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Hubbell (HUB.B) Misses on Q3 Earnings, Revenues

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Hubbell Inc.HUB.B reported third-quarter earnings that grew year over year because of cost reduction initiatives taken by the company.

Total Revenue

Hubbell reported revenues of $877.0 million for the quarter, up 0.3% sequentially but down 2.0% on a year-over-year basis. Reported revenues missed the Zacks Consensus Estimate of $915.0 million. The sequential increase was attributed to both organic growth and acquisitions, partially offset by FX headwinds.

Hubbell has two operating segments-Electrical and Power Systems, which generated 70% and 30% of revenues, respectively in the quarter.

Revenues by Segment

Electrical revenues decreased 3.8% to $617.5 million from $641.6 million reported in the third quarter of 2014.

The decline was attributable to lower organic volume and FX headwinds. The acquisitions partially offset the decline. Acquisitions added 2% to net sales in the quarter while negative foreign currency translation reduced sales by 3%. Organic volume reduced 3% primarily because of lower shipments in industrial and energy-related businesses which was again partially offset by higher shipments in construction-related businesses.

Also, harsh and hazardous was down about 27% for the quarter and the industrial business also showed some softness -- in line with the company's expectations. Therefore, the overall effect of mixed end markets resulted in a decrease in net organic growth.

Power Systems net sales increased 2.6% to $259.5 million compared with $253.7 million reported in the third quarter of 2014. The sales increase was mainly driven by telecommunications.

Acquisitions contributed 4% to net sales of the segment with foreign currency headwinds reducing net sales by 2%. Organic sales were however flat, with strength in telecommunications largely offset by lower transmission shipments.

Operating Performance

Hubbell's gross margin for the quarter was 34.0%, up 39 basis points (bps) sequentially and 91 bps from the year-ago quarter. The gross margin was driven by favorable impact of material prices and higher productivity.

Hubbell's operating margin was 16.3%, down 1 bps sequentially but up 34 bps from the year-ago quarter. The year-over-year increase was driven by higher gross margin, which offset increased costs related to acquisitions.

Operating Margin by Segments

The Electrical segment recorded an operating margin of 14.4%, flat with the year-ago quarter. It was the result of lower volume and mix. However, favorable impact of material costs and productivity helped offset some of the volume declines.

Operating margin of the Power segment was 20.8%, an increase of 100 bps from the year-ago quarter. The increase in margins was primarily attributed to the favorable net impact of pricing, cost and productivity.

Net Income

Net income attributable to Hubbell shareholders (excluding restructuring charges on a tax-adjusted basis, non-controlling interest and earnings allocated to participating securities) was $91.4 million compared with $89.5 million in the year-ago quarter. Reported earnings per share dropped 23 cents from the year-ago quarter to $1.29.

Balance Sheet

Cash and short-term investments balance was $443.7 million compared with $454.7 million in the previous quarter. Accounts receivables were $530.9 million versus $512.2 million in the prior quarter. Long-term debt was $597.9 million compared with $597.8 million in the previous quarter.

Dividend & Share Repurchases

The company returned $173.2 million to shareholders during the quarter via share repurchases and dividends.

Outlook

Management does not provide a quarterly guidance and provides only limited guidance for the year.

Overall sales for 2015 are expected to increase 1% (below previous the 3% to 4% range) with acquisitions expected to contribute around 3% to growth and foreign exchange likely to reduce net sales by about 2%. It expects industrial growth to be 0% to 2% and residential growth to be 5% to 6%.

Management expects earnings per share to be between $4.95 and $5.05 (down from the earlier forecast of $4.95 and $5.15), which includes around 45 cents of restructuring and related costs. The range excludes the costs related to the proposed share reclassification.

Recommendation

Hubbell's results were primarily impacted by macro trends, which in turn affected the challenging end markets. But amid all this the company continues to execute on its One Hubbell strategy. During the quarter, Hubbell made investments to grow the business, took actions to streamline costs, and announced a plan to reclassify the common stock into a single class structure.

The cost streamlining initiatives taken by the company are starting to show results. Hubbell has exited eight facilities and initiated other actions, which are expected to further improve the company's bottom line. The cost reduction initiatives in combination with acquisitions will supplement market growth for the company.

However, an unfavorable foreign exchange rate is expected to remain a headwind. The company plans to offset these obstacles through productivity initiatives, restructuring actions and capital deployment for both acquisitions and share repurchases.

Currently, Hubbell has a Zacks Rank #4 (Sell). Better-ranked stocks in the technology sector include Facebook, Inc. FB , Pandora Media, Inc. P and JD.com, Inc. JD . All these stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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