Hubbell Inc (HUBB) September 17, 2026 Conference Transcript

Thank you. Welcome to the 14th Annual Laguna Conference. For important disclosures, please see the Morgan Stanley Research Disclosure website at morgonstanley.com slash researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley representative. I'm pleased to have Hubble here today with President and CEO, Gerben Bakker, and Vice President of IR, Dan Inamorato. I'm Toby Okwara. I'm part of our Morgan Stanley Multi-Industry Research Team. Thank you guys for being here. And I guess starting off, just looking at the longer-term strategy, what's Hubble's competitive advantage? Why do you win in your markets?

Yeah, and I would say, well, first of all, thank you for your interest here today with You know, I would say in in in short it's it's the The specification that we have on our product. I mean we generally are our spec problem that that's you know, whether we're in the utility side or in the electrical side a Product that's critical to to the function that they serve and you know generally a relatively small percent Of the cost so it's what we do matters You know certainly the Specification that we hold the other competitive advantage. I would say is the breadth and depth of our of our portfolio is Differentiator from for us and you know if you think about in in today's environments, you know partners Generally want to do business with with lesser more strategic relationships, and certainly we have those very strong relationships. We've built those over many years of how we serve them. And so it's our position in the markets, the breadth of our portfolio, our prevalence of our scale around the customers that we serve is what helps us in our position.

And I guess kind of to that point, is there a difference in your competitive positioning or competitive strategy in electrical versus utility?

Yeah, I would say there's a lot of similarities there in the value proposition that I stated that being critical to the function. And if you think about some of the products that we serve in utility, a connector is relatively small. The average price of a component in our portfolio is $25. So it's quite small, but the function is very, very critical. So if one of those connectors is not available, you're not putting up your line and if one of those connectors feels your line comes down So so it's it's really, you know, hugely critical and that that applies on the electrical side as well If you think about our burning grounding system If you're not grounding a building at the data center probably will not function really well or is not well protected so again a small cost piece in the overall scope, but very critical. And I think on both sides of the portfolio, the specification is what really matters and holds strongly. So I'd say there's a lot of similarities, truthfully, on both sides of the portfolio.

Looking at utility in particular, you've had a lot of themes that have driven more confidence in the upcycle there, whether it be reshoring, electrification, and now a data center just bringing more demand to the grid. What gives you confidence in the durability of an upcycle and opportunity for that market to accelerate?

Yeah, it's some of the underlying demand drivers and maybe separating the pieces and data centers. It's a conversation, a topic of every conversation that we're having, and certainly we have an important presence in the data center with our balance of systems, components on the electrical side with our power distribution skids that we serve, but I'd say equally on the utility side with the power that's needed to, demand that's needed to power all these data centers, a tremendous portfolio on that side as well. So while I'd say data centers is an important element of our portfolio it's not the only thing that drives our our business if you look at the utility the there's an element of data centers there with the power load but if you think about the age and the state of our grid you know when I talk about this I don't talk in years but I talk in decades of the investment need that needs to happen here and it's it's you know we have a very prominent and a very strong position in this boat in distribution, transmission, and substation. And I think the drivers beyond load growth there is just a hardened, modernized grid infrastructure that's required. And again, I love our position in that.

And just maybe on the confidence in the sustainability, I think the biggest thing that we see is it's starting to get reflected in utility capital budgets. And it's been a healthy CapEx cycle over certainly the last several years, but we've seen that, again, picking up as certainly we exited last year, we've seen utility capital budgets start to reflect some of these investments as we think about longer-duration projects and areas like substation and transmission. We see our utility customers planning out a little bit further than typical, and that's because they have the visibility into load growth coming into their service territories, hardening projects that they need to do, and so I think those conversations with customers have extended, and we've also seen it reflected in their budgeting process.

I guess, yeah, kind of following on that point, you mentioned getting longer visibility from your customers. How would you compare conversations today versus where they were, I guess, the same time a year ago?

Yeah, I'd say definitely more conversations around the planning of what they're trying to accomplish. And if you think about the utility customers, you have a tremendous amount of demand right now to put load in. It's probably more demand than they have the capacity to do today. And so they rely on their whole supply chain to be able to do this as well. So not only are they limited and having to worry about their own capacities, and that's oftentimes labor, but can everybody supply? So utilities have a lot of interest to talk with their partners, especially strategic partners like Hubble that supply them with a lot of the materials that they need to do this with about the visibility that they can give us so that we can make the needed investments in our business to service them. So I'd say the visibility is further out for us. The products that we serve, though, are still relatively short lead time. Those are extending in some of the product lines where we're more constrained, and you're investing in that to bring those lead times back down and that capacity up but for us what the important part is to get the visibility to what they're trying to accomplish so that we can prepare our business and our capacities to serve that but but we tend to be late in the cycle you know we generally our products are measured in lead times of weeks to a couple of months so you know i don't need to get the order until they're actually going to they're going to install that that product that's typically what they do they you know they We're a trusted partner in that, and when we say we can do something, we generally can, so they can rely on us to not need to do that earlier. But the visibility to that demand, those conversations are definitely happening more frequently and earlier right now.

You mentioned some of the limiting factors that potentially can temper the pace at which they can build out these projects. What are the main factors you see, and how can your solutions, how can Hubble solutions help solve those?

Yeah, yeah. I think one, and maybe we can help less with that, is permitting that they need in PUC approvals. That's, you know, certainly part of the equation. And, you know, it's a tension point. It's just the reality of it. I would say regulators are supportive of the need to do this. There's a clear need, right, of load necessity and even a clearer understanding of the age and the state of our grid and that that needs to be invested. And I would say even before data centers was a big thing, we've been in this business for a long time, we saw the investments ramp up just to harden our grid. it's it's the heart of our economy is the power grid so you know the need to invest and support to do that is there but but certainly you know that can affect the time in a little bit of getting that that permit in those right-of-ways that they require I say the second part that utilities are dealing with is labor constraints is can they put it all up now I think they're they're doing a lot of things to to help with that that I think you see utilities actually relying on third-party EPCs for example to help them with the build-out and companies like Hubble can help so to the extent that we can make parts easier to install it helps utility and you know a good example of that is in our transmission business where and because we have the breadth of components that we can supply if you think about what they do when they put up a transmission grid is they put so many miles of tower and then they put all the hardware on it and so what we do is we actually bundle all that hardware together for each tower so rather than them getting a whole bunch of insulators and connectors and hardware and they have to sort it all out in their yard we actually bundle it and create sometimes partially assembled and they can put that right up when they build it's a good example The other one is in our substation control where we're actually building this control house in our factory and we ship it. So to the extent that we can take labor out of the utility sands and put it in the factory, it's helpful. And we have a broad portfolio to be able to.

And then kind of following on the point I mentioned earlier about the utility budgets, I think when I'm looking at transmission versus substation distribution, they were historically seen as kind of competing with each other for spend. Are we seeing that dynamic shift as you get a return to load growth and essentially getting rate cases start to rise?

Yeah, yeah. You know, we view them truthfully as not competing so much with each other. And if you look at the utility budget, you see the spend going up in both of those areas. And they do separate that. So utilities have, for example, hardening programs that they put in, and they get those approved. I think utilities have gotten, you know, looked at way too, as it may have been more MRO-type work right now to bumble it as a hardening program. They can actually get return some and get them through the PUC. We've seen that play out over the last years. Of course, it's higher in those areas that are levels higher. We see that in our business right now. But the other important mission, and it's larger just because there's more miles, there's more spend going on there. But if you look at it, the content that's on the grid that we supply in that perspective in the market.

Are you starting to see any pickup there in the city?

And high and bold when we develop those products and we serve those today, we actually have 65. It's actually technology that's adopted. I would say we specify those products, start shipping. The need for that is a very efficient data center. It's a really efficient way to do it. So, you know, I think what we think about this decade, what plans are to invest.

Kind of staying on that technology aspect, looking at the meters and more progress with advanced metering and better adoption with customers. How can we see that shifting from the head when we've seen over the past few years?

Yeah, yeah. So on just the volume step, the technology of that business, over the days, it's in supply. And that business has improved our expectations for that business today, particularly in the margin front of that business. We've taken a good bit of cost out of that. And we were investing AMI side to penetrate with the IUs. But on the AMI side, it had been very strong with the utilities. And our investment for IOU space, like Hubble, that has a reputation. But this is now, or these other areas, that is, yes, now, electronics. It's getting to the end of its life. We're actually starting to see more MRO right now where they're just replacing meters while they, as we look forward to the client, we believe that when we get to the end of the year, we'll start seeing that turn to models, just part of that and the other part of that, which is controls. Protection devices. Protection devices, thank you. Nicely, more in line. As far as technology, it's to think about our meters and serve as a sensing device. But I would say that that's just what you have to do to what we are making to make sure that that hardware is capable of providing more insights into the grid, behind the meter to the grid.

I guess now shifting gears to stronger growth driver 50%, you've been driving the strength there and in the other areas that have been outperforming. And how do you think about the trajectory for the businesses that have been so much softer?

You think that? Yeah, sure. Yeah, I think, you know, Light Industrial has been really healthy for us for the last, you know, at least a year or two, and again, I'd say as we've progressed through this year, we have seen a little bit of a broadening of, you know, beyond just data center. I think the light industrial side of the business has picked up, the non-residential side of the business, which has been soft for a while, has picked up as we've progressed through the year, and a little bit early to say what's driving that, right? Is there general short cycle recovery or or not. And I think when we look at least internally on a regional basis of like where that activity is going in, it tends to map very closely to where data centers are going in. So I think there's obviously some halo effects there. But we have seen it improve as the year has progressed. Again, I think it's a little early to say exactly what that means. But I think as we've been talking about throughout the year, and I'd say we've continued to see just that improvement on the non-data center pieces. The heavy industrial side of the portfolio is still a little bit softer, but I'd say that's kind of progressing as we have anticipated.

And then I guess looking at data center in particular, why does Hubble win with data centers? Why does your portfolio resonate so well with those customers?

Yeah, I'd say it ties to our general competitive advantage. The first question that you ask is, these are products that serve you know critical needs they're they're highly specified they're they're synonymous the brand our brands are almost synonymous with with the product and the application if you think about brands like like Burgundy you know like a pin and sleeve wiring device including the new acquisition that we just did with NSI and if you think about you know Bridgeport fittings and Polaris which also serve data and these are anchor brands that that serve these customers I I think that's the first reason why we win in that. And then we've been very proactive in investing in these businesses in capacity to serve the need. And again, it's one of our primary value propositions is the reputation that we have to provide products that are of high quality and there's almost nothing we won't do to service our customers and to provide them with the products that they need. So I'd say that's another area of why we've been able to win in that is to be ahead of investing it. And then in product innovation as well. It's an area where we're doing quite a bit of work right now. And, for example, our pin and sleeve connectors is a good example. This is a product that traditionally served heavy industrial applications of really, you know, tough industrial environments You know that the amperages and the heavy-dutiness of that product Became applicable to data centers, but the form factor was wasn't perhaps the most efficient and as data centers are starting to To to take up less footprints you're trying to get more into a data center not only are we increasing the amperages of these products to take on more power, but the form factor so that they fit better in the racks. And again, having the reputation of our brand and then being able to innovate products is what's helping us drive growth in that area.

Yeah, maybe one thing I'd add on both that question and the last one is just the work we've done on the electrical segment unification over time. And again, there's some things on the cost side that are a big part of that story. But on just the commercial side too, Last year, we consolidated the sales force and realigned it around, and again, part of the broader segment strategy of historically we've competed as kind of individual brands on the electrical side, and our strategy is now to compete collectively, and we reorganize the sales force instead of selling individual brands to have a regional focus where we have our sales force selling the full package of the electrical product set. And then around that, we've also invested in vertical market sales teams where data center is a great example. We've got dedicated teams who are calling on EPCs and contractors and speccing in our broad product portfolio. And that's examples of, you know, we've had a really good leading position in burn deconnectors, for instance, and data centers. But then when you drive those relationships and specs at the contractor level, you can start to pull in more products to some of those projects. And I'd say more broadly, even outside of data center, you see that with our channel strategy, too, right, of being easy to do business with to our channel partners, you know, also enables us to get more shelf space of our existing product set. And that's also helping with some of the broader growth that we see across electrical. And I think NSI, as Gerben said, is another opportunity to just keep running that playbook.

And kind of staying on that innovation theme, there's a lot of discussion on this move to 800-volt data center. How does your portfolio prepare you for that transition, and how does it support data centers as they move towards that infrastructure?

Yeah, and I'd say part of the product that we serve, truthfully, won't change a lot. So if you think about you know burn the grounding, you know, that probably has it may change the form factor a little bit but Still still very much needed Some products will evolve up in a sleeve product line as a matter of fact and you know Some of the developments that we're doing there is very much to adapt to this New not only higher amperage is what you're seeing right now, but eventually the 800 volt infrastructure And then if you look at our power skid business, it's where we're assembling the different gear on that to then bring that as a package to the data center for the power needs. I would say there, the equipment that goes on it will probably go to a lot of change, but you're still needing to package that also. So we're working, you know, with our customers there and with the manufacturers there of some of that gear to prepare for that. So, you know, I think space is moving really fast. 800 volts is one element, but even between where we have been and where we are now, there's just a lot of development, and they're constantly trying to get more through the footprints that they have, and, you know, you just need to adapt to that.

And kind of following on the space moving fast, I mean, you did 50% in the first half, guiding to 50% in the full year. We've heard some others at the conference that are speaking to acceleration in the second half. When you think about your target for data center growth this year, is there room for upside there? And how can we think about the durability into 2027?

Yeah, yeah. So, I mean we certainly believe that that there is durability to to data center rate Of which that happens is I think the question that that's debated a lot and you know Can it all be put in place can utilities support all the need for the load? That that's required but what I think what what our success and perhaps You know and it's it's our nature to not be over our skis When we promise things and you know hindsight as we look back to where we were at the beginning of the year You know, we're probably a little bit conservative in in what the projection we've clearly done better I would say part of the driving to do better is What we've added in capacity and we were constantly adding here capacity to be able to do more where we're bringing new products into this a basket of balance of systems to serve more. So I think the function of having done better is more in our ability to ramp up to serve the demand that's actually there. So we believe that we feel good about the future of data centers. I'd say importantly for us, though, it's not our only driver for our business. If you think about our utility business, yes, there is a piece of that that's clearly tied to load, growth, and data center, but there's an equally attractive piece of that portfolio of just the hardening of the grid, the modernization of the grid. So we like data center. It's an important part of our business, but we believe we have very attractive other parts of our portfolio, particularly in the utility business.

And to the point on some of the outperformance year-to-date, do you see that as timelines moving up with projects you already had expected in your pipeline, or were there incremental projects kind of flowing through?

I'd say, I mean, again, at the beginning of the year, the shorter cycle part of that business where we're, you know, booking and shipping components in four to six weeks, right, it's just hard to commit to 50% growth at the beginning of the year with nothing in backlog, right? And so I think part of it is we just saw the order book continue to accelerate. And then, again, we're planning our capacity for more growth than that, certainly. And I think our experience throughout the year, particularly, again, on the Burnley side, is every time we added more capacity and we're able to ship more product, the orders kept going up, right? And so, again, that part of the business, you're less, you know, focused on individual projects, I guess, other than you're getting those natural orders of as your big customers, your distributor partners, your EPCs, and your contractors are doing the install work. They're just pulling copper lugs as they need them, right, grounding systems as they need them. And so I think it's just been more of that. That's been the experience throughout the year is seeing the order book continue to go up. We add capacity, and then the order book keeps going up. And around that, we've been able to add some of these newer products and get more penetration. So I guess that's the way it summarizes it.

And then you mentioned some of the work you've done on the electrical side of the business in unifying that portfolio. As you think of the room to run on margins, you already passed the 22.5 target for 2027. What are the levers going forward? Is that restructuring just part of the normal operation? And what can drive expansion beyond that?

Yeah, I'd say the it's it's not one singular thing that's driven us kind of exceed the targets that we said Couple of years ago Clearly restructuring is one one part of that the the unification of the electrical Segment Volume is is helping in that equation as well uh pieces of our portfolio that are growing at a higher rate are are you know very attractive uh margin as well so that that helps i'd say it's not any one thing but it's really what what we call our strategic playbook that we said we did a lot of portfolio work as well in in a couple of years ago to to you know push that to to higher margin the acquisitions that we're doing, DMC last year, NSI this year, the profile of that margin. So it's multi-level playbook that we're applying. And there's still room in that, I would say, in all those fronts, right? As we look at the strength of the markets, I mean, we've clearly, those markets have been stronger than we initially anticipated this year. That benefited. I'd say the the segment unification is still in the middle innings, and I think you'll see an electrical continued Expansion there You know the managing the whole price cost productivity dynamic we've managed that well over the last couple of years to at least Neutral or better and I think the history is that that that's turned out to be better and now of course over a shorter period if you're managing price cost neutrally that could actually be detrimental a little bit to margin on the short term. But our view is that there's still room for margin improvement going forward through managing this playbook, this different leverage.

And kind of to that point, what's your sense on the appetite for pricing in the environment right now? I know it may shift depending on how different end markets are doing, but how have those conversations progressed with your customers?

Yeah, I'd say we've managed that well over, you know, the last five years from the COVID era when inflation really shot up, where we had to take just a very different approach from what we traditionally taken with the annual price increases where, you know, you're doing this, you know, every couple of months you're having to go up. And, you know, I think the numbers would prove out, if you look at Hubble over that period, that in an inflationary period, we've actually done quite well. And so it's, again, you know, when we see inflation happening, and we're certainly seeing that this year, we price for it. And, again, we've seen those prices stick. You know, I remember a few years back, a lot of the conversation was when actually commodities were coming down and our margins expanded. The big question that we were getting then is, is that sustainable? Can we hold on to that? And, you know, there's reasons why we can, which is our value proposition. We're a small part of the total cost of what we do, but critical. I mean, this is what we've been talking about, critical in function. So generally, price is not the primary discussion that we're having. And, of course, we're in a competitive environment, but it's more, you know, our reputation, our quality, our service, our spec position is what matters. So, you know, at the time I said the best proof of this is the next price increase that we need to put in place and can we get that. And we've done many price increases since that time. So, you know, that's our view is when there's costs that come into the business, you know, certainly we do a lot to try to combat that with can we source it elsewhere, can we drive productivity, but price is a lever that we're using to offset it, and I think it's proven that Hubble can do well in an inflationary environment.

And then I guess kind of tying it up here, as we get closer to the 2027 Investor Day, what key question do you think you're working to do without preempting any of this?

Yeah, yeah, we're a little bit away from that. Yeah, but it's coming up. It's certainly, you know, we're absolutely looking at this as part of our strategic plan that we always look. And, you know, when we set the last target that we, you know, longer-term target that we probably said was in 24. And I think as we look back now at how that's progressed, I think one thing that's clear to us is that the underlying demand of our markets is stronger than what we anticipated when we set those stars. We see that come through this year already. Of course, there's still a lot going on in all of our markets. I mean, interest rates went up yesterday. What are the effects on the commercial side of that? But I think net-net, our view is incrementally positive on, you know, what the targets are going to be going forward. So, I don't know if you – more to come on that, I'd say, but it's definitely something we're thinking about. And we're really excited about what's ahead for Hubble.

I think that's time. We can wrap it up there. Thank you for being here. Really appreciate it.

Thank you all.