Hubbell(HUBB) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Unaudited statements for H1 2019 show a 6% net sales increase to $2.28 billion and improved operating cash flow Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (unaudited) | (in millions, except per share amounts) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,196.4 | $1,166.7 | $2,283.7 | $2,157.9 | | Gross profit | $357.4 | $347.9 | $664.7 | $630.8 | | Operating income | $166.9 | $156.9 | $287.8 | $256.5 | | Income before income taxes | $123.6 | $134.0 | $221.6 | $209.8 | | Net income attributable to Hubbell | $96.0 | $100.3 | $168.3 | $158.6 | | Diluted Earnings per share | $1.75 | $1.82 | $3.07 | $2.87 | - For the six months ended June 30, 2019, net sales increased by 5.8% YoY to $2,283.7 million, and operating income grew by 12.2% YoY to $287.8 million; however, a $22.9 million multi-employer pension charge was recorded in Q2 2019, impacting income before taxes[6] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (unaudited) | (in millions) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $97.9 | $102.4 | $171.7 | $162.2 | | Other comprehensive income (loss) | ($2.3) | ($27.8) | $6.0 | ($15.7) | | Total comprehensive income | $95.6 | $74.6 | $177.7 | $146.5 | | Comprehensive income attributable to Hubbell | $93.7 | $72.5 | $174.3 | $142.9 | - For the six months ended June 30, 2019, Other Comprehensive Income was $6.0 million, a significant improvement from a loss of ($15.7) million in the prior-year period, primarily driven by positive foreign currency translation adjustments[9] Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (unaudited) | (in millions) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $1,729.0 | $1,643.7 | | Goodwill | $1,784.9 | $1,784.4 | | Intangible assets, net | $783.8 | $819.5 | | TOTAL ASSETS | $5,036.0 | $4,872.1 | | Total Current Liabilities | $874.1 | $839.3 | | Long-Term Debt | $1,722.8 | $1,737.1 | | TOTAL LIABILITIES | $3,181.0 | $3,073.2 | | Total Hubbell Shareholders' Equity | $1,835.9 | $1,780.6 | | TOTAL LIABILITIES AND EQUITY | $5,036.0 | $4,872.1 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (unaudited) | (in millions) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $209.6 | $152.3 | | Net cash used in investing activities | ($41.5) | ($1,155.1) | | Net cash (used) provided by financing activities | ($148.2) | $826.3 | | Increase (decrease) in cash and cash equivalents | $20.9 | ($179.9) | | Cash and cash equivalents, end of period | $209.9 | $195.1 | - Net cash from operating activities increased by $57.3 million YoY, mainly due to better management of accounts receivable; investing activities cash usage decreased significantly as the prior year included the $1.1 billion Aclara acquisition[13] Notes to Condensed Consolidated Financial Statements - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities of $109.3 million upon adoption[16][17] - In Q2 2019, the company recorded an additional charge of $22.9 million related to a probable mass withdrawal liability from a multi-employer pension plan[88] - As of June 30, 2019, the company had approximately $425 million of unsatisfied performance obligations for long-term contracts, primarily within the Power segment[34] - The company completed the acquisition of Aclara Technologies for approximately $1.1 billion on February 2, 2018, which has been integrated into the Power segment[36] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a 3% Q2 net sales increase driven by pricing, with solid H1 results and improved operating cash flow Executive Overview of the Business - The company's long-term strategy focuses on serving customers with innovative electrical solutions, complementing organic growth with strategic acquisitions, and effective capital allocation[100] - Hubbell continues to pursue restructuring activities, including facility consolidation and workforce actions, to optimize its manufacturing footprint and cost structure[102] - Productivity improvement is a key focus, with programs aimed at offsetting material and other inflationary cost increases through value engineering and global sourcing[103][104] Results of Operations – Second Quarter of 2019 compared to the Second Quarter of 2018 Q2 2019 vs Q2 2018 Performance Summary | Metric | Q2 2019 | Q2 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,196.4M | $1,166.7M | +2.5% | | Operating Income | $166.9M | $156.9M | +6.4% | | Net Income (Hubbell) | $96.0M | $100.3M | -4.3% | | Diluted EPS | $1.75 | $1.82 | -3.8% | | Adjusted Diluted EPS | $2.31 | $2.09 | +10.5% | - Q2 2019 net sales increased 3% due to favorable price realization; net income decreased due to a $22.9 million pre-tax charge for a multi-employer pension plan withdrawal[113][117][119] - The Electrical segment's net sales were flat at $688.2 million, with organic growth offset by foreign exchange headwinds; operating margin decreased by 50 bps to 12.8%[120][122] - The Power segment's net sales grew 6% to $508.2 million, driven by strong organic growth in transmission and distribution markets; adjusted operating margin increased by 150 bps to 18.0%[123][124] Results of Operations – Six Months Ended June 30, 2019 compared to the Six Months Ended June 30, 2018 H1 2019 vs H1 2018 Performance Summary | Metric | H1 2019 | H1 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,283.7M | $2,157.9M | +5.8% | | Operating Income | $287.8M | $256.5M | +12.2% | | Net Income (Hubbell) | $168.3M | $158.6M | +6.1% | | Diluted EPS | $3.07 | $2.87 | +7.0% | | Adjusted Diluted EPS | $3.87 | $3.60 | +7.5% | - First-half 2019 net sales increased 6%, driven by 4 percentage points of organic growth and 2 percentage points from the Aclara acquisition[127] - The Electrical segment's H1 net sales grew 1% to $1.32 billion, with adjusted operating margin slightly up by 10 bps to 12.7%[134][136] - The Power segment's H1 net sales grew 13% to $965.3 million, driven by organic volume and the Aclara acquisition; adjusted operating margin decreased by 50 bps to 16.2%[137][138] Financial Condition, Liquidity and Capital Resources Cash Flow Summary (Six Months Ended June 30) | (In millions) | 2019 | 2018 | | :--- | :--- | :--- | | Operating activities | $209.6 | $152.3 | | Investing activities | ($41.5) | ($1,155.1) | | Financing activities | ($148.2) | $826.3 | Capital Structure | (In millions) | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Debt | $1,777.0 | $1,793.2 | | Total Hubbell Shareholders' Equity | $1,835.9 | $1,780.6 | | Total Debt to Total Capital | 49% | 50% | - The company has a $400 million stock repurchase program authorized in October 2017; as of June 30, 2019, $330 million remained available for repurchase[150] - Primary sources of liquidity include cash from operations, a $750 million revolving credit facility, a commercial paper program, and access to long-term debt markets[163][165] Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in its exposure to market risks during the first six months of 2019 - There have been no significant changes in the Company's exposure to market risks, such as fluctuating foreign currency exchange rates, material prices, and interest rates, during the first six months of 2019[168] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019 - Based on an evaluation as of June 30, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level[170] - No material changes in the Company's internal control over financial reporting occurred during the most recently completed quarter[171] PART II OTHER INFORMATION Risk Factors No material changes to risk factors from the 2018 Annual Report on Form 10-K are reported - 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[173] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $30.0 million of shares in H1 2019, with $330.0 million remaining under its authorization - Under the October 2017 stock repurchase program, the company repurchased shares for an aggregate price of approximately $30.0 million in the first six months of 2019[174] Issuer Purchases of Equity Securities (Q2 2019) | Period | Total Number of Shares Purchased (000's) | Average Price Paid per share | Approximate Value of Shares that May Yet Be Purchased (in millions) | | :--- | :--- | :--- | :--- | | April 2019 | — | $ — | $350.0 | | May 2019 | 165 | $121.09 | $330.0 | | June 2019 | — | $ — | $330.0 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL interactive data files[178] Signatures The report was duly signed and authorized by senior financial officers on July 31, 2019 - The Form 10-Q was signed on July 31, 2019, by the company's Chief Financial Officer and Principal Accounting Officer[179]