Hubbell Inc Q2 FY2025 Earnings Call

Hello, and welcome to Hubbell's Second Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Dan Innamorato. You may begin.

Thanks, operator. 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 2025. 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. These 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 considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, which are included in the press release and slides. Now let me turn the call over to Gerben.

Thanks, Dan. Good morning, and thank you for joining us to discuss Hubbell's second quarter 2025 results. Hubbell delivered double-digit adjusted earnings per share growth in the second quarter, driven by strong organic growth in Grid Infrastructure and Electrical Solutions as well as year-over-year adjusted operating margin expansion of 120 basis points. We are raising our full-year outlook today, and we remain confident in our ability to deliver attractive financial performance for our shareholders over the near and long term. As detailed in this morning's press release, our results and outlook this morning are presented on a FIFO basis. Bill will provide you with some additional details in a few minutes, but this transition enables a greater consistency of cost accounting method across our businesses and better matching of expense and revenue recognition, particularly during inflationary periods. While raw material inflation and tariffs are driving incremental cost inflation relative to our initial outlook, you will see throughout today's presentation that we have been proactive in driving price and productivity across our portfolio, and we are well positioned to achieve positive price/cost productivity in 2025. In Utility Solutions, performance in the quarter was highlighted by 7% organic growth in grid infrastructure. Transmission and substation markets remain strong as our utility customers invest to interconnect new sources of load and generation on the grid, and distribution markets returned to growth as the recent customer inventory normalization cycle has run its course, and our sales growth in the quarter recoupled to reflect solid end market demand driven by grid hardening. Grid infrastructure orders remained strong, up high teens year-over-year in the first half and supporting our expectation for strong organic growth in the second half. While grid automation performance was weaker than anticipated, strong growth in our higher-margin T&D components product categories drove favorable mix dynamics in the quarter. In Electrical Solutions, we delivered mid-single-digit organic growth with continued adjusted operating margin expansion and 9% adjusted operating profit growth. Our segment unification efforts and our strategy to compete collectively are driving outgrowth in key vertical markets, most notably evidenced by strong data center growth in the second quarter. From an operational standpoint, we continue to simplify our business to drive productivity and operating efficiencies, which we are confident will drive long-term margin expansion. While the macroeconomic and inflationary environments remain dynamic, Hubbell is well positioned in attractive markets with a leading portfolio of brands, and we are proactively managing our cost structure and pricing actions to drive continued profitable growth. Now let me turn the call over to Bill to provide some more details on our financial results.

Thanks, Gerben, and welcome, everyone. Thank you for joining us. And maybe before my comments, if I could just offer a personal note of support. Any of you who were in Midtown yesterday, a rifle being discharged at Park Avenue 52nd Street is a pretty disturbing day. And I just hope you and your people are all okay. So I'm going to start my comments on Page 4 of the slides that you hopefully have found and start with our adoption of a unified FIFO-based inventory accounting standard. Our previous state had been roughly in very rough terms, half LIFO, half FIFO. That was really just an outcome of companies we had bought or companies we had sold. We just brought them on in their prior standards, and we thought this was a good time to make the effort to harmonize that with maybe three specific benefits. The first being running the company under a single methodology, I think allows us to simplify our business reviews and have everybody running the same way. I think secondly, in an inflationary environment because of the fact that our pricing typically takes about a quarter to get into the revenue stream, we find this creates a better match of the timing of when new higher costs are recognized and when those new prices are recognized. So previously, we created a distorting lag and asked you to be patient, and I think now we can offer you a more accurate recognition of our margin in the quarter that it's happening. And I think third, I'm hoping it puts us from your perspective on the same footing as our reporting peers. So hopefully make it easier for you all to make comparisons and contrasts and better judgment. So obviously, none of this destroys or creates profits during a cycle. It's just the timing of when the expenses are recognized. So the implications you can see on the right-hand side of the page were a $29 million decrease in COGS in the second quarter and a $20 million decrease in COGS for the first half. So you see the impact on the first half of '25 was about $0.30, and that's equivalent to the range in guidance that we've made and that Gerben is going to talk about more at the end of the conversation. The other implication is an acceleration of some tax payments to be made over the next several years, and interestingly, those payments will be more than offset by what we're expecting to be cash benefits from the new Tax legislation that was recently passed in early July. So all of this, we just wanted to remind on the bottom of the page. We feel the obligation to continue to put out a high-quality reporting framework. We think a more harmonized standard continues to contribute to that, and we're just calling out here, reminding everybody that we do things like fully burden our segments with corporate costs. We include restructuring costs in our results because we feel they're an important part of our ongoing performance, and we as well recognize the benefit. So enough, hopefully, on accounting. So turning to the performance. I'm on Page 5. Our sales were up in the quarter 2% to just under $1.5 billion. There was general strength in our Electrical segment, and in the utility side, the strength was on the grid infrastructure area, and in grid automation, we had a weak quarter of double-digit contraction. If you put the Electrical segment and the infrastructure side together, you'd have a mid-single-digit growth rate, and that grid automation piece provided a couple of points drag to the overall sales results. Second column, you see adjusted operating profit. The dollar is up 8% in the quarter to $362 million, and the margins widened by 120 basis points to 24.4%. If we talked about the drivers there. Interestingly, we tend not to talk about mix very frequently with you all, but it so happens that the area of contraction in grid automation and Aclara is towards the lower end of the spectrum of our margin of our portfolio versus the areas of growth, namely Burndy and grounding and connectors and T&D area of utility happen to be quite high margin areas. And so there is just the market growth, just a natural mix benefit. As well, we continue to manage price cost very well and also the FIFO impact as we discussed on the previous page. The third column there is adjusted earnings per share. You see grew on a dollar basis 11% to $4.93 outgrowing the operating profit growth with some non-op tailwinds. Last year's tax rate was a little bit higher. And I think, as we've been talking about with you all during the first half of the year, we bought some shares, about $225 million of share repurchases. So that creates a little bit of non-op lift as well. And on the fourth column, you have the free cash flow, good growth in the quarter. And importantly, we feel continuing to track to the 90% conversion that we're targeting to achieve through the operating year of 2025. So let's disaggregate the enterprise results into the 2 segments. And on Page 6, we'll start with utility. You see 1% growth there to $936 million, all of that growth being organic. That unpacks into the two pieces. One is the grid infrastructure, the more hardware side of the business. That's about 3/4 of the segment, and you see 7% growth there, and that disaggregates into double-digit growth in transmission and substation, continued very healthy demand there. And the distribution side, that last mile connecting to the house or the billing growing at a mid-single-digit rate of sales. Important to note that year-to-date, our orders are up high teens in this area. And I mentioned that importantly, when Gerben gets to our guidance and our outlook for the balance of the year, certainly, that order book is influencing very heavily how we think about providing you guidance here at the halfway point. So I think we continue to see the trends of grid modernization and electrification alive and well, very good news. I think additional good news and quite noteworthy to see that as the distribution products grew, we can say that the channel destock has concluded. I'm sure you are as happy as I am to not have us discuss that any longer with you all. So that feels good to emerge from that. Grid automation at a 13% contraction, about 1/4 of the total segment. We've had some roll-off of large projects that were not backfilled, and we really have the situation where we have been coming out of a heavy backlog year that was created when the chips weren't available the year prior to that. And so we've had some erratic comparisons to be made. And I think when we get to the outlook, we'll talk a little bit more about, I think, how grid automation feels to be in a stable and growing environment finally. On the operating profit side, on the right-hand side of the page, you see the dollars grow by 7% to $239 million in the quarter. Margins up 140 basis points, driven by continued price realization and managing price cost quite effectively. Again, good mix there between the infrastructure growth and the grid automation contraction. So solid bottom line performance for that segment and good growth trends inside the core piece of grid infrastructure. We'll talk about Electrical segment on Page 7. We see a solid quarter turned in by the segment, 4% sales growth to $545 million, largely organic, but there was a small contribution from the Ventev acquisition, which you'll remember, is wireless infrastructure products. As we think about driving that mid-single-digit growth, data centers continue to be a very significant contributor to our balance of systems product portfolio that's exposed there. The light industrial markets were very strong for us for our connectors and grounding products. Heavy industrial, certainly more mixed than nonres, a little bit soft. As you look to the right side of the page on the operating profit, 9% growth in dollars to $124 million, margins up 1 point to 22.5%, they are dropping through incrementals on their volume, managing price cost, and they continue to push productivity. So I think you all remember Mark Mikes leading this segment, doing a good job on competing collectively on the top side, working around some sales force realignments that we think have been successful in vertical market selling and cross-selling and continuing to work some channel conversions and on the cost side, continuing to become more and more efficient as we create a real segment rather than a series of vertical businesses. So what I think Mark is pulling off here and his team is consistent multiyear momentum in the Electrical segment and we see it continuing to grind upwards and improve. And we're very pleased with his results, and I think he's got still years to go on that improvement side. On Page 8, I'm going to talk about the markets as a setup, and Gerben is going to come back and talk about our outlook and guidance and kind of have these market perspectives as input into the top line of his guidance comments that he'll share. So what you see in the inside of both of the circles is roughly 4% to 6% organic sales growth. It's roughly equal between the segments and it's roughly equal contributions from price and volume, though, a little bit price skewed versus volume skewed there. And so if we start with Electrical on the right, we think the second half will be quite similar to the first half. You'll see from around 10:00 to around 3:00 there in the circle. We're a little more cautious around heavy industrial and nonres, contemplating flat contributions for the year. But as you work down, you start to see light industrial, renewables, you're seeing low and mid-single-digit contributions. Clearly, the star of the show continues to be data centers, and we're anticipating 30% growth there. On the left side, you've got our utility markets, and what you see from about 10:00 to 4:00, you see the grid protection and the electrical distribution, high singles, and mid-singles. Again, I'll just note that electrical distribution of mid-singles, it maybe looks modest next to the transmission and substation, but that is an inflection, just to remind us, coming off of its destocking, and so that's quite good for us to see that rebounding. The mid- and high teens performance of substation and transmission markets we just see continued strength there. Our positioning is very good, and I think our sales growth is going to continue to be strong. Telecom is worth noting as it represents another turning point. You may recall that last year we experienced significant contractions in the Enclosures business due to telecoms. It’s encouraging to see them resolve their overstocking challenges and any concurrent market weaknesses, allowing a return to growth. This is a positive development. The Aclara segment for meters and AMI has seen a 20% decline, which deserves some attention. The large projects and backlog we were addressing from the previous year, when chip shortages hindered our shipping capabilities, were fulfilled, leading to a challenging comparison for last year. We have managed costs effectively, working to reduce losses in that area. I would characterize Aclara's position as essentially flat over the last three quarters. We believe we have reached a stable base of smaller projects, maintenance, repair, operations, strong business with municipalities and cooperatives, and public utilities. Looking ahead to the fourth quarter, we anticipate Aclara will return to growth and establish a steadier operation as we move past the backlog issues from the previous year.

Great. Thanks, Bill. We are raising our full-year adjusted earnings per share outlook to a range of $17.65 to $18.15. This represents a raise of $0.30 at both the low and high end of our prior outlook range. We anticipate 4% to 6% organic growth and full-year adjusted operating margin expansion to drive high single-digit adjusted earnings per share growth at the midpoint of our range. This outlook is consistent with our long-term financial framework, which we believe will deliver differentiated returns for our shareholders over time. We are confident in our ability to navigate through near-term macroeconomic and inflationary uncertainties to deliver on these increased financial commitments in 2025. We are seeing strong evidence of secular growth megatrends in the largest, highest margin areas of our portfolio, which we believe will underpin strong performance in the second half of 2025 and over the next several years. We are confident that Hubbell's unique leading positions at the intersection of grid modernization and electrification, combined with structural opportunities in our operating model and capital deployment potential will continue to drive long-term shareholder value creation. With that, let me turn the call over to Q&A.

Our first question comes from Jeffrey Sprague with Vertical Research Partners.

Just on electrical distribution, the return to mid-single-digit growth. I'm just wondering if that is your view of what the underlying market is growing, and we should view that as sort of a steady-state growth rate from here? Or do, in fact, you think even though you're not talking about inventory in the channel, it still might be an issue and it's perhaps muting the growth rate. So you grew through it this quarter, right? But the question is, is mid-single-digit growth really kind of the sustainable growth rate from here?

Yes, Jeff, maybe I'll start with it. I think the short answer is yes. Mid-single digit is the underlying growth rate, what we see reflected of end user demand is what they're actually hanging on the infrastructure. It does improve on the second half, though, based on just easier comps, right, compared to last year. But yes, we believe fundamentally, longer term, this is a mid-single-digit growth area with a combination of MRO replacement and grid hardening.

Yes, Jeff, the trajectory in the last few quarters has been quite flat sequentially. So that's the start to get flat. And as you look out and you see pipeline, I think it's not at all unreasonable to think of it as a low single to mid-single-digit growth from this kind of new lower base.

And just on tariffs, I'm sorry if I missed it, but can you share with us what the tariff impact embedded in your results are, how much pricing you're getting against that? And maybe just a little bit more color on price in the 2 segments.

Yes. So we got a couple of points of price, Jeff, in the first half. And we are in the second quarter, slightly ahead of tariffs on a price/cost basis. We have expecting more tariffs to hit third quarter and more price to hit. So we feel that we acted pretty early, and we feel that the market kind of accepted those increases based on the tariff logic and that those prices have stuck reasonably well. So we're feeling good about our ability. There's no question it's a challenging environment and having the regime change quickly and with quite little notice, maybe something being put on and being delayed. But nonetheless, I think we're managing that quite well using price, and we feel we're ahead at this split second.

Our next question comes from the line of Tommy Moll with Stephens.

Wanted to start with a conversation on copper specifically and commodities more broadly. But copper has obviously had a big move here, and the question arises, what, if any, impact do you contemplate for this year's earnings? And if I can just make it a 2-parter maybe more broadly, where are you exposed versus well covered just in terms of the hedge strategy across all the commodities that would be meaningful here?

Yes, Tommy. So I would say if I answered it backwards, we use the price lever as the way to hedge against commodities and metals, and so we feel not exposed. We actually feel well covered. When we introduced this framework last quarter, we're taking your question about the commodities, and even though we may not be paying tariffs, we were considering that metal inflation to be tariff related because a lot of it was caused by producers being able to take advantage of a price umbrella. So there's been movements. Our exposure is copper, steel, aluminum, all of those, and I hear you on copper, there is maybe some uncertainty going forward, and yet we continue to be confident that we can use price there, Tommy, and we've got very active ongoing dialogue with all of our customers and distributors talking about that, and I think that dialogue is being well informed by analytics and price charts and all of that. So I think the raise to guidance, you should assume from us to mean we feel confident that we can cover that kind of inflation with price.

Yes. Maybe more specifically say, right, if copper is up more recently, if that rebates a fact, it will require additional pricing. But under the new construct of FIFO, we got the time, right? You'll see a delayed impact of that copper cost coming through, and it gives us the time to price for it. And I'd say copper is one example, but we continue to see, right, whether it's reciprocal tariffs or whether it's steel and aluminum here recently that went up, just a very dynamic environment, and it starts for us on the cost side and what we can do to mitigate these actions. This is supplier negotiation, both of sharing some of this cost or delaying the impact the supplier moves or reshoring, it's trade organizations that we use to help with exemptions. It's just an all-out effort, and it's truthfully a responsibility that we have for our customers to offset some of these costs with cost actions and productivity. And then, of course, as well using prices where needed to be price cost neutral. So I would say very dynamic. Copper, for example, is just one of, I would say, various areas that we're looking at and proactively managing too.

And then for my follow-up question, I wanted to ask on the EPS guidance you provided. There are some moving pieces this quarter. The LIFO/FIFO discussion has gotten sufficient airtime, but also there was the $0.50 contingency or sensitivity from last quarter that's no longer part of the conversation today. So my question is, if you think purely from an operational perspective, would you say things have gotten better, worse, or stay the same in terms of the earnings expectations for this year?

Yes. I think I would say that we continue to be on track to deliver the operational performance that we had promised at the beginning of the year, Tommy. And I would say that implies overcoming some new costs from tariffs, and it involves overcoming some slightly more challenging first-half volumes. So we view that as a bit of an accomplishment operationally to be able to do that. And to your point of removing that contingency, we also feel is good and removing that uncertainty from our investors' expectations.

Our next question comes from the line of Chris Snyder with Morgan Stanley.

This is Toby Okwara on for Chris. I wanted to ask for a little bit more color around the end markets. I know that data center seems like it's remaining strong. We haven't really seen anything negative there. But are there any other areas of green shoots that have shown up, particularly on the electrical side?

Yes. Certainly, we have been discussing for most of this year and part of last year how we believed demand was generally in good shape, despite some channel overstocking that led to fewer shipments than what was ultimately installed. This began with our wiring device segment, which we navigated over a year ago. It seemed like distribution, particularly the last mile of utility products, was still a challenge for us, but we are pleased to say that we believe we have overcome that. The positive development is not due to a change in demand but rather our ability to increase shipments as the channel has adjusted itself. This includes our distribution customers up to the end of the second quarter. Additionally, I want to highlight the enclosures area where telecom had been stagnant, but we have seen a return to growth, with year-over-year figures flat in the second quarter but better sequentially from the first quarter, leading us to believe we hit bottom in Q1. There are some encouraging improvements in our shipping capabilities, but this does not necessarily indicate a market inflection; rather, it reflects the needs of end customers. We believe significant changes have occurred at the midway point of '25.

And maybe the only thing I would add to that is on the light industrial side of electrical, that's continued to be very resilient with some of the projects, some of the reshoring there with the specific product, the grounding connectors is holding up really nicely.

This is Chris. I wanted to follow up on price. So last quarter, you guys planned for 2 price increases. I believe the first was in April, and there was a second one that was expected later in the quarter. I'm assuming that second one maybe didn't go through or got pushed out. So can you just kind of remind us on that second price increase? When is it coming? And I guess, how material could it be when we think about the organic guide for the back half?

Yes. So Chris, you broke up a little, but what we heard was a question about the price that was pulled in the second quarter and was there price pulled maybe towards the middle or end that hasn't yet been seen in shipments, and that is true. I think I might have heard you say, was that price increase delayed? I would say it was not delayed. It was implemented, but it hasn't yet shown up. So the 2 points of price that we're seeing in the second quarter should actually grow incrementally in the second half due to the phenomenon that you're describing.

Could you tell us where that price is expected to go in Q4 when we consider a fully realized basis?

Yes, I think we are projecting a sales increase of 4% to 6% for the full year. We expect about 3 percentage points from price changes over the full year, with 2 percentage points occurring in the first half, which is the framework we have in place.

Our next question comes from the line of Julian Mitchell with Barclays.

I wanted to gain a clearer understanding of the factors affecting operating margin expansion in the second half. It appears there is limited year-on-year expansion anticipated, likely due to the FIFO-related tariff impact. Could you confirm this? Additionally, as we consider the dynamics between Q3 and Q4, is there anything noteworthy? I observed that R&R spending was somewhat higher in Q3, so should we anticipate a stronger year-on-year margin performance in the fourth quarter due to increased pricing and reduced R&R spending?

Yes, Julian, you've made several important points. Firstly, we expect our mix to remain favorable in the second half. We anticipate several factors you mentioned, including some tariff costs being offset by price increases. Unfortunately, while this may keep operating profit neutral, it is not favorable for margins. Additionally, we foresee extra investments in the third quarter, pertaining to restructuring and other areas. You've highlighted many of the drivers, and I agree with your assessment, as it aligns with my perspective.

Yes. It's actually a very good representation of exactly what's going to happen. Maybe the only point I'd make a comment on is on the investment because clearly, we're very, very focused on our cost to manage through this dynamic environment. But I'd also say we're not losing focus on our long-term needs and ambitions and the investments that we're making. So whether it's in restructuring, whether it's in new product development, whether it's in some of the areas of AI where we're looking at how we can gain efficiencies in our business longer term, we're really balancing areas where we're taking cost out of this system, both structurally and shorter-term actions against where we need to continue to make investments, and so you'll see some of those in the second half.

That's helpful. And then just maybe looking out a little bit further. I think you mentioned just now the full year organic sales guide embeds a low single-digit volume increase and a sort of faster pace of volume growth in the second half of the year. As we sort of look out beyond this year, is that low single-digit volume increase the right sort of placeholder? Or do you think that you can sort of sustain that second half exit rate for some time into 2026?

Yes. I would say to think about it as consistent with what we provided in the Investor Day framework, which is kind of mid-single-digit for our portfolio longer term.

Our next question comes from the line of Joe O'Dea with Wells Fargo.

Could you just talk about the trajectory of growth within grid infrastructure as we move from first half to second half and you're coming off of first half orders up high teens, and so as we look at what, I guess, easier comps in distribution and the order strength, just how you're thinking about the back half growth rates and things like transmission, substation, distribution to get to something that seems like it would be a low double-digit organic growth rate in the back half of the year for utility?

Yes, Joe, I believe it begins with ongoing strength, as demonstrated by the pie charts on Page 8. Both transmission and substation sectors have been expanding, and we expect this trend to continue for the rest of the year. This results in a significant contribution from this substantial part of the business, with growth in the mid- and high teens. Additionally, as you pointed out, distribution has started to show growth as well, aided by the destock dynamic, leading to easier comparisons. If distribution reaches mid-single digits for the year, it's likely to perform even better in the latter half. Aclara is a bit more unpredictable, as the third quarter will mark the end of its contraction phase. By the fourth quarter of '25, we anticipate that Aclara will start returning to growth, which aligns with what Jeff Sprague inquired about. All these factors are converging, showing a strong order book and easier comparisons for Aclara, supporting the second-half growth trajectory you mentioned. Yes, and your question is timed to the hour or so. We just closed this morning on a small bolt-on acquisition. It's in the utility space. It makes enclosures for water utilities and helps them collect and sends data and communicate that data, small, but a good sign to your question. We also, in the quarter, we sold a small business that was not really contributing to the growth and margin profile that we aspire to and so I use those as two small examples of us continuing to tend to the portfolio and weed out and add even if it's small, we think those are good moves to make. They may not have a significant financial impact this year, but we believe they are beneficial for us in the long term. Overall, our pipeline remains quite active. Several private equity firms have invested in our sector, and it's likely that once they acquire something, they will be looking to sell within a three to four-year timeframe, which creates opportunities for us. Our business development teams are actively exploring these possibilities. If we have any updates to share, we will. We are committed to continuing our investments in acquisitions. The pipeline includes businesses and assets that we find appealing, and concurrently, our cash flow is on the rise. To avoid leaving the balance sheet idle, we repurchased $225 million of shares in the first half of the year, which averages around the $40 to $50 range. This represents a slightly more balanced approach to capital allocation than in the past, but we remain very interested in pursuing acquisitions.

Yes. I would like to add that our focus for these deals is in the higher growth areas of our portfolio that we have identified. This includes sectors like transmission and distribution, data centers, and light industrial, which are all markets experiencing significant growth. There is a strong pipeline of deals, and we have a good number of opportunities available, including both smaller bolt-on acquisitions and some larger transactions. I feel confident that we have access to these opportunities and that our focus on enhancing our portfolio for the customers we serve in these promising markets remains strong.

Our next question comes from the line of Brett Linzey with Mizuho.

Yes, I just wanted to follow up on the grid automation and specifically the meter side. So encouraging to see that sequential improvement. But I guess, as you think about that stability you're pointing to, is it mostly just the MRO side? Or are you beginning to see some RFPs start to ramp back up on new projects that could be slated for next year?

I would say the current focus of the business is mainly on MRO and smaller projects. Our emphasis has traditionally been on the public power market, including co-ops and municipalities. We are observing some larger projects in the pipeline at the moment, and we are currently quoting for those. The outcome of these projects is uncertain as to whether we will win them and when they will commence. However, as we provide guidance for the remainder of this year and our insights for next year, it indicates a more stable business. We're primarily seeing ongoing MRO and projects.

Yes. Maybe I'll start with just our position in these markets, right? If you think about our portfolio in transmission and substation, I mean, this is where some of our core strength comes from both the offering that we have, the portfolio that we have, the relationship and the specifications that we have. So we see these projects. I mean, we've won some of the largest transmission projects that are being built in the U.S., Hubbell as a supplier. So the visibility, I would say, is good, and it's out there. It's multiyear that we're seeing there. So this concept of high single-digit growth that we said at Investor Day, we see visibility to that certainly in the next few years.

Our next question comes from the line of Chad Dillard with Bernstein.

So I was hoping you could bridge the old versus new earnings guidance. I think you had $0.50 of tariff before. Where does that go? How much is the FIFO versus LIFO transition? And anything you can call out on the core business or anything else?

Yes. So let's just use Page 9 as the way to bridge. So at the very beginning of the year in January, we had a 4% to 5% growth rate with 1 point of price. So there was 3 to 4 of volume. Now we're 4% to 6% of growth with kind of 3 points of price, so kind of 2 points of volume. So we're getting to our goal with a little bit less volume, Chad, right? So that's really the first point of note. Secondly, all that contingency from tariff risk has been removed. I think that's important to note. Thirdly, there's been $0.30 in the first half of the year of benefit to switch to FIFO, and that's been added to the guidance. So I think the way I would bridge it is saying we're operationally getting to the same point in January, as we said. We've overcome the tariffs in doing that through getting a little more price. That's come at the expense perhaps of a little bit of volume, but the margin and price cost management is allowing us to get there, and so I think that's how I would bridge the pieces.

Great. That's really helpful. And then with the change in tax laws, I think one of the offshoots is that there's going to be a lot more manufacturing construction. So I think you've talked about your content as a share of the project being, I think, somewhere around like mid-single digits. So how does that change if you're going to be moving into more manufacturing versus, I guess, like the baseline?

I'm not sure we understand the question there, Chad. You're talking about like systems control type applications?

Yes, systems control.

Yes. I mean, traditionally, we said it's a low single-digit percentage of cost in terms of components and what we traditionally make a systems control type business would be higher than that, obviously. I'm not sure it changes the overall blended rate for the segment, but certain businesses, yes, will be at the higher end of that. So you're looking at the substation space, for instance, we make up more than that low single digit if you include systems control.

Our next question comes from the line of Christopher Glynn with Oppenheimer.

I have a question about HES. You mentioned ongoing progress with the sales force alignments and some channel conversions over the coming years. Could you expand on that? Specifically, are you indicating that there is a considerable timeframe for channel share and distribution growth?

Yes, I would like to begin by discussing the journey we're on. As you remember, Mark played a key role in transforming the utility segment through various acquisitions, successfully turning it into a cohesive business rather than a collection of verticals. Now, in his leadership role within the Electrical segment, he's applying similar strategies. One of his initial and significant initiatives was to realign the sales force. Instead of organizing sales by product, we have now organized them geographically, which enhances cross-selling opportunities and has resulted in positive customer feedback. Customers find it easier to engage with us, and we benefit from increased selling time for additional products. Additionally, we formed specialized teams focused on verticals, with data centers being a prime example. This new approach has proven successful; rather than merely selling a product through distribution, we are now better prepared to offer a wider range of products. This commercial initiative has been successful so far, although it is still in the early stages, and I believe it will continue to improve over time. My comments about the future also reflect the efficiency measures Mark is implementing to reduce staffing redundancies. Therefore, there are both outward-facing commercial efforts and internal overhead cost-reduction activities taking place. This is not a quick fix; it's a gradual improvement process, and we have seen tangible evidence of this progress in the past year or two.

Can we take one more question and then close it out? Sorry, I had some technical difficulties on my end. So take one more and then close it out.

Our final question comes from the line of Patrick Baumann with JPMorgan.

On the second half of the year, I was wondering if you could help me think through how to envision organic volumes ramping at the Utility segment. Does it go from like, I don't know, low single-digit organic volume growth in the third quarter to something in the double digits in the fourth quarter year-over-year?

Certainly not on a volume basis, Pat. If you're talking organically, again, you can kind of do the math on first half, second half. But volumes will ramp through the year, and particularly again in the fourth quarter on some easier compares, and then price will be a steady incremental contributor as the year progresses.

Okay. So volumes in the fourth quarter don't get up to double digit?

Yes, that wouldn't be reflected in guidance, no.

Okay. Maybe I'm just doing the math wrong on the price and organic growth stuff. Sorry if I missed this, this is a cleanup. I'm just backing into a margin guide for the year expansion of 50 basis points. Is that in the ballpark? And then on the segments, should we think about Electrical being above that rate and utility below that?

Yes, you're in the ballpark for the full year. And again, the segment drivers are going to be both impacted by the FIFO and LIFO transition. But yes, probably a little bit more in Electrical and utility below that.

And then maybe just last one, sorry, another cleanup. So I think the EPS is a little bit shifted last year, and with the accounting changes this year, any way to think about the EPS growth in the back half of the year split between third quarter, fourth quarter? Any color you want to give on that?

Not really. Again, it's going to be based on the volume discussion we just had. It will probably be the biggest driver.

At this time, I would like to turn the call back over to Dan for closing remarks.

Great. Thanks, Lawanda. I'll be around all day for follow-up calls. Thanks, everybody, for joining us.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.