Good day. Thank you for standing by and welcome to the Fourth Quarter Hubbell 2021 Results Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] please be advised, that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Dan Innamorato. Thank you. Please go ahead.

Thanks, operator. Good morning, everyone and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the fourth quarter 2021. The press release and slides are posted at the Investors section of our website at hubbell.com. I’m joined today by our Chairman, President and CEO, Gerben Bakker; and our Executive Vice President and CFO, Bill Sperry. Please note, our comments this morning may include statements related to the expected future results of our company and our 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 considered incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and slides. Before we get started, we also want to highlight that all results in our press release in the materials for this call are presented on a continuing operations basis, excluding the financial impact of our C&I Lighting business, following the recent closing of that divestiture, and the classification of C&I Lighting as discontinued operations. We’ve also recast prior period financial results on a continuing operations basis to ensure we’re presenting the most relevant year-over-year comparisons and baseline for future results. These recast financials are summarized in this morning’s press release. Now, let me turn the call over to Gerben.

Great. Thanks, Dan and good morning, everyone. And thank you for joining us to discuss Hubbell’s fourth quarter and full year results. As you saw from our press release, we achieved a strong finish to 2021 with solid operating results in the quarter. The performance of our core continuing operations in the fourth quarter exceeded our expectations, which were embedded in our most recent outlook a few months ago. Most notably, our Electrical Solutions segment drove exceptional performance, with close to 50% year-over-year growth and adjusted operating profit in the fourth quarter. Demand remained strong for Utility and Electrical Solutions. We grew backlog further in the fourth quarter, as orders continue to outpace increased shipments, particularly in our Utility segment. For the full year 2021, we grew orders more than 30% year-over-year, and are exiting the year with a record backlog. While we expect supply chain dynamics to remain tight and continue to constrain output into 2022, we are confident that grid modernization and electrification are secular trends which will drive attractive GDP plus growth over the next several years. And we will talk more about our unique positioning and the investments we are making. From an operational standpoint, I am also pleased to highlight we turned the corner on price material in the fourth quarter. We achieved 11 points of price realization, which fully offset the impact of material cost inflation on a dollar-for-dollar basis, though material inflation has been an accelerating headwind throughout 2021, we have been proactive and aggressive in our pricing actions, which have stepped up significantly as we have progressed through the year, and this sets us up well to turn this equation into a net tailwind in 2022. Finally, we are providing our initial 2022 outlook this morning, which anticipates strong double-digit adjusted earnings…

Thanks a lot, Gerben. And good morning, everybody. Appreciate you joining us. I’m going to use the slides to – to guide my comments and I hope you found those. I’m going to be starting on Page 6, which takes the fourth quarter results for us on a continuing operations basis. I’ll make some comments when we get to the – the full year on how discontinued operations contributed so that we can see things on the same format that we started the year on. But you see, the first quarter results showed impressive sales growth of 20% to $1.1 billion. That 20% is comprised of 4% acquisition and 16% organic. The 16% organic is comprised of 11 points of price and 5 of – 5% growth from unit volume. So very healthy amount of growth. I think commenting on the acquisition growth of 4 points, there were three specific acquisitions that contributed to that in the fourth quarter, one, on the Electrical Segments side, two on the Utility side. The Electrical side, we had invested in business that – that makes the amounts and enclosures and antennas for some of the new telecom technology rollout some of the 5G product exposed to education and healthcare and warehouses some – some verticals that we liked. We also bought an Enclosures business in the Utility area that that makes Enclosures at street level and pedestal level that electric and telecom utilities put a lot of their electronics in. And the third was in Distribution Automation area, where we’re controlling and protecting infrastructure and all three of those businesses exhibiting high margin and high growth. For some of those, we invested just about $235 million in those and so – I’m spending some time illustrating those because I think it’s important that…

Great. Thanks, Bill. And before we begin Q&A, I’d just like to underscore a couple of key points from this morning’s presentation. Hubbell is well positioned for the near-term and long-term. We enter 2022 with a high quality portfolio of complementary businesses, which are strategically aligned around the electrification and grid modernization, and with visible strength and demand. While the operating environment remains uncertain, we are turning the corner on price costs and continue to navigate a dynamic supply chain environment to effectively serve our customers. The outlook we have provided you this morning reflects strong fundamental operating performance and we are confident in our ability to deliver. And finally, I want to highlight that we are planning to hold an Investor Day in New York on June 7th this year. Well, we look forward to giving you further insights into our long-term strategy. And with that, let’s turn it over to Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of Jeff Sprague from vertical research partners. Your line is now open.

Thank you. Good morning, everyone.

Good morning, Jeff.

Hey, good morning. I apologize, I missed a little bit at the beginning of the call here. But can you just elaborate a little bit more on you know, the price realization in Electrical? Is it broad-based across you know, the entire segment? And whether or not you have kind of additional price coming into the market to begin the year here?

Yeah, Jeff. It is quite broad-based in Electrical. You know, close cooperation with our customers wasn’t easy certainly. And there was many price poles, but that’s been a good success story for the Electrical team. And I think right now we’re planning it that the wraparound. So how we exited the year is going to be the wraparound, you know as there’s continued inflation, wages and other areas there may be need to pull price. And as I’m saying the kind of mass of dollar neutrality leaves you margin short. And that’s another reason that we might need to still not be done on the price point. You know, so I think there’s some – we’re planning it as a wraparound and – and kind of see how it develops.

And the price material positive for Electrical that’s a dollar number or a margin rate number?

Yeah, it’s a dollar Number. Yeah.

And on Aclara, I get it, you know, the semi shortages and the like. Do you have any visibility on just kind of improving supply there? I would imagine you’ve been working on supply you know for the better part of a year here. Just wonder if there’s any kind of light at the end of the tunnel or anything else going on with site access or anything that might still be holding that business back.

Yeah. So specifically to Aclara, Jeff, the chip shortages are continuing. You know, we expect those to continue well into 2022. There’s obviously a lot of work going on to build chip capacity. But – but as you know that’s multiyear you know, timing to get those up and running. So, you know certainly our – our plans and projections continue to project that that we’re going to be dealing with these challenges throughout 2022. You know that so, I think access has gotten better you know certainly you know we’ve been – we’ve been hearing they’re held back with – with you know Omicron coming up. We are about to wrap up a big project in a big IOU utility this quarter. So we’ll put that behind us and – and have continued to be able to do this. So I’d say it’s probably less access and more material shortages that are – that are holding that business back. And that’s you know more broadly on our entire business the case and – and we’ve done a lot of work I think you know as Bill explained, sequentially we’ve continued to – to increase our production. And that’s – that’s a function of solving some of these things, not only in our own plants, but supply chain. So we do see it getting better, but – but it’s slow coming I’d say.

Okay, thank you.

Your next question comes from the line of Tommy Moll from Stephens. Your line is now open.

Good morning and thanks for taking my questions.

Good morning, Tommy.

Gerben, I wanted to start off on the investments you have budgeted for some of the innovations. What additional can you add, if anything on – on some of the specific product – product development initiatives you have underway? And then as we think about the dollars budgeted here, is there any way you can frame it just total size of that budget maybe ‘22 versus ‘21? And when you do allocate those dollars, what’s the rough payback period or – or cycle time until you see first revenue? Thank you.

Yeah, great. Let me – I’ll start with that and I’m going to kick it to Bill to kind of provide some color on – on the – the numbers around it. But it is first of all geared towards these higher margin, higher growth opportunity. So you know think solar, think data centers, think utility products you know we have portfolio of products that are – that are adjacent to those. So it’s – it’s in a lot of cases modifying products that – that we make for those specific applications. I’d also say it’s, it’s not just about product, but it’s about production. And you know when we talk about the capacity that we’re adding to serve as the Utility and you know, one example of that is actually a little bit of restructuring and investment, we’re taking three sites and we’re consolidating those into one. And on top of that, adding additional capacity to one of our – our Enclosures business at needed capacity to serve this – this increased demand not only from Utility, but from – from the Communications market that really has been grown and we continue to see and grow as GDP plus. So it’s – it’s not one area, I would say, but it’s definitely more focused for us to – to do this in you know areas that matter for us, higher growth, higher margin areas. And – and that takes investment. And maybe Bill, you can give a couple of comments of on the magnitude.

Yeah, the magnitude, Tommy, good morning. You know we’ve got about $0.20 in that waterfall dedicated to the investments and on the payback cycle you know that – that does not pay back you know this year, we’ll start to see good traction next year. And the way our plans have in year three really start to get your payback there. So, but I think we’ll have lots of intermediate signposts that tell us that the investments can have a big and nice payoff. And – but we think we’ve picked some really kind of nice return lower risk places like Gerben was highlighting.

Yeah, maybe I’d close. Wanted to say, I mentioned in my comments, Investor Day coming up in June. And I’d really encourage you to – to you know, join us for that that’d be an opportunity where we look to be more specific on some of the investments that we’re making and innovation. So I think we’ll – we’ll provide some more color there as well.

We’ll be there. Just – just a quick follow-up on the EPS outlook you’ve provided for the full year. So double-digits on – on full year ‘22 versus ‘21. Anything you would offer to help us frame the seasonality in terms of the contribution across the quarters maybe just comparing it to a typical cadence?

Yeah. Yeah, it’s interesting, Tommy. We – we think it’s returning to look a lot more normal seasonally on the top line. And you know what I’d say on the earnings front, that’s a little bit challenging is you know, for Jeff’s question, we have really, really nice insight on price. We know what’s in the market. We know what our products are selling for you know as a LIFO company, there’s just a little bit of uncertainty on the material cost and you know, we’re starting to see steel costs potentially come down. And so, we – I’m not sure we’ve got that pegged perfectly to know that – that up the earnings level, it will behave seasonally. But because the top line is, we’ve got it planned out in a much more seasonal way. I would say the way we’re looking at price cost. It’s slightly back-half weighted benefit. But – but I’m not sure that our – you know, we’re using jump off points right rather than have perfect knowledge of where the costs are going to be.

Yeah, fair enough. I appreciate the insight and I’ll turn it back.

Your next question comes from the line of Steve Tusa from JP Morgan. Your line is now open.

Hey, guys. Good morning.

Good morning, Steve.

Can you just give some color on you know, the – the segment margins and you know, any – any drivers there may be just like price-cost spread between – for both of them for ‘22?

Yes. So on the Electrical side you know, Steve by – by the end of the year, they had gotten ahead. But – but for the year, they still had headwind on the price-cost side. And so, I think that they’re really benefiting from – for the year anyway, really having that volume kind of dropped through an attractive way. And so I think the Utility guys, in contrast, are about a quarter you know behind that, Steve and the Utilities themselves have just been – takes a little more time to get those price pulled through versus our distributor partners I think were – were quite nimble as – as the year progressed, and this became the order of the day. And so you know the Utility folks had – had more than those 3 points of price you know we’re – we’re coming – 3 points of margin negative compare or more than that was coming from the price-cost. So I think the key to us getting Utility margins up in the second half of next year is getting that price to catch up and crossing over. So it’s going to be quite important to – to that for us to – to achieve that.

Great, thanks.

Your next question comes from the line of Brett Linzey from Mizuho. Your line is now open.

Thanks, and good morning.

Good morning, Brett.

Yeah wanted to come back to the – the order growth, 20%. How does that split between the segments? And I’m curious you know are you seeing any more advanced ordering as – as customers look to – you know secure a spot? Or any double ordering? Or is it really just commensurate with the underlying demand you’re seeing in your core markets?

Yeah, I would say that the order pattern has been skewed towards the Utility. And our unit shipped you know was a little lower in Utility. So a lot of the backlog has been built on that side. And I think you’re right to point out that the order pattern is above what our expectation for a sustained you know annual you know growth rates will be. And so, I think Utilities are doing a lot of things, they – they see the promise to deliver dates gap out, and so they’re getting in line, they’re seeing some of the materials you know be available erratically. And so they’re making sure they’re in the queue and they see price increases. So they want to be you know ahead of that and so for all those reasons, I think that demand and yet you know they really have the need to put that product into the Utility infrastructure and so that’s – that’s been pretty skewed towards the Utility side, Electrical on their side has had – they have built backlog and then they built a decent amount of backlog but – but not nearly as much as Utility I think we’re seeing distributors order and they can basically sell it when – when they order it on the Electrical product side.

Yeah, that – makes sense. And then on that point with the order backlog is – is some of that were you know subject to you know repricing or there escalator clauses within that. You talked about some of the inflationary pressures you’re seeing sort of outside roles just – just thinking about how – how they might be able to move up over you know over the course of the year on a repricing basis?

Yeah, that’s – I would say there is a very little, we probably have the pockets here and there where – where we see this, but for the most part, we don’t. And that’s one of the reasons when Bill talked about that lag between you know when we see commodities come up, when we go at price and where we actually start to realize that, be in you know a little longer in Utility is exactly for that reason, right, there’s more demand out there, more orders that have – have been placed with future dates. So it takes us a little longer to recover it. But – but clear and we’ve shown – showed this chart in the past where we kind of show price and cost over longer cycles. And you can see that over the cycles, we show being you know equal or even net ahead. But that it can take some time. And that’s really the view we take with our customer, the longer-term view of you know having to recover cost increases with price. That’s one of the reasons we – we are able to effectively do it. We do a good job communicating this. We’re fairly consistent in our approach of doing it. But yeah, it takes a little time to recapture, but then we hold on to it on the other side as well when – when we see commodities going down, that’s – that’s that dynamic that we’ve shown over – over time being – being net positive for our story.

Yeah, it makes sense. Thanks a lot. I’ll pass it along.

[Operator Instructions] Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Your line is now open.

Hi. Good morning, guys.

Hi, Josh.

So I – I want to continue the discussion here on price-cost and maybe some specific inputs and sensitivity. So I don’t buy a lot of boot place, farrell connectors, whatever those are, but you know just looking over at the catalog there, there’s an awful lot of steel or stuff that looks like it’s made out of it. And with the LIFO maybe you know deflation a little bit more – more imminent. But could you just sort of you know help us with the sensitivity to steel in particular, since that’s kind of rolling over here. I mean, you know just kind of doing some back of the envelope like you start to come up with numbers and the like, the dollars of EPS tailwind. And since we’re heading into that in the next couple of quarters you know how do you think about kind of snapping the line on you know some of the futures rates out there on steel if you were to hold the price like is it that big? Or is there something on you know either price leak or – or some other inflationary item that we should you know just keep an eye on so we don’t run away with individual points?

Yeah, I think you know the math problem that you’re solving, you’re coming at it you know an interesting way and the same way that I look at it, right, where you have gross margins in this you know 30% range, so you got – you got your COGS up there in 70 kind of point land and sort of half of those COGS is labor and overhead and burden. So, the – the balance of half of those COGS is a combination of component costs, sub assemblies, purchased for resale amounts as well as some raw materials. And when you look at the raw materials, and you’re right to look at a catalog and you – there’s aluminum and copper for sure, but steel is, would be our largest exposure. And so you know as we’ve been looking at the forward numbers and watching the market you know you kind of have seen copper in the relatively flattish area, you’ve seen aluminum in a favorable area and certainly steel you’re – you may be seeing in the – in the favorable area. So as that unfolds you know to the extent there is some sustained movement you know down from here you know that would be you know upside to how we see the plan. And you know in order to accomplish that you got to basically hold on to the price, which is why where Gerben was talking about the conversation with the customer right, we very specifically, you know, Josh, do not have those conversations as a steel surcharge, right, we have it as a set of broader inflationary pressures so that when – if a customer were able to see you know steel going down that they don’t just ask for the price cut down. So, it’s – it’s hard for us to say the sensitivity because if it goes down a lot, you’d give up some price. So it’s not just the subtraction of that. But you’re – you’re right to point out that steel is the biggest. Then you’re right to point out that – that it can – it can be – it can be you know sensitive. So you’re right to point that out.

Yeah, yeah maybe to add a couple of concepts as we think about ‘22 more generally, I would say there is among the many things that we look at then and track two, I would say commodities as key, one is commodities and inflation and what’s going to happen with that inflation, particularly those related to supply chain things like freight and labor. And – and you know what’s the impact of those on our results? And the second one really the ongoing supply chain challenges, and what’s the impact on volume, so commodities and inflation and volume are really two big leverage. You’re right to point out that this point and we’re tracking this closely, steel is showing some you know retrenchment, but I’d also say still plenty of challenges. One, steel is the biggest copper and aluminum are also pretty significant for us, one that we’re actually looking at right now is aluminum. You know what made a lot of that is coming out of Russia. And you know that needs to play out still here. So – so we said early in the year, I’d say while – while we do see some upside on steel particularly right now there’s still a lot of uncertainties this early in the year. So you know our approach is to monitor this closely and as the quarters go well you know we’ll certainly update you. And if that requires updates to our – to our guidance, we’ll do so. So.

Great. That’s super helpful detail, and I’ll squeeze in a shorter extra one, just because of that. In the – the T&D Components section, is there you know kind of a Pareto of growth in there, you know as it pertains to some of these mega trends like grid hardening? Or you know is it you know kind of evenly spread across that segment? Different way of saying, do you sort of own what you need to own to capture the upside? Are there areas where you’d like to double down?

Yeah, I would say just on the infrastructure hardware side. You know I think we feel really great about our position and feel like we have a leading position. As you get to the edge and meters, we feel like we’re a very important leading player there. So one of the places that’s exciting to us is that space in between the meter and the components and areas of automation and control and protection. So that’s kind of place where you’ll see us some of the questions came up about new product development will be there as well as frankly acquisition potentials as well. But if you’re talking just T&D Components, we feel incredibly well positioned with our breadth of product, our relationship with the customer. And I would say, Gerben during ’21 given all the ups and downs for the Utilities and dealing with their suppliers, it feels to me like our relationships probably improved in our ability to kind of work well with them during you know a volatile year.

Perfect, appreciate it.

There are no further questions at this time. Presenters you may continue.

All right, great. Thanks, everyone for joining us and I’ll be around all day for calls.

Thank you.

Ladies and gentlemen. This concludes today’s conference call. Thank you for participating you may have – you may now disconnect.