Hubbell Inc Q3 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Hubbell Inc. Earnings Conference Call. 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, VP of Investor Relations. Please go ahead.

Great. Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note 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 consider them 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.

Great. Good morning, and thank you for joining us to discuss Hubbell's Third Quarter 2025 results. Hubbell delivered double-digit adjusted earnings growth in the third quarter, driven by strong high single-digit organic growth in Electrical Solutions and Grid Infrastructure as well as a lower year-on-year tax rate. In Utility Solutions, T&D markets remain strong as utility customers invest to interconnect new sources of load and generation on the grid, while aging infrastructure continues to drive solid hardening and resiliency activity. Our Grid Infrastructure businesses achieved high single-digit organic growth in the quarter. While the pace of inflection in Grid Infrastructure growth was steadier than we anticipated in our July outlook, markets and order activity are strong, and we anticipate further improvement in year-over-year organic growth in the fourth quarter. While Grid Automation sales declined 18% in the third quarter due to large project roll-offs, we anticipate these headwinds to fade in the fourth quarter as the business returns to more normalized comparisons. In Electrical Solutions, we delivered high single-digit organic growth with continued margin expansion and double-digit adjusted operating profit growth. Our segment unification efforts and strategy to compete collectively are driving outgrowth in key vertical markets, most notably in data centers, where new product introduction and capacity additions contributed to strong performance in the third quarter with visibility to continued strength in the fourth quarter. We continue to simplify our HES segment to drive productivity and operating efficiencies, which we are confident will drive long-term margin expansion. Turning back to overall Hubbell. While cost inflation accelerated from the first half as anticipated, our pricing and productivity actions have been successful in more than offsetting these costs. Our strong positions in attractive markets and our execution in proactively managing our cost structure drove positive price/cost productivity in the third quarter and positions us well to drive continued profitable growth going forward. We are raising our full year 2025 outlook this morning. Operationally, we anticipate the impact of lower organic growth to be fully offset by stronger margin performance, while a lower full year tax rate drives higher adjusted earnings per share relative to our prior outlook. As we look ahead to 2026, we anticipate a year of strong broad-based organic growth across the portfolio. Hubbell is uniquely positioned at the intersection of grid modernization and electrification, and we have driven strong performance over the last five years. As these megatrends accelerate and we exit 2025 with recent supply chain normalization dynamics behind us, we are confident in our ability to deliver continued strong performance in '26 and beyond. Now turning to Slide 5. We announced at the beginning of October the closing of our acquisition of DMC Power. We are very excited to add DMC to Hubbell's portfolio as the business is highly complementary to our utility connector product offerings and provides a unique technical solution in high-growth substation markets. Hubbell has been very successful in our acquisition playbook in utilizing our industry-leading sales force and portfolio breadth to drive penetration of new solutions across our customer base, and we are confident that we can accelerate DMC's strong growth trajectory further over the long term. This acquisition is a continuation of our capital allocation strategy to acquire high-growth, high-margin businesses in attractive markets with strong strategic fit and product differentiation. We anticipate the acquisition of DMC will contribute approximately $0.20 of adjusted earnings per share accretion in 2026. Before I turn the call over to Bill, I want to highlight our recent announcement of Bill's upcoming retirement as CFO at the end of this year. Bill's contributions to Hubbell have been immeasurable over his 18-year career with the company, but let me highlight a few statistics that put his impact into perspective. He led 68 quarterly earnings calls, including more than 50 as CFO. He led the acquisition of 50 companies, averaging a double-digit ROIC for our shareholders. And most prominently, under Bill's tenure, Hubbell has more than doubled sales, improved OP margins from low teens to over 20%, and increased our market cap from less than $3 billion to $23 billion. In short, Bill's strategic and financial leadership have helped shape Hubbell into the company it is today. He is valued and respected by our employees, customers, and shareholders alike. And on a more personal note, Bill has been a trusted partner to me and our entire leadership team. Thank you for your distinguished service to Hubbell, Bill, and we wish you all the best in a well-earned retirement. One of Bill's many strengths was developing a strong bench of finance talent at Hubbell, and I am pleased to have announced Joe Capozzoli as Bill's successor. Joe has held a wide range of leadership positions across Hubbell and the finance organizations over his 12 years and most recently has been the CFO of our Electrical Solutions segment, where he has worked as a close business partner to our segment President, Mark Mikes, in implementing our strategy to transform HES as a unified operating segment. You can see the success of Joe's leadership in that role through the strong growth and margin expansion of HES over the last few years. Joe and I have worked closely together over our careers, and I am confident in a seamless transition and in Joe's ability to drive further value for all of our key stakeholders in his new role as CFO starting in 2026. With that, let me turn the call over to Bill to provide some additional details on our financial results.

Good morning, everyone. I appreciate you being here, and thanks to Gerben for those comments. I want to express my gratitude for the partnership we've built over the last 18 years, especially in the last five. Joe, congratulations on your new role. I recruited him around 15 years ago and have worked closely with him in various roles, as Gerben mentioned, in corporate and field operations, finance, and shared services. He is well-prepared to be our CFO and will certainly be a great partner to Gerben and an effective communicator with our shareholders. I'm using the slides starting on Page 5, highlighting the third-quarter results. Sales increased by 4% to approximately $1.5 billion. Operating profit also rose 4% to $358 million, with adjusted diluted EPS up 12% and free cash flow up 34%. Let's discuss each measure in detail. Sales demonstrated a strong performance across the entire Electrical segment and the Grid Infrastructure unit within our Utility segment, both growing collectively in the high single digits. However, the Grid Automation component in the Utility segment saw a contraction, creating about a 4% drag on overall growth. Looking ahead, we anticipate that the year-over-year comparison for Grid Automation will stabilize, reducing that drag. The growth in the Electrical segment and Grid Infrastructure, along with the stabilization in Grid Automation, bodes well for Q4 and sets us up positively for 2026. Operating profit grew 4% to $358 million, with margins remaining roughly stable due to effective pricing offsetting tariffs and increased restructuring spending, which we believe is crucial for driving productivity and pushing margins higher in the future. The earnings per share increased 12%, outpacing operating profit growth thanks to below-the-line tailwinds, including share repurchases totaling about $225 million in the first half of the year and a lower tax rate resulting from an international acquisition that allowed for a tax-friendly restructuring. Free cash flow increased by 34% to $254 million, aligning with our goal to deliver 90% of net income for the full year, which supports balance sheet replenishment. Gerben mentioned the DMC acquisition; even after the $825 million investment, our balance sheet remains positioned for further investments, showcasing our ability to absorb such an acquisition confidently. Now, let's review performance by segment. On Page 6, we begin with the Utility segment results where sales were up 1% to $944 million, and operating profit remained comparable at $242 million. In terms of sales, the Grid Infrastructure unit, which represents about three-quarters of this segment, achieved high single-digit growth across all end markets. Transmission saw double-digit growth driven by load growth and grid interconnections, while substation and distribution also grew in the mid-to-high single digits. Significantly, Telecom and Enclosures returned to growth in the third quarter after facing issues with overstocking. Looking toward the fourth quarter in these areas, we anticipate stronger growth rates driven by an accelerated order book, releasing pent-up spending. However, Grid Automation continued its decline, down double digits, influenced by project roll-offs with no new projects to backfill, though growth in grid protection and control products provided some offset. It’s worth noting that Grid Automation's sales have remained consistent at around $230 million to $240 million for the past four quarters. As we approach the fourth quarter of 2025, we expect that consistency to shift into year-over-year stability, alleviating the ongoing drag on this segment. Shifting to the Electrical segment on Page 7, we see continued strong performance with double-digit sales growth of 10% and 17% growth in operating profit along with about 140 basis points of margin expansion. The sales figures reflect organic growth of 8% across various end markets, particularly benefiting from high-growth segments like data centers and light industrials. The heavy industrial market has shown mixed results, and nonresidential remains soft as it has for several quarters. We're pursuing both organic and inorganic growth strategies, having realigned our sales force geographically for improved efficiency and effectiveness. Our new product development further supports this expansion. Regarding the operational side, the 140 basis points of margin growth results from volume growth, effective price/cost management, and productivity enhancements led by the teams, including Joe and Mark Mikes, aimed at collective competitiveness. Now, let's transition from discussing the third quarter to our forward outlook on Page 8. We’ve adjusted our EPS guidance upwards and narrowed the range. Previously, it was a $0.50 range from $17.65 to $18.15, now narrowed to a $0.20 range from $18.10 to $18.30, reflecting a midpoint increase from $17.90 to $18.20, which is a $0.30 uptick influenced by a lower expected tax rate for 2025. This indicates that third-quarter performance was aligned with our goals for the full year, focusing more on Electrical than Utility and prioritizing margin and sales growth beyond our earlier expectations. Our outlook suggests 3% to 4% organic growth, OP margins expanding by 50 to 100 basis points, strong pricing, and productive initiatives. The DMC acquisition is expected to have a neutral impact on earnings in Q4 while positioning for a $0.20 contribution next year. We are on track for free cash flow aiming at 90% adjusted income conversion. Looking to Q4, our guidance is slightly above normal seasonality, backed by strong visibility. The fourth quarter predicts 8% to 10% organic growth from both segments, strengthened by improvements in Grid Automation as well as increased pricing and visibility in several projects. Significant growth in transmission and distribution orders within the Utility segment further supports this outlook. With that, I'll hand it back to Gerben to provide a broader perspective on our Utility franchise beyond this quarterly focus.

Okay. Great. Before we give our preliminary thoughts on 2026, we thought it would be instructive to set the stage by taking a closer look at the performance of our Utility segment over the last five years and how that sets us up looking ahead to 2026 and over the next several years. While there is a lot of information on the page, let me highlight a few key points. First, while supply chain dynamics have impacted the various pockets of our segment over the last few years, we have executed well through these dynamics, and they will be fully normalized exiting 2025. Second, the strong growth and margin expansion we have delivered has been driven by our large, high-growth and margin businesses. Most notably, T&D infrastructure has grown at double-digit CAGR over the last five years, underpinned by our strong portfolio, position in secular megatrends, and proactive price/cost management. While our meters and AMI performance has been more modest, we are confident that we have repositioned this business with the appropriate cost structure and a more focused strategy to deliver growth at improving margin levels moving forward. Third, our M&A and capital allocation strategy has been effective in driving outgrowth while expanding our leading Utility positions, most notably in Substation automation with the acquisition of Systems Control as well as the attractive area of grid protection and controls. Finally, as we look back at the last several years of performance, HUB has delivered organic growth in line with strong utility CapEx budgets, which are set to accelerate further over the next several years as customers increase their investment budgets to meet the demands of grid hardening, load growth, and data center interconnections. We are confident that our strong position in these attractive markets will enable our Utility Solutions segment to meet or exceed our long-term targets for mid-single-digit organic growth moving forward. Now turning to Page 10, I'd like to provide some preliminary views on our end markets for the next year before providing a more comprehensive full-year outlook in the next few months. In Utility Solutions, we have high visibility to robust project pipeline supporting continued strength in substation and transmission markets, while ongoing hardening and resiliency activity supports continued momentum in distribution markets, and modernization initiatives support strong growth in grid protection and controls. In our smaller end markets, we anticipate a return to growth in meters and AMI as well as telecom. In Electrical Solutions, we expect data center, light industrial, and T&D markets to remain strong, while macroeconomic uncertainty drives a more modest preliminary growth outlook in areas of the portfolio such as nonresidential construction, heavy industrial, and renewables. We are confident that our strategy to compete collectively in HES will continue to drive above-market growth and long-term margin expansion. Overall, we see an attractive end market environment, which we believe will enable us to deliver organic growth in line with our long-term targets. We are confident that accelerating megatrends impacting the largest, high-margin areas of our portfolio will underpin strong performance in 2026 and beyond. With that, let me turn the call over to Q&A.

Our first question comes from Jeffrey Sprague from Vertical Research.

Bill, thanks for everything over the years and best of luck. Hopefully, we'll see you around. And then just kind of appreciate on 2026, maybe you don't want to get over your skis given how frustrating this utility guide has been this year. But I just want to sort of interrogate a little bit Q3 versus Q4 in utility and think about what that exit rate really means for 2026. I think there's a little bit of debate about what is normal seasonality. But one could certainly make a case on simple arithmetic that this exit rate for utility would actually point to maybe double-digit utility growth in 2026. So I just want to get your thoughts on that. Again, I understand you don't want to get ahead of your skis here, but maybe how unusual is Q4? Did stuff that you expected to happen in Q3 slip into Q4, and therefore, we need to be a little judicious about thinking about this exit rate.

Yes, you raised several important points in your question, and I appreciate your good wishes. I believe there is a possibility for a very strong year. We think it’s wise to align our resources with the long-term guidance we’ve provided. The fourth quarter offers easier comparisons, and you mentioned seasonality, which often shows a pattern where the fourth quarter is somewhat lower. While we probably still see that pattern, the year-over-year comparisons, combined with the easier comparisons, will really enhance our results. If you analyze the sequential trends and consider seasonality for 2026, the outlook seems quite positive. We share your confidence, but we believe it’s important to remain cautious.

One thing to add is that we are examining the exit rates of our businesses to determine what they might indicate. Bill articulated it well; as we enter the new year, we will adopt a more conservative approach to ensure that our costs align with anticipated lower volume. If we do encounter an upside, which I believe is likely, we will be positioned to take advantage of it.

Could you elaborate a little bit more on the September, October order strength? And also just thinking about the up arrows here on this slide for telecom and meters specifically. Obviously, these have been nagging issues and problems all through 2025, some of it's comps, but still sort of an issue of can those businesses grow? Why will they grow? Should they grow? Just the confidence to put up arrows on those into 2026?

If we look at the telecom sector, it's a matter of sequential calculations, as we've experienced flat growth for more than four quarters. Growth is starting to emerge, but off a lower base. This trend has already begun, and we observe demand and orders aligned to support it. In terms of meters and AMI, the situation is somewhat similar. We've witnessed about four quarters of contraction while establishing a franchise that has been driven by larger public utility projects. We're now at a size supported by a more solid MRO base and some consistent business within the municipal and co-op segments. It's worth noting that while there's a slight upward trend, it should be considered modest. As for the order strength in September and October, it’s very widespread within the T&D sector across all product lines. I’m not sure, Gerben, if you want to add anything.

Yes. And I would say this was the inflection we were expecting to happen and perhaps a little bit later. If we think back and with some of the discussions with our customers, certainly with the tariff environment, there have been some pretty significant ongoing tariff increases and price increases over the summer. These customers are working within their budgets and assessing what this all means for their budgets. I think that perhaps influenced a little bit. But it's very hard to call exactly in timing to a specific month or quarter. But the good news is we're seeing it come up. And I would say this is what we've been waiting and expecting to happen.

I'm sorry, just one quick one. Is this tax rate sustainable into '26?

Yes, it's driven by an international acquisition restructuring. So I'd say it's project-driven, Jeff, and we're anticipating the tax rate normalizing next year.

I want to make sure I'm hearing you here on the pace of recovery for Utility. Is it a fair characterization that in reducing the organic guidance for this year, the revenue guidance, it was entirely within the Utility segment, but that the shape of the recovery is as expected, the timing has shifted.

I would say both your points are accurate, yes.

Okay. And that would be true as well of the distribution piece of that business?

Yes. I think we saw a good inflection in distribution in the third quarter, Tommy, but I think that's a similar comment as well.

What we've talked about is 4% to 6% from the top line. We've discussed incrementals in the 25-ish to 30% range that gets you alone into high single digits. We're also talking about buttressing that inorganically, Tommy. That's kind of how we build to double digits for kind of mid-cycle sustainable earnings growth.

I'm not a big management tire pumper here, but thanks a lot for all the interactions over the years, Bill. I think you're not only a really good and honest CFO, but a great guy. So it's been a pleasure working with you and hopefully see you around the golf course in the future.

Thank you, Steve. Likewise, back at you.

So just on the quarter pricing, what was the breakout by the two segments?

We were talking about pricing for the year being in the 3-point range, and the quarter was in line with that. I'd say, reasonably balanced between the segments, Steve.

Okay. Can we discuss the factors influencing margins for next year? Is there anything changing on the PCP front for next year?

I'd rather wait and let my esteemed colleague, Joe, give you those guidances in our January call. But I do think if you take the long-term setup that we're referring to, which goes back to Investor Day, the incrementals we cite are below what I would call maybe harvesting incrementals. That implies that we would anticipate continuing to make investments along the way. As you know, there's a little bit of wraparound price embedded, and we'll talk through all that in detail in January, but that's kind of how that long-term framework really plays out.

We'll certainly continue to manage the price/cost productivity equation to net neutral or better.

All right. Jeff had about three and a half questions, so I'll address three of them. Regarding the challenges from the meters and other infrastructure-related businesses, how clear is your outlook on when that will stabilize? Do you feel that some of your businesses are becoming overshadowed in terms of investment focus due to the heavy emphasis utilities are placing on transmission and distribution compared to the distribution side?

Yes. The first question, sorry, Steve, I was actually considering the second…

I did. I snuck in 3.5, maybe 4. But the first one is just how much visibility do you have on this Aclara and Grid Infrastructure drag? Like how confident are you...

Yes, thanks, Steve. I would say it's generally longer term than our distribution business. However, after the completion of these large projects, this business now includes more maintenance, repair, and operations components, and we anticipate future projects will be less erratic. We are shifting our focus towards more public power projects, which are typically smaller and spread out over a longer timeframe. So, although the visibility has decreased, it has also become more predictable for that business. Distribution will continue to experience strong growth.

The crowding-out point is one we debate a lot, Steve. I think, Gerben, the way he was asking is a heavy amount of T&D spending going to, by definition, drive distribution down a little bit. We've seen a very healthy distribution. Even though there's some logic and there's a fixed number of dollars, it just feels like there's going to be growth across those three markets.

If it were to extend the timeline, we would likely see the benefits in substations, which we anticipate. Our positioning in all three markets is robust and balanced. If an additional dollar is allocated to substations and transmission, it would simply postpone the necessary investments in distribution. As a result, we might prolong the investment cycle, which would ultimately be advantageous. Therefore, we believe we will benefit equally if that scenario occurs, and it is a possibility.

I just wanted to follow up on, I guess, the softer back half utility organic growth. I guess, maybe relative to three months ago, is this like a function of Aclara maybe softening a little bit versus that Q2 kind of expectation? Is distribution turning just maybe not as sharp as previously expected? I guess just kind of what specifically is kind of causing the utility back half to come in below?

Yes, Chris, it's not Aclara. Aclara has been kind of as expected. There is just a little less from the T&D side. Now we say that and it's growing at 8%, right? It's not like that's a low growth rate, but we were expecting this sharper snapback that the September and October orders are suggesting. I think Gerben described it as a more steady improvement rather than maybe that third quarter snapback, but I think we're going to see a little snap in the fourth quarter here. So it's within T&D, just, I'd say, 90 days delayed, Chris, is really what I would say.

I appreciate that. And then, I mean, it seems like the full year guide kind of calls for pricing to exit maybe in like the 5% range versus, I think you guys said 3% in Q3. So I guess, is that right? And then just any commentary you would have on price realization? Any pushback on price in the market? Any elasticity you're seeing tied to that?

Let's start with kind of the timing of pricing, and we've recognized tariff costs increasing throughout the year. Similarly, pricing to match that has increased throughout the year. So I think you're right to say if we end the year in the ballpark of 3%, you do a little bit better in the fourth quarter. Some of that would wrap around. In terms of stickiness, I think it's been quite good. In terms of pushback, I'll maybe ask Gerben to comment, but I would say, so far, we're talking about very constructive discussions with our channel partners and our end-market partners. But I don't know, Gerben, if you had anything to say on stickiness.

Yes. Our price realization has been quite strong this year. It's not much different from what it has been the last couple of years. If you remember, in some of the markets that we operate in, the demand is pretty strong if you look at utility and data centers. Also, we're generally a small part of the total cost of systems we go in, but critical in use. Quality, service, and availability to the leading conversations and questions with strong specified positions in many of the markets we deal in. That all works in our favor for why you would have strong success right now. The conversations have been more frequent, as some of these tariffs came through. But a big part of that was just helping our customers understand where some of these costs were coming from, how this affected our product line, and what we're doing about it to partially offset it. That combination of those two things has caused us to have pretty good success here.

Can you just touch a little bit on behind-the-meter infrastructure investments and what that means from a content perspective for you on both the Utility and the Electrical side, how that would compare to an alternative of in front of the meter? Any perspective on sort of dollars per megawatt in a data center and how to think about that from different angles of investment?

You're talking about data center investment, Joe, or...

Specifically data center investment, but whether that's being supported from kind of behind the meter or in front of the meter and how to think about what it might mean for differences in your content opportunity?

I would say probably immediately on the data center, it's directly more on the electrical side with some of the Burndy businesses, with the grounding system having a tremendously strong position with some of our electrical connectors that are going into the data centers. A lot of NPD that we're doing continues to support data centers with higher amperages going through it as well as our PCX business. We feel the direct impact of it. What you're pointing out, which is clearly a benefit for us as well on the Utility side, is how do we support the data centers with the power that they need. That comes in various forms. The primary way that a data center wants to be served is by utility companies for that power. A lot of investment is going in there, not just in new generation but also in how you can interconnect the grid better to provide that load. We have strong relationships with the independent power producers and the EPCs. In some cases, you see data centers looking in the short term to fulfill some of that generation more directly. We would benefit from that as well when you interconnect these data centers to substations and with the short lines that you would need to bring into them. Our position is good to benefit from this. A data center would have a preference to have utilities provide that power.

I think, Joe, one of the points you're making about our data center exposure is related to the behind-the-meter aspect. There’s substantial growth occurring that we don’t specifically label as data center because it's primarily serving our utility customers. However, I do agree that there is a significant driver there as well.

Right. No, exactly. Just trying to understand kind of those different phases of investment and opportunities and appreciating the direct kind of data center exposure within Electrical that you're reporting. Just thinking about the Grid Automation piece, where that sort of CAGR has been relative to target over the past couple of years and trying to think through any perspective that you can add on meters and AMI, maybe growth not performing to what those targets would be, but whether there's broader value within the portfolio that maybe is underappreciated. So is there synergy value that this business is bringing that remains attractive to you?

Yes, I would say the short answer to that is yes. You're right to point out that the financial performance of it has been below our expectations. We've not settled on that, and we've pivoted that business to where we believe we can compete, win, and get a margin more closely in line with the rest of our portfolio. It was actually one of the strategic reasons we acquired that business in 2018 when we assessed our portfolio we have a tremendously strong position in the component side, and that continues today. That continues to be needed for it tomorrow. We didn't have the right resources or portfolio to do that. We acquired Aclara, and initially, it was just Aclara. Today, it's Grid Automation. Half of the revenues of this business today is not Aclara for products that we've since acquired, developed, and are growing at the high end of our portfolio growth. So it's absolutely contributed to the whole of Grid Automation, but we're also focused, as we are in the rest of our portfolio, on making sure that the individual businesses have to perform and contribute to the whole. That's where our focus right now is with Aclara.

And I wish you all the best, Bill. Thank you for the help, and congratulations to Joe. Maybe just my first question would be around operating margins. Just wanted to try and understand. As we think about next year, I understand there'll be more flavor or color in three months' time. But if there was anything to highlight in terms of the effect from restructuring costs not repeating or higher savings, any kind of carryover to margin effects next year from self-help measures this year? And whether there would be any effect on the year-on-year margin progression from the accounting change earlier this year. Just to see if you could flesh out a little bit the comments around incrementals next year.

Yes. I believe restructuring is a key component of our strategy, where we allocate a consistent amount each year, with some variations each quarter that aren't noticeable on an annual basis in terms of margins. We maintain that our restructuring program is vital for enhancing future productivity, which can be seen in both smaller initiatives and the overarching goals. We aim to avoid any significant margin fluctuations due to this. Many of our competitors tend to classify this expense as discretionary and exclude it from their margin calculations, but we consider it to be an integral part of our annual operations, thus we include these costs, as we expect them to be a consistent yearly occurrence. Furthermore, it's not merely an expense; it's an investment aimed at improving margins. That's why we've incorporated it and expect minimal distortion in results from it. I also don’t anticipate that the accounting changes will affect margin percentages in the coming year.

That's great. And then just maybe on the top line for a second, a lot of explanation understandably around the Utility market. But maybe switching to Electrical and the commentary around, I think, nonresidential and also heavy industry into next year is quite muted per Slide 10, I think. Maybe sort of flesh out any movement you've seen there? I know some other companies have talked up U.S. nonresidential in the past month or two. It seems like you're a bit more cautious.

I think we are being a bit cautious. The situation has been somewhat mixed and soft for us. I wouldn't be surprised to see a decent rebound. Our involvement in that area has decreased due to some of our business development efforts, in terms of both acquisitions and divestitures. Regarding the heavier industrial sector, it's always interesting to monitor steel prices to see if we start to observe an increase in output. This will certainly come into play by the time we provide our guidance in January. I don't believe we will be significantly different from the overall market expectations.

Bill, you look forward to be useful to be retiring, but I know you've had a long career. So congrats, and I hope you enjoy retirement. So no comment on that, so I'll move on. So a couple of quick modeling items, and then I've got a...

I can see that today, so I'm older than I look.

A couple of quick modeling items, and then I've got a bit more of a strategic one. Just on DMC, we understand the margins there are really rich and north of 40% EBITDA margins. Is that the case? And then maybe just comment on the 3Q utility performance. Was there any impact from the storm activity? It seemed like there weren't any big storms down in the Gulf Coast area. I know that can swing things a little bit. So just wondering if there was an impact as well.

Yes. Maybe I'll start with the second first. So storm impact, there was none. It was quite a calm season, although there is a big one right now that's hitting Jamaica. That generally, we would say in the overall scope of Hubbell is not a big driver of revenue. Within a quarter, that could have a couple of points if there’s storm activity. On the first question on DMC, that's indeed an attractive margin business. If you think about the application of this, it's in the substation, a very high-stakes environment of power with a unique solution of a sewage technology to put these crimp first on these connectors onto the conductors, which traditionally would be a specialized welding application in a substation. You can imagine both the application of something like this and the savings or efficiency in installation, and that's what drives a really nice margin. When you put that in our portfolio, this is about as down the fairway as you can get for fitting in our portfolio because we do a lot of connectors, and this is enough solution of that. We're generally able to add and boost what a private or single-line player can get with our sales force and our relationships. We're really excited that we are able to fold in businesses like this into the portfolio.

It seems like there's a significant market for control house applications in data centers. Historically, system control has been primarily found in substations for utilities. I'm curious if there’s an opportunity to establish a sales channel for that business within the data center sector.

Yes. We bought a company a little while ago called PCX, which does the control house to data centers. We do think, Nigel, the application has a lot of growth in it. We agree there's some interesting best practices to be shared between data centers and the Utility side on the substation. We would agree with your point.

A lot of ground has been covered, but Bill, it's been a pleasure to work with you and we've observed the excellence you brought to Hubbell for a long time. Thanks for all that work together. Just looking at data centers, I don't know if we got a particular call-out on the growth rate there, but I think that's kind of the spearhead of your vertical market strategy. Light industrial is obviously a little bit more diversified, but I think you're probably seeing some of that there. I'm just curious if you could comment on that as we think about the vertical market strategy being bigger than a data center theme for HES.

Yes. You're right; the data center is driving a lot of notable growth inside the Electrical segment, and some of it is a dedicated unit, PCX, and some is from connectors and grounding solutions. But I think I also agree with you that there are other verticals besides data centers where we've tried to add sales and marketing specialists, do a better job of cross-selling across different units, and we're finding those efforts to be well worth it. It's not just the data center vertical, as you say. It just happens to be a very high-growth pointed one right now. I don't have the exact figures at the moment, but you're looking at sales growth in the range of about 20 percent. For EBITDA, we're anticipating around 40 percent. I might be estimating here, but there could be a couple of points of sales involved. We will be investing in that business, which will help us improve those margins over time.

Great. Let me take the call here, and I just want to make a comment of thanks to all of you for the well-deserved, well wishes for Bill. I'm sitting here across from him. While he's not always reacting verbally, I can tell what it means to him. I think we set the bar for Joe coming in of beating 50 earnings calls as CFO. I'll make sure to relay that to him. Thanks, and I look forward to connecting in the first quarter. Thank you much.

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