Hubbell Incorporated (HUBB) Q3 2017 Earnings Report, Transcript and Summary

Good morning. My name is Tasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2017 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to the call over to Ms. Maria Lee, please go ahead.

Thanks, Tasha. Good morning, everyone and thanks for joining us. I am joined today by our Chairman, President and CEO, Dave Nord and our Senior Vice President and CFO Bill Sperry. Hubbell announced its third quarter results for 2017 this morning. The press release and earnings slide materials have been posted to the investor section of our website at www.hubbell.com. Please note that our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. In addition, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release in the earnings slide materials. Now, let me turn the call over to Dave.

Thanks, Maria. Good morning, everybody. Thanks for joining us. I'm going to start on page three of our earning slides to give some introductory comments and then turn it over to Bill for some quarterly details. As you saw on the release this morning with very strong results across the company in the third quarter. On the sales side, you saw that sales were up 5% driven by organic growth of four and acquisitions of 1 point. This is the highest level of organic growth we've seen in 10 quarters. So, we're very pleased with that. Power of course led the way with 9% sales growth, 8 points of which was organic, driven by growth in the underlying transmission distribution markets. And about 3 points from storm-related volume, Bill will talk a little more about that later, it's hard to get that précised but, it certainly was a good contributor for us on the power side. The harsh and hazardous business as well as our gas connectors and accessories were also benefiting from strong markets, and competitive positioning, and each saw double-digit organic growth in the quarter. On the operating profit side, when you look at that particularly pleased as our reported operating margin you see was 15.4%, that's up 40 basis points year-over-year. I want to adjust that for a restructuring related cost, margins were 16%. That's the first time in more than three years, both the electrical segment and the power segment expanded margins. And keep in mind this includes the investment in the Internet of things, R&D via iDevices, that's embedded in the electrical segment. I am also happy to say that the lightings manufacturing and distribution performances stabilized. Some of the problems we saw earlier in the year, we've put a lot of attention on, we spoke about last quarter, and we think we've got that to be stabilized, and believe the bulk of this year's restructuring driven inefficiencies are behind us. So, well that has given us reported earnings per share of $1.47, which compares to a $1.56 in the same quarter last year. In these results, as we mentioned before, they include $0.11 of one-time refinancing cost, and $0.07 of restructuring related cost. When you adjust for these costs, third quarter earnings per share was $1.65, and this compares to $1.63 on a comparable basis last year. In the refinancing, we lowered interest expense by issuing $300 million of new debate and using the proceeds to redeem higher interest notes that were going to come due in next year. And on the restructuring, the program continues on track with our stated goals on cost and savings. From a capital deployment, you probably saw, and hopefully saw last Friday, our Board approved a 10% increase in their quarterly dividends to $0.77 per share, and renewed authorization for share repurchase of $400 million over the next three years. As these actions demonstrate, we've remained focus on returns to shareholders. So, before Bill takes you through the slides on the financial details and the full year outlook. Let me give you a couple of additional comments about the quarter. First on storms, certainly the recent Hurricanes affected two of our facilities, specifically one in Katy, Texas and the second in Puerto Rico. As our first priority was making sure all of our employees were okay, and fortunately they are. Our facility survived without major damage, but our production capacity in our facility in Puerto Rico has obviously been limited due to power outages. We have actions in place and supplemental power coming on line, and we expect to get that close to back on full capacity sometime next week, but that's been a bit of a challenge for sure. For our financial perspective, the impact of the lack of production in the cost of that more than offset by the benefit from the increased volume primarily at power. Obviously, power you might have seen, post-Harvey, they were recognized in Inc. Magazine, as a company that's specifically identified is helping Harvey relief efforts and therefore, should be a company that you want to help out as well. And the one thing about storms is that it provides our power business opportunity to continue to showcase their commitment to service, reliability and partnership with our customers and we hear it all the time from our customers. Let's talk a bit about customers. I've spent some time over the last few weeks with some of our largest distributors, and what's great is they're optimism and the outlook was clear and consistent as was their emphasis on their digital strategy and the potential could impact their businesses. It was great to hear from them the favorable feedback about our investment and iDevices as a platform to accelerate our Internet of things R&D. And speaking of iDevices, they continue to be the wholly home automation solution networks on all three major platforms Amazon, Apple and Google with a single product platform. That's one of the reasons why one of the top 10 leading homebuilders most recently chose iDevices as its exclusive home automation solution during the third quarter. We're also pleased with our customers acknowledge our commitment and performance, and we saw that progress lighting was recently awarded Supplier of the Year by a major distribution customer and it's clearly is a testament to the improvements we're making in lighting certainly after a tough year. And lastly, if we look at our product innovation and product awards, at harsh and hazardous, our diversification beyond traditional oil markets as you've heard the team down here talking about our Investor Days as is paying a benefit of global pharmaceutical company, recently selected the harsh and hazardous as the only hazardous area of lighting partner. With a global agreement that provide quotes for LED lighting covering all 86 of its manufacturing sites. We're enthusiastic about this award for this contract and look forward to the opportunity and it really as a result of a combined effort between our harsh and hazardous team and our lighting team both from a market access and from a technology standpoint. I mentioned already in the quarter, iDevice became the exclusive home automation solution for a major home builder, but they also launched a hub-less Wi-Fi smart dimmer switch that turns traditional switches into dimmer switches. We continue to work on identifying vertical market solutions as well with iDevices, beyond residential and institutional and utility that combines Hubbell's product breadth with our growing software capability. We recently held sessions with one of our major utility customers to identify where we have technology capability combined with our product, our breadth of product offering and help match that with the strategic direction that the utility is trying to go in and using iDevices technology. But it goes beyond that. Our innovation is happening across Hubbell, ease of use in flexibility, critical drivers to our product development. We saw that Burndy in the quarter. We introduced a new ergonomic design for our PATRIOT Battery Actuated Climper that's lighter, shorter and has improved balance. Safety also inspires our innovation. From the UL listed Marine Isolation Transformers that ensure on-board power save. To using LEDs to communicate electric volt status of a switch without removing the cover, Hubbell wiring debut new products in the quarter that prioritized safety. With these kinds of continuous improvements and product design that are the hallmark of Hubbell's long industry that drive our innovation and customer satisfaction. So, with that, let Bill take you through some of the details and I'll come back with perspective on next year.

Thanks very much, Dave, and good morning, everybody. I appreciate you spending time with us here today. And I guess I too feel we had a good quarter. As we assess our performance, we thought there are some really good things. We had strong organic growth as David referenced. Lot of that growth came in attractive high margin markets, which is good news, able to expand gross margin offering, profit margin, while investing in R&D as David mentioned and remediation of the restructuring driven lighting inefficiency, I think are pretty good positives. And really on the negative side, as we'll talk to as we get to our heavy industrial markets still showing weakness as part of the portfolio. And that's where on page four, we start we're talking about the markets and you can see the market strength if you see those green arrows starts with the oil and gas side. In oil, double-digit growth, in harsh and hazardous definitely not a V-shaped rebound like we might have experienced back in 2009, but a very welcome sign of recovery and an attractive market for us. On the gas side, where we sell components to the distribution side of that infrastructure, double-digit growth there as well. So good green contributions there. And then power systems, you'll see both distributions and transmission showing strength and that strength is really beyond typical MRO type and there is capital expenditures and project business that's helping to drive that, and I think the noteworthy of industrial composite you see that being sideways, which is really comprised of the lighter industrial being positive and the heavier industrial being negative. So, on page five, we've got our adjusted operating income picture, and you can see, we grew operating income from $142 million to $152 million, that $10 million was certainly noteworthy as well as the margin expansion from 15.6% to 16%. The S&A improvement that you see there, of improving by 10 basis points has been the continuation of the trend that we've been experiencing of efficiencies at the S&A line. I think the good news for the quarter is embedded up in that gross margin area, where you see 30 basis points of margin expansion, and that's happening as David mentioned while absorbing higher spending in smart tech, R&D. And this certainly is an area where if we can drive sustainable improvement that would be very good news. So, as we see on page six. Adjusted earnings per diluted share up a couple pennies to a $1.65, and that again compares to that $10 million gave us about $0.12 from operating earnings, but our effective tax rate costs us about a dime in the quarter and more than half of that was driven by a return to provision credit from last year and the balance coming from negative geographic mix, for example as Dave was referring to the lack of absorption and profit in Puerto Rico. That's an example of a drive some negative geographic mix for us. And the lower share count of 0.5 million fewer shares in the share count as a result of our share repurchase activities. So, we'll switch to now looking at the segments and starting on page seven, we'll talk about electrical. So, you can see 3% growth to $654 million, that 3% growth being driven by 2% organic growth, and that organic growth coming from the non-res area, where we saw some decent growth as well as the oil and gas side which we've talked about. The performance side you see a 20-basis point improvement to 13.8% or 5% growth rate. And I think of note you're really seeing there, the recovery of harsh and hazardous are coming back to strength the gas components business contributing and the effective remediation of the lighting inefficiency is coming from our restructuring program, while investing in the smart technology of R&D. So, a positive performance there from our electrical segment. Page eight, you can see the power segment and you see $297 million of sales in the third quarter of 2017, growth rate of 9%, as David mentioned. About 8% of that is organic and the favorable impact of storms we're estimating to have contributed about 3% to that sales growth. So, the markets really given us about 5% with acquisitions adding a point, and we saw again favorable growth in both distribution and transmission and the capital CapEx cycle helping us there beyond just MRO. On the performance side, 40 basis point margin expansion to 20.9%, you can see $6 million of contributed OP there, impressive performance by our power systems business. And you can essentially see balance between price cost and productivity and so, the benefit coming through from higher volumes. I'm going to switch now from the third quarter to talking about on our year-to-date nine-month picture. From the sales side, you can see we grew a $100 million or 4% to two and three quarters billion of that 4%, 2% of that growth came from acquisition and it's worth some commentary on the state of our acquisition program. So, in this nine-month period, you saw eight different investments contributing and they were in several pockets being led by our power systems business where four of the eight acquisitions were made in that business. Two of the eight were in gas distribution. We had a small harsh and hazardous edition and then the iDevice deal, which we've talked a bit about. So, I think you can see our capital allocation strategy growing in power systems business, growing gas distribution and having confidence in harsh and the need to make sure we've got the right competencies around smart technology. In addition, on page nine, around our operating performance, you can see our adjusted OP margin about 10 basis points below last year. The effective tax rate about a point higher and EPS about $0.08 higher at $4.39. Cash flows is below last year, and some important places and we'll talk about that in some detail in just a couple of minutes. Page 10, we cover the year-to-date for the electrical segment. 2% growth, similar story to the third quarter. Organic up to coming from non-residential and residential growth. The Oil and Gas business for the year-to-date period are up around mid-single digits and those industrial headwinds we've had for the nine-month period continue to be soft. The lightning business for us year-to-date for those nine months has been up a point on volume, but down a couple of points on price. You can see the adjusted OP down 60 basis points to 11.8% and that's really bearing a lot of that price headwind coming from the lighting business as well as the material inflation that we've been experiencing as well as the acquisition impact, which is the investment in iDevice. Page 11, we've got the Power segment, we can see very strong year being put up here 8% growth, 5% organic, distribution and the telecom business adding to that, the performance being up 90 basis points to 20.9%. You can see a lot of dollars being contributed from the OP here in power systems and we've got productivity and volume helping to drive that margin performance above the sales growth level. On page 12, we've got the year-to-date cash flow, which I said we talk a little bit more about. So, you can see we're below last year's levels and we've got deal driven non-cash charges and D&A being up, which is tailwind. So, the headwind is really coming from that working capital area, which is largely inventory for us and the largest contributor to that inventory investment has been our lightning space and more specifically on the residential side as our service levels has dipped as part of our remediation plan that they've outlined. We invested in building up that inventory and improve service levels and we can see here the cost of that investment and the other contributors to our inventory has been the strong growth both in power systems as well as in harsh and hazardous and gas components that double-digit growth has necessitated some investment and the working capital as well. And so, in the order side, you can see the lower source of cash this year, the largest contributor to that change is driven by the redesigned of our pension plan and as we moved essentially from a frozen DB plan to a DC plan, we implemented a safe harbor designed, which has funding throughout the quarters of the year rather than just once a year and so there has been more cash going out. The CapEx side, you can see we've spent more in CapEx so that's negative cash flow, but we believe very, very high ROI projects that we're investing in. So, we are still focused on high cash flow fourth quarter to get free cash flow equal to net income. I was going to ask Maria to comment on capital structure on page 13.

Sure. We ended Q3 with $386 million of cash, as it's typical almost all of these cash were international, and we have a little more than a $1 billion of debt. In the third quarter, we completed the refinancing of senior notes that were coming due in 2018. We issued new tenure senior notes at 3.15%, and used the proceeds to redeem the existing notes which were at 5.95%. So, we've reduced our interest expense while keeping the debt level the same. Our reported third quarter results include a loss of $0.11 from this early extinguishment and we expect to see benefit from the lower interest expense starting in the fourth quarter of this year. So, a healthy balance sheet with comparable debt levels year-over-year and lower interest expense going forward. Now, I'll hand it back off to Bill for the outlook.

So, page 14, we have summarized our outlook for the balance of 2017. And I've highlighted changes we have made since the July call, we have made a few tweaks to this. First, on electrical transmission and distribution, we've raised that outlook from 1 to 3, to 2 to 3. On the resi side, we're tweaking down from 4 to 6, to 4 to 5. And on the industrial side we had been expecting 2 to 4, and you'll see here 2 to 3. So, the result from all this is a 2.5% to 3%, market outlook, but you can see some tweaks to slightly stronger T&D and slightly weaker on the industrial side. And on page 15, you'll see how that boils down into our EPS range, so, where we were on our July call was 5.40 to 5.60, and as Maria just highlighted the refinancing of that debt, took about $0.11 out, and we've got since then based on our third quarter performance and our outlook, we've narrowed the range by $0.10 and took the lower end up, which effectively adds a nickel to the guidance to get to the 5.40 to 5.60, you'll see here. We're still anticipating a heavy cash flow fourth quarter to catch us up to net income. So, that concludes our remarks about 2017, and I was going to ask Dave to give you our thoughts and early preview on 2018.

All right. Thanks, Bill. Before we get off 2017, again but, be really appreciative of all the efforts, when I look at the performance in the third quarter, I think everybody, the whole organization is really performed and as delivered. And what's particularly satisfying is that when we look and cut through it, when we look at the performance year-to-date, we actually are performing as we expected which was, the expectation we would do a little bit better, the markets would be supportive. And I think all of our business has experienced that. We've got the benefit of storms, that have helped us, so, about not without some challenges in operationally. And the one challenge that we've had that's self-inflected challenge that we've had in lighting, which I think, we've put a lot of attention into trying to stabilize and right that, so, I'm particularly pleased with how the third quarter is really reflective of what we expected as we started the year. Still more work to do to finish the year, no question, you don't know, what you could be facing over the last couple of months, but I think the third quarter is a good setup to a very solid finish to the year. So, what that do for next year, well I'm on page 16, in an early preview of our end markets, as we typically do with this point, I want to provide our initial thoughts on how next year shaping up, but we'll give our official guidance in January. But for now, we expect the end markets next year to grow in the aggregate 2% to 4%. So, similar to this year and pretty balanced growth across the key markets. Certainly, the strength in the transmission, distribution and oil and gas are going to continue although with the momentum that's built through this year certainly the back half of next year will face tougher compares, but I think still we'll see strength. We see signs that the heavy industry is going to improve, and consumable driven light industrial is going to grow, and the level of growth in non-residential little less certain as some of the indicators, recent indicators are mixed. But, at this point we think we'll continue to grow next year, but probably at a little lower rate, and we see the same thing with residential. On page 17, you can certainly see, and we see that there is a number of earnings tailwinds that position us well for the opportunity to deliver double-digit earnings growth. The refinancing impact should be favorable both the absence of the Q3 loss on the extinguishment and the lower interest expense as Maria talked about. Restructuring and related cost should be lower. We plan next year to stop adjusting results for restructuring and related costs. As we are getting to a run rate level, that we anticipate to be an ongoing somewhere $0.15 to $0.20 per year, compared to this year's $0.30. We'll see some incremental savings from actions we've taken this year. We think the end market growth should provide some benefits next year. And certainly, the stabilization of lighting operations in terms of the absence of the restructuring driven inefficiencies would be beneficial. We do have another important facility move to complete, we announced the fourth quarter last year, and there's no doubt, and we've acknowledged in the past and there's no secret that we have had missteps up in the past, and the important things that we have to do with those missteps is learn from those mistakes and we've applied a lot of those learnings to this move, we've got a very structured process, with dedicated resources, focused on training at the receiving plan, which is always where we seem to have a problem. As well as deselecting some of the low volume, high complexity product offerings which has always caused us some difficulty, and where possible we've built buffer inventory to smooth the transition. I think all of those things are things that we're working at proactively and I'm confident because the plant that we're moving it into is a very well-run facility, that came to us through the acquisition of light control, a very experienced team, a very proud team and a very capable team that's been doing this for a long-time in similar areas. So, I can never say with absolute certainty, but we've put a lot into trying to make sure that, this one goes smoother than any of them have. As you expect, we do anticipate some headwinds next year, and I think, pricing in the lighting market continues to be challenged. We expect rising material costs, that are going to pressure margins across all of our businesses, as this typical there is a one to two quarter lag between the inflation and our ability to get the price. And on page 18, a few more considerations for earnings that are harder the size and time right now. Certainly, include opportunities like new acquisitions, share gains, potential tax reform, as well as some risks like higher costs from more investments in R&D with our Internet of things efforts. But we've got relatively consistent end markets, which would suggest the mix would be is flattish, and pension expense, as Bill just went through at this point, because of our design changes and discount rate, and asset returns, we expect that to be flat, as well as currency. So, you put all this together at this early stage, I feel pretty good about 2018, and I think the team feels pretty good other than the work involved to it; they actually deliver on that opportunity. Certainly, we've done a lot as you know, and you've all been patient with our cost actions, that we've taken over the last few years that position us well to capitalize on continued market growth. And I think our portfolio with strong brands, quality products; commitment to customers will help us manage through some of these anticipated headwinds. So, while it's still early, lot to do, we won't put out an official guidance until January but, surely my goal and the team's target is to get us to deliver double-digit earnings per share growth in 2018. So, with that, let me open it up to discussion and questions.

[Operator Instructions] Your first question comes from the line of Nigel Coe of Morgan Stanley. Your line is open.

Thanks. Good morning. So, Dave I just wanted to confirm the bars on page 17 on upscale.

Correct. We know you get your ruler, so we made sure that they were all just all equal way for now.

Okay. I have my ruler here. It's about 2018, which would be nice. Okay, so to move on to the serious part of this conversation, so you mentioned the benefits to power from the storms. How sustainable do you think this is? I'm assuming you get some in 4Q. Do you still see 2% to 4% growth, notwithstanding benefit in the second half of the year?

Well, there is a couple of things on storms. Yes, there is still some carry over into the fourth quarter. You also have what is very difficult to size, which is when you send 30,000 alignments to Florida that means there's work not being done in someplace else. So, it's the catch-up work that comes back online, that didn't occur. And then the other piece is that it's still early on, but we're seeing some of the quoting activity is in certainly that critical efforts that are necessary in Puerto Rico. And so that's certainly is going to continue through the fourth quarter and probably somewhat until into the early part of next year.

Right. Okay. And then, I know you were talking about - I mean I joined this call late, so I apologize if - your facility in Puerto Rico where is production right now compared to previous storm?

Right now, it has limited production, probably operating with about 10% to 15% of the employee base, but we've got some supplemental power coming in this week and we expect to be back to close to full production by the end of the month.

And then just a final one, I'm sure lot more questions would be addressed elsewhere, but on the inventory, you built up in lighting, are we now at the level that you feel comfortable given the kind of demand, the environment you see going into 2018 and just when you build inventory, degrees of - there is obsolescence or some potential pricing, discounting the price to ship the inventory?

Yeah. So, the bulk of our lighting inventory investment module was on the resi side, which tends to move faster and has much lower experience rate of obsolescence and so, yes, we would say the question is we feel good that we've got the inventory necessary to drive very competitive service levels and that we've invested in the right areas.

Great. Okay guys. Thanks a lot.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.

Thanks. Good morning guys.

Good morning Glynn.

Just wondering, with electrical margins with the inefficiencies done now in lighting, does that flip your net price cost productivity to a tailwind going forward?

Yeah, so in the quarter the electrical had negative price that was driven by lightning. And so, when you look at sort of the price cost mix that the pricing was with a big offset. But it certainly helps not to have that drag in the cost inflation pace.

Okay. And then just wanted to know if you could give your latest status report on lightning competition how it looks, anything that characterize as truly structural what's the magnitude verses kind of seeing the typical machine?

We don't see anything unusual at least in the space that we're in. It's nothing different that we have seen. I would say there is no - more we can tell a rational behavior other than a big factor has been low cost entrance that have put pressure on the market overall more single line offerings that can be done at a lower price, but not at the completeness of the solutions. And in some cases arguably not with same level of reliability, but that's the world out we live in. And one of the things that we're doing as well as it's being focusing even more with discipline on, where those products, because we have so many such a breadth of product offering Chris, to the extent that we see areas where that pricing is not competitive, we just won't participate in that market, and that may being giving up a little bit volume or share, but we can certainly make it up on the products that we are a leader on have great technology, have a broader solution and a broader package, and that's where we find success.

That's great. One clarification, Maria said down momentarily, did you say rational or irrational?

No. Irrational behavior.

Okay, got it. Thanks Dave.

First that's all relative with the present your position, we think anything, any competition like that is irrational, we rather everybody, keeps trying to drive price up, but that's not the case.

Got it.

Your next question comes from the line of Rich Kwas, from Wells Fargo Securities. Your line is open.

Hi, good morning, everyone. I just thought following up on lighting, Bill what were some housekeeping, it's always the volume price, and then if you have that for commercial C&I in residential?

Yes, for the nine-months, they gained about a point of volume and gave up a couple a point of price, so net sales were about, was down one.

Sure. That's for the nine-months, not just the quarter levels.

Yeah, that's the nine-months, yes. And for the nine-months the resi piece grew a better than the C&I piece.

And then my recollection was you started to have the price headwinds about this time last year, you're starting to comp against that you're talking about pricing being incremental headwind in 2018, should we think of that as less worse, and what you've experienced this year?

Yeah, it's less worse, yes.

Sure. On power, so 5%, ex the storm benefit, you've outperformed the market, historically speaking when you've had these surges you've kind of the growth is moderate in the year following, or the couple of years following. How do you see the cycle playing out here, I mean, some of the structures guys are talking about good visibility, for the next year, so, in feeling good about growth? Your outlook seems to apple that, what are your thoughts about outgrowing the market versus what you've pegged 2018 at preliminarily?

Yeah, I mean, you hit on the couple of the big themes. First is the growth rate that we're envisioning is positive for next year, but not as high as the five points that we've been running at in the last couple of quarters. For us, we think of reach that MRO cycle, as really driving something GDP-ish, so, I don't know 2.5-ish, maybe it could 3% with that and so to do 5, implies, that there's some capital spending going on, and I agree the visibility on that, I think our team feels that they can see that. Of course, those are always subject to being delayed and pushed out. So, I think, we're feeling like there is a decent spending tailwind here, there's some CapEx, there's some MRO in it, and yes, it's below kind of performance this year, which then suggests what can you do on a new product development side and is there share gains that come to be an innovation.

And what's the balance of your distribution transmission growth wise for next year anticipation.

Yeah, I don't know that we've separated that. I'd say that the T has been much more volatile this year than the D. so that comes into play as well.

Okay. Last one for me, the deals done this year, as we think about benefits for next year, my recollection has been, you do deal, then they typically are neutral or maybe even slightly diluted initially, but it takes a little bit time to integrate. If you think about contribution for AT and C&E or bar or errors regarding contribution from deal done this year, is there a way to quantify or at least top down look, think about impact for the next year positive impact from an accretion standpoint?

Yeah. I would say conceptually just to be clear on the word accretion for us the deals are accretive to earnings. I think you're referencing the sometimes the margin.

Right. Right.

So, that's true. And so, then you're saying in the second year as you burn off some of the acquisition accounting and the integration matures that margin naturally creep up in your two of a deal and I would say our experience with that is yes. So, we didn't deal it out as its own area, but conceptually what you're saying is true.

Okay. Thanks.

Our next question comes from the line of Jeffrey Sprague with Vertical Research. Your line is open.

Good morning folks.

Hey Jeff.

Dave, I couldn't help but chuckle the iDevice sounds good, but is anything hub-less good for Hub.

Okay.

So back to your arrows they are not to scalable, but I think we know what a bunch of remark you know are, right, I mean, correct if I'm wrong, kind of the restructuring variants carry over affect versus lower structuring is $0.25 I think.

Yes.

The lightning headwinds where what probably $0.10 or $0.15?

That's not the right range.

On refinancing?

The refinancing if you include the actual loss and the early extinguishment so that' $0.11 and then the interest expense is another $0.7 to $0.8 next year, because we have a little of it this year in the fourth quarter.

Okay. And then given once upon with restructuring, how do you guys think you'll convert on the incremental margins on revenue growth? There's some price pros noise in there, but should be some volume leverage?

Yeah. I think although those sources are all working in interesting ways I think we have some market growth. You know Jeff in places where we have traditionally had a little bit better margin that would help drop through and you're right that their savings coming through from restructuring and then you've to think about what commodity prices and inflation and investing and all of that stuff does. So, we'll be more explicit about that in January, but I think you're right that some of the more known elements, which would be growth in good margin areas, plus some benefits from restructuring those are good places to start.

And when you're thinking about putting writing aside, which is kind of maybe a special case on price. It feels like we've been inflation area in the environment and now from an industrial standpoint and I guess as long as industrial materials are going up you're always applying ketchup to some degree but now with maybe a little bit better end market tone, in other words better kind of demand side of the equation, do you think there's actually a prospect to get up, get caught up on price relative to cost in 2018, even if it's not on a full year basis, perhaps by the time you're excelling 2018?

I think you've phrased the question exactly right, which is the increase for example in steel throughout 2017 and now the copper and aluminum contributions to that I think make asking or some price industrially more palatable, but I do think you're probably applying ketchup and for us that with a six months lag, you're applying ketchup. So, I don't think it offsets but you're right about the actions and the support to ask for price generally and I'd say you're also right to put lighting on the side of that. I think those are two different buckets.

But you're right. By the end of the - by the second half of next year, you could be on the top side of it. If demand holds and certainly, that certainly our history, there's the lag you catch up and assuming that at some points, the material cost would moderate, but demand is there, if you'll get ahead of it for sometimes.

And one thing just to add we had, we're able to get some price, and we've got some price in the non-lighting electrical business, so, we've seen some of that traction is here already. It's a really power we hadn't got in that price, outside of lighting. And where that, potentially, could be a better next year as well.

And then last one for me, putting aside tax - which could change everything. How do you think your tax rate tracks in the next year?

Yeah, I think that's we would anticipate at this stage, thinking about that as flat net of policy changes. We're always working to come up with planning ideas to help get that better, I think, geography ends up being a pretty big driver of year-over-year for us. And so, we'll again, we'll talk more about that in January.

All right, thank you.

[Operator Instructions] Our next question comes from the line of Joseph Osha from JMP Securities. Your line is open.

Good morning, everyone. I'm sorry, I don't have a good one liner like Jeff did.

Okay.

I wanted to return to lighting a bit, you commented on lot of the very aggressive we've priced, to do single lines solutions, you're seeing. I'm wondering especially with iDevices, sort of taking iDevices into account, how are you sort of trying to reposition the higher end of the portfolio and add your intelligence in value to maybe hold-on just in pricing and share in that segment of the market?

Well. We've been working with on controls within lighting beyond iDevices. We've - system that we introduced earlier this year, that's been well received. So, clearly that's an area of focus, took it - to add capability, not to the point of complexity of being a tier 4, building system solution, but certainly having products that are enabled to operate within any building systems. That's kind of the being the, as I mentioned the capability with an iDevice and that's been strategy within the lighting business already. So, it's really marrying those two capabilities and advancing that to make the higher margins specified product, that is always been at the core of our lighting business and success even more in demand.

And so, I take it from your comments then that I should not necessarily expect anything more ambitious into say for example, something that looks like predicts more of a building control type solution, it's going to be a stay more and tier 3 segment in the market?

Yes.

Okay. Thanks a lot.

Okay.

Okay. Steve and I will be around all day, if there is any follow-up question, so feel free to reach out. Thanks for joining us today.

This concludes today's conference. You may now disconnect.