) second quarter earnings of $1.51 per share missed the Zacks
Consensus Estimate by a penny. However, earnings increased 39.3%
sequentially and 9.8% on a year-over-year basis. Higher volumes,
driven partly by acquisitions and improved profitability led to the
increase in earnings.
Shares were up over 2% during the day primarily due to strong
year-over-year increase in revenues and a positive guidance
indicating enhanced growth prospects in all the segments.
Hubbell reported revenues of $855.8 million for the quarter, which
was up 12.7% sequentially and 6.8% on a year-over-year basis.
However, this was below the Zacks Consensus Estimate of $860.0
million. The year-over-year increase was primarily attributed to
seven acquisitions over the past one year (three in power systems
and two each in lighting platform and electrical system), which
contributed 5% of the total revenues. Organic volume, up 2% from
the previous quarter, also contributed to the year-over-year growth
There were pockets of strength within different end markets as
demand improved in most of the markets. One of Hubbell's most
important end markets is non-residential construction where
flattish new construction activity was supported by relative
strength in renovation and relighting at some large national
The industrial business had a mixed quarter as Hubbell's harsh and
hazardous business showed strength while the test equipment
business was weak.
Management said that both the transmission and distribution sides
of the utility business were flattish. However, residential
construction, which is a relatively smaller side of the business
right now, was the major contributor to organic growth.
Hubbell has two operating segments-Electrical and Power Systems,
which generated 72% and 28% of revenues, respectively in the
Revenues by Segment
revenues were up 0.9% sequentially and 1.6% on a on a
year-over-year basis to $612.4 million. About 5 percentage points
of the year-over-year increase was attributed to acquisitions.
Organic volume was also strong, contributing 3 percentage points to
revenues. The residential market within lighting as well as
commercial construction, was the major contributor to organic
sales were up 10.3% from the previous quarter but down 3.8% on a
year-over-year basis to $243.4 million. The year-over-year increase
was mainly due to acquisitions. Project-related transmission
spending and distribution sales were flat. Organic volume in the
utility market also improved with respect to the previous quarter.
Hubbell's gross margin for the quarter was 34.2%, up 23 basis
points (bps) from the year-ago quarter's 33.9% and 192 bps from
32.3% in the preceding quarter. The year-over-year increase was
attributable to production efficiencies and favorable comps
(capacity consolidation costs were lower than in the year-ago
quarter). However, it was partially offset by unfavorable product
mix that the company has been seeing for quite some time now.
Hubbell's operating income of $143.7 million was higher than the
previous quarter's $104.8 million as well as the year-ago quarter's
132.1 million. Hubbell's operating margin of 16.8% was up 299 bps
from the prior quarter and 31 bps from the year-ago quarter.
Operating Profit by Segment
Operating income in the Electrical segment was $95.5 million or
15.6% of net sales, up 7.4% from the year-ago quarter.
Power Systems operating income increased 11.6% on a year-over-year
basis to $48.2 million. Operating margin was 19.8% compared with
18.2% in the year-ago quarter.
Hubbell's net income was $89.9 million (excluding non-controlling
interest and earnings allocated to participating securities) or a
10.5% net income margin, compared with $81.8 million or 10.2% net
income margin in the year-ago quarter. Reported earnings per share
were $1.51 compared with $1.37 per share in the same quarter last
year. There were no one-time items.
The cash and short-term investments balance at quarter end was
$605.8 million, down from $655.1 million in the previous quarter.
Accounts receivables were $506.0 million versus $468.3 million in
the prior quarter. Total debt was $597.4 million as against $597.2
million at the end of the prior quarter. The debt-to-total capital
ratio at quarter-end was 22.9% compared to 23.8% at the beginning
of the quarter.
Free cash flow (defined as cash flow from operations less capital
expenditures) was $43.4 million in the reported quarter versus
$30.7 million in the prior quarter.
Management does not provide a quarterly guidance and provides only
limited guidance for the year.
Accordingly, for 2014, while the Electrical segment is expected to
be up 6-7%, the Power segment is expected to grow 3%. The
Electrical business will be helped by growth in the residential
market as well as acquisitions. Therefore, management expects
overall sales to be up 5 to 6%.
Overall market growth is expected to be in the range of 2-3%. The
utilities market is expected to be flat. The industrial market is
expected to grow low single-digit while the residential market is
likely to be up 10%. Management stated that it is starting to see
some signs of growth in the non-residential commercial business,
its largest end-market, and expects it to grow 3-4%.
Management expects an operating margin improvement of 20 bps to 30
bps for Hubbell.
Hubbell reported disappointing second quarter results with both the
top and bottom lines missing the Zacks Consensus Estimate. However,
both revenues and earnings increased year over year.
Although the end markets remained more or less flat in the quarter,
management expects all the markets to improve in the third quarter
of 2014. Margins are also expected to benefit from pricing programs
and material cost management. Hubbell's aggressive acquisition
strategy will also help growth and profitability going forward.
Currently, Hubbell has a Zacks Rank #3 (Hold). Some better-ranked
stocks in the technology sector include
Charter Communications, Inc.
First Solar, Inc.
Silicon Motion Technology Corp.
), all sporting a Zacks Rank #1 (Strong Buy).
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HUBBELL INC -B (HUB.B): Free Stock Analysis
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