Hubbell(US:HUBB)2023-11-01 12:15Part I - Financial Information Item 1. Financial Statements (unaudited) Unaudited financial statements for Q3 and nine months ended September 30, 2023, reflect strong growth in sales, net income, and operating cash flow Condensed Consolidated Statements of Income | Indicator | Q3 2023 ($M) | Q3 2022 ($M) | YoY Change | Nine Months 2023 ($M) | Nine Months 2022 ($M) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | 1,375.8 | 1,316.2 | +4.5% | 4,027.1 | 3,728.3 | +8.0% | | Gross Profit | 487.4 | 398.5 | +22.3% | 1,431.9 | 1,104.8 | +29.6% | | Operating Income | 276.3 | 203.6 | +35.7% | 812.9 | 537.1 | +51.3% | | Net Income from Continuing Operations | 200.1 | 150.3 | +33.1% | 588.8 | 388.4 | +51.6% | | Diluted EPS from Continuing Operations | $3.70 | $2.78 | +33.1% | $10.89 | $7.16 | +52.1% | Condensed Consolidated Balance Sheets | Balance Sheet Item | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | Total Current Assets | 2,318.4 | 2,021.4 | +297.0 | | Total Assets | 5,768.3 | 5,402.6 | +365.7 | | Total Current Liabilities | 1,071.4 | 1,088.5 | -17.1 | | Long-Term Debt | 1,439.7 | 1,437.9 | +1.8 | | Total Liabilities | 3,017.8 | 3,032.0 | -14.2 | | Total Equity | 2,750.5 | 2,370.6 | +379.9 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Nine Months Ended Sep 30) | 2023 ($M) | 2022 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 535.3 | 393.8 | +141.5 | | Net cash (used in) provided by investing activities | (161.4) | 92.6 | -254.0 | | Net cash used in financing activities | (241.7) | (340.3) | +98.6 | | Increase in cash and cash equivalents | 132.5 | 80.1 | +52.4 | - The significant decrease in cash from investing activities is primarily due to the $332.8 million in proceeds from the disposal of a business in 2022, which did not recur in 202312 - The decrease in cash used for financing activities was mainly driven by a reduction in common share acquisitions, which were $30.0 million in 2023 compared to $150.0 million in 202212 Notes to Condensed Consolidated Financial Statements Key notes detail significant business changes including divestitures, acquisitions, and revenue disaggregation, with a focus on the Utility Solutions segment - On February 1, 2022, the Company completed the sale of the Commercial and Industrial Lighting business (C&I Lighting business), which is presented as a discontinued operation1520 - In Q2 2023, the Company acquired EI Electronics LLC ("EIG") for a cash purchase price of approximately $60 million. EIG is reported in the Utility Solutions segment23 - As of September 30, 2023, the Company had approximately $240 million of unsatisfied performance obligations for long-term contracts, primarily within the Utility Solutions segment, expected to be recognized over the next two years34 - Subsequent events include the acquisition of Balestro for ~$89 million on October 27, 2023, and an agreement to acquire Systems Control for $1.1 billion, both to be part of the Utility Solutions segment100101102 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2023 results to demand for grid modernization, leading to significant margin expansion and increased operating cash flow Results of Operations – Third Quarter of 2023 vs 2022 - Q3 2023 net sales increased 4.5% to $1,375.8 million. Organic net sales grew 3.5%, driven by a mid-single-digit increase in price realization partially offset by a low-single-digit decrease in volume126128 - Gross profit margin increased by 510 basis points to 35.4% in Q3 2023 from 30.3% in Q3 2022, primarily due to favorable price realization, improved productivity, and modestly lower material costs117129 - Operating income rose 35.7% to $276.3 million, with operating margin expanding to 20.1% from 15.5% in the prior-year quarter117 - Adjusted operating income, a non-GAAP measure, increased to $294.7 million (21.4% margin) from $224.4 million (17.0% margin) in Q3 2022125 Segment Results – Third Quarter of 2023 vs 2022 | Segment | Q3 2023 Net Sales ($M) | YoY Change | Q3 2023 Operating Margin | YoY Change (bps) | | :--- | :--- | :--- | :--- | :--- | | Utility Solutions | 837.9 | +8.2% | 22.3% | +550 | | Electrical Solutions | 537.9 | -0.7% | 16.6% | +300 | - Utility Solutions segment sales growth was driven by a 6.9% increase in organic net sales, reflecting strong price realization that offset a slight volume decrease due to channel inventory normalization135 - Electrical Solutions segment sales saw a slight decline, with a 1.2% organic decrease as weakness in residential and commercial markets outweighed strength in industrial, renewables, and datacenter verticals138 Results of Operations – Nine Months 2023 vs 2022 - For the first nine months of 2023, net sales increased 8.0% to $4,027.1 million. Organic net sales grew 6.2%, driven by a high-single-digit increase in price realization143144 - Gross profit margin for the nine-month period expanded by 600 basis points to 35.6%, driven by favorable pricing, productivity, and lower material costs141145 - Operating income for the nine months grew 51.3% to $812.9 million, with operating margin reaching 20.2% compared to 14.4% in the prior-year period141 Segment Results – Nine Months 2023 vs 2022 | Segment | Nine Months 2023 Net Sales ($B) | YoY Change | Nine Months 2023 Operating Margin | YoY Change (bps) | | :--- | :--- | :--- | :--- | :--- | | Utility Solutions | 2.5 | +13.7% | 23.0% | +770 | | Electrical Solutions | 1.6 | +0.2% | 15.8% | +260 | - Utility Solutions segment's strong nine-month performance was driven by a 12.6% organic sales increase, reflecting robust demand for grid modernization and upgrades152 - Electrical Solutions segment's flat nine-month sales reflect a 2.5% organic sales decline, as volume decreases in residential and commercial markets were offset by acquisitions and price realization155 Financial Condition, Liquidity and Capital Resources - Cash from operations for the nine months ended Sep 30, 2023, increased to $535.3 million from $393.8 million in the prior year, primarily due to higher net income158 - The company invested $60 million in the acquisition of EIG and $103.8 million in capital expenditures during the first nine months of 2023159163164 - The company repurchased $30.0 million of its common stock in the first nine months of 2023, compared to $150.0 million in the same period of 2022160168 - The company maintains a $750 million revolving credit facility, which was undrawn as of September 30, 2023. The Total Debt to Total Capital ratio improved to 35% from 38% at year-end 2022170172177 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in its exposure to market risks, including foreign currency, material prices, and interest rates, during the first nine months of 2023 - There have been no significant changes in the Company's exposure to market risks (foreign currency, material prices, interest rates) during the first nine months of 2023187 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation by management, the CEO and CFO concluded that as of September 30, 2023, the Company's disclosure controls and procedures were effective at the reasonable assurance level190 - No changes in internal control over financial reporting occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, these controls191 Part II - Other Information Item 1A. Risk Factors The company reports no material changes to its risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - 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, 2022193 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased common stock, with $376.7 million remaining available under authorized repurchase programs as of September 30, 2023 Unregistered Sales of Equity Securities and Use of Proceeds | Period | Shares Purchased (000s) | Average Price Paid | Total Cost ($M) | | :--- | :--- | :--- | :--- | | Q3 2023 Total | 32 | $311.62 | ~10.0 | - As of September 30, 2023, the company had $376.7 million remaining under its share repurchase authorizations, which includes $76.7 million under the 2020 program and the full $300 million under the October 2022 program197 Item 5. Other Information During Q3 2023, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - During Q3 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"199 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format