Hubbell Inc Q1 FY2022 Earnings Call

Good day, and thank you for joining us. Welcome to the First Quarter 2022 Results Conference Call. All participants are in listen-only mode at this moment. Following the presentations, we will have a question-and-answer session. Now, I am pleased to turn the call over to our first speaker today, Dan Innamorato, Vice President of Investor Relations. Thank you, and please proceed.

Thanks, Operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our first quarter 2022 results. The press release and slides are posted to the Investors section of our website at hubbell.com. I’m joined today by our Chairman, 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 our 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 consider it 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. And with that, I’ll turn the call over to Gerben.

Great. Thanks, Dan, and good morning, everyone, and thank you for joining us to discuss Hubbell’s first quarter results. Hubbell is off to a strong start in 2022. Our markets remain healthy, with broad-based demand driving strong sales and order growth. In particular, our utility Solutions segment continues to build backlog, even as customer shipments picked up sequentially. Grid modernization initiatives continued to drive robust investment levels from our core utility customers, as they seek to upgrade aging infrastructure and integrate renewables onto the grid. Operationally, supply chain headwinds persist. Inflation and raw materials and labor tight availability, and higher cost of containers, as well as shortages in key materials such as chips and resins, are leading to higher input costs and manufacturing and transportation inefficiencies across our businesses. However, we are executing effectively through these challenges to serve our customers and deliver strong results for our shareholders. We continue to accelerate our price and productivity initiatives, and we have now turned the corner on price material, which was a net positive in the first quarter. The combination of strong volume growth and positive price material enabled us to return to year-over-year margin expansion a quarter earlier than we had initially anticipated. Overall, we are pleased with the performance in the quarter, and we are confident that we are well positioned to continue executing effectively over the balance of 2022. While the macroeconomic environment remains dynamic, our strong order book, significant price traction, and operational discipline gives us visibility and confidence to raise our full year outlook today, which now reflects mid-teens adjusted earnings per share growth. We will provide more color on the full year outlook later in the presentation. Before I turn it over to Bill to walk you through the financial results, I'd like to highlight some key accomplishments in the quarter. First, on capital deployment, we deployed $150 million of proceeds from the C&I Lighting divestiture to share repurchase, returning cash to shareholders, and generating approximately $0.10 of accretion in 2022, in line with our initial guidance. Our balance sheet and cash position is strong, supporting our bolt-on acquisition strategy, which we expect to continue executing over the short and long term to generate attractive returns for our shareholders. Next, I'm proud to highlight that Hubbell received two of four annual awards from a major customer. Hubbell Power Systems was awarded the Above & Beyond award for successfully managing through supply chain constraints to serve its customers, while Burndy was awarded The Operational & Technical Excellence Awards for improvements in operational efficiency and proactive management and communication. This recognition is particularly well deserved for our teams, who are working so hard to effectively serve our customer needs during these challenging times. Not only is this an example of the strength of Hubbell’s individual brands and businesses, but it also demonstrates the quality of our portfolio across utility and Electrical end markets. We have made good progress in our efforts to go to market collectively as one Hubbell, and we see significant opportunity ahead in building on our strong channel partnerships to better serve our customers. And finally, Hubbell is honored to have been named one of 2022’s World's Most Ethical Companies by Ethisphere for the second consecutive year. I'd like to thank our over 17,000 employees who demonstrate the highest standard for integrity each and every day, and note that this achievement is a recognition of their commitment to compliance and ethics as a foundation of our strategy and culture. We also released our second annual sustainability report in the first quarter, highlighting the progress we have made on ESG over the past several years as a core element of our business strategy and product offerings. We encourage all our stakeholders to view this report on the sustainability page of our website, and to continue to actively engage with the Hubbell leadership team on ESG topics. Let me now turn it over to Bill.

Thanks, Gerben. Good morning, everybody. Appreciate you joining. I'm aware of how busy the day is, and I'll try to keep my comments short and sweet and open with a happy birthday to our own Dan Innamorato today. And as Gerben said, we're really off to a strong start to the year. And there are two notable management accomplishments that are driving the results, and you'll hear us comment several times. The first is price. I know you're all aware that we got behind last year, and as inflation persisted throughout the last five quarters, we relentlessly kept working with our channel partners to raise price. The fact that we caught up and created a tailwind in the first quarter of ’22 is strong evidence of the high quality of our products and how well positioned they are, both in front and behind the meter where essentially at low-cost relative to the value that they add. The second besides price was our production levels. As you know, we've been operating for a while constrained, not by orders, but by supply chain. It was a great sign to see a sequential increase from Q4 to Q1, which is typically a decline in output, and for us to increase the units there is evidence that we are getting better and fighting through some of the supply chain constraints. When you have both that price and production level raise, and with the backdrop of strong orders, you're seeing very high growth in sales and earnings, which is what you'll see in our results released today. I'm going to start on Page 4 of the materials. You can see sales increase of 21% to $1.16 billion. That 21% was driven by organic growth as well as price. As I mentioned, that's a comparison to the prior year. Sequentially, we also saw mid-single-digit growth versus the fourth quarter of last year, with both units and price being up sequentially. At the operating profit level, you see 20 basis points of margin expansion to 13.9%. Welcome to see that return to margin expansion, and we really have the price material tailwind complementing the volume growth to help drive that. Earnings per share, you see an increase of 30% year-over-year to $2.12, driven by the operating profit growth, as well as some other income tailwind. On the cash flow side, we had a use of $36 million in the quarter. The extraordinary high level of sales required a large investment in receivables, and we also invested aggressively in inventory. As Gerben pointed out, we continue to serve the customer, make sure we've got inventory on hand, and keep our service levels as high as possible, given some of the choppy operating environment that we're in. On Page 5, you see the results laid out a little more graphically. That 21% sales growth unpacks into 12 points of price and nine points of units. That skews slightly higher for the utility segment, which we'll talk about separately, both in units and price, but the Electrical segment also showed very strong growth. So, a very broad-based demand profile here. Despite the 21% increase in shipments, orders were up 25%. We actually built more backlog in the quarter. At the operating profit level, you see the impressive 22% growth to $160 million in the quarter. The volume growth and price material tailwind combining to create some nice lift. On the margin side, there's a partial offset for the non-material inflation. Think of things like compensation costs and transportation costs eating into some of those gains, as well as some inefficiencies in the factory where the supply chain and consistency, think of both labor and material not being available as consistently as is typical. And so, when you're operating with high levels of volume, there are some inefficiencies in spending going on inside of our plants. The EPS is up 30%, just under $0.50 of new earnings coming from all this growth to $2.12. The growth rate is higher than the OP growth rate because of some - we have interest expense lower as a result of a bond refinancing we did last year, as well as transition services income, but the taxes were comparable in the periods, so not a tax driver there. Here, you see the cash flow use laid out compared to a small source of cash last year. Typically, the first quarter is our weakest cash flow quarter in the year, and we still anticipate meeting our initial targets on free cash flow. This is just early investment in the year at a time of high growth in receivables first and inventory second. We're going to now unpack our results by segment, and we'll start on Page 6 with our Electrical segment. You can see the impressive growth of 19%, all organic. Ten points from price, nine points from volume. Quite a broad-based contribution to the demand profile. Light industrial, up in the mid-20s. Data centers and telecom, I would note, as verticals inside of that space. Non-residential similarly up, strong in the mid-20s. Heavy industrial up in the mid-20s. Strong commodity prices that we see in both steel, for example, and oil and gas are good indicators for our heavy industrial business customers still pushing demand up. The exception to the really strong outlook is on the residential side. We had some tough compares to a very heavy amount of home remodeling done last year, as people were spending more time in their house than they wanted to, no travel, not commuting to work. We saw a lot of attention spent remodeling, which has been difficult to compare against. On the OP side, double-digit growth for the Electrical segment at 11% to $58 million. You see that the margins, though, did not expand in sympathy with the company, and although we got good drop-through on our incremental volumes and price material was favorable, that was more than offset by the inflation in transportation. And that was really most acutely felt by our residential business, which is essentially a purchase for resale, and the container costs, transportation costs become a very large hit to that business as those costs spiked up. As well as extra spending on restructuring. If the residential business had had a comparable year to last year, you would have seen comparable margins and the extra investment in restructuring, which will create productivity and higher margins in the future, cause an additional half point drag. So, I think the underlying business is very healthy here. And Page 7, we transition to showing the utility segments, and very strong performance. We've built quite a strong franchise here on the utility side. 22% growth, which is actually 23% organic. We sold a very small product line from inside the Aclara business. And that 23% organic unpacks to 13 points of price and 10 points of volume. Again, the volume was 7% higher sequentially versus the fourth quarter of last year. Inside the utility Solutions segment is where we have the more pronounced buildup of backlog. Getting the bottlenecks eased out and our production capacity up has been a very welcome sign. You can see that drop through on the operating profit side. But finishing on sales, we really saw strength from the power system side and the transmission and distribution components, as well as gas components. We had growth in the 30% range. On the communications and control side, the Aclara AMI and meters business continues to be constrained by the lack of availability of chips, and we expect that condition to persist throughout the year. The entire segment is still powering with very strong growth. You see the drop-through effect of having a price material tailwind, and this was the quarter that the power team caught up on that. You see the welcome lift in margin expansion of nearly a point. With above 20% sales growth and 90 basis points of margin expansion, you get a lot of OP lift, really helping add to our earnings per share story. So, that gets me to Page 8 and the impact of those trends and results on our outlook. Usually, we would consider this to be too early a point in the year to consider a raise, especially with as much macro uncertainty as there is, but we started with a higher-than-normal backlog. We added to that backlog despite shipping a 21% increase in sales. The prices really seem to be sticking, and we're going to get some incremental price. That’s causing us to anticipate higher sales than we had initially guided you to, and we're going to reflect that new outlook in this guidance. When we came out in January, we were describing an expected sales growth of 8% to 10%, which was comprised of 5% price and 3% to 5% of volume. Given what we've seen through the first quarter on price sticking, as well as some anticipated incremental price that we're going to ask for, we believe that price will be more in the range of 7% for the year. The volume which we had anticipated at 3% to 5%, we now feel would be coming through at 4% to 6%. The effect of this change at the sales side, effectively imagining the price being absorbed by incremental inflation, so it leaves us an extra point of volume. That extra point of volume, we think should drop on the order of $0.20 to the year. We've raised the midpoint of our outlook range from $9 to $9.20. In other words, we've maintained our margin outlook, and we've maintained the percentage drop-through of free cash flow that we're expecting between 90% and 100%. Worth noting, there are no new incremental acquisitions included in this guidance. We're pleased that that pipeline seems to be refilling, and we feel we’re quite intentional in finding verticals that have high growth and high margins in them. Just a comment there that acquisitions are not included in this outlook. So, with that, I will turn it back to Gerben for some closing remarks.

Great. Thanks, Bill. Before we begin Q&A, I’d just like to underscore a couple of key points from this morning's presentation. Hubbell is off to a running start in 2022, after strong execution in the first quarter. While the macroeconomic environment remains dynamic and uncertain, we have strong positions in attractive end markets, with long-term growth drivers, and we are executing well in the areas that are within our control. We are confident that we are positioned to deliver on our 2022 outlook, which we raised this morning, and drive strong results for our shareholders over the long term. And with that, let me turn it over to Q&A.

Thank you. Your first question comes from Jeff Sprague with Vertical Research Partners. Please go ahead.

Good morning, everyone. Maybe just start off on the volume side of the equation, and the reason I go there, we're seeing a lot of results here recently where companies are posting topline that may be almost all priced with little or no volume. These results, therefore, kind of stand out in that regard, even though the price is impressive. If you look at what's going on in the utility market, is there anything additional to add around infrastructure spending coming in or other actions? Or is this just really sort of an uncorking of some of the supply chain headwinds, and you're better able to keep up with the overall pace of demand here?

Yes. Jeff, let me break those down into two sides. One is on the demand side and one is on the supply side. Fundamentally, demand is strong in the utility market, right? We've talked about the need to harden the grid, upgrade the grid. That's still absolutely fundamentally there. As Bill stated, we continue to see orders exceed shipments. So, we’re building a backlog. Of course, there's an element of lead times extending, and that creates a little bit of unnatural demand, but it so far exceeds supply right now that we believe, even if that moderates, at the levels that we're producing, we can maintain those and continue to see growth. The second part of it is, we were able to increase our productive output. It’s part of why I'm so proud of the team. We’re being recognized for some of these service awards. Our customers are telling us that during this time, we are outperforming in delivering. It's a real focus for us. I'd say the things that we are doing on the supply chain side make us more resilient. We spend a lot of time approving alternate materials and design, qualifying new suppliers for redundancy, making capacity investments, particularly in the utility business. We’re making some investment there because that business really seemed to grow throughout the pandemic, and automation. I would say the investments that we're making into the business are helping us improve in ways we hadn't expected, but we've seen quarter-over-quarter continued improvement, despite very, very challenging times, whether you look at containers or supply chain or the Omicron that we dealt with in the first quarter. So, I think we're just building a more resilient operation, but still plenty of chance. Hopefully, I answered both sides of the equation there for you.

Yes. No, thanks. And then just again on utility, there's been a little bit of concern, and I don't know if it's just chatter at this point, but just pressure on the consumer from inflation possibly feeding back into some pressure on T&D spending. Obviously, that didn't show up in your results in this quarter. I wondered, to the extent you could speak to - do you see that creep into the conversation anywhere? Maybe unpack kind of CapEx versus OpEx on T&D and the sort of visibility that you have looking forward kind of 12 to 18 months in that segment?

Yes, I think - I don't know that we have any particularly acute insight into the balance there. I mean, I think it's quite an important question as to how supportive the PUCs can be, and if the consumer starts getting quite pinched here. I do think you're right that utilities have been quite effective in getting a lot of their spend into capital and away from O&M so that they can ultimately get reimbursed with a return on capital for that. But that’s something we'll have to keep watching because it's not something that's evidencing itself yet in any of our demand profile.

Right. Thanks a lot. I'll leave it there. Thank you.

Your next question is from Steve Tusa with JPMorgan. Please go ahead.

So, I guess my question is really around kind of the second quarter. How do we think about the progression over the course of the year? And is there any lumpiness with this price-cost dynamic that's going on that we have to think about when it comes to either year-over-year or sequential performance as we kind of move through the year? Because clearly the year looks conservative here, but I'm just wondering how that plays out seasonally and sequentially.

Yes, I think, Steve, as we look at the second quarter, there is some momentum in the sales side. You're right to point out that the commodities, starting really at the very beginning of March, triggered by the invasion, started to reinflate, which creates the need to keep getting price. We're anticipating getting some more in the second quarter and trying to navigate through that. But we are anticipating, Steve, with the visibility that we have in our book and the backlog, that we'll have some similar trends to what we saw in the first quarter. Of note, we usually see a decent-sized seasonal pickup from the first quarter to second quarter. And because the first quarter was using some of its backlog to support its levels, I don’t think we’ll see the same level of sequential pickup in seasonality. I think that’ll feel a little more muted and look a little more like momentum, I would say.

Maybe the only thing to add to that is, as we are one month into the second quarter, the order patterns remain quite robust, similar to what we saw in the first quarter.

Right. So, a pickup, but maybe not as much as normal seasonality?

Yep.

Absolutely.

One more question for you. What happens when these draws roll over? Historically, you guys have had some negative pricing in some instances. What's the kind of playbook for when things soften up on the input side?

Yes. I think it’s going to start with the dialogue we've been having with our customers in the channel, Steve. We've been very clear that our price increases are not a surcharge on steel or copper or something like that. It’s really part of a broad-based inflation profile. Yes, commodities are a big part of that. Yes, people costs, compensation costs are a big part of that. Transportation costs are a big part of that. Medical is part of that. Even if let's say steel or copper were to start to soften, we've got the right dialogue with our customers that that's not an immediate cause for a price decrease. We’ll need to make sure we reinforce the value proposition of what our products play in front of the meter, behind the meter, and the solutions they provide. It feels to us, Steve, like there’s still a real shortage in supply. So having the supply is really worth something. That’s why Gerben keeps pointing out the awards we’re getting for serving the customer and trying to keep that relationship as positive as we can. That’ll be a battle, but we feel we’ll be up to it.

All right. I hope the Rangers give Dan a win for his birthday tonight, and I'll go figure out my car issues. Thanks.

Your next question is from Tommy Moll with Stephens. Please go ahead.

Morning, and thanks for taking my questions. So, backlog up quarter-over-quarter. One gating factor you highlighted is just the chip shortages that have impacted shipments for your AMI meters business. I'd be curious for any context you can provide there, but also more broadly to the overall enterprise. What additional detail can you give us on maybe the magnitude where you’re revenue constrained or the areas of constraint that are most acute? Thanks.

Yes, I think the areas, Tommy, if I were to point to them, start with chips. You pointed out the area of our business that impacts. I would say resins are another material that hasn't been consistently available. That causes some disruption in our enclosures business inside of power systems, as well as our Electrical Products business in the Electrical Solutions segment. Also, other inputs outside of those materials; our absenteeism is continuing to be higher than what would be considered normal going back a couple of years pre-COVID. Combine a 9% volume increase going through the pipeline, and you're staffing at individual sales; it's uncertain day to day and week to week. You don't know which materials you're going to have. We are ending up with spending more inside our plants and not running as efficiently as we could. The third place to point out is materials, labor, and transportation. That’s been most affecting our residential business, where they’ve got a purchase for resale model, taking a container in, and as those container prices spiked, that really ate into the profitability of that business. These are the most acute contributors to preventing us from being on all cylinders here.

Yes. You're absolutely right, Bill. Those are fundamental constraints. They will likely take the rest of this year, with chips possibly extending into next year to solve. One of the things we're spending a lot of time on is redesigning products, whether with alternate materials or alternate designs with chips. Chips are going to be hard to get, no matter which chip you do. So it's a little more challenging. But what’s really causing so many inefficiencies is the consistency of supply. That’s probably our bigger issue right now, the starts and stops. When you’re running factories, that’s not good for output and even worse for cost. So, that’s where we’re perhaps struggling the most in that it’s not the most efficient cost on that volume we’re getting. You see the fall-through on that volume not being as good as it could be.

Appreciate the context there. Shifting gears for a follow-up, on distribution automation, you talked about some growth-related investment. I wonder if you could frame for us what that entails. What are the opportunities you're chasing down and what's a rough type of timeframe to be able to harvest some benefits from that investment?

Yes. You're talking specifically about DA or about the investment that we put in our outlook bridge?

My assumption was the former as a subset of the latter, but ...

It is a subset. It’s just not all of it. So, some of that investment has gone into capacity, and as Gerben highlighted in our power system segment. But a significant amount is going into new product development. We’ve got an Investor Day planned in the next six weeks or so, and we’re eager to see folks there. We’re anticipating doing a deeper dive into some of the new product development we're working on. We're targeting certain applications and areas of high growth that we think we've got the right to compete in. Your question is a good one; that kind of investment isn't going to pay back this year. We’ll start to see some benefit next year. It's a crucial part of our strategy going forward to grow faster than GDP and to really achieve gross margin growth through new products with a strong value proposition.

Thanks, Bill. I'll turn it back.

Yes, sir. Our next question is from Nigel Edward Coe with Wolfe Research. Please go ahead.

Thanks. Good morning, guys. I was 10 minutes late joining the call, so I apologize if you've addressed this already. But what was the major reason for the divergence between the electrical margins and the performance down margins in Electrical, and obviously very strong in utility? It sounds like logistics and inflation are more impactful there, but any more color would be helpful.

Yes, I think a couple of things that were specific inside of Electrical: one was the business unit facing off against residential is facing some difficult compares. The first quarter, really the first half of last year saw extraordinary spending in the home remodeling area because people were essentially trapped in their homes and weren't allowed to get out and about. They decided to invest in their nests, as they say. Those volumes were down, and that was exacerbated by the fact that our residential business is a purchase for resale model. The costs of containers to bring that product across the ocean hampered the margin significantly. If we had had the same year as last year, you would have seen margins flat in Electrical. We spent an extra half point on restructuring in the segment, and we are excited about the fact that that will create productivity and margin next year, creating very good investment. Those two factors would have led to margin expansion without those issues, but you're right that the non-material inflation and some of the inefficiencies we discussed earlier are also affecting performance.

Okay. Obviously, lots of questions on price already, but I'm just curious if you - maybe just a bit more definition on how you see the price material balance through the year. What is your assumption, just to be clear, on commodities here? So, is it flat from here, down for the year? Or are you seeing some modest, I don’t know, deflation? That’s not the right word, but what are your assumptions on commodities?

Yes. Our assumption is that there’s continued inflation throughout the year, and materials are going to cost more than they did last year. We are priced for that and had actions in the second quarter consistent with that. It's also important to say that our pricing is informed by more than material; certainly, the transportation side, human resource cost side, medical, salaries and wages, benefits, and the like. Our salespeople are back out on the road. Non-material inflation overwhelms what we can do with productivity initiatives. This puts a little more burden on pricing. It’s probably to our benefit that we have been obsessively focused on pricing as a company for the last five quarters; we really need it.

Yes. Well, 12% price is pretty wild. And then just finally, a quick one on the oil and gas - your oil and gas business. Can you just mark us to market on where that business is right now? I think it used to be mainly an offshore business, but in light of the oil price and the drill baby drill kind of stance from the administration, what are you assuming for that business this year, and where are they tracking relative to kind of 2014 levels?

Yes. It’s down to about 5% of our sales at this point, Nigel. But it saw a good quarter that’s inside, as we combine it in our heavy industrial piece inside of the Electrical segment. We saw a good return of margins as volume came back. We continue to feel that as important as energy is to the economy here. Providing explosion-proof products, mostly in the upstream part of that process, appears promising in the near term, with energy prices where they are. It just is a much smaller piece of the total at this point.

Yes. Okay. Thanks, Bill.

Your next question is from Chris Snyder with UBS. Please go ahead.

Thank you. So, in the prepared remarks, the company noted that orders outpaced revenue, leading to further backlog build. Can you provide some color on what the 2022 guidance assumes as it relates to this backlog, whether it be released at some point during the year or even just further build over the next three quarters?

Yes, that’s an interesting question, Chris, because I don’t think we have a great crystal ball on it. We would start with the premise that orders of 25% is probably not the sustainable rate of orders that we anticipate seeing over a prolonged time. I think your question is getting at, when will those orders start to normalize? The contributors right now are indeed expecting price increases, so they want to order before those hit. The lead time for deliveries is extending, so they’re ordering more to ensure they get in line. Gerben mentioned on the utility side still quite a bit of fundamental volume side drivers. As lead times come down and the supply chain smooths out, that should bring the orders more in line. I’m not sure when that will happen. We don’t have something explicit, but we see enough momentum in orders combined with enough backlog, that gives us the confidence to raise our sales outlook for the year by two points of price and one point of volume. This kind of correction is a soft landing rather than a dislocation. That’s our anticipation.

No, I appreciate that. I totally understand it’s a hard question to answer with a lot of moving parts. So, for my follow-up, maybe a bigger picture one on utility. Obviously, this has always been a long-cycle resilient business, but with the addition of Aclara, which now presumably has a sizable backlog, and an increased focus on renewables, which appears structural, how's the floor on this business been raised? When I say floor, I'm talking about it from a growth perspective; it feels like these secular drivers are now a bigger piece of the business, and it's somewhat hard to see why those secular drivers reverse away from the company.

Yes. I would say, Chris, we traditionally thought about that business, that segment as a GDP grower with a high MRO driving base to it. We would have had, in traditional plans, a low single-digit growth rate for that. We've seen that fundamentally shift towards a mid-single digit growth rate. We continue to believe that's the case. You’re absolutely right, it’s shifted from GDP MRO to a secular grower. This shift is a welcome change for us because it allows us to garner decent margins in that area.

Yes. I’d be bullish on both sides of that utility portfolio. As more renewables come up onto the grid and the grid continues to get older, it’s going to get very stressed. There’s a lot of hardening going on; these are multi-year projects. I see that business growing at GDP plus as well. On the Aclara side, the automation and modernization of the grid is going to keep the efficiency up. We've talked a lot about that having attractive growth. So, I’m quite bullish on our entire utility business.

Your next question is from Josh Pokrzywinski with Morgan Stanley. Please go ahead.

Hi. Good morning, guys. Within the new four to six on the volume piece, how should we think about what you guys are sort of holding back as contingency, unable to deliver in backlog because of the supply chain? I guess, maybe said differently, if you could get everything you needed supply chain wise, what does that four to six look like?

Yes. It's a hard question because if you looked at our order rates, they're so far exceeding out. If you could miraculously solve everything and have unlimited capacity, it could be much harder, but that's not the reality. Bill mentioned earlier about momentum carrying into the second quarter. Where it gets more uncertain is towards the back half of the year for us, likely most pronounced in the fourth quarter where we're projecting a return to a more seasonal level. If orders hold up and we can continue to solve supply chain issues and increase our productive capacities, there could be some upside there. It’s, by single digit, small increments, not huge. The order patterns should not be reflective of what the possibilities are.

Got it. Okay, that's helpful. On the structuring front, as much as there's been a multiyear assessment of the footprint, you guys have different challenges today than you might have three years ago. I think for bandwidth purposes, for maybe contingency on where you need to make stuff, how much has that footprint assessment changed as a result of what we've gone through over the past, call it year? And are you spending that restructuring differently than maybe you had been historically?

Yes, we started out with a multi-year vision, accompanied by a multi-year Gantt chart of projects. We feel really happy with the results of those. The biggest change to inform that has not been COVID. It’s been the creation of the Electrical segment and bringing all the businesses underneath a single management team. As they think about competing collectively, they see opportunities to share production and become more efficient with the square footage. What we started has been breathed new life into it. We anticipate talking to you a little bit more about that at our Investor Day in June, and you’ll hear from Pete Lau, who runs the Electrical segment. We’re happy to keep spending flat so we don't distort our performance. I like where we are in terms of spending and savings creating earnings momentum without dramatic year-over-year headwinds.

Got it. That's helpful. I'll leave it there. That’s all I’ve got.

Your last question is from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning. Congrats on the recognitions and on executing all that price. Curious if there's any sense that the need for incremental pricing is starting to taper, notwithstanding that you have some incremental price coming through in the pipeline. But from a holistic sense, is there any basis now to start to develop that view of a leveling on the horizon?

Yes. If we compare it to last year, the magnitude and frequency is clearly anticipated to be less. However, we still see ongoing inflation this year. We saw tapering a little bit towards the end of the last year going into this year, particularly steel. After the invasion, we’ve seen not only steel but aluminum, copper, and ongoing inflation. The inflation numbers are robust. We have additional pricing actions to take to continue offsetting price cost. We’ve done well, so additional actions are expected, but not at the same frequency and magnitude that we saw last year.

Okay. Want to go back to Chris's question. We talked about the further advance of the organic profile for the Utility Solutions. You're at really high levels right now, and T&D is up 30%, 31%. Maybe mid-high teens volume with nicely positive comparisons. Is it possible for correction at this point, or is this just the fundamental higher gear shift from connecting renewables and those fundamental secular drivers?

Yes. I think the nature of a correction we could envision would be similar to what Gerben described. If you had the capacity to produce all the power system products that were needed and led times dropped to overnight, demand would adjust to what’s required. But that’s still going to be a mid-single digit order magnitude greater than last year. The correction doesn’t seem to signal contraction, but rather settling back down to mid-single digits. The question is, can we get there smoothly, and how do we sustain enough backlog to ensure that’s not dislocated? That’s difficult for us to predict.

Okay. great. Thanks for those thoughts, Bill.

And that ends the question-and-answer session. I will now turn the call back over to Mr. Gerben Bakker for closing remarks.

Great. Thanks, everyone, and I appreciate the participation and engagement with us this morning. I'd like to close by reminding you that our investor conference will take place in person again after a couple of years on June 7 in New York City. We look forward to sharing further detail on our strategies and our long-term value for customers and shareholders with you there. Thank you and have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Stay safe and well.