Hubbell Inc Q4 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Hubbell Incorporated Fourth Quarter 2020 Results Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Dan Innamorato. Thank you. Please, go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning we issued a press release announcing our results for the fourth quarter and full year 2020. The press release and slides are posted to the Investors section of our website at www.hubbell.com. I'm joined today by our President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note that our comments this morning may include statements related to the expected future results of our company and are forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note, the discussion of forward-looking statements in our press release and considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Now, let me turn the call over to Gerben.

Good. Thanks, Dan, and good morning, everyone. And thank you for joining us to discuss Hubbell's fourth quarter results on this snowy Tuesday morning. And I suppose if there is such a thing as a positive from COVID, it's that most of us are still at home and don't have to brave snow and difficult commutes at this time. But before we get to the results for the quarter, I want to take a few minutes to reflect on our strong performance for the year and recognize all our employees who made that possible through their tireless efforts and dedication. The COVID-19 pandemic presented us with considerable end market, operational, as well as personal challenges, but our employees consistently rose to the occasion, delivering exceptional performance for our customers and shareholders. Our first priority through this pandemic has always been the health and safety of our employees and we implemented a series of safety protocols to protect employees in our plants, warehouses, and in the field. We also recognized our frontline workers with bonus appreciation pay for their efforts and provided generous paid leave policies for all employees. Our next priority was to continue serving our customers with the essential products necessary for the safety and reliability of critical infrastructure. Our employees again proved to be flexible and adaptable in maintaining high levels of productivity while continuing to deliver best-in-class quality and service that the Hubbell brands are known for. Our next priority was to operate with discipline and maintain strong liquidity for our shareholders and despite considerable end market and operational headwinds as a result of this pandemic, the company achieved full year adjusted operating margins, which were essentially flat to prior year, as well as free cash flow generation of $560 million, reflecting 12% growth over 2019 levels. We accomplished this by focusing on what we could control, including a rigorous drive on productivity, along with disciplined operating expense and working capital management. Hubbell's ongoing operational transformation and footprint optimization investments are producing sustainable savings and we expect to continue providing significant future benefits. While this pandemic is not yet behind us, I am confident in our organizational ability to continue to deliver on our promises and commitments to our customers and shareholders. Now moving on to the results for the quarter and starting on page three. We see solid performance in our Utility Solutions segment, with continued strength in demand for grid modernization and renewables investments, driving mid-single-digit growth in Power Systems business in the quarter. As expected, our Electrical end market volumes remained soft, but we saw a steady pickup in momentum exiting the fourth quarter and continuing into January, which gives us confidence these markets are beginning to improve. Our operational transformation continues to provide structural savings and drive our margin performance while also contributing to strong free cash flow. This allows us to invest organically, enter acquisitions, and we'll walk you through some of the ways we are deploying our capital to increase shareholder value later. And finally, we're providing guidance for 2021 today and we'll take you through that in more detail during this call, but the overall takeaway is that we are anticipating a return to growth while remaining focused on our operating discipline actively managing our cost structure and investing in future growth. Turning now to page four with financial highlights for the quarter. You can see organic sales declined 7%. Demand for utility T&D components in our Power Systems business remained strong, as our utility customers continue to invest to upgrade, modernize and harden critical grid infrastructure, while Aclara still experienced COVID-19-related project delays. The electrical markets improved, particularly exiting the fourth quarter. Adjusted operating margins of 13.4% declined 60 basis points year-over-year, as a result of lower volumes and the non-repeat of a benefit from tariff mitigation in the fourth quarter of 2019, which we previously disclosed. Excluding the impact of this prior year benefit, we would have expanded adjusted operating margins once again in the fourth quarter, as our restructuring program and cost controls continue to offset lower volumes. Finally, we achieved another quarter of strong free cash flow generation to cap off a year of double-digit growth through disciplined working capital management. With this, let me turn it over to Bill to walk you through our financial results in more detail. Bill?

Thank you, Gerben. Good morning, everyone. We appreciate you joining us today. We recognize there are several calls happening this morning. I'll begin my remarks on page 5, highlighting a few key points that Gerben mentioned earlier. We noted a 6% sales decline, with Electrical showing relative weakness while Power remained more stable. As Gerben pointed out, we were very pleased to observe a positive shift in orders starting in December, which allowed us to end the year with an increased backlog. The order strength continued into January, with double-digit growth, which we find encouraging for the upcoming year and supports our sales expansion. Gerben discussed margins and the effect of the prior year’s tariff refund. Earnings per share fell by 8%, but this decline was less than the operating profit amount, thanks to some favorable non-operational factors, including tax benefits, reduced interest expenses, and pension advantages that provided some support. When examining cash flow, the full year performance is more telling than the quarterly results, as we saw a 12% increase for the year, totaling $560 million. Over the past five years, cash flow has typically followed a 30% in the first half and 70% in the second half pattern. This year, however, it was more balanced at 50-50, leading to a negative comparison in the fourth quarter but a strong annual increase. Now, let’s delve into the results by segment, starting with Electrical Solutions on page 6. Here, sales decreased by 10%, reflecting broad challenges across the segment. The harsher areas affected include oil-dependent sectors, C&I lighting, and heavy industrials, while residential lighting, wiring devices, and connectors performed relatively well. The positive order trend I mentioned for the overall company was also observed in Electrical, with December’s performance showing a shift to positive, continuing into January. This is a promising change for Electrical demand. Margins in this segment declined to around 10%, with an operating profit of $55 million, two-thirds of the decrease attributable to the tariff refund Gerben highlighted, resulting in about a 20% decline when excluding this factor. I’d like to point out the 1% sales growth attributed to acquisitions, which illustrates our capital deployment strategy. We acquired Connectors Products Inc. (CPI) last year, which we believe is a strong market with high margins. We purchased it at a trailing EBITDA multiple of 12 times, and based on 2020 figures, it now stands at five times. This effectively demonstrates our capability to enhance business efficiency and leverage our sales force to drive growth. Moving to page 7 and the Utility Solutions segment, overall sales showed a 1% decrease to $479 million. Breaking that down, our legacy Power Systems business grew in the mid-single digits, largely because of ongoing transmission projects supported by the renewables sector. The distribution side performed well, benefiting from grid hardening and infrastructure upgrades as ongoing trends in the market. Aclara experienced a double-digit decline due to continued installation delays and access issues hindering their projects. As we approach the three-year mark of owning Aclara, it has provided mid-single-digit growth, which we expect to continue through 2021. Operating profit showed a 12% increase driven by margin improvements of about two points to 17.5%, supported by strong price-cost management and favorable growth dynamics, particularly from Power Systems which has high margins. Now looking at the full year of 2020 on page 8, we saw a 9% sales decline, continuing the trend with Electrical being softer and Utility remaining resilient. There’s been consistent improvement quarter-over-quarter from the severe shock in Q2 to better outcomes in Q3 and Q4. The order inflection we see now indicates growth for this year. Operating profit margins remained comparable at 14.5%, reflecting effective cost management. We also benefited from our restructuring efforts, yielding savings each year alongside the growth we’ve achieved in Power Systems. Regarding free cash flow, as I mentioned, we experienced a 12% increase to $560 million, which is crucial for supporting our capital expenditure program. This year, we invested about $88 million in capital, which is vital for enhancing productivity. Our healthy cash flow allows us to increase capital investment next year and supports our restructuring efforts, where we invested slightly more than initially planned, taking advantage of opportunities to accelerate cost savings into next year. In the fourth quarter, we closed three acquisitions totaling $236 million. On our October call, we highlighted the acquisition of AccelTex, a company involved in 5G-related enclosures and antenna mounts, which we are quite satisfied with. Moving to page 9, I want to discuss two additional acquisitions in the Utility segment. The first is Armorcast, an enclosures business serving the electric, telecom, and water utility markets. It’s a high-growth sector with potential for above-average margins, and we aim to leverage our platform to expand Armorcast's reach. The other notable area is distribution automation, which we believe has potential for growth that exceeds the Utility segment overall. This sector bridges the Hubbell Power System business and Aclara, focusing on grid automation and controls. We have established a dedicated business unit in this area and invested in new product development, with the recent acquisition of Beckwith in December, which we are excited about as it enhances our Utility offerings. Ultimately, we are pleased to have generated free cash flow that allowed us to invest $236 million in the fourth quarter, which will positively influence our financials for 2021. Now, I'll turn it over to Gerben to discuss our ESG program.

Great. Thanks Bill. Indeed a couple of great acquisitions to bolt-on to the Utility franchise here in the fourth quarter. Before I take you through our 2021 outlook, I want to take a minute to highlight our ESG strategy at Hubbell and some of the progress that we have made recently using page 10. From a portfolio perspective, our businesses are strategically aligned around electrification and grid modernization, both of which we view as important clean energy mega trends where we are well positioned by a leading role. As the economy continues its transition away from fossil fuels and more things that plug into the electrical grid, it creates the need for new solutions behind the meter, in front of the meter, and at the edge of the grid. And with our leading position across each of these spaces, Hubbell is uniquely positioned to solve these critical infrastructure problems. A good recent example that I want to highlight is the products that we are supplying to construct one of the US's largest wind farms in Oklahoma starting construction later this year. Not only are we supplying transmission materials from our Utility segment, but also grounding connectors and enclosures products across our Electrical segment. In terms of what we are doing internally to demonstrate our commitment to ESG, I would like to highlight a couple of areas today. First, we have established multi-year goals to reduce our water consumption and greenhouse gas emissions by 10%. We also place a high value on ensuring the safety of our employees and we have been effective in making multi-year improvements, including a reduction of about 40% in both the number and severity of safety incidents in the past five years with further improvements to come. We have also recently launched a new sustainability website with details on the initiatives we are undertaking and expanded disclosures around their operations. We encourage you to visit this website, and I look forward to continue to update you on our ESG journey going forward. Now to our 2021 outlook on page 11 and starting with our end market pie chart on the left. We expect continued growth in our utility markets. We see our T&D components market providing solid 2% to 4% growth and note this growth is coming on top of a relatively difficult comparison, as these markets grew consistently throughout the pandemic in 2020 evidence that the drivers here are more secular in nature due to grid modernization and renewable energy integration. You'll also note, from our press release this morning that beginning in the first quarter of 2021, we will be reporting results of our gas distribution business within the Utility Solutions segment. This is reflected within our T&D component markets on this page. This realigned operating structure reflects our comprehensive offerings of utility components and communication solutions across common electric, water, and gas utility customers. We expect the utility communications and control markets to rebound in 2021 and strengthened as the year progresses and regional economies open up more fully with existing projects restarting and new ones launching. We note that even with the declines experienced in 2020, our Aclara business has grown revenues at mid-single-digits since we acquired it and we expect to maintain that trajectory at 4% to 6%. On the electrical side of the pie starting at 6 o'clock, we expect industrial markets to return to growth and contribute 3% to 5%. As Bill noted, we are already seeing evidence of this in light industrial, which is shorter cycle and typically the first vertical to pick up, and then we expect heavy to improve as 2021 progresses. We expect residential markets to remain strong and contribute 3% to 5% as housing markets, retail, and e-commerce trends remain supportive of continued growth. On the non-residential markets, they tend to be later cycle and we anticipate continued softness into 2021, as new construction spending faces further decline, while renovation and retrofit activity should provide some support to offset. Remember that our non-residential exposure is balanced about 50-50 between new construction and renovation. Overall, with the new segment reporting structure that we announced earlier last year, we see a nice 50-50 balance of electrical and utility markets, representing our strong positions across the energy infrastructure both behind and in front of the meter. In terms of financials, on the right-hand side of this page, we expect total sales growth of 6% to 8% with acquisitions contributing 3% and organic growth from volumes and price contributing another 3% to 5%. We expect adjusted earnings per share of $8.10 to $8.50 and we'll walk you through the drivers of that on the next page. And then importantly, we are driving the free cash flow conversion at 110% of adjusted net income which at the midpoint of our earnings per share guidance gets us back to about $500 million for the full year. This while we invest in working capital to meet improved demand and continue our journey of improving working capital efficiency. So, let me now turn it back to Bill to give you some more context on the moving parts that make up this guidance.

I wanted to take a moment to explain two charts on page 12. One chart details the guidance provided by Gerben and breaks down some of its components, while the second presents a two-year projection. We begin at $7.58, anticipating growth of about 10% to reach a range of $8.10 to $8.50. The primary factor driving this growth is the welcome return of volume, with Gerben highlighting a sales growth of 6% to 8%, of which acquisitions account for roughly 3%. Consequently, the organic growth is expected to be between 3% and 5%, with a 1% contribution from price adjustments. This reflects a balance of 2% to 4% of volume that contributes 30% to 40% to our earnings, and we are pleased to see our order book driving this growth as we commence the year. In the acquisitions segment, we estimate an increase of about $0.25, which includes $0.05 from the AccelTex deal discussed in October, plus an additional $0.20 from two new deals closed in December. We predict a reduction in restructuring investment of around $10 million, along with increased savings from last year’s investments, which will significantly enhance our earnings profile as we focus on price-cost productivity. We expect a strong year for price realization, having already started to implement adjustments brand by brand and business by business throughout January and into the first quarter. Although inflation remains a challenge, we are committed to regularly assessing and adjusting prices in response to commodity inflation. Moreover, we anticipate a return of temporary benefits that we experienced in 2020, such as savings from furloughs, travel and entertainment, and medical expenses, as well as some tariff refunds and exclusions that are coming to an end, in addition to other investments we plan to make in the business. On the non-operating front, we expect some benefits from pensions and interest expenses, which will be slightly offset by a small rise in taxes, allowing us to reach our target range of $8.10 to $8.50 for the year. I’d also like to refer to slide 13, which illustrates how our performance from 2019 compares to 2021. It’s notable that our volumes in 2021 will still be lower than those of 2019, highlighting some income loss associated with this decrease. However, it’s crucial for us to manage the company’s financial performance carefully, recognizing that incremental acquisitions will continue to contribute positively while the restructuring program eliminates fixed costs. This approach simplifies our operations and puts us in control, offering a clear advantage for our financial story through careful management of price-cost productivity. While inflation can create challenges that could slow our progress at times, over a two-year span we are confident that we will catch up and exceed past performance levels. We believe this overview effectively demonstrates that even with lower volume, we possess both the investment capabilities and execution potential to drive earnings beyond the 2019 levels. This wraps up our prepared remarks, and we welcome any questions from the operator.

Thank you. Your first question comes from the line of Jeff Sprague from Vertical Research. Your line is now open.

Thank you. Good morning everyone. Just wanted to understand a little bit in the bridge. I think Bill you said the underlying incrementals you're expecting as part of the bridge is 30% to 40%. Is it looks like that would be exclusive of the restructuring and other benefits, but wanted to confirm that. That's a very strong number, particularly relative to kind of the decrementals we experienced in 2020.

Yes. I believe the strict drop-through on volume will be within that range. The decrementals were influenced by offsets such as restructuring savings and the growth in Power Systems, which contributed positively. Therefore, we anticipate that the drop-through related to volume will be in the 30% range or higher.

And on price cost just isolating on that I think you said price up 1%. Does that fully cover the commodity inflation that you anticipate or are you a little bit upside down on price cost?

Yes. We're going to have to see ultimately what happens in commodities. So it's a little hard to see how persistent they will be. For example, I think there's one view that says that steel capacity can come back online in the second half, which would moderate some of the increases, but it's possible copper keeps going just to pick two big ones for us Jeff. So I think we're going to have to be very nimble and continue to revisit price with our customers continually and watch those commodity costs really carefully.

Yes. And Jeff, maybe just to add a comment to that. I think the timing of the commodities going up late last year was actually good for us because that's the time at which we're naturally going out with price increases. So we did that. Unfortunately, commodities have continued to spike throughout December into January. And as Bill stated, we absolutely need to be nimble. We're already going out with more price increases here in the first quarter, I think the positive is that the price increases that we enacted last year starting in January 1 have generally stuck well. So that gives us confidence that these next tranches of price increases should do okay as well. But definitely, an area of focus for us this year.

And I'm sorry just one other one for me. I'm surprised the Aclara guide is not a little stronger. But I guess you're basically assuming the business stays negative even probably certainly in the first quarter and maybe even lagging into the second quarter. Is that correct?

Well I'd say for the first quarter yes, Jeff, but I think we could see it rebounding by Q2.

Hey, guys, good morning.

Good morning, Steve.

Good morning, Steve.

Good execution on the margin fronts. I agree with Jeff on the incrementals. These deals that you're doing, I don't know it looks to me like they're around like 10x EBITDA. What are some of the multiples you're seeing here for the $230 million you spent in the fourth quarter?

Yes, we spent 10.5x trailing Steve. So that's in a pandemic year. So I'm hoping by the time we own them for a year and operate them, we'll own them at south of that for our first year of ownership. But on a trailing basis it's 10.5x.

Right. So when you consider the pro forma a couple of years down the line, are these things expected to grow in the mid to high single-digits, or what kind of growth are you anticipating a couple of years from now?

Yes, mid to highs for the areas that we've been investing in.

Right. So that's a double-digit return that you're getting on that capital that you're deploying?

Exactly.

Yes. This Steve is a typical Utility business tuck-in where the other nice thing from it is we get those synergies pretty quickly. Within the first couple of years, we'll see those. So margins kind of within the first few years in line with the rest of the Utility business. So really right down the center for us.

Yes. That's quite a differentiator compared to others pursuing exceedingly high multiples. Hopefully, you don't plan to shift in that direction. Regarding the first quarter, is there anything unusual that we should be aware of? I know it's a challenging comparison period, but is there anything we need to consider when looking at consensus?

No, I think the most important thing is that, as you mentioned, it's the toughest comparison of the year, and Q2 will be easier. Historically, if we just followed our typical seasonality based on where we finished Q4, there would be about three points of growth expected from just that aspect alone, without considering any recovery. Additionally, in the first quarter, we usually see about a 20% contribution to our annual performance. If you anticipate some improvement this year, it might be slightly less than that. Those are the factors to consider for Q1.

Okay, great. Thanks for the color.

Good morning, and thanks for taking my questions.

Good morning, Tommy.

Hi, Tommy.

I wanted to double back to the bridge you gave us there on slides 12 and 13 specifically on price cost, which has generated more than a little attention I think in recent weeks and maybe months. Bill, this may be asking too much, but could you frame maybe in pennies, or nickels, or dimes per share the price and cost impact there as distinct from the cost benefits that you call out, or if you can't give us a number maybe just orders of magnitude here to help us track that as we go forward.

Yeah. I think what we're trying to pull and the actions that we've entertained is to get a point of price as we sit here starting the year. And as Jeff was asking, we're just going to have to monitor commodities closely to see how adequate that has arisen to see ultimately if we're going to need to do more. But there are a lot of pieces that we're not going to get super granular on in that bucket, Tommy, including some investments that we want to make and including the return of some costs that left last year as a result of working from home and all of that.

Okay. So I think the anchor you want us to be aware of then is embedded in that EPS headwind. It's a point of price on a full year basis. That's the working assumption. Am I hearing that correctly?

That's right, Tommy.

Okay. And then moving to non-res and appreciate the end market outlook you gave us with some specific data points to anchor to but on the non-res side, so 50/50 new construction versus R&R. What additional anecdotes or insight can you give us on how that market has progressed maybe on a month-by-month or quarter-by-quarter? It's something that folks are trying to track in real time. You've done a great job giving us an outlook for the year. What does the potential progression look like there?

Yeah. I think if you stick with the new construction side, it would be worse than our guide would be our expectation. And yet we think the MRO piece can be a little bit better. And maybe the only anecdote that I'd add for you, Tommy, is just thinking about there's a significant amount of national account business that's in the MRO piece as whether it's a quick-serve restaurant or convenience stores or others or large box retailers manage their own real estate and upgrade it. And those projects are frankly nice to have not must-have. And so that can contribute and help the MRO. In other words you don't need a lot of decision-makers to say, hey, let's get back to making our space look better to get that MRO piece re-growing again. So maybe that's the anecdote that I'd add for you.

Yes. Maybe one comment to add there as we think to 2021, and we look at the two pieces the 50% that's new construction, the 50% that's renovation. We're thinking along the lines that the new construction is down in that high single digits and we're correlating that with what others are saying, what we're seeing in some of the data. And then the renovation will be in up GDP-ish mid-single digits and that's how we get to our end market projection.

Thanks. Good morning, everyone.

Hi, Nigel.

Just wanted to keep it up on a thread of non-res. We saw the put in place data falling off a cliff in 4Q. I'm just wondering if you saw that deterioration as well. I noticed that Eaton's electrical and airplane business also sort a bit of step back in 4Q. So just curious, how non-res tracked relative to 2% to 4% down in 4Q?

Yeah. I think, Nigel, that we did experience that on the new construction side. So that's definitely the softer piece of our exposure there for sure.

Okay. And then the 30 to 40% core volume leverage I think to Jeff's comments that's pretty impressive. Anything to think back from a mix perspective impacting us in 2021? It doesn't sound like there is, but I'm just wondering how we should think about Aclara mix as that starts to accelerate from 2Q onwards and maybe some of the lighting mix impact as well through the year?

Yeah. I don't know that there's anything terribly noteworthy in mix. I do think you're right that if power outgrows that's mix friendly and as C&I Lighting, which would be in this non-res area that you're talking about is a lower margin part of our portfolio so that lagging is not the biggest contributor through growth. So I'm not sure – those pieces are there, but I'm not sure it's super notable to how we're thinking of the year.

A quick clarification. The tariff credit you booked in 4Q of 2019 obviously created a very tough comp for you in 4Q 2020. Was that a one-timer, or were there more receipts in 2020? Just wondering if 2020 is a clean comp as we go into 2021?

Yeah. 2020 is not a clean comp. So there was a refund that was chunky in the fourth quarter of 2019, but then there were also exclusions throughout the year that rolled off. And so, our net tariff rate in 2021 will be higher than 2020. So that's just something else that we have to manage with price and productivity as part of the part of the package, but that's contemplated in that price-cost-productivity bar that you see in the guidance.

Hey, thanks. Good morning, guys.

Hi, Chris.

Hey, Chris.

I wanted to talk about Beckwith for a minute. It's interesting to see the Power Systems controls getting developed there. I'm just wondering, where exactly in the grid architecture does that sit in? How are you looking at moving more upstream with control systems versus at the kind of assembly or subassembly level? And do you touch on distributed energy resources at all as those get incorporated into the grid 2.0 so to speak?

Yeah, I think you're right on your assessment of that. This is right down what we call distribution automation. And this is a business that even before we acquired Aclara and when I ran that Utility business, we talked about investing it. We actually broke out a group to focus on that. We developed products our recloser products for example what was that. So we'd actually been looking at Beckwith for a number of years already. But this is controls for distribution automation. What the nice thing about it is and on that slide that Bill talked about on the organic development, you see actually a controller there that controls a 3-phase re-closer, which we recently launched with the Beckwith controls. So it's distribution automation that Beckwith supplies, and it fits really well with the components – the other distribution components that we have on the grid.

Okay. And then, I wanted to take a longer-term view of lighting a little bit ongoing challenges with competition and stuff. But are you seeing any prospects for wholesale form factor shifts like to slim for instance, or do you think blocking and tackling will be an effective way to run this business long term?

Yeah. I think that – I wouldn't say that we've seen evidence of near-term form factor changes like ultimately lighting someday maybe a piece of film on the ceiling or something and that doesn't feel to be around the corner per se. And so our approach is to continue to make sure we invest in our product line, make sure we have the proper breadth of quality product. We keep investing in the front end to make sure we have the right agents helping us get to market and we keep taking cost out of the back end. So of that restructuring for example, one of the projects is consolidating a lighting facility into a lower cost facility that we've got. So we think, we can keep doing better with what's there. We were quite encouraged that the lighting industry is asking for price increases in early January. It's too early Chris for me to say, how much that sticks. But our major competitors amongst the conglomerates were all recognizing the need to ask for price. And so that's kind of a good sign, I think and so that's how we're looking at it. We're keen to focus on margin there. We don't want to chase volumes that might have unattractive margins attached to it. So we're not focused per se just on growth for growth's sake. And that's how we'll keep running the business.

Yes. Recently, as we engaged with one of our large customers following the consolidation of the Electrical segment, I was involved in productive discussions about how we could expand our lighting exposure with this company. We're starting to see some benefits from the combination of the Electrical segment, and I believe we'll experience additional advantages in lighting. As Bill mentioned, our goal is to achieve profitable growth in this business.

Thanks. Appreciate the story. I just had a clarification Gerben. At the beginning you said something about double-digit orders. Maybe that was a December comment, but I didn't quite catch it.

Yes. We noticed a change in orders in December. As January progressed, we've recorded a month with double-digit order growth. There are questions about whether this trend can be maintained throughout the year, and we are not making predictions on that front. It's possible that customers are simply restocking and may not be pursuing higher volume, as they could have been managing their inventories in December. This might explain why current levels are slightly higher than what can be sustained, but we are optimistic about what we have seen in the first 30 days of the year.

Hey. Good morning, guys.

Good morning, Josh.

Hey, Bill just a follow-up on that last question maybe ask a bit of a broader one. Thinking about price versus some of the nuance in the environment right now relative to kind of past periods of inflation. You got this kind of secular shift in T&D investment going on. Lighting is certainly kind of a different business profile and it's already seen a good amount of compression so maybe not as much of a structural headwind as much there. You mentioned that folks want to reload on inventories or restarting to. So in theory that should help the discussion. But do you see yourself with, kind of, a better kind of board in front of you in terms of some of those exogenous factors that may help price yield relative to maybe when we were a few years ago going through this the last time?

Yes. The most significant challenge we faced recently was the implementation of tariffs, which we managed effectively over the past few years through pricing adjustments. Now we're encountering another challenge. Do I believe we are better positioned to implement price changes now compared to the last time? It seems we may be on more equal ground since the impact of tariffs varied across different supply chains, whereas this issue is primarily driven by raw materials that we all use in our products. As a LIFO company, we experience increased costs more quickly. In contrast, FIFO companies have the ability to delay, but this pressure is ultimately felt during inventory turnover. The broader market dynamics, indicated by our competitors' pricing behavior in January, suggest that this price pressure is widespread, not just limited to Hubbell. Overall, we feel reasonably prepared, but we need to closely monitor commodity prices and remain cautious about how incremental price increases might affect demand. Nevertheless, we believe the situation is manageable.

Yes. Maybe one comment to add to that particularly on the Utility business, and again from experience having run that, generally, we look at a little bit longer cycles in that business both with getting and giving price long-term relationships with our customers. So we just land up in January. We're not going to be able to wait until the natural renewal of contracts here later this year. But that one probably will tend to lag a little bit more than on the electrical side, but we're clearly on top of it and going after it.

Got it. That's helpful. And then just on the timing of what, I guess is pent-up demand in Aclara with not being able to get out there in the field. How long does it take to kind of unwind that? Is that something that just takes a couple of quarters? Is it a full year given that they'll be kind of pent-up for what will be a full year by the end of the day? Gerben, how do you see that kind of unfolding?

Yes. If I understand the question correctly, is the pent-up demand going to create some increased future demand? And I think there is pent-up demand. I'm not sure though, that it will lead necessarily to a big spike because, one of the things with these projects to put them in is a labor requirement, and labor from the utility, labor from the suppliers, and that's hard to just make up in a short time. But I do believe that there's positive growth beyond what would be normally expected in growth given this slowdown, so that will be all for multi.

Yes. I think it would spread out Josh, between three to four quarters to get it all out there. So, maybe between what you're asking.

Good morning, Gerben. Good morning, Bill.

Good morning, Justin.

My first question relates to the sort of medium-term outlook for Utility T&D components. I guess, you mentioned you were lapping a reasonably strong 2020. But it looks like, the organic growth if I average the quarters was slightly over 3% and you're sort of forecasting something along the lines of the same versus the strong numbers that were delivered in 2018, 2019. Do you see sort of this 3% level as sort of the medium-term outlook, even with the secular tailwinds for Utility T&D, or do you think we could see a reacceleration looking beyond the next couple of quarters, maybe with infrastructure spending or what have you?

Yes, it's good. I mean, I think you're generally along the right path of that 3% to 4% and only a few years back, we would have been ecstatic with that kind of growth in the Utility business. You could see it maybe a little bit lumpy and that's mostly related to our transmission portfolio that we have. But you're thinking along the right lines of that 3%, 4% growth on a secular basis.

Okay. Great. I have two quick questions. Regarding the restructuring benefit, is it true that the savings are expected to be between $15 million to $20 million, plus an additional $10 million due to lower spending? Also, is all the anticipated M&A revenue for 2021 already secured, or do you expect more to come?

Yes, the revenue for the M&A piece has already been acquired. Regarding the R&R, both levers are in play. We expect to spend a little less, and we will achieve savings from the $0.43 that was spent this year. These two factors are contributing to the positive outcome.

Great. Thanks for taking my questions.

Thank you.

Your last question comes from the line of Chris Snyder from UBS. Your line is now open.

Thank you for squeezing me in. You talked about all the big lighting players, introducing price increases early 2021. Obviously, there's a looming inflation kind of headwind. So, have you observed any improved price discipline from the many smaller low-cost players who compete on the lighting side? And then, I guess, just kind of following up on that, what gives you kind of confidence that the price increases can stick? Historically, this has obviously been a very price competitive market and now we're in the maybe middle-ish innings of a downturn.

Yes. If you look at the bigger picture, there was a period of price competition over the last couple of years, and we experienced some resistance to that, which allowed us to achieve some price improvements in lighting. However, in the last quarter or two, we've seen a bit of a setback. It's a valid question why we believe this trend can be reversed in the next six months. The answer lies in the behavior we observed among the industry players. That being said, you're right to raise concerns about how sustainable this will be over time. Regarding the international competitors, we don't expect them to exhibit the same level of discipline as the players I mentioned who have been advocating for price increases.

Yes. Maybe just one point to add here. As we see the competition in lighting, we need to manage that through both product line optimization, as well as just really ensuring we have the highest quality products in the market.

I appreciate that. Regarding the Aclara discussion, traditionally this has been regarded as a mid-single-digit growth business. However, we've just experienced a year where Aclara is down 15%. You mentioned that any pent-up demand might be realized over four quarters. If the business is currently running about 20% below where it would have been without the pandemic, could this 20% be recovered over four quarters, or is there a chance that some aspects might take longer to return to normal?

Yes. I think the way we're planning this is more akin to the last thing that you said. And yet if you're asking, is it possible that it is a lumpier business than we're used to with Power Systems and so, it is possible that things get pulled forward. But I think Gerben was highlighting one of the important parts of this, which is that it's not really exclusively a demand question. There's also the installation process and having the people to do that and the crews and the time. And so, we're just anticipating that that comes off. It's not just someone pushing a button and ordering something. It's got to be installed. And so, that's why we're thinking, it's going to be a little smoother than what you're saying which is couldn't it jump up to double digits per year and then taper back to 5%, which is how I'm interpreting your question. I just think it will be a little smoother than that.

Appreciate all the color. Thanks for the time guys.

Okay. Thank you.

Speakers, I'm seeing no further questions in the queue. Please continue.

All right. Thanks, operator. Thank you for everybody for joining us. And I'll be around all day for questions. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.