01—Abstract
Summary
Summary of the 10-K filed February 14, 2020. Cited figures are marked; the original filing is the authoritative source.
Hubbell Incorporated (HUBB) reported 2019 net sales of $4.59 billiona, up from $4.48 billion in 2018, driven by higher organic volume and a full extra month of Aclara contribution.
Operating income rose to $596.6 millionb from $556.9 million, with operating margin of 13.0% versus 12.4%. Net income attributable to Hubbell was $400.9 million, and diluted EPS was $7.31 versus $6.54. On an adjusted basis (a non-GAAP measure that excludes acquisition-related intangible amortization and other items), adjusted diluted EPS was $8.12 versus $7.77.
The Power segment drove growth, with net sales of $1.97 billionc, while the Electrical segment's net sales were $2.63 billion, slightly down from $2.66 billion. Cash generation was solid: operating cash flow was $591.6 million and free cash flow (a non-GAAP measure) was $497.7 million. Hubbell paid $186.6 million in dividends, raised its quarterly dividend from $0.84 to $0.91 per share, and made a $200 million discretionary term loan prepayment.
Total debt fell to $1,571.4 milliond from $1,793.2 million, and debt to total capital declined to 45% from 50%. Backlog was $1,037.0 million at December 31, 2019, down from $1,250.8 million a year earlier, and the company has a $325.0 million remaining share repurchase authorization. Key risks cited in the filing include trade tariffs affecting steel and aluminum costs, Brexit, the ongoing ERP and restructuring programs (with $37.0 million of restructuring and related costs in 2019 and $16.3 million more expected), and the leverage added by the 2018 Aclara acquisition, which cost approximately $1.1 billion.
02—Key points
Key Highlights
- Net sales rose to $4,591.0 million in 2019 from $4,481.7 million in 2018, with the Power segment at $1,965.3 million and the Electrical segment at $2,625.7 million.
- Operating income increased to $596.6 million (13.0% margin) from $556.9 million (12.4%); adjusted operating margin reached 14.6%.
- Diluted EPS of $7.31 rose from $6.54; adjusted diluted EPS of $8.12 rose from $7.77.
- Free cash flow was $497.7 million, versus $420.9 million in 2018, and $186.6 million was paid in shareholder dividends.
- Total debt was reduced to $1,571.4 million from $1,793.2 million, including a $200 million discretionary term loan payment in December 2019; debt to total capital fell to 45% from 50%.
- Backlog declined to $1,037.0 million from $1,250.8 million, though it includes $395 million of multi-year Aclara contracts.
- The company gained $21.7 million from the Haefely disposal and recorded an $8.5 million net charge tied to a multi-employer pension withdrawal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Hubbell kept $0.10.
- Revenue$3.95B100.0%
- Cost of revenue−$2.77B70.3%
- Gross profit$1.17B29.7%
- Operating costs−$644.9M16.3%
- Operating income$526.7M13.3%
- Interest, other & tax−$125.8M3.2%
- Net income$400.9M10.2%
Where FY2019 revenue went
$3.95B- Cost of revenue: $2.77B, 70% of revenue
- SG&A: $644.9M, 16% of revenue
- Net income: $400.9M, 10% of revenue
- Interest, other & tax: $125.8M, 3.2% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 14, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $3.95B$4.48B | −11.9% |
| Cost of Revenue | $2.77B$3.18B | −12.8% |
| Gross Profit | $1.17B$1.30B | −9.9% |
| SG&A Expenses | $644.90M$743.50M | −13.3% |
| Operating Income | $526.70M$556.90M | −5.4% |
| Interest Expense | $69.40M$72.40M | −4.1% |
| Net Income | $400.90M$360.20M | +11.3% |
| EPS (Basic) | $7.35$6.57 | +11.9% |
| EPS (Diluted) | $7.31$6.54 | +11.8% |
| Shares Outstanding (Basic) | 54.40M54.60M | −0.4% |
| Shares Outstanding (Diluted) | 54.70M54.90M | −0.4% |
05—Questions
Frequently Asked Questions
How did Hubbell's profitability change in 2019?
Operating income increased to $596.6 million from $556.9 million, and operating margin rose to 13.0% from 12.4%. Net income attributable to Hubbell grew to $400.9 million from $360.2 million, and diluted EPS rose to $7.31 from $6.54. The filing attributes margin gains to favorable price realization and productivity that outpaced cost increases, partly offset by lower unit volume and higher restructuring costs.
What drove the difference between the Electrical and Power segments?
The Power segment's net sales rose to $1,965.3 million from $1,821.1 million, supported by 5.5% organic growth and contributions from acquisitions, mainly driven by transmission and distribution markets. The Electrical segment's net sales declined slightly to $2,625.7 million from $2,660.6 million, reflecting weaker industrial and oil-related markets, lower unit volume, and the disposal of the Haefely business.
How strong is Hubbell's balance sheet and cash flow position?
Operating cash flow was $591.6 million in 2019, and free cash flow was $497.7 million. Total debt fell to $1,571.4 million and net debt to $1,319.5 million, with debt to total capital of 45%. The company's only financial covenant requires total debt not exceed 65% of total capitalization, and the $750 million 2018 Credit Facility was undrawn at year-end.
What are the main risks flagged in the filing?
The filing highlights trade policy and tariffs affecting steel, aluminum and imported components, the uncertainty around Brexit, the risk of realizing expected benefits from the Aclara acquisition, and indebtedness that rose with the $1.1 billion Aclara purchase. It also cites exposure to customer credit quality, pension funding obligations, LIBOR transition, and cyber and information technology risks.
What returns are shareholders receiving?
The Board raised the quarterly common dividend from $0.84 to $0.91 per share, starting with the December 16, 2019 payment, and cash dividends declared were $3.43 per share in 2019. The company repurchased $35.0 million of shares in 2019 and had $325.0 million remaining under its October 2017 repurchase program, which expires October 20, 2020.
06—Continue