Hubbell Inc Q1 FY2024 Earnings Call

Thank you for joining us for the First Quarter 2024 Hubbell Inc. Earnings Conference Call. After the presentation, we will have a question-and-answer session. Please note that this conference is being recorded. I will now hand it over to Dan Innamorato, Vice President of Investor Relations. Please proceed.

Thanks, Michelle. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the first quarter of 2024. The press release and slides are posted to the Investors section of our website at hubbell.com. Joined today by our Chairman, President and CEO, Gerben Bakker; our Executive Vice President and CFO, Bill Sperry. Please note 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. 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. Now let me turn the call over to Gerben.

Great. Good morning, and thank you for joining us to discuss Hubbell's first quarter 2024 results. Hubbell is off to a solid start to '24 and we are well on track to deliver on our full year outlook, which contemplates double-digit adjusted operating profit growth at the midpoint. Performance in the quarter was highlighted by strong organic growth and margin expansion in Electrical Solutions. Electrification and U.S. manufacturing activity is driving broad-based strength across our markets, most notably in renewables and data centers, which continued to grow double digits in the quarter. Our Connectors and Grounding business, which is strategically positioned in these verticals, as well as in broader industrial markets realized double-digit sales growth in the quarter. We also continued to make progress in our HES segment unification strategy, with 80 basis points adjusted operating margin expansion in the quarter despite increased restructuring investment and footprint optimization. With the completion of our residential lighting divestiture in February, we are confident that our Electrical Solutions portfolio is aligned to structurally higher growth and margins going forward. In our Utility Solutions segment, performance in our core utility T&D markets was solid, driven primarily by strength in our grid automation businesses and transmission markets. As anticipated, utility distribution markets continue to be impacted by channel inventory normalization; the end market demand remains solid. We're also pleased with the positive contributions from our acquisitions in the quarter. Systems control is off to a good start, and the integration is running smoothly while Balestro and EIG delivered strong results in the quarter. Telecom markets were weak in the quarter, driving significant sales and margin declines in our utility and closures business. While we continue to have a positive outlook on the long-term growth prospect of fiber deployment and broadband access, we expect this weakness to persist in the second quarter and are taking additional targeted actions in response. Bill will walk you through the details within the quarter in a few minutes. But overall, we are confident in the setup for utility solutions over the balance of 2024 as our leadership in attractive utility T&D markets positions us well to meet the grid modernization and electrification needs of our customers. From an operational standpoint, we executed well in the quarter against a challenging prior year comparison. We're very pleased with our early traction on price realization, which continues to be supported by a strong position and leading service levels. While the operating environment remains inflationary, we achieved positive price/cost productivity in both segments in the quarter. As we highlighted throughout 2023, we accelerated our investment levels as the year progressed in areas such as innovation and engineering, capacity and lean, as well as sourcing and procurement. These investments continued in the first quarter, and we are confident they will deliver attractive payback through higher long-term growth and productivity levels. Before I turn it over to Bill, I wanted to share some insights from our Hubbell Utility Connect Customer Conference a few weeks ago. We hosted over 400 utility customers to showcase our solutions across each of our brands, product lines, and end markets. This was the first time Hubbell held a customer event of this magnitude across the entire utility solutions franchise. And I'd like to thank Greg Gumbs and his leadership team for creating a unique forum for us to engage with our customers, to educate and collectively problem solve to make our critical infrastructure more reliable and resilient. Key takeaways from several days of discussions with our largest customers are clear. Utilities are in investment mode. Our customers anticipate a multiyear T&D investment cycle as the combined effects of aging infrastructure, renewables, electrification, and load growth will require more hardened infrastructure, as well as unique solutions to emerging challenges. Hubbell's leading quality and service levels together with our proactive investments in capacity and innovation will position us well to grow with our customers as their investment levels accelerate in the coming years. In particular, utility customers are focused on the impact of load growth driven by data center power consumption. While this phenomenon is still in its early days, the impact on our customers is real and will require incremental investment over many years as large projects progress and require grid interconnections. Higher growth, and more specifically higher peak load growth will require more transmission and substation infrastructure, areas where Hubbell has recently doubled down and will be well positioned to serve. It also means novel solutions and grid modernization will be required to solve emerging problems, and Hubbell's unique leadership across utility components, communications, and control will enable us to partner with our customers for continued long-term success. With that, let me turn it over to Bill for more details in the quarter.

Thank you, Gerben. Good morning, everyone. We know you're all busy with today's schedule, and we appreciate your time to discuss Hubbell’s performance. My comments begin on Page 5 of the slides. Overall, the enterprise performed solidly, slightly better than we expected, aligning with our full-year outlook and typical seasonality. Our sales for the quarter reached $1.4 billion, showing high single-digit growth, with organic growth being around 2% and inorganic contributing about $6 million. To quickly touch on the inorganic side: three acquisitions contributed this quarter. Systems Control, focused on substation solutions; Balestro, which aids our arresters business; and EIG, involved in power control components. All three are part of the utility segment and together accounted for approximately 8.5 points of growth this quarter. We also completed the residential lighting divestiture in early February, which resulted in losing two months of sales in the first quarter, impacting us by about 2 points. Qualitatively, we believe these acquisitions significantly enhanced the growth and margin profile of the enterprise. Operating profit remained favorable at 19.7%, although it decreased by 1 point. Better-than-expected performance regarding price-cost productivity was offset by challenges in our enclosures business, impacted by telecom exposure, alongside increased investments in growth and productivity, including some restructuring expenses that we’ll detail in the segment review. Earnings per share stood at $3.60, unchanged from last year, with operating profit growth being countered by interest expense, while free cash flow is on track to meet our full-year target of $800 million. As we look at Page 6, we will dive deeper into the performance, especially year-over-year comparisons. The first quarter of 2023 presented a challenging comparison due to exceptionally strong performance last year where price-cost was notably favorable. In that context, we saw operating profit and earnings per share rise by 70% last year, with margins increasing by seven points. This context is crucial for our year-over-year comparisons. Sales rose by 9% to $1.4 billion; 2% was organic, driven by three points of price. Volume slightly declined, but we are pleased with the strong price performance showcasing the robustness of our franchise. Operating profit increased by 3% in dollar terms to $275 million. Although we noted a year-over-year difficulty in comparisons, margins improved sequentially by 30 basis points, which we view positively in terms of preparing for a normal seasonal year. Earnings per share remained flat at $3.60, with operating profit affected by interest expenses from the three acquisitions, which had a combined value of about $1.25 billion. We financed these acquisitions through a mix of debt and cash, alongside the prior business sale. Regarding balance sheet impacts, our gross debt to EBITDA ratio increased from 1.3x to 1.8x following the $1.25 billion investment. We maintain a strong balance sheet that can support further acquisitions and capital expenditure, which I will discuss shortly. Our free cash flow was $52 million, absorbing a 20% increase in capital expenditures to $40 million. This reflects our confidence in our short- and medium-term outlook as we increase CapEx by 20%. Now, let’s start with the Utility segment on Page 7. Here, sales grew by 14% with operating profit up by 2%. This sales growth was primarily driven by acquisitions, with organic growth being neutral, composed of a three-point price increase offset by a similar decline in volume. We’ve reclassified our businesses into two units: grid infrastructure and grid automation for consistency with Greg's operational organization. In grid infrastructure, we have our traditional T&D business along with our new substation turnkey solution acquisition and other specialty infrastructure businesses. In automation, we include Aclara's meters and communication products, as well as protection and control products. The infrastructure business performed excellently, with transmission showing double-digit growth; however, distribution continues to normalize channel inventory, which is taking longer than anticipated. Electrical segment performance will be noted next, having undergone a similar phase last year and emerging strongly. Grid Automation also showed double-digit growth in both meters and communication as well as control and protection products, but the telecom sector, particularly within the specialty infrastructure business, faced a significant headwind with a 40% volume decline, causing an adverse impact to operating profit. Looking to the segment's operating profit, despite the challenges, an increase is commendable given last year’s 87% growth comparison. A margin decline of 2.5 points was primarily due to telecom factors, yet we maintain a positive medium-term outlook for our telecom business. Continued investment in long-term growth and productivity created a 1-point drag against operating profit. Acquisitions made are performing well profitably, although they added a slight drag in the first quarter. The price-cost productivity dynamics were encouraging, with the year-over-year comparisons being shown. Sequentially, margins improved by 40 basis points. On Page 8, we clarify the alignment of our business units within the grid infrastructure and grid automation segments, providing a clearer picture of their respective size and performance. We observe strong visibility in most of our markets and are set for healthy seasonality. Turning to Page 9 and the Electrical segment, sales remained flat at about $500 million, though excluding the impact of the residential lighting divestiture, we saw a 6-point organic increase with 2 points from price and 4 points from volume. There’s notable strength in industrial markets, specifically within growth verticals like renewables and data centers, both showing over 20% increases. Electrical Solutions’ strong performance translates well to the operating profit level, which increased by 6% to $80 million, with an 80 basis point margin expansion fueled by volume and pricing efficiency. Mark and his team continue to follow their successful strategy from Power Systems to foster a collective mindset in the segment, emphasizing cross-selling and optimizing structures. Despite some restructuring expenses, we could have seen a greater operating profit increase. In summary, we are pleased with the strong performance in the Electrical segment this quarter. I will now turn it back to Gerben to discuss our outlook for the remainder of the year.

Great. Thanks, Bill. To sum it up, our performance in the first quarter with Hubbell well on track to achieve our full year 2024 outlook for double-digit adjusted operating profit growth, which we are reaffirming today. Relative to our prior outlook, our electrical markets are off to a stronger start, and we have better visibility to positive price traction across both of our segments, which we believe will enable us to absorb the near-term impact of weaker telecom markets. Additionally, we are increasing our expectations for full year restructuring investments from $0.25 million to $0.35 million as we proactively manage our cost structure in certain areas of the business while continuing to invest in long-term growth and productivity initiatives. Looking further ahead, the acceleration of grid modernization and electrification megatrends together with our unique leading positions in front of and behind the meter will enable Hubbell to continue to deliver differentiated performance for our shareholders over the long term. We look forward to sharing more details on our long-term strategy and outlook with you at our upcoming Investor Day on June 4. With that, let me now turn it back to Michelle to begin our Q&A session.

As a reminder on your telephone, please wait for your name to be called. Our first question comes from Jeffrey Sprague with Vertical Research Partners.

I have a few questions. First, did distribution actually grow for Hubbell in the quarter? If so, can you provide the size of that growth? Regardless of the answer, could you clarify your perspective on end demand or sell-through during the quarter in the channel?

Yes. So I think the second half of your question is, we'll get to that first. I mean I think where we have the most visibility through our customer base and Gerben referred to being with 400 of them as recently as a week or two ago. We believe the distribution markets are growing, but it's also clear to us that the end customer, the actual utilities have a decent amount of inventory that in addition to what the channel had. And so I think that's causing the order patterns, Jeff, and the book and bill piece to be just an extended period of a little bit softer. So while we got good price, net-net, did not grow in the quarter. But we think it's going to bounce back strongly, and we feel very confident in that.

And maybe I'll add some context to what we see even through the first quarter and maybe coming even into April is, the good news is we are seeing a sequential, as you look from February to March into April, an increase in order rate. I think that's a reflection of that channel inventory, the distribution channel inventory normalizing. Our visibility into that is clearly better. I would say that if you look at it as the traditional uptick as we go into construction season, it's a little bit delayed and a little bit slower that ramp up for the comments that Bill made that feedback from the end user is that they're still working through it. That's also happening at different magnitudes. Some are going at it more aggressively, some are looking for that inventory to just be utilized in their growth. But the encouraging news is we are seeing it come up. This is exactly what happened in the Electrical segment. It's a little bit nervous while you're going through it, but we clearly went through that there. We saw the rebound in the first quarter, and we think that will happen in the Utility as well, particularly in that distribution, more book-to-bill form of the business.

And then Bill noted that some additional pricing has helped offset telecom in the guidance, but costs are also rising. Copper prices are increasing, among other factors. So, do you find yourself in a better price-cost position now compared to what you expected three months ago?

Yes. So we've got productivity levers too. And you're right to point out that we're looking at price kind of against material cost and then productivity against non-material inflation. And you're right, that inflation persists. So I think it's important, Jeff, for us to keep our eye on the productivity ball, as well as make sure we're being as surgical on price as we can be.

Your price-cost equation really hasn't changed that much then.

No. I mean, it was stronger in the quarter than we had originally anticipated. But also, I think as the year unfolds, when we told you that we had started our outlook with about a point of price, we obviously had 3 points in the quarter. So we're sort of off to a good start there. But I think very specifically in Telecom, we may need to use price surgically to build back some volume there. So it's a dynamic equation, I would say.

Great. And then just one more for me, if I could. What was the sequential impact on Utility Solutions margins from the Telecom weakness? It was encouraging to see the margins move up sequentially. And I think you have certainly mix headwinds between grid infrastructure, grid automation, relative growth rates. But Telecom specifically sequentially; was that a meaningful headwind in the quarter?

Yes, Jeff, it's still a headwind, less than the $150 million year-over-year, I'd say, though.

One moment for the next question. Our next question comes from Steve Tusa with JPMorgan.

Can you guys just give us a little bit of color on the second quarter on EPS, just relative to normal seasonality? Any kind of sequential color there? And then how do you expect the utility margins to trend throughout the year?

Yes. First of all, nice sweep, but it's a bit of a tough question since we don't provide quarterly guidance. However, we're viewing the first half of the year as typically seasonal, which should contribute around 47 percent. We're confident that we'll deliver at that level to meet our full year guidance. I'm not sure if this answers your question exactly, but that's our macro perspective.

No, that's perfect. That's absolutely perfect. And then just the Utility margin over the course of the year?

Yes. I think that as we get normal seasonality for us is to pick up volume and margin in the second and third quarters; Q4 kind of steps back. So to be thinking about quarter compares can get tricky. But if you extend your question to the full year, we're expecting margins to be reasonably flattish over the course of the whole year.

But the second quarter will be up from the sequential expectations: margins in the second quarter over the first will stay elevated and stay in the third quarter and then decline...

One moment for our next question. Next question comes from Nigel Coe with Wolfe Research.

So, referring back to the Utility inventory levels, where do we currently stand regarding channel inventory? Historically, six weeks has been the norm; I’m curious if we are approaching that point. Additionally, do you have any insights on the shadow inventory still held by customers? My broader question is, when do you anticipate that sell-in and sell-out will reach a balance?

Yes. Maybe I'll start, Bill, fill in. I would say in the distribution channel, and that's where we have better visibility, right? Because we sell and then we see their sell-out in a fairly good amount of them that are stronger partners there. I would say typically, and that varies, of course, by product line. But if you think about 90-ish days of inventory, they're pretty much back there. I mean, they're pretty much done with inventory stock out of our materials, particularly the distribution materials where it's more stock and flow. It gets harder when you look at the end customers. We do have very close relations with some of them where we get direct feedback with events like we were at a couple of weeks ago, where you have a lot of them. We triangulate, and it's elevated, but it's by varying degrees of elevation. It's really, really hard to say there, Nigel, exactly what the level is. What is even more interesting is that when you talk with them, some say they clearly have and are working that down, whereas others are saying it's not our focus right now. We're looking to serve the needs out there, and perhaps it's a thought for down the road. This is where that gets really hard. For us, what we look at is that ramp-up, what we would normally see seasonally happening and to what extent. As I stated in the first quarter, the last time we said we thought we would be mostly through within the first quarter. I think that’s probably still the case. But to exactly pinpoint what will be done, it's just very hard.

Okay. So considering the full year expectations for the Utility Solutions segment, I’m looking at 4% to 5% for the whole year. Is the second quarter still below that expectation? And then will the second half perform better?

Yes. And again, I think as we've tried to put in that little box, we think the T&D compares get a little bit easier, and some of the automation compares get a little harder. But the larger part of the business is the infrastructure piece, and that's where we think you'll see the back-end growth.

Okay. I had a quick one on utility margins. Obviously, recognizing that the bulk of the year-over-year was driven by the Telecom headwinds. So the balance, roughly 100 basis points outside of that headwind, would that be mainly volume deleverage? Or was there an M&A impact from the Systems Control?

Yes. The M&A impact from Systems Control was very modest, given that it right, it was 14% of sales and the margins were in the mid-20s that it was kind of comping against. So it did very nicely in its margin, but it had a slight drag from there. I think if you think about operationally the investments that we made ultimately created a point of drag as we went through. So that is something we're very intentionally not harvesting quarterly margin. We believe that we're going to add capacity to this business for this kind of very immediate and multi-year growth that's in front of us. But I think we were encouraged by the sequential pickup as well.

One moment for the next question. The next question comes from Tommy Moll with Stephens.

I wanted to start on the topic of the supply environment for your utility business. You've invested in response to significant demand in expanding your supply base, but others in the market have as well. So I'm just curious, at a high level, how would you characterize that supply-demand environment today? Has it shifted at all?

Yes. I think where we're adding capacity is in the areas where we see visible longer-term growth, right? So if you think about Transmission and Substation, those are areas of the business where the orders are very strong. Our backlog has continued to grow. Discussions with our customers clearly indicate that they need these materials. And so we've invested in those areas. I think if you look across the industry, you see perhaps different peers investing in different areas. Of course, I would also expect those that compete in the same areas to invest in that. Our overall level of increase, I think, is supportive of the supply and demand characteristics rather than that we're somehow over-investing in there.

A couple of metrics that support, I think, Gerben, is I think our service levels are reaching very good levels. Our lead times in most areas are coming back to normal. Those two facts or outcomes, I would say, are pretty demonstrative of an improving supply chain environment.

Yes, Bill, I will address that again. Our customers primarily want us to provide excellent service and quality products. In our conversations with them, their main concern is this. We've successfully reduced our lead times and increased our service levels, all while investing in the business and building strong relationships; this is what our customers desire. As a result, a normalized supply chain allows them to feel assured that we will deliver for them. This is a natural outcome and ultimately beneficial for the business in the long run.

I wanted to follow up on the comment you made regarding pricing for Telco. Just clarify a bit what you meant? I think, Bill, that was a comment you made in the context of a broader pricing discussion.

Yes. I mean, I think we're really pleased generally with the pricing construct. We had about 1 point of wraparound price from our last year actions. So for us to garner 3 points in the first quarter implies success at getting some new price. I would say, generally, while Electrical did very well in that regard, Utility did even better. Across the enterprise, we think that pricing is in very good shape. I think we're going to be quite surgical about it. And there may need to be instances in the Enclosures area where we need to use price a little bit. But overall, net-net, as an enterprise we feel quite good about overall pricing. I think that's a function of the quality of the product, the quality of the relationships that we have, the positions that we have, but maybe most importantly, the relative service levels that we provide to supply our customers with the critical infrastructure solutions that they need. So that's been a very good story for us.

One moment for the next question. The next question comes from Julian Mitchell with Barclays.

Just apologies I wanted to circle back to Telco. Just that I see the color on sort of Slide 8. And clearly that exposure was down 40% in the first quarter. But just to try and understand, full year as a whole, what are you dialing in for that Telco business in terms of year-on-year trends in Telco?

We expect a decline in double digits for the full year. The second quarter is likely to follow the trend set in the first quarter, and the year-over-year comparisons in the second quarter will be easier since we saw the decline starting in the second half last year and accelerating towards the end of the year. Our outlook indicates a year-on-year drop, which we considered when we provided our guidance. There are industry discussions suggesting a possible rebound in the second half, but we were somewhat cautious about that perspective, and I believe that caution has been validated.

That's helpful. And then just my second question would be around Utility margins and the trajectory there. I understand the pricing sounds pretty good there, and you've now got the Systems Control effect in that Q1 margin already. So as we're thinking sort of the balance of the year in Utility margins, do we think about a steady sequential increase through the year and then you end up at that sort of flattish margin for the year as a whole?

It's the right way to think about it. The only clarification is that typically in the fourth quarter, we'll see it come down again. So it'll increase in the second and third quarters, then decrease slightly, but the overall trend year-over-year, particularly for the Utility T&D component, is accurate.

One moment for the next question. The next question comes from Brett Linzey with Mizuho.

Yes, I just wanted to come back to the investments. Can you just remind us in size what you're thinking about in terms of investments for the year? And then what was spent in Q1? I'm just trying to think about the phasing first half, second half on some of the spending initiatives.

Let’s first discuss the investments. Some of these are focused on expanding capacity within the Utility segment, especially in the transmission and substation areas, as Gerben mentioned. On the Electrical side, there's a focus on helping Mark achieve his vision for the segment to compete as a whole, which includes some restructuring. As Gerben noted, we are increasing our annual outlook by $0.10, specifically due to restructuring, raising it from $0.25 to $0.35 million. You should see this impact spread reasonably evenly throughout the year, particularly since some of the investments are related to depreciation from capital expenditures made last year. The restructuring will depend on when we can execute the plans.

And maybe the only thing to add there is if you look sort of out year expense, I think as you stated, what you'll see over year-over-year is that will start flattening as the year progresses because we accelerated investment particularly in the second half of last year. So from that perspective, the comps just get easier on that investment.

Okay, great. And then just a quick follow-up, Bill. In your prepared remarks, you noted something about a sequential 30 basis point pickup. Was that 1Q to 2Q? Just the context in what you meant there?

No, no, 4Q to 1Q is what I meant. So just when you saw a 1 point year-over-year decline, it also is a 30 basis point improvement from the fourth quarter. We actually think that's a good sign.

One moment for the next question. The next question comes from Nicole DeBlase with Deutsche Bank.

Just on the Electrical segment outlook, just double-checking that, organically, you guys are still thinking up 3% to 4% for the full year? And I guess, in light of the outperformance in the first quarter, could this maybe be an area of upside?

Yes. I think you've got the outlook right, and I think you also have that we were encouraged by the first quarter. Both of your statements, I agree with, yes.

Okay, perfect. And then secondly, on the Meters and AMI business, you guys kind of put that additional color in the slides. Is your expectation that it actually declined year-on-year in the second half on the back of those tough comps or still up, but just not as much as the first half?

Yes. We were just, Nicole, trying to indicate a flattening there. You saw pretty impressive growth in the first quarter. As those comps get harder and we kind of managed through the backlog, we were expecting that to be a lot flatter.

One moment for the next question. The next question comes from Christopher Glynn with Oppenheimer.

Nicole, just beat me to the punch on the Electrical question there, but going in a touch further, you talked about electrification driving broad-based strength across industrial markets. Can you talk a little bit about the growth in the industrial market? What type of electrification capitalization are you associating with that?

Yes. There are many background trends at play. There is some genuine onshoring occurring, as well as significant electrification that is leading to the development of large semiconductor plants. This has resulted in substantial construction and project activities. We specifically highlighted renewables and data centers, both of which align with the Electrification theme. Overall, we believe the industrial outlook is positive. I would emphasize onshoring as a key trend, with electrification really driving the verticals we are focused on. This creates a favorable setup for us in the Electrical segment.

Okay. Just a little stale on the size of the renewables and the data center businesses, if you could help there.

Yes. It's in the range of 5% to 10% in each of the segments, Chris. Less than 10% each.

One moment for the next question. The next question comes from Joe O'Dea with Wells Fargo.

Just wanted to ask on Telcom; it sounds like a challenged environment currently, but also constructive medium-term outlook. Can you just parse a little bit the key developments that you need to see to transition from current challenges into something that's more constructive?

I wanted to mention that we noticed a decline in orders last year, which happened alongside a significant backlog. As we worked to reduce that backlog, the low order levels indicated a need for a recovery in orders once the backlog reached manageable levels. In the Enclosures segment, which supports telecom and cable companies, discussions with these clients and our distributors, as well as other suppliers in the industry, show a sustained optimism regarding infrastructure development. We need to see orders increase, which we believe will correlate with inventory levels returning to normal. Additionally, there is expected to be some stimulus funding that will impact this segment, arriving around the time inventory levels decrease, potentially leading to a surge in orders. Essentially, we need customers to start placing orders as they recognize that end customers are making installations and inventory levels are stabilizing.

And so it sounds like it's more of an inventory normalization headwind than it is in end market activity headwind. Is that fair?

We 100% believe that's true, yes.

Okay. And then just a question related to the utility distribution side of things and the degree to which you see any instances of long lead times in certain product categories; not necessarily what you ship that are inhibiting some end market activity. And so the idea being that over time, as those correct, could there actually be a bit of an uptick or sort of surge of demand as other channels correct on lead times?

I think you point out a good point that our distribution products, by and large, the lead times are quite normalized, very quick to be able to satisfy demand. Ultimately, products like transformers are still gapped out in terms of lead time. So, I think that makes project planning a little more difficult. Some of our products may suffer a little bit from that. But generally, we're giving now good visibility, hitting our on-time promise dates. Our part is much more predictable than it had been a year and a half ago. But I agree with you, there are still other long lead time products; we have some long lead time items on the transmission side too. So, distribution, I think you're right. Our stuff is ready to go.

One moment for the next question. The next question comes from Scott Graham with Seaport Research Partners.

I have one and one follow-up. On HUS, would it be fair to say second quarter sales volumes flat? Or can they be up? And then obviously, second half is up? Then I have that follow-up.

Yes. So Scott, we're not giving quarterly guidance. I think the Slide 8 should give you good considerations of how we're viewing it sequentially and how the comparisons play out in 2Q in the second half.

No problem. You made a comment in the HES slide on project activity. Could you elaborate on that a bit?

I just think there are some big projects out there and things like chip plants and reshoring of large-scale industrial projects. Those are multiyear projects; our products tend to go in mid- and late-cycle on that construction. That's a great leading indicator, as we see those projects get started. We’re quite confident we'll get our fair share of that net and late-cycle install components.

I show no further questions at this time in the queue. I would like to turn the call back over to Dan for closing remarks.

Great. I'll take it from Dan. I appreciate everyone's time. As Bill mentioned, on this busy morning, we are looking forward to spending time with you in June at our Investor Day. We will discuss in greater detail our business direction over the next three years. We are certainly excited about our focus on building profitable growth based on the foundation we have established. Those are the expectations you can have as we approach June. Thank you, and we look forward to seeing you soon.

This concludes today's conference call. Thank you for your participation. You may now disconnect.