Good day, and thank you for standing by. Welcome to the Hubbell Incorporated Second Quarter 2024 Earnings Conference Call. At this time, all participants 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 your speaker today, Dan Innamorato, Vice President, Investor Relations. Please go ahead.

Thanks, Shannon. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the second 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; and 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 to 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. Thanks, Dan. Good morning, everyone, and thank you for joining us to discuss Hubbell's second quarter 2024 results. Hubbell delivered strong operating performance in the quarter, generating 8% year-over-year adjusted operating profit growth and 40 basis points of adjusted operating margin expansion along with 7% year-over-year growth in adjusted earnings per share and free cash flow. Given our first half performance and continued visibility into the second half, we are raising our 2024 outlook this morning and are confident in our ability to deliver double-digit adjusted operating profit growth on a full-year basis. Performance in the quarter was highlighted by strong organic growth and margin expansion in the Electrical Solutions where robust project activity drove strong growth in data center and renewables markets and where our vertical market strategy is uniquely positioning Hubbell to serve the needs of our customers. As we highlighted at our Investor Day in June, HES is executing on two strategic focus areas to compete collectively in high-growth verticals while also simplifying our business to drive productivity and operating efficiencies. We are making good progress on both of these initiatives, and we also continue to benefit from our portfolio transformation efforts, which align the segment to structurally higher growth and margins over the long term. In Utility Solutions, while we continue to be impacted by weak telecom markets and to a lesser extent, customer inventory normalization and utility distribution market as anticipated, T&D end market demand remains strong. Transmission and substation markets achieved robust double-digit growth in the quarter as utility customers invest in upgrading the grid infrastructure to interconnect new sources of renewable generation with load growth from data centers and other electrical applications. As we highlighted to you last month, our leadership across T&D markets and strong relationships with utility customers uniquely position Hubbell for sustained outperformance over an attractive long-term utility investment cycle as grid modernization and electrification megatrends accelerate. Operationally, we drove positive price/cost productivity across both segments while continuing to invest in capacity and productivity initiatives, including another quarter of higher year-over-year restructuring and related investments. Overall, we are pleased with our operating performance in the quarter, even while absorbing pockets of challenges in certain large, high-margin businesses Hubbell is proving the ability to compensate off of recent outperformance. This is a testament to the quality of our portfolio, the attractiveness of secular trends we are exposed to and the strength of our people and operating model. With that, let me now turn it over to Bill.

Thanks, Gerben, and good morning, everyone. I appreciate you joining us, especially considering the number of releases this morning. I’ll begin my remarks on Page 4 of the materials. Hubbell delivered strong second-quarter results that exceeded our expectations, primarily due to contributions from the Electrical segment. This came from robust market growth in targeted verticals and effective execution related to productivity and costs. Sales increased by 7% to $1.45 billion, with 2% coming from organic growth, primarily priced, and 5% from acquisitions. Just to recap, we had an 8% contribution from acquisitions from three deals closed last year, and a 3% headwind due to the divestiture of Residential Lighting earlier this year, resulting in a net 5% impact from M&A. Exiting lower growth, lower margin businesses and embracing higher growth, higher margin businesses has proven beneficial for our enterprise. The operational performance reflects margins of 22.8%, an expansion of 40 basis points year-over-year, which is crucial as we aim to improve those margins throughout the year. The margin improvement was largely driven by the Electrical segment. The Utility sector also showed sequential increases in operating profit quarter-over-quarter, along with favorable price/cost dynamics and productivity improvements in both segments indicating strong execution. Our pricing strategies and investments from last year led to productivity enhancements in our factories this year. Earnings per share saw a 7% increase to $4.37 adjusted EPS. The operational contribution was 8%, which paired with increased interest expense resulted in overall earnings growth of 7%. For free cash flow, we recorded $206 million, keeping us on track to meet our annual target of $800 million. Moving to Page 5, I want to leverage these visual graphs to revisit key insights from our Investor Day about the remarkable improvement in Hubbell's performance over the past three years. At that event, we highlighted that Hubbell is now bigger and better, setting a strong foundation for future growth. Over the past two years, we experienced a compound annual growth rate of 14% in sales and a continued sales growth of 6%. For operating profit during those years, the growth rate was 38%, and we are still achieving an additional 8% growth. For earnings per share, we noted a compound annual growth rate of 36%, and we are also witnessing a 7% growth off that base. This illustrates how we are building from an improved performance level. On Page 6, let's delve into the performance by segment, starting with the Utility segment. This segment's narrative has two parts: sales and operating profit. Sales increased by 12% to $927 million, primarily driven by acquisitions, while organic growth was slightly down. Similar to the first quarter, both grid infrastructure and grid automation contributed double-digit growth. Focusing on sales, grid infrastructure is up 12%, significantly influenced by the Systems Control acquisition, which provides integrated solutions for substations. The business is performing well, growing at attractive margins. The mid-single-digit decline in organic growth is mainly attributed to the Telecom end market, which remains down 40%. However, we anticipate better comparisons in the second half. The Telecom market performance has somewhat overshadowed the positive developments in our core transmission and distribution business, which is experiencing organic growth and margin expansion. Shifting to the grid automation unit, we see double-digit sales growth with organic growth at 8%. We continue to see strength in the demand for smart grid solutions, enhancing our resilience. Notably, margins have improved sequentially by 220 basis points, reaching an increase of 4% in dollars to $222 million. However, year-over-year margins dipped from 25.6% to 24%, primarily due to declines in Telecom volumes. Increased restructuring investments and the Systems Control acquisition, while having attractive margins, have also created a modest headwind. Nevertheless, improvements in price/cost productivity are effectively countering the impacts of restructuring and acquisition-related effects, positioning us well for a solid second half for Utility margins. Now, I’ll proceed to Page 7 to discuss the Electrical segment. Our Electrical team reported strong performance in Q2, with 7% organic growth and a 350 basis points increase in margins to over 20%. This growth largely stemmed from our targeted vertical markets, particularly data centers and renewable energy. We are well-positioned in rapidly growing markets due to our strong product offerings and collaborative efforts, enhancing customer engagement and product development. Although these segments account for about 15% of total sales, their significant growth rates have driven much of the incremental growth. Overall, the industrial market, especially outside residential sectors, remains robust, and we've effectively exited the destocking phase we faced last year. Margins rose 18% to $109 million with a 350 basis point increase to 20.8%. The sale of the residential lighting business significantly impacted our margins positively; although segment sales dropped by 9%, margins improved by over 50 basis points due to the absence of that business. Additionally, as volumes recover post-destocking, particularly in promising verticals like data centers and renewables, we've seen favorable price realization and productivity improvements. We anticipate continued strong performance in this segment moving forward. Now, I’ll hand it back to Gerben to cover some areas of growth.

Great. Thanks, Bill. And before I go to the full-year outlook, I want to take the opportunity and just highlight a couple of growth areas for us. And as Bill just talked about in the segment discussions, we are seeing some strong pockets of growth in specific markets and product lines within our businesses. And one of the themes that emerges when you look across the performance of the portfolio is that some of the strongest growth is in the areas which tend to be exposed early in the industrial project cycle, in particular, in data center and renewables verticals across both utility and electrical markets. For example, Hubbell has a leading position in electrical grounding with our Burndy brand, where we are highly specified across key end markets with the premier grounding solution in the industry. These products are typically installed early in a project cycle once construction breaks ground and year-to-date revenue in this product category is up over 30%, much of that growth being driven by data center and renewable projects. This is a positive indicator for continued market growth in these areas as we continue to execute on our vertical market strategy and pull through other specified solutions as these projects progress. In Utility Solutions, Bill highlighted strong growth in transmission and distribution and transmission and substation markets. And as we think about substations, this market is very much at the intersection of trends in renewables and data center as substations are needed to interconnect new sources of generation and load. We have a strong position in utility substations, and one of those key product categories is substation switching, which is a critical solution enabling utilities to isolate portions of the grid for maintenance and repair. We have realized over 40% sales growth in this product category in the first half with orders and demand outstripping sales. As we consider the longer-term impact of load growth on the grid, Hubbell is uniquely positioned with our offerings across transmission, substation and distribution to enable the upgrading of this aged infrastructure. We believe that grid modernization and electrification will continue to drive growth across our portfolio over a multiyear investment cycle. We have positioned our portfolio and our strategy to take advantage of these opportunities and to serve the needs of our customers, both in front and behind the meter. Now turning to our outlook for the second half and full-year. Hubbell is raising our full-year adjusted earnings per share outlook this morning to a range of $16.20 to $16.50. We currently anticipate 7% to 8% sales growth and approximately 3% organic growth for the full-year, with adjusted operating margins of 21% to 21.5%. This represents double-digit free cash flow and adjusted operating profit growth at the midpoint, as well as solid adjusted operating margin expansion off of strong 2023 levels. Our first half performance puts us well on track to achieve this increased full-year outlook. Looking ahead to the second half, we see continued momentum in execution in Electrical Solutions, and we expect utility solutions to achieve improved levels of organic growth while returning to year-over-year adjusted operating margin expansion. Longer term, we remain confident in Hubbell's ability to compound on recent outperformance. At our Investor Day last month, we laid out a multiyear financial outlook for mid-single-digit organic growth and attractive incremental margins, along with strong free cash flow generation and deployment as grid modernization and electrification megatrends accelerate into 2025 and beyond, Hubbell is well positioned to consistently deliver on these commitments while serving the growing needs of our utility and electrical customers. With that, let me now turn the call back over to Shannon for the Q&A session.

Thank you. Our first question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is now open.

Thank you. Good morning everyone.

Good morning, Jeff.

Hey, good morning. Just on Utility in general, and I guess just kind of specifically, first question is just on the inventory dynamics. It doesn't sound like you're necessarily declaring victory on the channels being cleared at the customer level. Maybe just give us any kind of additional insight on where we stand as it relates to that. And your view of what end demand and distribution might have been in the quarter even though you were dealing with some sell-in issues as inventories correct.

Yes, let me start, Jeff. As we mentioned earlier this year, the destocking, especially on the distribution side of utilities, lasted longer than we initially expected. This was mainly due to the limited visibility we have regarding the end customer. There are signs that this situation is improving, but it's challenging to assess because it varies across different customers and product lines. In some product lines, we're noticing the destocking coming to an end and seeing an increase in demand, while in others, we still observe ongoing destocking. For context, we faced a similar situation in the Electrical segment last year, which was also hard to predict. However, a strong indication that it was ending was that demand started to rise again, leading us back to growth. We still see strong end demand. This is reflected in growing CapEx budgets for utilities, not just in actual spending but also in future projections. Conversations with our customers show that they are continuing to invest, particularly in areas where destocking has ceased and certain product lines, along with strong demand in transmission and substations. We have clear signals that the end demand in T&D remains robust, and we will need to navigate through this period in the second half while working with various customers and product lines.

And then just on the kind of the transmission and substation markets, the comment that things are growing double-digit there. Obviously, systems control is not in the organic base, but is it also growing at that double-digit pace? And I just want to clarify on margins, too. I think Bill said margins there were down versus last year. I think you just meant the mix effect of the lower margin business coming in. But can we clarify that, maybe how the margins are tracking and systems control also.

Yes. Let's start with the second question. So their margins are at attractive levels. We didn't have them last year, but they're just a little bit below the mid-20s. And so we love adding that kind of margin, Jeff, but it's interesting. It creates a little bit of headwind quarter-over-quarter. And I would say that the transmission and substation growth of double-digits is an organic, not an acquisition impact. It's grown organically at that level.

But Systems Control growing in line with that double-digit pace in the broader market.

It is, and we didn't own it last year, but yes, it is compared to what it was doing last year.

Hey, good morning.

Good morning, Steve.

Can you just give us some color in Utility on what the like margin is in the second half kind of an exit rate? And then any color you have on pricing there?

Yes. Let's begin with pricing. We believe we can continue to operate in an inflationary environment. While some materials like copper and steel are fluctuating in different directions, we are still managing well. Despite the conditions, we don't feel pressured to lower our Utility prices, even if steel prices are down. Our customers recognize the value of quality, reliability, and on-time delivery. For instance, our recent efforts in Houston during the past month, particularly in supporting customers during hurricane-related outages, underline our commitment to helping them recover quickly. This support enhances our value proposition and supports our pricing strategy. So, while I may be overinterpreting your question regarding commodity impacts, we are not facing pressure at this time.

So I guess just the margin like a little more precision on the margin, your exit rate or the second half?

Let me help you. We expect margins in the second half to improve from the first half with some of that organic volume coming back.

And then just one last one for you on the seasonality. You said last quarter that you expected kind of a normal seasonal year, 47%. You were very precise on that of EPS in the first half. Any reason why that would change?

I believe the 47% figure is a broad measure, and I mentioned it to remind everyone that we will experience typical seasonality. Over the last five to ten years, we have seen figures around 47%, 48%, and 49%. While it may be a sensitive way to describe seasonality, our current guidance is leaning more towards an expectation of 48% or closer to 49%.

Thanks. Good morning. Maybe Bill, I'll turn to kind of the implied question, maybe you want Steve's question on its tail. Maybe you talk about steel prices have come down a lot since you gave your plan in January. So perhaps price cost might be more tailwinds from here. I mean, how do you respond to that, given that the pricing and utility remains very strong.

Yes. I think you're noting a favorable change in steel. However, there have been some negative fluctuations in copper, along with increased inflation impacting transportation and wages. It's challenging to focus on a single commodity and draw too many conclusions about any potential positive price performance variance.

So everything is aligning with our plan. I wanted to explore the trends in core Utilities. We experienced an organic decline of 6% this quarter. Did I miss the pricing in Utilities? I'm assuming it’s around 2% or 3%, so let’s say we’re looking at a decline in high single-digit volumes. If we exclude Telecom from the equation, are we seeing low single-digit performance in core Utility components? Additionally, can we discuss the book-to-bill ratio? Are we now at a point where the book-to-bill is above 1%?

Yes. Let's look at a few components here. First, you mentioned the pricing being accurate at certain points. I believe you are correctly identifying the enclosures and the Telecom market to highlight appealing growth rates in core transmission and distribution. The book-and-bill situation is something we have been analyzing, and it has not returned to one just yet. However, it is important to note that a couple of years ago it was significantly above one, and that process is currently normalizing, Nigel.

I would like to add that the majority of our businesses operate on a book-to-bill basis. Recently, we have incorporated some businesses, like Systems Control and Aclara, where backlog plays a more significant role due to the long lead times associated with order planning. However, most of our operations follow a typical book-to-bill ratio of around one. Over the past few years, as mentioned by Bill, we have prioritized reducing backlogs, as doing so enhances our service quality and shortens lead times, which is a significant benefit for our customers. Therefore, our strategy focuses on lowering our backlog, and we continue to have areas where lead times are still extended and backlogs are high, which we are actively working to address. This makes it challenging to answer growth-related questions. We aim for low backlogs to maintain attractive lead times and service levels.

Great. I'll leave it there. But if you could maybe just clarify, Bill, the proportion of the Utility business with Telecom. So you can just pull that up appropriately, that would be great. Thanks.

About 10% of the segment, Nigel.

Hi, good morning.

Hi, Julian.

Good morning. Maybe just wanted to clarify the 3% organic growth for the total company for the year. So is that kind of very low single-digit growth in Utility and then sort of mid-single-digit plus in HES, is that the right framework? And just within Utility, curious what the updated Telecom assumption is for the sales change in the year after down 40% in the first half, please?

Let me start with Telecom. When we began our guidance, we anticipated it would decline by double digits. We expected a 40% decrease in the first quarter, which carried over into the second quarter with another 40% drop. As a result, we adjusted our Telecom expectations to reflect a decline of about 25% for the year. In breaking down the two segments within the 3% growth, Electrical is expected to see mid-single-digit growth, while Utility is projected to achieve low single-digit growth.

Good morning, everyone. Thank you. I wanted to revisit the telecom markets, which are down as anticipated. Could you provide any insights regarding the visibility for the latter half of the year and customer preparedness for some of the speed funding?

Yes, so maybe I'll start that one. And maybe if you take a step back, as you look at last year, Telecom was up double-digits in the first half of '23. It went down sharply double-digits in the second half of '23. So certainly, as we go into the second half now, we're going to see easier comp. But as you look at maybe first half, I mean second half to second quarter, we see that pretty flattish BEAD money you talk about, that's still an area that we believe will drive growth and need to invest in this area is very clear to us, especially in rural deployment of fiber. So we see that coming. Money is starting to flow to some of the states and the states have gotten to identify the projects. They got to bid those. So we see that more as a '25 and perhaps later in '25 coming back. So we do believe we're at the bottom here. We believe we'll be along the bottom for a little while, and then we'll see that coming up slowly through the balance of this year and then into next year.

Hi, good morning. Thanks for taking my questions. I wanted to start on the second quarter electrical op profit. And so if we just look at it sequentially, it was up $29 million. Revenue was up $21 million. So any bridge details there in terms of the op profit growth exceeding the revenue growth sequentially with that bridge on what you saw on the price side, I imagine there were some costs and maybe some mix, but any details you can help with would be great?

Yes, Joe, as we went from first quarter to second quarter one of the contributors to that incremental drop through sequentially was the absence of the Residential Lighting business. The second was the strong, strong growth in data centers and renewables is occurring in product areas that are very strong margin areas. So you're getting a mix effect there. And then lastly, there have been some productivity improvements and just cost consciousness between first and second quarter that showed up. So that a lot of those us are working together to get those kind of sequential drop throughs.

So this wasn't a matter of some new pricing in the quarter. It was much more kind of mix and productivity?

Yes, yes.

Thanks. Good morning guys.

Good morning, Chris.

Just on the distribution, some topics about maybe impacts of subdivision build-outs declining and incremental emphasis on transmission and generation spend. Does that borrow from distribution spend at all? Just curious about those couple of dynamics, as may or may not relate to destock lasting a little longer than maybe you thought three or six months ago?

Yes, it's a hard question perhaps to do the funding that are spending compete with one another. I'm sure to a certain extent, Utilities have budgets and if they, in one year, direct more one way or another could happen. The good thing is our portfolio is well exposed to both sides. I would say if they're diverting from one area to the other, we'll see the benefit in those areas. I'd say narrowly to your question of residential and starts, I would say it's probably a fairly small effect on our sales and our portfolio much more to us drivers are, things like grid hardening, grid modernization, load growth in general, and those are all good vectors that are helping to grow our markets.

Good morning. Thank you for taking my question. I have a couple of quick ones. Regarding the distribution where you mention that end market demand is solid, does that indicate that the point of sale is flat or up 8%? Could you provide a little more detail on what you mean by that?

Yes. What we mean is that in the field, product is being placed on distribution poles that exceeds our sales to our customers. That’s where we see the demand. So we may not be discussing orders specifically, but rather the demand for the material in the market. This is leading us to observe inventory levels decreasing, and we anticipate returning to a more typical book-to-bill relationship.

Great. Thanks, Shannon. And thank you, everybody, for joining us. We'll be around all day for questions. Take care.

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