Hubbell(HUBB) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q3 2021 financial statements show increased net sales and income, rising assets and liabilities, but decreased operating cash flow due to working capital Condensed Consolidated Statements of Income Q3 2021 and nine-month period income statements show increased net sales and net income attributable to Hubbell compared to the prior year | (in millions, except per share amounts) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,213.6 | $1,108.6 | $3,483.8 | $3,148.1 | | Gross profit | $330.3 | $329.6 | $950.9 | $923.6 | | Operating income | $155.3 | $162.9 | $425.6 | $413.2 | | Net income attributable to Hubbell | $108.5 | $107.1 | $282.0 | $270.3 | | Diluted Earnings per share | $1.98 | $1.96 | $5.14 | $4.95 | Condensed Consolidated Balance Sheets Balance sheets as of September 30, 2021, indicate an increase in total assets and liabilities compared to December 31, 2020, driven by receivables and inventories | (in millions) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,833.2 | $1,587.6 | | Total Assets | $5,241.7 | $5,085.1 | | Total Current Liabilities | $1,035.4 | $948.2 | | Total Liabilities | $3,063.6 | $2,999.7 | | Total Equity | $2,178.1 | $2,085.4 | Condensed Consolidated Statements of Cash Flows Nine-month cash flow statements show a significant decrease in operating cash flow due to increased working capital, while investing and financing activities used cash | (in millions) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $306.8 | $455.6 | | Net cash used in investing activities | ($53.5) | ($46.4) | | Net cash used by financing activities | ($252.4) | ($316.1) | | Increase (decrease) in cash | ($1.7) | $87.2 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies and significant events, including segment restructuring, business divestitures, debt refinancing, and a subsequent agreement to sell a lighting business - Effective January 1, 2021, the company consolidated its Electrical segment into Hubbell Electrical Solutions and moved its Gas Connectors and Accessories business to Utility Solutions[15][16] - In June 2021, the company sold its Consumer Analytics Solutions business for $9.8 million, recognizing a pre-tax loss of $6.9 million[36] - The company incurred pre-tax restructuring costs of $1.4 million in Q3 2021 and $3.5 million for the first nine months, primarily for facility consolidations and workforce reductions[71][72] - In March 2021, the company issued $300 million of 2.300% Senior Notes due 2031 and redeemed 3.625% Senior Notes due 2022, resulting in a $16.8 million loss on debt extinguishment[76] - On October 26, 2021, Hubbell agreed to sell its Commercial and Industrial Lighting business to GE Current for $350 million in cash[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2021 performance, highlighting increased net sales, but declining operating margins due to cost inflation and decreased operating cash flow from working capital investments Results of Operations – Q3 2021 vs Q3 2020 Q3 2021 results show a 9.5% increase in net sales, but gross profit margin declined by 250 basis points due to material cost inflation, leading to a contracted operating margin | (in millions) | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net sales | $1,213.6 | $1,108.6 | | Gross profit | $330.3 | $329.6 | | Operating income | $155.3 | $162.9 | | Net income attributable to Hubbell | $108.5 | $107.1 | - Organic net sales grew 5.4% in Q3 2021, driven by favorable price realization, while acquisitions (net of dispositions) added 3.5% to growth[127] - Gross profit margin declined by 250 basis points, primarily due to material cost inflation, higher freight, and logistics costs not fully offset by pricing and productivity initiatives[128][129] Results of Operations – Nine Months 2021 vs 2020 Nine-month results show a 10.7% increase in net sales, but gross profit margin decreased by 200 basis points due to cost pressures, despite an increase in operating income | (in millions) | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net sales | $3,483.8 | $3,148.1 | | Gross profit | $950.9 | $923.6 | | Operating income | $425.6 | $413.2 | | Net income attributable to Hubbell | $282.0 | $270.3 | - Organic net sales for the nine-month period grew 6.8%, driven by favorable pricing and higher volume[144][145] - Adjusted earnings per diluted share increased by 8.6% to $6.31 for the nine months ended September 30, 2021, compared to $5.81 in the prior year period[151] Segment Results Q3 2021 segment results show Electrical Solutions sales growth with a slight margin decline, while Utility Solutions experienced sales growth but a significant operating margin decrease due to cost inflation and supply chain Electrical Solutions Segment Performance (Q3) | (in millions) | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net sales | $611.9 | $551.0 | | Operating income | $72.0 | $65.9 | | Adjusted operating margin | 12.4% | 12.7% | Utility Solutions Segment Performance (Q3) | (in millions) | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net sales | $601.7 | $557.6 | | Operating income | $83.3 | $97.0 | | Adjusted operating margin | 16.3% | 20.0% | - The Utility Solutions segment's adjusted operating margin decline in Q3 was driven by material costs exceeding price realization, higher freight costs, and lower volumes, with acquisitions contributing 90 basis points to the decline[141] Financial Condition, Liquidity and Capital Resources Operating cash flow decreased due to working capital investments, but the company maintains strong liquidity with available cash and an undrawn revolving credit facility, with a stable debt to capital ratio - Net cash from operating activities decreased to $306.8 million for the nine months ended Sep 30, 2021, from $455.6 million in the prior year, mainly due to investments in working capital[158] - The company entered into a new five-year, $750 million committed revolving credit facility in March 2021, which was undrawn as of September 30, 2021[168] | (In millions) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Debt | $1,563.8 | $1,590.0 | | Total Capital | $3,732.6 | $3,660.0 | | Total Debt to Total Capital | 42% | 43% | Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in the company's exposure to market risks during the nine months ended September 30, 2021 - There have been no significant changes in the Company's exposure to market risks during the nine months ended September 30, 2021[188] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2021, the Company's disclosure controls and procedures were effective at the reasonable assurance level[191] - There were no changes in internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, these controls[192] PART II OTHER INFORMATION Item 1A. Risk Factors A new risk factor has been identified concerning potential U.S. government mandates for COVID-19 vaccination or testing, which could adversely impact business operations and financial results - A new risk factor has been added concerning potential U.S. government mandates for COVID-19 vaccination or testing for employees of large companies and federal contractors[195][196] - The company notes that these requirements may lead to increased attrition, challenges in securing labor, and additional costs, which could materially affect business operations and financial results[196] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any equity securities during Q3 2021, with $288.8 million remaining under the October 2020 stock repurchase program authorization - There were no share repurchases during the quarter ended September 30, 2021[199] - The remaining authorization under the October 2020 stock repurchase program is $288.8 million[198] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files