | $618.1 | | Operating income | 68.6 | 61.2 | | Amortization of acquisition-related intangible assets | 5.7 | 6.0 | | Adjusted operating income | $74.3 | $67.2 | | Operating margin | 10.9% | 9.9% | | Adjusted operating margin | 11.8% | 10.9% | - Electrical segment net sales increased 2% in Q1 2019, with 3 percentage points from organic growth (industrial, natural gas distribution, non-residential markets) partially offset by foreign exchange[112][113] - Operating income in the Electrical segment increased 12% to $68.6 million, with operating margin rising 100 basis points to 10.9%, primarily due to favorable price realization exceeding material cost increases[114] Power Segment This section details the Power segment's net sales, operating income, and margin performance for Q1 2019 compared to Q1 2018 Power Segment Performance (Three Months Ended March 31) | (In millions) | 2019 | 2018 | | :------------------------------------ | :--- | :--- | | Net sales | $457.1 | $373.1 | | Operating income | 52.3 | 38.4 | | Amortization of acquisition-related intangible assets | 12.5 | 16.4 | | Aclara transaction costs | — | 8.7 | | Adjusted operating income | $64.8 | $63.5 | | Operating margin | 11.4% | 10.3% | | Adjusted operating margin | 14.2% | 17.0% | - Power segment net sales increased 23% in Q1 2019, driven by 14 percentage points from acquisitions and 9 percentage points from organic growth (distribution market, Aclara business)[116] - Operating income in the Power segment increased 36% to $52.3 million, with operating margin rising to 11.4%, benefiting from the absence of Aclara transaction costs and lower intangible amortization[117] - Adjusted operating margin for the Power segment decreased by 280 basis points to 14.2%, primarily due to the full quarter of Aclara operating results and unfavorable Aclara net sales mix, partially offset by higher volume and favorable pricing[117] Financial Condition, Liquidity and Capital Resources This section discusses Hubbell's cash flow, investments, stock repurchase program, debt to capital, and overall liquidity Cash Flow This section summarizes Hubbell's cash flow from operating, investing, and financing activities for Q1 2019 and Q1 2018 Cash Flow Summary (Three Months Ended March 31) | (In millions) | 2019 | 2018 | | :-------------------------------------------------- | :--- | :--- | | Net cash provided by (used in) operating activities | $78.1 | $(0.4) | | Net cash used in investing activities | (20.1) | (1,139.8) | | Net cash (used) provided by financing activities | (43.7) | 975.0 | | Effect of foreign currency exchange rate changes on cash and cash equivalents | 2.0 | 6.5 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $16.3 | $(158.7) | - Cash provided by operating activities significantly improved to $78.1 million in Q1 2019 from cash used of $0.4 million in Q1 2018, driven by improvements in net working capital and higher net income[119] - Cash used in investing activities decreased substantially to $20.1 million in Q1 2019 from $1,139.8 million in Q1 2018, primarily due to the Aclara acquisition in the prior year[120] - Cash used by financing activities was $43.7 million in Q1 2019, a shift from $975.0 million provided in Q1 2018, reflecting the prior year's debt offerings for the Aclara acquisition[121] Investments in the Business This section outlines Hubbell's ongoing investments in restructuring programs and capital expenditures to enhance efficiency - The Company continues to invest in restructuring programs to maintain a competitive cost structure and drive operational efficiency, having exited 30 manufacturing and warehousing facilities since late 2014[124] - Restructuring and related costs are expected to increase in 2019 and 2020 due to further footprint consolidation and cost reduction initiatives[124] - Capital expenditures increased by $1.3 million to $23.3 million in Q1 2019, reflecting higher investments in facilities and equipment for productivity[129] Stock Repurchase Program This section details the company's stock repurchase program, including authorization and activity as of March 31, 2019 - The Board approved a $400 million stock repurchase program in October 2017, expiring October 2020[130] - As of March 31, 2019, the Company repurchased $50.0 million of common stock, leaving $350 million authorized[130] Debt to Capital This section analyzes Hubbell's debt levels, including long-term and short-term debt, and its debt to capital ratios - Long-term debt, net of unamortized discount and debt issuance costs, was $1,731.5 million at March 31, 2019[131] - The Term Loan Agreement, used to partially finance the Aclara acquisition, has a sole financial covenant requiring total debt not to exceed 65% of total capitalization[132] - Short-term debt outstanding was $77.3 million at March 31, 2019, including commercial paper borrowings and the current portion of the Term Loan[137][142] Debt to Capital Ratios (in millions) | (In millions) | March 31, 2019 | December 31, 2018 | | :-------------------------- | :------------- | :---------------- | | Total Debt | $1,808.8 | $1,793.2 | | Total Hubbell Shareholders' Equity | 1,808.1 | 1,780.6 | | TOTAL CAPITAL | $3,616.9 | $3,573.8 | | Total Debt to Total Capital | 50% | 50% | | Cash and Investments | 272.3 | 254.5 | | Net Debt | $1,536.5 | $1,538.7 | | Net Debt to Total Capital | 42% | 43% | Liquidity This section describes Hubbell's liquidity management, sources of funds, and ability to meet financial obligations - Liquidity is managed based on the ability to meet operational funding needs, fund investments, and pay dividends. In Q1 2019, $45.8 million in dividends and $10.0 million in share repurchases were funded primarily by operating cash flow[139] - Sources of funds include cash flows from operations ($205.3 million cash and cash equivalents at March 31, 2019), a $750 million revolving credit facility (undrawn), and access to additional long-term debt financing[145] Critical Accounting Estimates This section confirms that there were no material changes in critical accounting estimates and policies during Q1 2019 - There were no material changes in critical accounting estimates and policies during the first three months of 2019[144] Forward-Looking Statements This section highlights the forward-looking nature of the report and factors that could cause actual results to differ materially - The report contains forward-looking statements regarding expected capital resources, liquidity, financial performance, and the financial impact of acquisitions and restructuring plans[146] - Key factors that could cause actual results to differ materially include changes in demand, market conditions, raw material costs, regulatory issues, and the ability to integrate acquisitions[147] ITEM 3 Quantitative and Qualitative Disclosures About Market Risk This section addresses the Company's exposure to market risks, including foreign currency exchange rates, material prices, and interest rates, noting no significant changes in these exposures during the first three months of 2019 - The Company is exposed to market risks from fluctuating foreign currency exchange rates, availability and prices of raw materials, foreign sourcing issues, and changes in interest rates[148] - There have been no significant changes in the Company's exposure to these market risks during the first three months of 2019[148] ITEM 4 Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2019, and states that there have been no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2019[150] - No material changes in the Company's internal control over financial reporting occurred during the most recently completed quarter[151] PART II OTHER INFORMATION This part includes additional information such as risk factors, equity security sales, and required exhibits ITEM 1A Risk Factors This section states that there have been no material changes to the Company's risk factors since its Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes in the Company's risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[153] ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's stock repurchase program and the activity during the first quarter of 2019, including the number of shares repurchased and the remaining authorization - The Board of Directors approved a $400 million stock repurchase program in October 2017, authorizing up to $400 million of Common Stock repurchases, expiring October 20, 2020[154] Issuer Purchases of Equity Securities (Quarter Ended March 31, 2019) | Period | Total Number of Shares of Common Stock Purchased (000's) | Average Price Paid per share of Common Stock | Approximate Value of Shares that May Yet Be Purchased Under the Programs (in millions) | | :------------------------------------ | :------------------------------------------------------- | :------------------------------------------- | :----------------------------------------------------------------------------------- | | BALANCE AS OF DECEMBER 31, 2018 | | | $360.0 | | January 2019 | — | — | 360.0 | | February 2019 | 86 | $116.56 | 350.0 | | March 2019 | — | — | 350.0 | | TOTAL FOR THE QUARTER ENDED MARCH 31, 2019 | 86 | $116.56 | | - During the three months ended March 31, 2019, the Company repurchased 86,000 shares for approximately $10.0 million, leaving $350.0 million remaining under the authorization[154][155] ITEM 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) and XBRL taxonomy documents[157] Signatures This section contains the signatures of the authorized officers, William R. Sperry (Senior Vice President and Chief Financial Officer) and Joseph A. Capozzoli (Vice President, Controller), certifying the report - The report is signed by William R. Sperry, Senior Vice President and Chief Financial Officer, and Joseph A. Capozzoli, Vice President, Controller (Principal Accounting Officer), on May 1, 2019[159]