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Hubbell (HUB.B) Misses on Q4 Revenue, Beats On Earnings

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On Jan 28 after the closing bell, HubbellHUBB reported fourth quarter earnings of $1.30 which beat the Zacks Consensus of $1.17. The solid results initially sent the shares up, but the gains were subsequently lost as Moody's changed its rating of Hubbell's debt from stable to negative.

Moody's attributed the revised rating to an expectation of further deterioration in the end markets served by Hubbell, particularly the oil and gas markets, and to a lesser extent, the industrial market. The size of its recent acquisition, the $200 million of promised dividends and the $250 million in planned share repurchases pursuant to its decision to convert to a single class of shares were also responsible for the revision.

A quick look at the earnings numbers-

Total Revenue

Hubbell Inc. reported revenue of $829.7 million for the quarter which declined 5.4% sequentially and 2.3% on a year-over-year basis. The decrease was due to decline in organic sales and fluctuations in foreign exchange rates, partially offset by the contribution from acquisitions.

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

Revenues by Segment

Powersystems net sales were flattish with the year-ago quarter at $243.7 million. Growth in the power segment came from the telecommunications market.

This sector was able to overcome FX headwinds and some organic headwinds with its acquisition program.

Foreign currency translation had a negative impact of 2% while acquisitions added 3% to sales in the quarter.

Electrical net salesdeclined by 2.3% to $586.0 million from $605.4 million reported in the fourth quarter of 2014.

Acquisitions added 2% to net sales in the quarter, while the unfavorable impact of foreign currency translation reduced them by 2% . Lower shipments in industrial and energy-related businesses caused an organic sales decline of 3%, which was partially offset by higher shipments in construction-related businesses.

Operating Performance

Hubbell's gross margin for the quarter was 32.6%, down 142 basis points (bps) sequentially and 27 bps from the year-ago quarter. The gross margin was majorly impacted by negative mix, as high-margin industrial sales were weak and largely replaced with lower-margin C&I volume.

Hubbell's operating margin was 14.3%, down 200 bps sequentially and 116 bps from the year-ago quarter.

Operating Margin by Segment

The Electrical segment recorded an operating margin of 11.7% compared to 14.3% in the year-ago quarter. A weakness in the industrial side particularly on the heavy industrial area was offset by strength in the constructional side and this mix caused the operating margin to decrease to 11.7% despite the more favorable pricing and cost and productivity efficiencies.

Operating margin in the Power segment was 20.6%, an increase of 240 bps from the year-ago quarter of 20.3% of net sales. The increase in margins was due to favorable material costs and productivity in excess of cost inflation.

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 $77.4 million compared with $84.5 million in the year-ago quarter. Reported earnings per share dropped 11cents from the year-ago quarter to $1.08.

Balance Sheet

Cash and short-term investments balance at quarter-end was $355.7 million compared with $443.7 million in the previous quarter. Accounts receivables were $466.6 million versus $$530.9 million in the prior quarter. Long-term debt was $595.9 million compared with $597.9 million in the previous quarter.

Dividend & Share Repurchases

The company has a plan to repurchase shares worth $250 million in 2016.

Outlook

The company is expecting better earnings in 2016 with earnings per share of $5.20 to $5.40 including $0.35 of restructuring. It will continue its focus on long term, sustainable, profitable earnings growth.

It expects cash flow to be 90% of net income and is focusing on generating a strong cash flow in order to reduce its debt.

Recommendation

Hubbell reported fourth quarter earnings of $1.30 which beat the Zacks Consensus of $1.17 but missed out on revenue.

Hubbell's results were primarily impacted by macro trends and 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.

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 are Mercadolibre Inc MELI , Groupon Inc: GRPN and Travelport Worldwide TVPT . MELI has a Zacks rank #1(Strong Buy) and the others a Zacks rank #2(Buy).

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HUBBELL INC (HUBB): Free Stock Analysis Report

MERCADOLIBRE IN (MELI): Free Stock Analysis Report

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TRAVELPORT WWD (TVPT): Free Stock Analysis Report

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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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