01—Abstract
Summary
Summary of the 10-K filed February 16, 2017. Cited figures are marked; the original filing is the authoritative source.
Hubbell Incorporated's 2016 10-K reports net sales of $3,505.2 milliona, up from $3,390.4 million in 2015, with the increase driven mainly by acquisitions (three percentage points), partly offset by a one-percentage-point drag from foreign currency translation.
Operating income rose to $477.8 millionb (13.6% of sales) from $474.6 million, while adjusted operating income, which excludes Restructuring and Related Costs, was flat at $512.8 million, with the adjusted operating margin declining to 14.6%. Net income attributable to Hubbell was $293.0 million, or $5.24 per diluted share, compared with $4.77 in 2015; adjusted diluted EPS was $5.66 versus $5.52. Management attributes margin pressure to unfavorable product and business mix, pricing headwinds in the Electrical segment (particularly Lighting), and foreign exchange.
The company's cash flow from operations was $398.2 millionc and free cash flow was $331.0 million, which management defines as operating cash flow less capital expenditures. Total debt rose to $993.7 million from $644.1 million after a $400 million senior notes offering in March 2016, and debt to total capital increased to 38% from 27%. Hubbell repurchased $237.8 million of shares in 2016, leaving $153.6 million of authorization, and raised its quarterly dividend to $0.70 per share from $0.63.
For 2017, management guides to diluted EPS of $5.60 to $5.80d and expects free cash flow roughly equal to net income attributable to Hubbell. The filing also discloses a $12.5 million charge in the fourth quarter of 2016 for an anticipated withdrawal from a multi-employer pension plan, with potential additional liability of up to $28 million.
The U.S. salaried pension plan was frozen for service accruals effective February 28, 2017, producing a $34.1 million curtailment gain. Management expects to initiate additional restructuring actions in 2017, and PricewaterhouseCoopers LLP issued an unqualified opinion on the financial statements and internal control over financial reporting.
02—Key points
Key Highlights
- Net sales of $3,505.2 million rose from $3,390.4 million, with acquisitions contributing three percentage points of growth and organic volume one percentage point.
- Diluted EPS was $5.24 versus $4.77 in 2015; adjusted diluted EPS rose to $5.66 from $5.52.
- Operating margin declined to 13.6% from 14.0%, and adjusted operating margin declined to 14.6% from 15.1%, citing product mix and Lighting pricing pressure.
- Total debt increased to $993.7 million from $644.1 million after the $400 million 3.35% notes issued in March 2016; debt to total capital rose to 38% from 27%.
- Free cash flow was $331.0 million, or 113.0% of net income attributable to Hubbell; the quarterly dividend was raised to $0.70 from $0.63.
- 2017 guidance calls for diluted EPS of $5.60 to $5.80, including approximately $0.25 of Restructuring and Related Costs.
- Share repurchases of $237.8 million in 2016 left $153.6 million of authorization, which expires in October 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Hubbell kept $0.08.
- Revenue$3.51B100.0%
- Cost of revenue−$2.40B68.5%
- Gross profit$1.11B31.5%
- Operating costs−$615.3M17.6%
- Operating income$489.8M14.0%
- Interest, other & tax−$196.8M5.6%
- Net income$293.0M8.4%
Where FY2016 revenue went
$3.51B- Cost of revenue: $2.40B, 68% of revenue
- SG&A: $615.3M, 18% of revenue
- Net income: $293.0M, 8.4% of revenue
- Interest, other & tax: $196.8M, 5.6% of revenue
Kept 8.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 16, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.51B$3.39B | +3.4% |
| Cost of Revenue | $2.40B$2.30B | +4.4% |
| Gross Profit | $1.11B$1.09B | +1.2% |
| SG&A Expenses | $615.30M$617.20M | −0.3% |
| Operating Income | $489.80M$474.60M | +3.2% |
| Interest Expense | $43.40M$31.00M | +40.0% |
| Net Income | $293.00M$277.30M | +5.7% |
| EPS (Basic) | $5.26$4.79 | +9.8% |
| EPS (Diluted) | $5.24$4.77 | +9.9% |
| Shares Outstanding (Basic) | 55.50M57.70M | −3.8% |
| Shares Outstanding (Diluted) | 55.70M58.00M | −4.0% |
05—Questions
Frequently Asked Questions
What drove revenue growth in 2016?
Net sales increased three percent to $3.5 billion. Acquisitions added three percentage points, organic volume including pricing headwinds added one point, and foreign currency translation reduced sales by one point. Lighting net sales rose four percent within the Electrical segment, while Power segment sales rose four percent mainly from acquisitions.
Why did margins decline despite higher sales?
Management cited unfavorable business and product mix, pricing headwinds in the Electrical segment, the impact of acquisitions, and foreign exchange headwinds. Cost of goods sold rose to 68.6% of net sales from 67.8%, and adjusted operating margin declined to 14.6% from 15.1%.
How is Hubbell's balance sheet changing?
Long-term debt increased to $990.5 million from $595.9 million after the $400 million notes offering in March 2016. Net debt to total capital rose to 19% from 10%. The company held $437.6 million of cash and cash equivalents at December 31, 2016, and its $750 million revolving credit facility was undrawn.
What is the outlook for 2017?
Management expects modest end-market growth of about two percent in aggregate, organic sales growth that outperforms end markets, and continued pricing pressure in the Lighting business. It anticipates diluted EPS of $5.60 to $5.80 and free cash flow equal to net income attributable to Hubbell.
What are the key pension and restructuring risks?
The company recorded a $12.5 million charge for an anticipated withdrawal from a multi-employer pension plan, and the filing estimates up to an additional $28 million of potential liability. Restructuring and Related Costs totaled $35.0 million in 2016, and management expects to initiate additional restructuring actions in 2017.
06—Continue