Hubbell Incorporated (HUBB) Q3 2016 Earnings Report, Transcript and Summary

Good morning. My name is Berjon I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2016 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. Maria Lee, Treasurer and Vice President of Investor Relations. You may begin your conference.

Thanks, Berjon. Good morning, and thanks for joining us. I’m joined today by our President and CEO, Dave Nord and our CFO, Bill Sperry. Hubbell announced its third quarter results for 2016 this morning. The press release and earnings slide materials have been posted to the Investors 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 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 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 and the earnings slide materials. Now, I’ll turn the call over to Dave.

Thanks, Maria. Good morning, everybody. Thanks for joining us. I hope you saw our press release this morning. From my stand point and I think the team’s perspective we had another quarter of solid results, and that’s certainly with minimal help from our end markets. I am on Page 3 of our slide deck. Sales were $907 million which were up 3% driven by acquisition which were up 4%, organic was flat and a little bit of continued currency headwind. We continue to execute on our long-term strategic objectives that we talked about for the last several years, certainly in our investors meetings. Around our customers, growth, discipline and talent, and I will come back for those in a minute. But talking about third quarter, we also saw the benefits in the third quarter, of the share repurchases that we completed in the first half of this year. We bought most of the $250 million of shares we communicated last year at the time we announce the re-class transaction, most of that occurred in the first half and in the first quarter of this year. As a result of all this, reporting EPS of 163, up 7% year-over-year on an adjusted basis. And importantly, I’m most pleased with the fact that we got to on a reported basis operating margin at 15%, that’s certainly from our prospective a minimum base line for us to be working of off and improving of off, and I think it’s reflective of the results of some of the restructuring actions that we’re taking, as well as some of the other productivity activity. And that’s a benchmark that we’re going to continue to work to improve on. In addition, we saw just last week, we announced 11% increase in our quarterly dividend as $0.70 share per quarter. This is the ninth consecutive year of increases and it certainly represents a testament to our strong cash generation and our commitment to shareholder returns. Now if I turn to the markets, and I’ll let Bill get into a little more detail on them, but they certainly remain challenging. I’ve said before that they’re choppy and sloppy and I think there has been some question about what do I mean by that. And I think to clarify, the choppy part is what we see in our order patterns, very unpredictable, difficult to discern a trend. The sloppy part is when we’re trying to figure out based on external data, external forecast and the volatility that exists there and really some of the inconsistency that comes out of that and we see that. These economic indicators continue to be pretty unclear and pretty volatile. Particularly non-residential construction in the industrial markets. As you seen ABA down -- ABI down below 50 for the second month and the non-res data splits and then that comes out with some more robust outlooks for the future and non-risk permits, snap backs. So from month-to-month it’s very difficult to discern a really reliable trend, we hope that the most recent non-res data and the uptick and permits is an indication of continued and improving strength in non-res, but that remains to be same. And the U.S. industrial production, still stays steady for us. But with signs of a little bit of weakness as we exit the year. Our business reflected this uncertainty as well. Non-res, our lighting business grew less than expected, with more significant pricing pressure than we anticipated. And we see some of the choppiness in our industrial facing business too. Whether it’s on our C&I business particularly in the industrial wiring, as well as in the data com business a little more weakness in the most recent quarter. Despite the markets our operating performance was solid and consistent with our strategic objectives. We think about serving our customers in the quarter, our commercial industrial group launched its first of a kind, first in the market, new Type-C receptacle charger. It’s a smaller quicker and more flexible the powerful charger for the new phones, tablets and computers. And that group also continued to enhance our ecommerce tools. They’ve seen usage in their customer portal by our channel partners increase over 50% in the last several months. [Indiscernible] Lighting, one of the industry magazines, consulting specifying engineer magazine selected the Orbeon Beacon as the product of the year. Now that's quite an accomplishment because it really a reader polled -- 400,000 subscribers polled and voting that to be the product of the year. So lot of good work with our customers. Growing the enterprise, I think it’s clear doing a lot on acquisitions, we mentioned earlier in July the acquisition of Polymer Insulator Company in serving the Chinese market. And we also saw in the quarter the market reached activity to our recent acquisitions in the construction and energy business both WILEY and GASBREAKER. We had a session in Milwaukee in August at the Midwest Energy Association Gas Summit, lot of excitement there. They got a chance to see our team showcase our capabilities at a nearby facility that came with the Lyall business. Some large diameter steel fabrication capabilities was especially well received. And from a market perspective the outlook for excess flow valves, which is a business that we acquired last year, is also very strong, driven by safety and reached the regulation. When we talked about our operating with disciplined strategic objective in our power business, the distribution centers that supports all of the power business in Missouri installed unmanned lift trucks adding great additional capacity and efficiency. And of course our ongoing restructuring and related cost actions continue to deliver results and we continue to identify more and more activities that we are going to continue to invest in for ongoing cost benefits and efficiencies going forward. And our final strategic objective surround our developing talent and that's an ongoing activity I think it can best be exemplified from my perspective and we've talked over the last year and a half, the development of a new senior team and new assignments and it’s really exciting to see that team gel, start to round the turn to finish out their first full year in the chair and how they've been navigating choppy markets to deliver the results that they've committed to, as well as setting up for the results that you and I all expect us to be delivering next year and into the future. So all very positive. So with that background let me turn it over to Bill, and he can give you a little more details into the performance of the quarter.

Thanks, Dave, good morning everybody. Thanks for taking the time to join us here today. I’m going to use the slides that we've distributed, I'm starting on Page 4, we’re talking about sales and end markets. So with $907 million of sales in the quarter you see a 3% increase with as Dave mentioned really no help from our end market. So that continues a composite picture of no to low growth that we've experienced during 2016 and the trends are generally consistent where we see the bright spots of growth in non-residential and residential construction as well as some of the renovation spending that's going on in those two end markets, but we've softness on the industrial side including our loyal [ph] Harsh and Hazardous business. I think of note in Electrical utility side, we have been experiencing some growth in transmission, where distribution had been quite flat and I think the warmer summer that drove some of our utility customers, OpEx and we got a little bit of better MRO spending there and [indiscernible] transmission projects are getting pushed out and delayed a little bit, but retaining kind of a flattish utility market. So, sales for us as David mentioned, organic flat, all essentially driven via acquisition. On Page 5, operating income wise, 142 million essentially flat in dollars to last year, but down 70 basis points to 15.6%, and I'm going to be referring to adjust it here to make the periods more comparable and taking out the restructuring and related spending. To get that 70 basis points down, you can see that that's all embedded in the gross margin. The gross margin is essentially where we feel the unfavorable headwind from mix which more specifically is the decline in margin rich volume in our Industrial, and Harsh and Hazardous areas and the replacement of that volume with lower margin commercial business. Now we also had price and material cost headwinds that hit the gross margin line, price being most acutely felt in our Lighting business, we'll talk about that more when we get to the Electrical segment. But we also had cost headwinds on the material side for the first time this year as steel prices inflicted upwards. And we were able -- with those gross margin declines, able to be much more efficient on the SG&A line. We can see down 90 basis points as a percentage of sales largely through some good cost control efforts and despite acquisitions adding about $3 million of costs there. So, on Page 6, you'll see earnings per share picture. $1.63 of adjusted EPS, a $0.10 improvement over last year, or 7% increase on basically flat operations. And so the lift came from a lower tax rate as we basically had R&D in the quarter versus last year that was realized until Q4, and we had some favorable discreet return to provision credits there, as well as Dave mentioned the lower share count resulting from the $250 million share repurchased that we executed. So, those factors kind of below the operating line and really driving the $0.10 improvement. We'll switch now to talking about the segments. And we'll start with the Electrical segment in 3Q. And just see familiar refrain here. The 3% growth to 635 million, all essentially being driven by acquisition, there's two contributing acquisitions there. Dave made referenced to both GASBREAKER and Lyall that were investments in component makers that serve to the maintenance and repair of the gas distribution network, it's proving to be a very attractive vertical. As Dave mentioned customer action has been positive and certainly the safety concerns around the quality of infrastructure we believe is going to lead to a lot of spending in need for MRO parts there and that's really helping provide that 4% of growth you see from acquisitions. The trends in the market is similar to what we've been talking about all year non-res and res growth, where Oil and core Industrial weakness, just to call out some notables from a business unit perspective. Harsh and Hazardous business which we’ve been tracking separately for you all here was down mid-teens in the third quarter and is staring to bottom out which is quite positive news for us and I think secondly the Lighting areas is worthy of note, where the res side of lightning grew double digits on a unit volume basis and our total lighting platform grew about 6% on an unit basis, but we experienced 3 points of price erosion there as we’re seeing quite a bit of price competition in the lighting space. Our performance you can see 13.6% of operating profit margin down 80 basis points to last year which is really despite a 1.5 point lift coming from restructuring and productivity, but that mix that’s resulting from the loss Harsh and Hazardous and Industrial volume combined with FX and the price cost relationship, especially the pricing within lighting is helping to push those margins down on a year-over-year basis. Page eight, we have our Power segment performance. You see sales at $273 million up 5% over the last year for the quarter and again acquisitions driving all five points. Again we saw some distribution spending, but delays on the transmission side. The two acquisitions within the power segment that are contributing to those five points, one is called the Electric Motion Company, which makes connectors and the hardware for the communications and power utility customers so kind of an interesting, continue to be able to serve a broader than just our electric utility customers it will serve the telecom utility customer with some pull line hardware and connectors there. The other was Longbow as Dave mentioned high voltage polymer insulator manufacturer that's in Asia and helping us serve customers in China and across the Asia and a good expansion geographically of the great Hubbell power systems brand. On the performance side you can see a decline of about 30 basis points to 20.5% OP margin and here you've got with all of that growth coming from acquisition and the first year of ownership they’re not at segment standard margins yet, and so you see a drag coming from those acquisitions. I’m going to switch now to the year-to-date nine months results. You can see sales of $2.65 billion, for the nine months, an increase of 4%, comprising organic of up 1 and really the balance from acquisitions. You see operating profit margins down 70%, really the same drivers we’ve been talking about a year, namely the mix and the FX drag, and earnings per share $4.31 adjusted, a growth of 10% or 2%, that delta coming -- being earned in the third quarter. And you see a strong pick up in cash flow. Just worth a mention here, because I’m talking about adjusted, just to update everyone on the restructuring program. Thus far this year now we’ve spent about $0.23 on restructuring and renovating related and the bulk of that this year has gone to footprint realignment and consolidation. Lighting areas has been the largest group spender there and the savings $0.30 for the year, we’re tracking nicely to be able to realize that. So our restructuring plans are on track and we feel good about the success of taking the fixed cost out of business and improving and making our cost structure much more competitive. [Indiscernible] is year-to-date performance of Electrical segment, get result really consistent with the trends we’ve been talking about all year. 3% sales growth, all coming from acquisition as FX offsets organic, the weakness in Oil from Harsh and Hazardous and our core industrial markets, of same trends we’ve been talking about versus the growth in non-res and resi. Of note for the year here we’ve got lightning sales, in units up high single digits for the year with resi out growing C&I and experiencing about 2 points of price segment for the year to date period. You’ll see from the operating income down little a bit more than a point, again driven by the mix in FX and those price cost effects. On the Power side for nine months year-to-date, 4% growth up to 792 million. You’ll see there was some organic contribution to that from the first half of the year, but the acquisition is importantly adding 3 points, the OP margin at 20% being maintained as some of the drag from the acquisitions being picked up by favorability from the material cost and price and all that productivity efforts there and the higher volume driving some of the incrementals there. So very strong year-to-date performance by our Power segment. Cash flow on Page 12 also very strong year-to-date. You’ll see 215 million of free cash flow, significant increase to last year being driven by larger income, and notably better working capital management within that inventories being the highlight of that story, improving our days there. And you see CapEx add at a little bit below last year’s level and other in the previous year we had a pension funding that we don’t have in 2016. So strong cash flow, which helps us, supports a strong balance sheet which is on Page 13 and you’ll see that we’ve paid off since yearend of the short term borrowing, the overnight [ph] borrowings and commercial paper added a little bit to the cash balances and maintaining debt-to-cap ratios at 22% on a net debt basis and you'll see 750 million revolver still all available. So, we believe that a healthy balance sheet and one that's capable of supporting investment in the business as we move forward. So, with that I'm going to hand it back to Dave to go to our outlook from here.

Alright, thanks, Bill. And as you can see a lot of really good stuff going on, a lot of good results, particularly strong results when you think about cash flow. When you think about the top line and for many of our businesses, our restructuring, our cost reduction actions, all very good; but not without a few pockets of challenge, certainly choppy markets and in particular the pricing environment in Lighting is one of our bigger challenges that we got to navigate through. So, I'll talk about the rest of the year, first on Page 14, when we look at our outlook for the markets overall consistent with what we've been saying. Little bit sluggish as I talked about particularly in Industrial end markets, little non-res and some of the transmission project delays, but all-in-all still expected to end the year about flat. But we still expect to outperform this flat end markets, certainly with acquisitions contributing about 3 points to year-over-year growth. On the earnings per share perspective, you'll see we're tightening our range to 5.25 to 5.35, narrowing it to $0.10 from a $0.20 range. So, we're still maintaining the same midpoint, obviously with a lower tax rate, but also with some cost and mix headwinds that we expect to see in the fourth quarter. Certainly, some of the mixed headwinds in addition to weaker Industrial if that occurs. There's an element of the growth coming in product areas that have a little bit lower initial contribution on the operating margin side. And then you have the regular and recurring volatility around some of the costs in the fourth quarter. You've a lot of cost that gets trued up in the fourth quarter and some years those true ups to get them right for the year are positive, some are negative. We think this year it has a little bit more of a negative bias. Not with a recurring implication, but more of a timing between the first three quarters and the last quarter. We're still targeting about $0.35 of restructuring related costs with $0.30 of incremental savings from our prior restructuring actions. As, said earlier we continue to work on and identify more restructuring actions. We expect to take more next year and to the extent that we can pull some of those into this year and do so effectively knowing that they provide, the sooner we start them the sooner we start to realize the benefits. We would certainly do that, but I think $0.35 is still a good estimate at this point. And we certainly expect free cash flow will be better than 90% of net income. You saw it through the first nine months much stronger cash flow generation then the previous year. Fourth quarter has always been a strong quarter for us. So, we expect to continue to have good strong cash flow in the fourth quarter and certainly it will be better than 90% of net income. If I turn to Page 16, just a few comments on an early look at 2017 end markets. Overall we're expecting modest growth from end markets across the board in the aggregate about 1% to 2%. Now it's still early as I said earlier that the volatility and sloppiness of the third party outlooks are really challenging. On the one hand I was just with customers last week and the view on this year's performance was, it’s okay. And that’s kind of like consensus view, it could be better, but we’re happy it’s not worst, it's just okay. Well how do you feel about next year, well we think next year could be better. We always think it could be better and we certainly believe it could be better and we’re hoping that's the case I think once we get through the selection cycle and get that uncertainly out of the way, may be we’ll have a little more clarity around it. But we’ll have more to talk about that certainly in January, but the big drivers for us next year would be the stabilization and at least slight improvement on both the industrial and oil and gas markets even at a modest 0% to 2% would be a nice improvement from this year's declines, and that would offset the what would be currently we see the non-residential markets being a little bit weaker than we initially forecast this year and I think that trend has suddenly deteriorated as the year went on, but it’s still positive. So the good news is all markets positive in the aggregate of plus 1 to 2. Turning to the profitability side of the outlook, I’m certainly not going to get into any specifics here, but some of the things that we’re looking at and how we’re seeing the year shape up. On the positive side we've got tailwinds that we expect to come from volume growth, the ongoing benefits from our restructuring and related actions and to some extent the lower -- what we’re currently anticipating to be lower restructuring and related actions from the levels we've seen last year and the current year. On the other side of the equation you've got the headwinds from price pressure and that's true with all of the businesses, certainly most acutely in the lighting business. I think we've got some material cost headwind that we are assessing particularly as we've seen that increase in steel. And then pension expanse depending on where discount rates end up, we’ve got that headwind to overcome. And then some of the other considerations certainly around mix, certainly a severe headwind from ’15 and ’16 in the Oil and Industrial markets flattened out. So that's a good news. But on the other side as we look into new markets, and new customers, new channels, new products some of that comes with initially slightly lower margins and so we've got to evaluate that. And then of course on top of all of that is the potential for our ongoing acquisitions strategy, which we expect to continue to deploy particularly with good strong cash generations and our ongoing restructuring actions. So I think all of that is setting up for an improved 2017 over 2016. With that let me wrap up and open it to questions.

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

So I just kind of pick up where you left off there. So what are you -- I’m not sure if you actually said down margins next year, but when you put all that together, volume growth, price materials, pension and then mix, how does that look overall? Do you think flat margins? Maybe slightly up or slightly down? What biased you have there?

It’s really to be definitive but certainly our bias is to -- as I said earlier to build off our margin performance this year and improve on that. So that’s really what we’re looking to do and all of our efforts are in that regards.

Okay, and then the 1%-2% within oil and gas and I’m not expecting [ph] to put you down here, just trying to understand how you think about that next year. Free accounts mathematically are up 15% to 20%-25%. Why -- maybe it’s a significant setback here, free accounts are up in that kind of magnitude. What do you expect your growth rates to be better than 1% or 2% in oil and gas?

I think the big part of that Nigel is gas, but I’ll let Bill cover that.

Let say, Nigel when we regress our revenues, certainly rig count is an important driver of predicting that, and so I think it could be better. The gas sides are right now what comprises our outlook, is a slightly more optimistic gas view where we think a lot of regulatory induced MRO spending will be actually creating a little bit a lift, and right now we have a reasonably flat outlook for oil. So we kind going a little bit on the momentum and sequentially our Harsh and Hazardous business and that’s really kind a flattening out. So this outlook kind of assumes that that flattening continues and that gas provides us a little lift. So something better than that would certainly be welcoming and would be additive to that outlook.

And one more, you mentioned some yearend accruals for this year, which is fairly normal. How does comp look next year, some kind of snag in there of headwinds, just get in the way that’s, earnings have been moving, share price has been moving. How does that look for Hubbell in 2017 versus 2016?

That we don’t see any -- at this point any big headwinds on comp specifically. Other than excluding pension. And if you take pension out of it, some on other benefits like medical, but not on the pure comp at least at this point Nigel.

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

So Dave on the non-res outlook for the next year, that 1 to 3, the light -- the largest lightning fixture company in the U.S. was out a couple of weeks talking about mid to high single digit growth for North America lighting for their fiscal ’17. And I know lightings not certainly all your non-res business, but it’s a good chuck of it. How do we think of the components about, which unpinning your 1 to 3, is that just kind of seeing the choppiness in the market and taking a more conservative view or how would you put additional color around that?

I love talking about the specific, but obviously you know that there is and always has been, as they recently, a conservative bias in our outlook, particularly on non-res and I think over the last two to three years that’s probably turned out to be closer to right than the initial forecast. But as I said in some of the most recent forecasts are more optimistic and I certainly hope they're right, but they're based on -- it seems to me they're based on some recent data. But we're analyzing that and I hope that we can be proven wrong for a change and be able to adjust this up with some better data over the course of the next several months. But Bill, maybe give some of the components.

Yes, I think Rich your definition of Lighting being a big chunk is quite accurate. I think to be really simplistic, if you can cut our non-res, it's kind of half Lighting and half Wiring Systems and not too dissimilar from what you're saying. I think we're expecting our Lighting growth to be a little bit stronger then on the Electrical Component side.

And then on, question [ph] as if Bill does that -- are you still expecting to exit the year down high single digits during the fourth quarter, any change to that?

No, I think everything is tracking right to that actually and so that's compared to last year, but reasonably flat sequentially quarter-over-quarter.

So, no change?

One thing that's become interesting is that the business has shrunk the projects can create some lumpiness that moves things around a little bit versus that used to be a little bit more kind of small projects out there, little bit easier to predict, but that's certainly is our expectation, exactly how you described it.

And then on, just a quick governance question with customer dip being below 5% here in terms of ownership, any implications for the shareholder Rights plan that's in place now?

I don't know of any.

No, that set to expire in December I think as you know.

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

Dave got to get up pretty early in the morning to call you on, but on organic for Electrical that's softened a bit despite an easier comp. I'm wondering if you could call any end markets that sort of inflected to the weaker.

I think Chris we had a little bit on the Light side of Industrial which was a little bit softer and then I think the pricing of Lighting is the other thing you'll find creating that.

And do think the Light Industrial was more channel inventory action or?

Yes, it could be that and it's not as Dave was pointing out not something we're anticipating carrying on through '17. So, we think shorter term.

And then on the minus three price for Lighting, how do you kind of parse that in terms of the LED cost per versus I don't know what to call it, like-for-like or market price?

I think first of all it was spread between our resi and C&I product lines, so kind of across the whole suite of products there. And I think it's from our perspective anyway more of a like-to-like kind of phenomena Chris.

But remember Chris, just that -- on that like-for-like some of that is attributable to product that we’ve said earlier in the year and even late last year was our product that we identified was way out of line with the market, it was not competitive, which is what prompted us to take some more aggressive actions in some of the facilities that were providing those products, because our pricing was based on those cost and we need to be much more aggressive in taking those cost out. So it was really reacting to what was already in place in the market and certainly not driving and creating the market.

Okay, so that you might have the favorable anniversary impact by the second half next year?

Yes, on that yes.

Okay, and then it there was some color on the tax rate I missed it but that helps out in the quarter and I'm wondering if there is any sustainable work you've done on the tax rate that we should think about from modeling that line?

Yes, I think the bulk of the differences, especially if you go back to reported, we had some of the expenses that were going into our reclassification we’re not tax deductible last year so that kind of created an easy compare. Some return to provision items which are not of the nature you are describing, there is a little bit I would say Chris, of more activity economically in geographies that have some better tax rate, so a little bit of that I think can be save. But the bulk of the change that you've seen is a little bit more discreet I would say.

So, what's did would you characterize or normalize tax rate going forward?

I think we’re thinking in the 32% range is a decent operating run rate for us.

Okay, and with some inflation that you are talking about is that greasing the wheels to expect to get a little price anywhere?

Yes, I think that one of the challenges is the material inflation that we are seeing is a little bit isolated within the steel commodity. If you look across at our copper and aluminum and a bunch of the other metals that we buy we're not seeing that headwind and so I'd frankly like to see a little bit more broad inflation that would kind of be a better signs of support growth in industrial markets and et cetera. But I think the more isolated that commodity phase in steel, the harder it is to pull price. But there are some products that we have that are most to obviously steel and think of some of the steel boxes that we do in our rough and electrical and Chris there it is a little bit more obvious that it is a steel product and you can ask for some price. So I would rather see a little bit more broad, but base inflation before I think we can start to ask broadly for price.

Thank you.

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

Just a couple of more on -- just thinking about Harsh and Hazardous and kind of the negative effects we’ve divested here for almost the better part of three years now. How much have the margins in that business actually come down right, so you've had obviously very good negative mix effect, but just thinking about some decremental from that business, may you don’t want to give us some margin rate, but peak the trough what’s happening to the mortgage there?

No I would say, Jeff that the decrementals we’ve experienced over the last six quarters has been in the 35% range, which given that the margins where attractive have still brought them down, that being said. The margins are still attractive part of our portfolio, so it hasn’t dragged it below that. So the decrementals have been kind of what you would have expected I would say, rather than worse than you could have imagine Jeff.

Okay and then on price, I appreciate the Lighting color, just total [indiscernible], what the price do when it sounds like price cost neutralized in the Power. Does that mean you actually have positive pricing power in the quarter?

So pricing in Power was -- it was sort of a neutral, very slightly positive, but I see neutral. And across all of Hubbell because of the -- particularly because of the lighting price, it was negative, $0.5, actually a little bit more than that.

And then on just on the pension Bill, do you know where rates are toady if you just snap the line, do you have a view of, what kind of headwind you’re looking at in 2017?

Yes so if we look at discount rates and our sensitivity to that, if we were to snap the line, the discount rates are roughly about a 100 basis points lower and for a 100 basis points change, that would impact our pension expense about 10 million or some. So that’s a piece of the sensitivity. Means there is also some sensitivity related to asset returns that’s a little early to say. But I think looking at that discount rate, there certainly would be some headwind from that.

And I’m sure you’re probably still thinking about incremental restructuring for 2017, but do you have a view of what the carry over benefits of what you’re doing in ’16 are or ’17?

I think as we’ve analyzed the $0.35 [ph] that we anticipate spending this year, the returns on that feel like they’re in the two to three year kind of range, and so we probably still have some benefit that carries over even from some of the ’15 actions and so we’re anticipating in our January call giving you a nice way to think about, all -- how that will stake up incrementally in 2017. But those projects this year are kind of in that two to three year return range.

And then finally on just on Lighting to the point about, kind of the bulk margin price or cost based price and that was out of line with the market. Do you think your pricing is now on market, it doesn’t mean price competition necessariourly goes away, but are you at a level where you feel your stabilized market share is competitive?

I think we have Jeff. I think our issue from my prospective in being or volume being a little bit lighter from what we expected and what might be in the market is really as we work through the service issues that come with some of the restructuring actions and closing facilities, which were more of an impact early in the year and we've started to work through those and I think we've got some -- when I'm out with customers and some of our newly signed agents, I hear both the negatives and the positives and I think the trend is all positive and very optimistic. So I think that -- that seems to be indicative to me that our pricing is right and we just got to make sure that we get the product where it needs to be, when it needs to be.

Your next question comes from the line of Steve Tusa from JPMorgan. Your line is open.

So, you guys have -- seem to have a pretty good read in the cross section of the economy and projects and things like that and then little bit of construction, and I know, Dave you talked about kind of sloppy and choppy or whatever you said at EPG, things have been inconsistent. How closer we -- how close do you think your customers are to -- what would it take for your customers to really pull back? And are any of them talking about, with all the discourse that's going on out there in the U.S. with the politics, are any of them saying, hey I'm just going to wait until -- are they even talking about the stimulus that everybody on Wall Street is talking about from a buildings perspective or is it just still a very cautious, nobody really wants to kind of put anything out there from risk perspective, given the environment. I don't know if it's kind of a confusing way to ask the question, but I'm just trying to balance -- figure out what the balance is between what looks like continued caution with a risk of downside versus, hey I'm just going to wait because maybe the government is going to throw some money at us in a year or so?

Well, I mean I'm not sure what discourse you're talking about Steve. But, I think you actually summed up the environment quite well, which is a bit of what we're hearing and what we're thinking is -- there should be potential upside, but everyone is still cautious because they're not sure where things are going to go and how it's going to play out. I think there is a number of legs that have to play out here. One is getting through the election. I think there’s a lot of things that are -- projects on hold to see what the outcome is going to be. So, we get that uncertainty out of the way. Then we at least know which candidate is in place then have an idea of what the direction it's going to take. But I think it's going to be the longer term implications of what that direction is. But there certainly is a -- some discussion about the benefits that could come with investments particularly with infrastructure plans. But I think it's tempered by the funding and who's going to be paying for that and how that's going to be paid for. That is on the other side of the equation, at least for a lot of the channel partners who are very sensitive to those things. So, I think there is some cautious optimism that is out there and that maybe leading to some of the outlooks. But I think there's also a practical realism about how that will play out, when that could play out and what are the implications. So, my answer is probably as convoluted as your question. But I don't know if that helps.

No, no that definitely helps. Anything on the T&B [ph] front that's moving around that all or is that just kind of stable?

You are saying electric utility?

Yes.

Yes, I think I’d describe it as stable in totality, we did see a little bit of transmission strength in the first half of the year that tapered off in the third quarter, but we also saw some distribution flatness in the first half that started to grow. So those two seem to be providing sort of this low growth organic out of utility right now, Steve.

And then one last question for you. I guess about the puts and takes here in the end market balance you've given us. Is 2017 an earnings growth year, can you grow earnings with those dynamics?

I think so. I mean we’re certainly working towards that and it's a question of whether the headwind can over take us, but the team is working very hard to get ahead of that, we’ve got a bit of a head start I think with the actions that we've been taking over the last couple of years and that's a mindset that's really gotten into practice. But those are the things that we can control. The uncertainty will be the things we can't control, market demand and pricing. And even pricing we're going to be as disciplined as we always are for as long as we can and we hope that the market continues to be a disciplined as well.

Okay, great. Thanks a lot for the color.

Your last question comes from the line of Joshua Pokrzywinski from Buckingham Research. Your line is open.

Maybe a follow-up on some of the Harsh and Hazardous’ commentary, I think maybe not to put too fine a point on it, but with some of the macro data wanting to show I guess for lack of a better term, green shoe [ph]. Is there anything that your customers were saying apart from maybe some touting out or some notion of less bad, if I’m reading some of the earlier comments right. Is there -- any of you guys are actually seeing in the business that would suggest that as rig count starts to pick-up in the next year that follows through into Harsh and Hazardous?

As certainly Josh we have pretty extensive database of projects and RFPs and some of those things have multiyear lead times on them, and so I would say certainly our conversations with customers have encouragement that there is going to be spending going forward, but it's hard for us to say that there is going to be some kind of sharp improvement as early as 2017, but I do think the conversations, the kind of projects that are being contemplated overall suggests a healthy medium-term outlook for the business.

Got you, and just on price cost and power and Bill I think you talked for several quarters now about anticipating, that's to normalize or on maybe some of those cost headwinds to start showing up. Clearly this has persisted longer than you thought, the upside. Is there a chance with steel inflation now that you never really have to eat that and that there is some opportunity to go back to the market with some subtle price next year. So kind of leaving the Lighting out of the equation, just on the power side alone how you are thinking about this transition on material prices?

Yes I certainly look at it in similar terms. Namely the longer we fight through it the better that it is and yet I think our business folks on the power side are still a little bit anxious about that dynamic. But I do agree with you that the longer we fight through, the better.

You have no further questions at this time. I turn the call back over to the presenters.

I think this concludes today’s call. Thank for joining us, Steve and I will be available following the call for any other questions you have.