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Hubbell Annual Report, Year Ended Dec 31, 2018

Filing Date
Filed February 15, 2019
Period End
December 31, 2018
Security
HUBB
One revenue dollarkept$0.08
In the record · 2016–202610-K1110-Q338-K110

HUBB filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 110 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Feb ’18Feb ’18
  2. Leadership change8-K · Mar ’20Mar ’20
  3. Leadership change8-K · Feb ’22Feb ’22
  4. Material agreement8-K · Jun ’26Jun ’26

01—Abstract

Summary

Summary of the 10-K filed February 15, 2019. Cited figures are marked; the original filing is the authoritative source.

Hubbell Incorporated's 2018 results were driven by the February 2018 acquisition of Aclara (Meter Readings Holding Group, LLC) for approximately $1.1 billiona.

Net sales rose 22.2% to $4.5 billionb ($4,481.7 million) from $3,668.8 million in 2017, with acquisitions adding 17.8 percentage points and organic volume, including favorable price realization, contributing 4.4%. Gross margin declined to 29.0% from 31.5%, reflecting Aclara's lower gross margin, $29.5 million of Aclara acquisition-related costs in cost of goods sold, and material cost and tariff pressures. Operating income increased seven percent to $556.9 million, with operating margin of 12.4%; on an adjusted basis (excluding $50.3 million of Aclara acquisition-related and transaction costs), operating income was $607.2 million and adjusted diluted EPS was $7.29, up 29%.

Reported diluted EPS was $6.54c, up 49% from $4.39, helped by a lower effective tax rate of 21.6% versus 43.6% in 2017, which included the $56.5 million provisional TCJA charge. The acquisition increased leverage. Total debt rose to $1,793.2 million from $1,055.2 million, debt to total capital reached 50% (39% in 2017), and net debt to total capital reached 43% (23% in 2017).

Operating cash flow was $517.1 milliond and free cash flow was $420.9 million, compared with $299.3 million in 2017. The company repaid $150 million of its Term Loan early and had $360.0 million remaining under its share repurchase authorization, with $40.0 million repurchased in 2018. The quarterly dividend was raised to $0.84 per share from $0.77.

The Power segment, which now includes Aclara, grew to $1.82 billion in net sales, while the Electrical segment grew five percent to $2.66 billion. The filing also flags several risks: tariffs and rising material costs, the Aclara integration (Aclara was excluded from management's internal control assessment and represented 13% of total assets excluding intangibles and goodwill), the potential additional multi-employer pension withdrawal liability of up to $23 million, of which the trustees demanded $23.3 million, which the company is disputing through arbitration, and the transition from LIBOR.

02—Key points

Key Highlights

  1. Net sales rose 22.2% to $4,481.7 million, with acquisitions contributing 17.8 percentage points and organic volume, including price, contributing 4.4%.
  2. Operating income grew seven percent to $556.9 million, but operating margin fell to 12.4% from 14.1%; adjusted operating income was $607.2 million (13.5% margin) excluding $50.3 million of Aclara acquisition-related and transaction costs.
  3. Diluted EPS was $6.54 (up 49%); adjusted diluted EPS was $7.29 (up 29%), aided by an effective tax rate of 21.6% versus 43.6% in 2017.
  4. Total debt increased to $1,793.2 million from $1,055.2 million, pushing debt to total capital to 50% from 39%, after funding the roughly $1.1 billion Aclara acquisition with a $450 million 3.50% 2028 Notes issuance and a $500 million Term Loan.
  5. Free cash flow was $420.9 million, up from $299.3 million, on operating cash flow of $517.1 million and capital expenditures of $96.2 million.
  6. Power segment net sales grew to $1,821.1 million from $1,136.0 million, while Electrical segment net sales rose five percent to $2,660.6 million.
  7. Backlog of firm orders was approximately $1,250.8 million at December 31, 2018, compared with $355.5 million a year earlier, including $530 million of multi-year contracts primarily from Aclara.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2018, Hubbell kept $0.08.

  1. Revenue$4.48B100.0%
  2. Cost of revenue−$3.18B71.0%
  3. Gross profit$1.30B29.0%
  4. Operating costs−$743.5M16.6%
  5. Operating income$556.9M12.4%
  6. Interest, other & tax−$196.7M4.4%
  7. Net income$360.2M8.0%
Computed from 10-KFY2018filed February 15, 2019Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2018 revenue went

$4.48B
  • Cost of revenue: $3.18B, 71% of revenue
  • SG&A: $743.5M, 17% of revenue
  • Net income: $360.2M, 8.0% of revenue
  • Interest, other & tax: $196.7M, 4.4% of revenue

Kept 8.0% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2018filed February 15, 2019
Revenue$4.48B29.0% Gross MarginNet Income$360.20M8.0% Net MarginEPS (Diluted)$6.54Total Assets$4.87BCash & Equivalents$187.40MFree Cash Flow$517.10M

Financial Statements

FY2018 against FY2017

Line itemFY2018FY2017Change
Revenue$4.48B$3.67B+22.2%
Cost of Revenue$3.18B$2.51B+26.6%
Gross Profit$1.30B$1.16B+12.6%
SG&A Expenses$743.50M$636.30M+16.8%
Operating Income$556.90M$518.80M+7.3%
Interest Expense$72.40M$44.90M+61.2%
Net Income$360.20M$243.10M+48.2%
EPS (Basic)$6.57$4.42+48.6%
EPS (Diluted)$6.54$4.39+49.0%
Shares Outstanding (Basic)54.60M54.80M−0.4%
Shares Outstanding (Diluted)54.90M55.10M−0.4%

05—Questions

Frequently Asked Questions

  1. What drove the increase in Hubbell's 2018 net sales?

    Net sales increased 22.2% to $4,481.7 million. Acquisitions added 17.8 percentage points, primarily from Aclara, and organic volume, including favorable price realization, contributed 4.4%. Foreign exchange had a flat effect.

  2. Why did gross margin and operating margin decline in 2018?

    Gross profit margin fell to 29.0% from 31.5%. The filing attributes this to Aclara's relatively higher cost of goods sold and lower gross margin, $29.5 million of Aclara acquisition-related costs in cost of goods sold, and rising material costs and Tariffs that outpaced price realization. Operating margin fell to 12.4% from 14.1%.

  3. How did the Aclara acquisition change Hubbell's balance sheet and cash flows?

    The company paid approximately $1.1 billion, financed with a $500 million Term Loan, $450 million of 3.50% senior notes due 2028, and commercial paper. Total debt rose to $1,793.2 million and debt to total capital reached 50%, versus 39% in 2017. The company also recorded $708.7 million of goodwill and $434.0 million of intangible assets from the transaction.

  4. What are the key risks the filing highlights for investors?

    The filing highlights trade tariffs and rising material costs, the risk of not realizing Aclara's anticipated benefits, higher indebtedness and interest rate exposure, and reliance on suppliers in countries such as China and Mexico. It also notes a multi-employer pension withdrawal liability of up to $23 million, for which trustees demanded $23.3 million, and that the company is disputing this through arbitration.

  5. What did Hubbell return to shareholders in 2018?

    Dividends paid totaled $172.3 million, and the quarterly dividend rate was raised to $0.84 per share from $0.77, starting with the December 14, 2018 payment. The company repurchased $40.0 million of stock in 2018, leaving $360.0 million remaining under the October 2017 program, which expires October 20, 2020.

06—Continue

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