Hubbell at Global Transportation Conference: Strategic Growth Insights

On Wednesday, 21 May 2025, Hubbell Inc. (NYSE:HUBB) participated in the 18th Annual Global Transportation & Industrials Conference, presenting a strategic overview that highlighted both recovery and growth opportunities. The company is optimistic about achieving price-cost neutrality for the year, despite challenges in the telecom sector, and is focusing on strategic acquisitions and operational improvements to expand margins.

Key Takeaways

• Hubbell anticipates price-cost neutrality for 2025, exceeding initial targets.
• Growth opportunities are identified in utility infrastructure and data centers.
• The telecom sector is expected to recover in the second half of the year.
• Over $2 billion in deployable cash is projected between 2025 and 2027.
• Strategic acquisitions and increased share repurchases are key capital allocation priorities.

Financial Results

Recovery and Outlook:

• Hubbell expects stronger-than-targeted price-cost neutrality for 2025.
• Infrastructure utility orders rose by double digits in the first quarter.
• The telecom sector declined but is expected to recover in the second half.

Electrical Segment Growth:

• The electrical segment is experiencing mid-single-digit growth rates.
• Margin expansion is driven by reorganizing three siloed businesses into a cohesive unit.

Operational Updates

Utility Infrastructure:

• Destocking issues are largely resolved with increased bookings and positive customer dialogue.
• Transmission remains the strongest part of utility infrastructure, with a good backlog.

End Markets:

• Commercial is the softest market, while light and heavy industrials perform well.
• Data centers continue to drive significant growth across markets.

Future Outlook

Growth Strategy:

• Hubbell is focusing on acquisitions in transmission, distribution, and utility infrastructure.
• The company aims to enhance data sensing, communication, and infrastructure control.

Margin Expansion:

• Hubbell expects hundreds of basis points in margin improvement by addressing redundancies.
• Electrical margins are anticipated to reach levels comparable to industry peers.

Capital Deployment:

• A mix of share repurchases and acquisitions is expected, supported by substantial deployable cash.

Q&A Highlights

Transformers:

• Hubbell does not manufacture transformers; lead times remain over a year.

Tariffs and Pricing:

• Revised tariff pricing outlook is expected to have a reduced impact.

System Control:

• System control solutions are seen as taking labor out of the field, improving cost control.

In conclusion, Hubbell’s strategic initiatives and financial outlook suggest a focus on sustainable growth and margin expansion. Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Bill: So that that all that’s why I’m saying we’re back to where we were. Is yeah. You have now higher confidence in offsetting it all inside of calendar year 2025.

Nigel: So the only thing that’s changed is the sort of price cost neutral dollar for dollar for the full year. The thing that’s changed is the potential $0.50 of contingencies now gone.

Bill: Correct.

Nigel: That’s how the framework?

Bill: We said we were targeting zero and now I’m saying stronger. Stronger than that. Okay.

Nigel: Okay. That’s great. And then orders, I mean, I think one thing that maybe got missed with all the noise of the earnings was the fact that orders in infrastructure utility infrastructure was up double digits in the first quarter. It sounds like that’s continued in April as well.

Bill: It’s a good pattern on the bookings and we’re pleased. It just shows to me you know, that we don’t have to use the word destocking or have me come up with a euphemism called inventory normalization or some something like that. But that’s that’s just evidence to me that that we’re, you know, we’re back to booking and shipping at the install rate, right? And that’s a really nice inflection point of basically last six quarters, basically.

Nigel: You’ve got good data from the I mean, the problem hasn’t been distributors, it’s been the customers, right? The customers have been destocking.

Bill: It was both, but what made it prolong was the end customer. Think the distributors reacted faster, a little bit easier for them. They’re used to booming and busting and rightsizing and utilities are not in the business of how much inventory do they need, right? So they sort of stepped into a slightly more challenging situation and taken them. I think that’s what prolonged this phenomenon.

I think

Nigel: some of your sort of partners in the utility space have struggled to try and dimension how much inventory has been held by the utilities. So what gives you confidence that we’re now beyond this period? Is it just the order rates? Or is there something else

Bill: you Yeah. I mean, our dialogue with them is first. I’d say second, Dan and I and some others inside of Hubble, we spent a very decent amount of effort building model that I wouldn’t say was SKU by SKU, but product family by product family. And you have to make some assumptions in that modeling about what the install rate was versus what our ship rate was. And you saw a six quarter period where we outshipped install rate and a six quarter period where that reversed.

Each one of those product families were different. Some started a little earlier, some ended a little later, some were steeper, some were shallower. But it was very instructive to us to do that and realize that we felt this was the quarter where that was coming to an end analytically, but there’s assumptions that only make that as good as the assumptions now. You get the anecdotes from the customers saying we’re at normal levels, but I’d say most powerful yet is the fact that the bookings have picked up.

Nigel: Okay.

Bill: And so I’d say all three of those matter to me, but the bookings are more, I’d say, what I hang my head Yep.

Nigel: If we’re beyond this destocking, how much would you say of the weakness has been caused by some deferral of MRO spending or project push? Because there was a bit of that as well, wasn’t there?

Dan: Yes, I don’t think a ton. I mean, we think distribution has been growing throughout this timeframe. I think transmission substation’s certainly on the stronger end, and I think outgrowing the distribution side. But throughout this, I think distribution market has been growing solidly, and and I think there has been more certainty and clarity on rate cases. Right?

We highlighted that in the earnings call, and I think that’s taken a more constructive tone in the last six months or so. So there’s probably some of that as well, but I think throughout this, the distribution markets have been healthy.

Nigel: Yeah. Rate case renewals, I think, is huge, right? Because that’s getting repriced and getting the ROI on the higher inflation basis is important. Do you have any sense on what proportion of your customers have had that rate rebasing in the last couple of years?

Dan: Yeah. I mean, it’s it’s a good chunk of them. I think, again, typically, utilities operate on a three or five year capital budget and and certain will come up in certain time frames. And I think, again, there’s a good there’s a good grouping of them that, you know, late last year sort of went through their their rate cases, and that’s about the time that they do it annually. Right?

And so, again, it’s gonna be different utility by utility. Right? Some some are growing well above the average and some some still below. So I think it’s an ongoing dynamic, but it’s, again, a good chunk of the utilities typically revisit it every year.

Nigel: Thanks, Dan. So is it too ambitious to assume that volumes in utility infrastructure could be mid single digits in 2Q? Is that more of a second half sort of run rate?

Bill: Well, I think you’ll see it picking up and then coming to that level. But I don’t think that’s unrealistic.

Nigel: Okay. And then transmission still remains the strongest

Bill: part of And, you know, there’s confidence there because, again, there’s a book and the lead times are a little slower there. So you and it’s project based and they want, you know, the material on time to complete the project. So it gives you it gives you some confidence that that’s there.

Nigel: Okay. So the backlog’s in place for that. And then telecom, I know telecom is small, but it’s when it’s down 30%, it has an impact. I think we had growth, if I’m not mistaken, in the first quarter.

Bill: Well, didn’t grow in the first quarter year over year. Grew grew did decline. Yep. Kind of double digits again. But compared to the 3040% declines, we were

Nigel: Yep.

Bill: You know, it’s it’s you could see it. And and the sequential, you know, started to look, you know, much better. And now the bookings support, you know, much better than seasonal recovery there, even though there is a seasonal ramp up traditionally. And so I think it’s going to have second half growth story that’s going to be a show that it’s really through its destocking process as well.

Nigel: But you’re not expecting telecom to be up strong, you know, think you’re being more measured in your assumptions.

Bill: Yeah. Frankly, the way we want to run it, I don’t want to chase the cheapest volume just to get our sales back up. I sort of want make sure we come back good pricing, good margins. The margins, you know, a year or two ago, been really attractive part of our portfolio. And as it’s shrunk, when you lose attractive margins with lost volume, the decrementals are difficult, but it’s still attractive where it is even despite steep declines.

So, I sort of want to turn it back into a predictable growth, margin expanding, not chasing the frothy kind of volume that might be there. So I hope you see us just build it back constructively and do that at really nice margins.

Nigel: Yes. Thanks, Bill. Just touching quickly on the communications side, the meters, that was down mid teens in the first quarter. I think it was down 15%, if I’m not mistaken. How does that look for the balance of the year?

You had very tough comps in the first half and then second half, obviously, much easier. Do we flatten out in the back half of the year?

Bill: So the lens I think we got to pull the lens back a little bit to understand it. So a few years ago, there’s no chips available. They can’t ship. And so you build up multi couple of years’ worth of backlog. Satisfy that backlog and those some of the more significant projects rolled off at the end of twenty twenty four.

And so now you saw, yes, year over year that decline that you mentioned, but sequentially you saw essentially flat. And now, you look at the bookings, and they’re at that flat level. And so, I would make you know, my insight would be, I think they’re prepared now to have a ’25 at a durable level that’s based much more on gas and water customers and munis and co ops. So what I would call maybe smaller customers, bread and butter, you know, they’ve been they’ve won several competitions in the last month or two. So I know they’re competitive and winning, but at this kind of small base.

That feels like a good expectation for the balance of ’25, which should, because of comps, result in some growth by the end. But I think of that as seasonally where it is and the meaningful growth from here would come from any large investor owned electric utility. That’s really where they could have a $500,000,000 8 hundred million dollars project. So, I’d say it’s at a nice sustainable level right now and wait for something like that to be a growth catalyst. Great.

Thanks, Will.

Nigel: Any questions from the audience? So put your hand up.

Bill: So the question was around transformers. We don’t make don’t make them. So I don’t have a great point of view, but it just sounds from the industry like the lead times are gonna stay at a year for over a while. So I think it’s think it’s still a long pole and a lot of project tense.

Nigel: Yes. That’s the one thing you don’t do, right, transformers? Yes. Moving to margins. Maybe before we turn to margins, in Electrical Solutions, anything within the end markets that’s moving around here?

Because non res does feel like there’s pockets of weakness there. So anything you’d call out in terms of the end markets?

Bill: For us, the commercial is the softest. I’d say light industrial feels good. Heavy industrial feels good. And you know, you see steel prices up, so that should be good. I think as a horizontal theme across those vertical markets, data centers continues to actually be a big driver that we see across that.

So and I think our Electrical segment story, so we’ve had in the mid single digit growth rate there. There’s been a little bit of price in that, so that’s not all units. But I think we still have margin opportunity there as we take what had traditionally been three businesses run as three silos. And we’ve been Mark Mikes came from his career in our power systems unit, kind of knocking those silos down and creating kind of a compete collectively across that utility franchise. And he’s doing that again on the other side of our house and he’s been really constructive and really successful, and he’s got still a ways to go.

So I think you’ve got I think with we had some lighting businesses inside of there, both on this commercial industrial side as well as resi. We may be obscured for you all that the Electrical segment has actually got a really attractive piece to it. Now that we sold those two, I think we’re showing mid single growth rates with multi year margin expansion. That’s just you know what I mean? That’s self help.

That’s not even incrementals on the growth. You know? And I think, Nigel, that’s we’ve got a kind of solid, repeatable, nothing crazy right kind of story on electrical that’s going to play out over the next couple years.

Nigel: So I haven’t done the math on what the sort of revised tariff sort of pricing outlook looks like, but it seems like the guide for 6% to 8% looks more like top line organic, looks maybe, I don’t know, 4% to 6%, five to 7% in that range. Talked about margins for both segments to be down. Is that still the case now with the revised sort of

Bill: Yes, we’ll have to I think we’ll have to revisit that formally when we report next. But I think what you’re pointing out is the reason they were down is because if all you do is offset a dollar of cost with a dollar of price, that is margin dilutive. And we had a fair bit of that in what we showed you and now that that’s moderating. I think you got a better chance. If we looked at it just kind of organically, there’s margin expand organically.

Don’t know if that’s the right word, but x a artificial cost and price environment, there was margin expansion. So we’re getting I think we must be getting back to closer to that.

Nigel: I think it’s about 50 basis points of maybe benefit from that mathematical Is

Bill: that half

Nigel: of the Oh,

Dan: sorry, in the right. It was about one point of impact under the prior construct. Again, if you did the math, it’s probably not it’s probably still more than half that. So you’re getting that range.

Nigel: Yes. Okay. So you’ll come back to us with that. Then coming back to the Electrical margins, obviously with the Lighting out of the equation, margins are a lot better, but you’re still kind of lagging some of the Electrical peers there. So if you look at say the Grand or Eaton’s Electrical segment margins, you’re still well below that.

So I’m just wondering where you think you can get these margins to over the next three to five years?

Bill: Yes. So I think there’s first of all, we burden our electrical segment with corporate segment, which not all of those that you mentioned And I would say there’s hundreds of basis points of just cleaning up redundancy. You don’t need you know, everybody doesn’t need the full finance team. You don’t need the full HR team. You don’t need you know, the Salesforce has been reorganized to be segment based rather than single product underneath that.

Much more efficient and effective. SAP company codes, which sounds, you know, somewhat tactical, but you don’t need as many transactions. You don’t need all the staffing. And so it’s it’s remarkable. Mark’s had a a good career run doing this before, and he tells me, you know, he still has points to go, not basis points.

He has points. And so we we think we think it’s gonna look, you know, on a comparable burden basis a lot like some of those franchises you talked about. And we think that’s a solid electrical segment that we have.

Nigel: So it seems like well north of 20%. Capital allocation. The message from the I Day, which was last June, I think.

Bill: Yes, about a year ago.

Nigel: June 2024 was larger deals, which I think is like $100,000,000 plus type deals, maybe a little bit more than that. Where are we right now in terms of the M and A pipeline? What was the what kind of multiples you’ve seen out there? Conviction and deploying capital here?

Bill: Yes. So maybe to remind everyone on the basis of Nigel’s question, we’re thinking that for 2025, ’20 ’20 ’6 and 2027, when you think about operating cash flow less CapEx, less dividends, less share repo, there’s more than $2,000,000,000 cash that’s deployable. That actually ignores, Nigel, the fact that the balance sheet would have incremental leverage capacity if you wanted to stay at two times, for example. And so that is that would suggest a good amount of of acquisition activity. And as Nigel says, if you did hundred million dollar deals, that’s that’s that’s a lot, you know, to try to do.

So I think it does suggest some bigger, and I would say right now, the portfolio, we’re active looking at the pipeline. We’re in a number of discussions. There’s everything from $100,000,000 as you say, dollars 2,000,000,000, which we’ve done in the past and everything in between. It is a pyramid. There’s more of the smaller size than there are the bigger.

I would say we are very intentional about finding growth and margin in our acquisitions. That’s causing us to be intentional in transmission and distribution space, data center space, and anything in utility that lets us sense data, communicate data, and control the infrastructure. We think those areas are really interesting. And so, we’re looking to be acquisitive for sure. And we think the balance sheet is positioned for that.

I’d say, as I think about it and how much cash that is, I think I’d also expect, if you studied our capital allocation, you’d see share repo in many, many years over the last fourteen or You would have seen about $40,000,000 as an anti dilutive amount of share repurchase. And I would expect that to be higher annually. You know? So a slightly richer mix of share repo and an increased level of acquisition. So it’s that’s all so in other words, capital deployment, there’s more to deploy.

And so I think both levers will probably be used. I

Nigel: think you did a pretty big buyback in 1Q, one hundred twenty five. Is that that sort of one and done this year? Or do you think you can do more buybacks this year?

Bill: I think we’ll keep looking at that. Yes, I guess that’s my point is I think we’ll be relying on that lever really more than we have in the past.

Nigel: Okay. I think we’re getting hooked here, but maybe one more. System control, obviously control house within the substation utilities. We’ve seen a number of deals. EnVent’s done a couple of deals.

Eaton just disclosed one as well. What is going on that’s making these control house assets more valuable?

Bill: I think the fundamental is what the solution does is it takes labor out of the field, which is subject to weather and availability, and it brings it into a factory environment. And it’s just much more controllable. You can control cost. You can control timing better. So fundamentally, I think those examples are all taking advantage of the same trend, which is much more reliable.

And in substations, often delivery time, you know, matching the project when it’s ready becomes incredibly important part of the value proposition. We can just do that better out of a factory environment. So, it appears to us, we’ve worked with customers, they start with us, then they do a few more, and then it grows to become part of how they do their substation work. And so now that it’s on our platform with our breadth of relationships, we have the assumption that we’ll start more clients at that modest starting point and grow them to be how they do substation. So we’re very excited about what it can do.

We’re prepared to invest in it and add to its footprint and grow because the dialogue with customers has been really good. But I think we’re not the only ones who have that same thesis. Bill, we’ll leave

Nigel: it there. Thanks for the discussion. That was a great overview. Thank you.

Bill: Thanks for hanging in everybody. Yes. Thank you.

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