Hubbell Incorporated (HUBB) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2017 Results Call. [Operator Instructions] Thank you. Maria Lee, Treasurer and Vice President of Investor Relations, you may begin your conference.

Thanks, Emily. Good morning, everyone and thanks for joining us. I am joined today by our Chairman, President and Chief Executive Officer, Dave Nord and our Senior Vice President and Chief Financial Officer, Bill Sperry. Hubbell announced its first quarter results for 2017 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 in the earnings slide materials. Now, let me turn the call over to Dave.

Okay. Thanks, Maria. Good morning, everybody. Thanks for joining us. Let me just start with some opening remarks on Page 3 of the slide, then I’ll hand it off to Bill and he can go through some of the details. So if you turn to Page 3. You saw in our press release this morning, we had a nice start to the year. Our first quarter financial results were generally in line with expectations and our balanced portfolio delivered again quite frankly. As you saw, with strength in our Power Systems offsetting some softness in the Electrical segment, most specifically at Lighting, and we’ll talk more about that throughout the morning. First quarter, you saw sales were up 2%, with the balance organic in our acquisition, each adding 1 point to sales. Currency headwind was a little less than 1%. Our reported operating margin was flat year-over-year due to slightly lower restructuring. Our adjusted operating margin, which excludes restructuring-related cost, was up 20 basis points year-over-year, a trend that I certainly had the team focused on and hope to continue to working on driven by productivity and restructuring savings. In the Power segment, productivity was greater than our cost inflation driven both by better productivity as well as cost control. Lot of investment, lot of focus on productivity over the years at Power Systems, investment in the automation and I think you see the benefits of that. On the Electrical segment side, there was some softness there. And a lot of that, the vast majority due to the restructuring-related inefficiencies that we saw at Lighting and a little bit of a challenge in meeting some improved market demand in some of the business there and I will come back to that in a minute. I would say most simply, we think that, that was inefficiencies probably cost us about a $0.01 in the quarter. So, you can see why I am very happy with the performance of the enterprise in the quarter other than this one element of challenge around restructuring. The restructuring-related cost specifically as we have accounted for them and disclosed them in the past, were about a dime in the quarter. That doesn’t include somebody’s efficiencies, which don’t get captured in that dime. The overall program is on track in terms of our specific project spend and savings. And this is all competitive – critical programs to improve the competitiveness of our cost structure. On a reported basis, our earnings per share were $1.13, up 5% year-over-year and adjusted earnings per share, was $1.23, up 6% year-over-year. Free cash flow was 78% of net income, which is solid, a very solid start to the year in Q1, because I should know that’s a seasonably low quarter for us. In the quarter, we repurchased approximately $53 million of shares. And on Friday, we announced that our Board approved our quarterly dividend, $0.70 per share to be paid on June 15 to shareholders of record on May 31. So, before Bill takes you through the specifics of the first quarter results and our full year expectations on the rest of slides, let me give you a few general comments on our market’s acquisitions specifically on the performance of the Lighting business. First on the markets, that’s pretty encouraging. We started the year, as you know, with some cautious optimism and I think some of that optimism is starting to be realized, although we are still cautious on that. And as I talked to customers over the last few weeks, I spent a lot with a lot of customers. They certainly seem more upbeat. They have seen good results in the first quarter and they are pretty positive on the rest of the year. One of the highlights I think is the year started less sloppy and choppy than in the last couple of years certainly even the beginning of last year should have January and February could be bumpy. This year, we didn’t see the wild swings that we have seen in the past in those months in terms of orders and sales. Some of that could be due to favorable weather, some due to the optimism that I think we are starting to see exiting last year. And the performance across the markets was more consistent. The oil and gas appears to have stabilized. We saw little bit of that starting in the fourth quarter. That business was flat to slightly down, while the core industrial was also slightly down, but much better than the heavy declines we saw as we are still coming into last year. And the construction side, both residential and nonresidential markets were up in the single-digits, so less extreme variances with then in across markets. I think these trends would bode well as we look forward to the rest of this year. And certainly, nice to have only in this quarter, some modest drag from mix compared to what we saw in 2016 and we expect that, that will continue to improve as the year goes on. Second, on acquisitions, we’ve made a couple of small acquisitions in the quarter that we mentioned on the January earnings call and we have made a couple more early in April, so not in the first quarter, it will be second quarter reported results. As we mentioned, in January, just as a reminder, the power group purchased the substation and distribution switch manufacturer in Brazil and a domestic supplier of fiber splicing closures for telecommunications, both small deals, but real important examples of this element of our growth strategy both geographically and from a market standpoint. This quarter end, we did an acquisition in the construction of energy group where we purchased Advanced Engineering Corporation, a domestic gas components manufacturer. So, AEC have joined the recent acquisitions to complement construction energies offering in the gas distribution vertical. And also in April, something very new to us, we acquired iDevices. iDevices is a Connecticut-based developer with embedded firmware and app development expertise with custom-built Internet of Things, cloud infrastructure, a really very interesting company. They have got – iDevices has proven technology and established smartphone solutions. I view that as really essentially accelerating our R&D efforts, making getting a real jumpstart to our IoT capabilities with these acquisitions. And I see a lot of potential from this business to enhance our broad base of products and solutions. And we will talk more about that, that later. You can check out their website, get some more background on their products and offering. And while they have a proven product, what we find is the good news is they have a proven product. And more importantly, they have a capability and a market presence and credibility that we think can apply broadly against our product offerings over time, not just around the Lighting business. And in fact, that’s why the business is actually reporting – will be reporting to Jim Van Hoof, who, as you know, is our Vice President of Growth and Innovation. It really is a company-wide initiative that this is going to support. So I am excited about all these acquisitions to the company and the capabilities they bring. Last and importantly, I mentioned earlier the softness in Electrical in the quarter and that was primarily the challenges of Lighting. As you know, we have been aggressively working on the cost structure at Lighting to make sure that we can get and maintain the competitive cost position in what we all know and you all know was very – has become a very competitive market from a product offering, from a pricing and from a cost standpoint. The business historically, Lighting was built on acquisitions, and so with acquisitions, comes a lot more capabilities, a lot more facility, a lot more infrastructure as we need, so we have been over time. And we have been a lot more aggressive recently. Those of you who have followed us for a long time, I can’t help, but harking back and take full responsibility for something that we have done in the past, which is I tend to push us to do more. And the good news is our Lighting team embraced that and recognized the need to do more and sometimes we get ahead of ourselves in what we take on and our ability to execute effectively. I will tell you that we have got much, much better at exiting facilities. Obviously, still a little work on what we move into because of the complexity of the product offering and I think that’s what we saw this quarter, particularly in the plant in Virginia and as well the new distribution center that we have opened in Georgia, consolidating quite a few facilities into Georgia. All very identifiable issues, all issues that we have very experienced teams working on, particularly drawing out resources from our other businesses, the other groups, all having some of the expertise that have allowed the power systems business and the wiring business and the Burndy business to be a successful as they are taking those strengths and supporting the Lighting team in executing the actions that they have got going on. The other side of it and it’s an interesting perspective that we are – that impacted us in the first quarter and will continue to impact us at least through the second quarter is the response from the market for the changes that we have done in light. I have spent the – I have spent a lot of time with customers over the last few weeks, particularly both large and small and the consistent message that I was getting from customers was lighting has done a great job changing the culture, being more responsive, their technology, their product innovation, all very supportive and the one shortcoming that has frustrated them is our delivery performance. And I think some of that in some of the business, particularly on the progress business, that actually surprised us. We weren’t quite prepared for some of the demand, so we found ourselves with inventory shortages. And as you know, that’s really a foreign sourced business. So the lead times on that have created a challenge, but we have got a lot of actions in place, so a lot of that inventory on the water on its way in, so it’s from my standpoint, it’s not a bad situation to be in that the demand – we underestimated that some of the demand and our ability to execute on that demand. So we are working through all of those issues. And I think that with the right team and the right focus, it will take us certainly several more months to work through that and that really is what’s impacting our year. But other than that, very positive on for the rest of the businesses and the markets that we are seeing. So Bill, do you want to go through some of the details of the quarter?

Thanks Dave and I appreciate you all taking the time to be with us this morning. I am going to start on Page 4 showing sales of $852 million, up 2% and the market contributions that contributed to that 1% organic growth. So the low single-digit growth has been around for a while, but this picture is actually quite different than we have seen over the last couple of years. As Dave said, less variation market for market and we really had some down hard red arrows and some up heavy greens and everything is kind of converging a little bit more. So on the non-res side, you see new construction having a positive quarter. On the renovation side, we saw growth, but on the re-light side, specifically in the lighting, we saw some shrinkage to cause that to be a flat reno. On the industrial side, our composite was down a couple of points. As we get to our outlook, we will talk you through how that actually is improving through the back half of the year. And as Dave said, oil and gas fattening and really at its bottom as far as we can tell of the cycle. On the Electrical, T&D side, distribution really being the MRO business, the slow and steady grower with some mild weather. I had positive growth there. Transmission, a little more project based, a little bit lumpier, a little bit harder to predict, but recently flat in the first quarter. And red showing growth both from single-family, multi-family, as well as from the improvement side, so while the outcome of kind of 1% growth, not that different, I think the composition of our end market construction is actually quite different. And we will talk about how that’s a going to change for the rest of the year at the end. On Page 5, we have operating income and I am going to use adjusted. Dave has walked you through some of the reported compares on the just from a comparability perspective, I am going to use adjusted here as we have been over the last year or so. And you will see $112 million of income, 20 basis points better than last year. On the gross margin side, you see down 10%. The price headwind still coming from Lighting, material comp headwinds for us are number one from steel and number two from copper. And while mix is getting flatter, as long as those commercial businesses are outgrowing our industrial, that mix is going to be a drag up in the growth side. But you will see some pickup in the S&A side with the volume and cost controls and some of the productivity pick up adding 30 basis points of favorability there. On Page 6, you see our adjusted earnings per share of $1.23, up $0.07 versus last year and as we just talked, about $0.03 or so of that comes from operating income and the balance of $0.04 really coming from tax rate favorability and a lower share count based on some of our share repurchases offset by couple of pennies of higher interest expense. So 6% pick up or $0.07. I am going to switch now to discussing our segment performance. I am going to start with Electrical where you see $588 million of sales, 1% growth. And as Dave had highlighted, that non-res, lower margin business growing well from our commercial facing businesses as well as wire and devices having good growth in the quarter. Oil and harsh and hazardous being flat, industrial headwinds, mostly on the heavy side and Lighting volumes being down about 1 point, excluding price in terms of – in terms of its volume. On the performance side, you have seen the 9.7% margin on $57 million of adjusted OP and that’s really where you can see the nickel of performance drag from Lighting’s operating inefficiencies with the restructuring included in the quarter there. And switching on Page 8 to Power, we have got $265 million of sales, which is 5% growth. And as you noticed there, a lot of that being driven by acquisitions and it’s worth a little comment on that, it was really four deals contributing to Power’s acquisition growth in the quarter. Two completed last year and two completed in January of this year. Dave gave you a little bit of a reference on those. But interestingly of those four, one was a small deal in China to grow our Asian business. Another small deal in Brazil to grow there and the two domestic deals in the telecom hardware space, so really good examples of business development, helping our very successful power segment both expand globally and also beyond just electric utilities and into serving some of the phone utilities whose distribution networks have some very similar hardware and components for us to offer. On the performance side, obviously, attractive quarter, $56 million of OP, 21% margins, Dave made reference to their productivity and some of the CapEx they have been doing, getting some automation benefit there and as well as some cost controls that they have initiated last year, which are wrapping around here. The price material cost headwind that we have been talking with you all about was a headwind for the quarter, but the productivity was very impressive in terms of driving up those margins for the year. So the question for power will be when they need to make investments for future growth and we will talk about that as we talk about our [indiscernible]. I was going to ask Maria, our Treasurer, who has been promoting cash, is in here to talk about both our cash flow and our balance sheet.

Okay. Thanks, Bill. Cash flow in the quarter was solid. We had $2 million more of income and that translated into $2 million more of free cash flow. We have better working capital or lower increase versus last year with lower inventory days year-over-year and favorable collections. So at 78% of net income, we are on track to meet our full year 2017 target of free cash flow of equal to net income. On the next page, Page 10, looking at our capital structure, we ended the quarter with about $380 million of cash and as is typical for us, most of it is international, over 90%. We had no commercial paper outstanding at quarter end, but we borrowed in April for the acquisitions that we were – that we are just talking about in C&I devices. So, we do currently have some CP outstanding. Our net debt-to-total cap is about 20%, 21%. And overall, as you can see here, it’s a healthy balance sheet and capable of supporting our acquisition strategy and our capital deployment objectives. I will hand it back to Bill for the outlook.

Okay. So for the year now, I am going to highlight a couple of changes we have made since the start of the year where we have taken up our outlook for industrial and oil and gas. So, I will start with the Electrical T&D side at 0% to 2%. We continue to believe that distribution is the slow and steady MRO-driven business. And the transmission side, we see some activity that makes us believe there is going to be some growth here. But in general, a steady low growth outlook for the power systems side of TND. On residential, we continue to have positive household formation push employment data showing more people working and even more – most recently, some mortgage data that sounded favorable, but we see single-family growth, we see multi-family growth. And on the MRO side, we see growth as well. So, we are maintaining that mid single-digit outlook for resi. On non-res, our outlook stayed at 2% to 4%. We are seeing prices outgrowing public, which has been the case for a while, but we continue to see supportive Dodge starts and AIA data as well as our order patterns in discussion with customers that lead us to feel like that 2% to 4% is appropriate for the rest of ‘17. So on the industrial side really we have been dragged down in our outlook and first quarter by the heavy industrial side. And Dave found discussion with customers as well as some RFP activity, we are feeling like that’s got the opportunity to be better in the second half of the year and we see continued growth in light industrial. Some of our telecom exposure and industrial driven by outside plant spending from telecoms as well as datacenter spending, we view it as growing. And so we believe there is enough evidence there to raise our outlook from 0% to 2% to 2% to 4%. On the oil and gas side, as you all have followed us, we have been through a couple of tough years of volume. We have seen the business start to flatten. And now, we are getting ready and poised back to see some growth. We spent a lot of time talking with you all about the drivers for us of harsh and hazardous. And we talk about rig count being the #1 driver, but we haven’t spent a lot of time talking with you about the mix of that rig count. So, as a lot of the growth and a lot of you following rig counts, you see very snappish numbers pushing up very dramatically. Those tend to be the land rigs, right. There is quite a bit of Permian activity and spending and those are quite small type rigs compared to a large deepwater offshore rig, which is really a small floating city that has a lot more content of our components on it. And so right now, the rig count outlook is expected to be dramatically skewed to land versus offshore and so we are anticipating growth, but maybe more modest than some of the rig count followers. But if you are following that offshore rig count where that may get us a better insight into how we expect to see growth, but the dialogue with our customers is improving. The RFP activity is improving. We are starting to see more requests and even order activity and building up of backlogs. And so we feel good news for us there. So, that’s an improved outlook basically by essentially at that point from where we were at the beginning of the year when we last spoke with you about outlook. And how that translates, that’s 3% market growth on Page 12. The acquisition should contribute about 2%, get us about 5% for sales. The EPS range on a diluted, but reported basis, we are expecting to be about $5.40 to $5.60. That’s got $0.25 of restructurings on adjusted basis, that’s $5.65 to $5.85. And there is really three pieces that we wanted to talk about kind of uniquely. First was the iDevice investment that Dave mentioned and where essentially they have got a really nice suite of wiring devices and for residential applications right now working well in the ecosystems with Google and Apple and Amazon and for the near-term, we are taking on essentially some R&D spending, but we feel very good, as Dave was saying, about what they are going to add to us in the future in terms of helping our low-voltage electrical products become sensing points transmitting data to building management systems and being able to be controlled from remote locations through apps and smartphones and etcetera. And that affects our resi lighting products as well, but also we will be migrating we think quickly to our C&I product portfolio, both of wiring devices and lighting. So that, in a short-term we’ll have about $0.10 of dilution in providing inefficiencies, as Dave said, we experienced about $0.05 in the quarter and we are anticipating that’s going to take us a couple of quarters to get those operating efficiencies ironed out. And then the improved end-market outlook will provide a partial offset of that. So there is $0.10 from the deal and another $0.10 operating wise caused us to take that range down. And we are still anticipating free cash flow to equal net income. I would say as we look at this outlook and shape it towards the second quarter we think the iDevice has about roughly $0.04 of dilution in Q2. And I think the nickel that Dave referenced is also a good lighting number for Q2. So there is a decent hit from this that’s happening quickly in the quarter – quickly in the next quarter of the year and as we get things ironed out to the back half. So that really concludes our prepared comments and I would like to turn it back to you all for your questions.

Well, let me give you a couple of comments before we open it up to questions. And I think Bill has gone through the details. He has told you a little bit about our guidance. I think the important thing from our stand, there is a couple of things. First, the good news is the markets finally seemed to be improving. I think we are still a little – we are going to be a little bit cautious there as I think most people are, because we’ve seen the divergence recently between the optimism index and some of the underlying data. And so it’s great that the bias is toward optimism, but it has to be realized certainly. And for us, one of real challenges and that we have to work on everyday is that particularly within a short cycle business, being – not being too conservative, because you have challenge then and reacting to the market if it’s that much better. So we are monitoring it on a daily basis and we don’t always get it right, but we are – there is some businesses like the harsh and hazardous business that we were going to place some bets on and make sure that we are building ahead there. So, we can be responsive, if the some of the markets that we serve there snapback. So I think that’s pretty good, the industrial markets, the strengthening commodities are certainly helping the industrial markets. And the electrical T&D as well as telecoms have some favorable prospects. So I would like the positive bias and I – if not for the challenges within the Lighting restructuring actions largely, we would certainly be on track to be achieving our neutral outlook and I would hope that we – the markets will be supportive of that and we’ll execute against that and we’ll be improving on the Lighting side. And the acquisition strategy continues to be an important contributor to our growth. So far, in this year, we have completed acquisitions that better position us for further expansion geographically, penetration into verticals of telecom and gas distribution, and importantly, acceleration of our capability around IoT technology design and development. So all that gives me confidence that there is a lot of potential for the year, but we have got a lot of work to do to realize that potential and that’s what we are focused on everyday. And I, for one, who focused keenly on the lighting business, because it can perform and it will perform and we know what needs to get done. It’s a challenging market. Other participants have shared the challenge in both demand and pricing and that’s why we are taking the actions that we have been taking and we are just going to work that much harder on our execution to get that level of performance. So, look forward to your questions, look forward to a good year. Let me open it up to questions.

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

Thanks. Good morning.

Good morning, Nigel.

Just there is obviously a lot going on here. I just want to start with the iDevices. You talked about as an investments not an acquisition, so just maybe just clarify what the nature of the investment and maybe just quantify, because it looks like this could be a pretty high multiple kind of deal. So what was the investment dollars? And then you called out $0.05 in 2Q, $0.10 for the full year in terms of dilution. What is the nature of that dilution? It sounds like there is some R&D that you are taking on here. And then how does that cascade into ‘18?

Yes, Nigel. So, iDevices has a suite of products that are wiring devices with resi applications, with apps and fully comparable with the three dominant resi ecosystems. So, it’s an acquisition in the sense that there are products, there is revenue and there is profit that comes from it. And yet those are immaterial in size relative to our guidance. So essentially, we are taking on approximately 30 software engineers and app developers and essentially investing in them as they develop applications for across our resi products and then across our C&I products. So, it’s like a quick step investment in R&D, but technically, it’s an acquisition, because there is a standing entity there. So from a multiple perspective, you are right, it doesn’t really work as an EBITDA multiple. We are viewing it as investing and making $3.5 billion of products smarter as we go forward, which we think will generate new revenues and make our products differentiated. So we are pretty excited about that and it’s fun to spend time with those folks. Dave kind of made some reference to that, but these developers they want to change the world. They want to make products that change people’s lives. And they are pretty excited about looking at the breadth of our product line and their ability to add smartness across that. And at the same time, we have got – we feel really good about what they bring to the table for us.

Nigel, let me just add. I mean, this is something – we have – you all have asked a lot of questions over the last year or two about our approach to the Internet and IT capabilities and we have shared some of the things that we are doing. Clearly, if I were sitting here in your chair, I would perceive that you are probably not going fast enough, but we were trying to build the capability in the normal course. And but recognize that, that may not work and if an opportunity presented itself in a manageable size, but as well as with the right capability, we would do something that’s different than our normal manufacturing plant bolt-on deal. And so this is a business that I have been following for a little while and I will tell you that we are – I feel really good about it. We are fortunate to have them join the team, because in meeting with them regularly, I can assure you that there were quite a few industry participants both in our space as well as space outside of our space, not just Lighting, not just Electrical, but others that viewed the capability that they had and the reputation that they had in the marketplace as very positive. And they found we were fortunate, because they found in us something that many of our other acquisition profiles have found in a good match that culturally, our strategy, how they would fit, how they would be able to advance their strategy as well as our strategy in a much bigger way. So I am – yes, the downside about it is that it comes with a cost, but this was a cost that, over time, we are going to have to incur anyhow as we added that capability so what we have done is accelerate that cost into this year that we can build on, so.

So the math of that, Nigel, of the $0.10, you should think of a few of those as being driven by acquisition accounting and $0.07 or so coming from R&D spending, if you will.

Okay. And it seems like the right move and it looks very starting from the website, but in terms of just the dilution that we should expect in the out-years, are you prepared to make comments in terms of the dilution you will be eating in ‘18 and maybe beyond or do we see a pathway towards some accretion near term?

Yes. I think we will talk about that as things progress, but we are viewing it as being accretive in the reasonably – reasonable timeframe.

Okay. And then just a quick one on the price mix, the PCP and the Lighting impact that’s clearly your original bridge back in January, how does that look today in terms of those two bars on your EPS bridge?

Yes. So the price is about what we thought, still a couple of points. And so that part is still intact. So the pressure is coming from the general productivity that’s being challenged as Dave had described.

Okay, that’s great. Thank you very much.

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

Hi, good morning.

Good morning Rich.

I just want to follow-up on Nigel’s question on prices, so was it negative 2% for the quarter or is it had been negative 3%?

Yes.

Yes. So it was still in that range, 2% to 3% for our Lighting sales, yes.

For Lighting, yes.

And negative 1% for volume, right?

We could call that correct right for the quarter?

Yes, ex-Lighting – I am sorry, ex-pricing.

Ex-pricing, yes.

Yes.

Great. And then on the – should we think of the $0.05, so $0.05 this quarter, $0.05 Q2 and then think about kind of another $0.05 in Q3 and then it kind of ends in Q4 because you said it was net, the $0.10 was net of some improved industrial performance?

Yes. I think that’s a good shape, Rich.

Again, Q2 could be a little bit more, just as some of the costs to really accelerate because the important thing on Lighting is getting our deliveries and our service levels to acceptable levels as quickly as possible because even when we do that, it takes time for the market to accept and trust those delivery levels. So there is an urgency that the team is working on and I have given them the authority to have to invest a little more in the near-term to get that. So it could be a little bit heavier in the second quarter.

Okay. And then just Dave, on NEMA, at the beginning, you talked about we don’t get the data, but you talked about kind of flat market or they were saying flat market and you were seeing some of the data coming out of that, I mean so the first quarter here, it sounded like things trended a bit better here, so A, could you give us kind of cadence of things improved within the Lighting and then, what are your thoughts are on the market for the rest of the year for Lighting demand, because this is – you have got to – it’s a problem right, but it’s not a demand problem seemingly?

Yes. No, well, I mean I think in Lighting, I think that I don’t see that Lighting was better than the NEMA data, maybe slightly better. I think NEMA at one point was forecasting down 3 in the quarter and as we exited the year, so our down 1 is – I guess, you could argue, I put both of those in sort of the same category. But hey listen, I will take minus 1 versus minus 3 that’s not dismissing that. And I think that the outlook is still flat to slightly negative from a NEMA standpoint. And I think the question is, is that reliable, we are not sure that that’s reliable yet and that’s a little bit what arguably we might have gotten a little caught on is anticipating more down and at least from our standpoint, the demand was a little bit better. And I think that I don’t know that that’s reflective of the market. We are in the 1, 2 point range, but if it’s a little better, it puts a lot of pressure on us to perform and I think that’s one of the contributing factors to our efficiencies or lack thereof in some of the product moves. We are putting new product into a new plant or an existing plant, while you are trying to meet a little higher demand profile. And that caused a bit of an issue. So we are still anticipating that it will be flat to slightly up from a NEMA standpoint and you see that in the res and non-res, but we are monitoring it.

Okay, alright. And then just quick last one for me on industrial. With regards to the incremental 2 points of growth relative to the initial guide, I guess Bill, how would you characterize the mix of that business, I mean you talked about rig count maybe not optimal for harsh and hazardous, but in general I just think of your business, the incremental point of growth on industrial is pretty good mix for you, so should we think of that in terms of run rate basis kind of a 25% incremental on those that incremental growth coming out of industrial?

Yes, I think that’s a good number Rich, yes.

Okay, alright, great. Thanks. I will pass it on.

[Operator Instructions] Your next question comes from the line of Christopher Glynn from Oppenheimer. Your line is open. Please go ahead.

Thank you. Good morning.

Good morning Chris.

Good morning. Dave, on power systems margin, it looks maybe you are keeping a little bit more of the productivity than you anticipated, can you talk about that going forward and you also mentioned you would give a little more detail of the comments about growth investments there for Power Systems?

Okay. Certainly, that power system has demonstrated productivities in their DNA. And so they have taken the action. They have made investments. They continue to make investments and I expect that they will continue to drive productivity, although the bar gets higher every year and it gets more challenging when they keep trying to deliver the same amount, but there is still opportunity there that they are working everyday. So I expect the productivity to continue. But I think the issue that they all faces on the material cost and pricing side of the equation that they keep expecting and they see a little of price pressure. But there is with material commodity cost increases, that’s going to put a little bit of pressure on them.

Okay. And did you mention something about forthcoming growth investment for power systems?

Yes, I do Chris. And I was just making reference to their headcount and they have been controlling costs hard last year. And at some point, there is a value creating growth that comes from new heads in the form of engineers and sales force and things like that to help grow the business. And so I was just trying to highlight, there is a balance between harvesting and maximizing short-term margin versus maximizing the long-term profit.

Okay. Lighting pricing, I think by the second half, you anniversary some adjustments that I think were designed to correct some standing misalignment that you had with the market, so does the year-over-year pricing still expected to be tougher in the first half, moderate in the second?

I think very modestly. I think it’s probably at about a flat level throughout the year, a little maybe worse in the first quarter at the 2% to a little bit over 2%, 2%, 3%, as we exited the year at 3%, but it will probably be relatively even at 2% I think throughout the year.

That’s certainly how we are looking at it Chris. But you know the participants better than us and as we have said in the past, we are not a price leader, we are a price follower. And I think there is a lot of – that’s one thing we are paying a lot of attention to, because I think there is it continues to be a lot of competition trying to capture more share, particularly when you see the market that was growing and everyone expected to keep growing at double digits. It slows and flattens. There is people who were trying to maintain that growth profile and it’s more difficult without capturing share and it’s difficult to capture share without pricing. So that’s something that we will follow closely. But we think we are – that’s why we are so keen on the aggressive actions that we are taking as painful as they are and as challenging as they are to execute to make sure that we are not behind on that. We are and we will at least be trying to stay up with the market, so.

Okay. And on that softening with the software as part of luminaire market and you are expecting I think 2% to 4% non-res for the year, did you see any relief in the volumes or the market demand into April or March or general linearity, comments of any variety?

Are you asking about Lighting or generally, Chris?

Yes, Lighting, relative to the non-res outlook as well?

Yes. So not beyond the non-res outlook, I think Dave was describing accurately the NEMA shape, which had low kind of first half and improving second half and so I don’t think we would expect to see outsized orders at this point in the area.

Okay. Thanks everybody.

Alright.

Your next question comes from the line of Jeffrey Sprague with Vertical. Your line is open. Please go ahead.

Good morning everybody.

Good Morning Jeff.

Hi, good morning. Just back, big picture on lighting, so there is quite a puzzle everybody is trying to solve out here, right, I think that the big question is with ostensibly a penetration story and installed base to be harvested, why is Lighting actually under growing the construction markets and I haven’t really heard anybody put forth a cohesive answer to that question and I just wonder actually what your view is on that, have we all misjudged how much retrofit there is to do or is there some other missing piece of the equation here?

I think it squeezes into retrofit and I don’t know that we have misjudged it. We may just have gotten a little bit ahead of it. The retrofit became a really big part of the volume. And I think so maybe some of that spending has been proven hard to lap, maybe some of the incentives were stronger, but I am not sure that we have misjudged it, Jeff. I don’t think that thinking about a large installed base of 30-year-old C&I Lighting and that there is a value proposition to retrofit that. I still think that pieces holds. But I think clearly, that’s where the disappointing volume is coming out of that retrofit side, not out of the construction side.

And then relative to the comments on Progress Lighting and actually being short of inventory, it sounded like what was the top line impact from that, did that have a meaningful impact on the top line?

Resi grew a little bit in the quarter and we are expecting it to grow. And so I don’t think it had a big impact Jeff, but it’s important that we get that realigned so that we can service our customers at the level that they expect.

And the earnings headwinds from the Lighting disruptions are those all cost related, kind of untying that in the factories for lack of a better term or is there kind of a lost revenue element to that going on?

Yes. I think that’s a hard question for us to answer. I think what we have quantified is all cost. It’s in the nature of expedited shipping, right. As you were standing up a new distribution center, you are touching things a few times, you are fulfilling one order with multiples and so there is cost associated with that to the extent of that customer service is not at it at what you would like because that caused you to lose a little business, I think is a hard question for us to answer.

And then just finally for me on power, I totally get what you are saying about the kind of price-cost, but what are you doing on price, do you see the scope to be able to push price here, have you done anything year-to-date and how was the market responding to that?

Yes. Generally on price, if you are talking about all of Hubbell, we have actually done quite a lot on steel facing and copper, but intense businesses, in Electrical, we have actually pulled price pretty aggressively and I think competition has followed those moves and those appear to be I think working their way through the market. But I think you were asking specifically about Power and they have not been pulling price. And I think as commodity inflation persists here, we are going to have to get the timing of when to ask for some of that back. We are going to have to get that. But for now, I think they were writing a little bit of commodity tailwind for a bit and so I think it shifts a little bit too early for the Power guys.

Okay. Thank you.

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

Hi guys, good morning.

Hi. Good morning Steve.

What was more specifically kind of LED up in the quarter?

Yes. So LED for us – is at the kind of two-thirds adoption rate for us volume wise on the C&I side. So it’s become a pretty predominant – it’s like the standard, it’s the new standard, obviously.

And you guys compete with GE there, obviously right, I am not a Lighting analyst, so I am not on this market, but you guys do compete with GE there?

Well, we compete with the luminaire manufacturers, right, who are making LED fixtures and not any of the components.

Okay, got it. So I mean GE talked about their LED business orders being up like 40%, I mean I am just wondering, is there somebody that’s really in there kind of disrupting the market so maybe the market forecast is just a little off given that there is one player that’s just kind of going hog wild for volume for whatever strategic reason, albeit misguided or not, is there chance of that, that’s going on?

We don’t believe on the luminaire side that that would be the case. On the components side, that could be happening in certain places that where we would be potentially the beneficiary of some price competition there because we would be downstream of that.

Yes, got it. Okay, got it. When you guys talk about the industrial business and you talked about kind of the heavy markets being, what percentage of industrial is kind of heavy and I would assume you are kind of referring to mining there or is that also a little bit of oil and gas?

So the heavy is not the mining business. There is a little bit of mining in the O&G piece actually, that’s sort of more broadly extractive industries. But the heavy industrial is where for example, we will sell crane controls to a steel manufacturer, so that’s why the commodity for – the demand for commodities drives a lot of that to market health. But the size of that, so if the industrial bucket is about 20%, I think what we call core industrial is about 60% of that. And then of that, the heavy is about I think maybe about 40%, 40% of the 60% – of the 20%, yes. It’s a smaller component, but it is a higher margin business, so starting to see that come back is a good thing.

It’s also swinging a lot, right. I mean it was coming down double digits to flat. Those are big swings on that 40%.

Right. And then just one last one, total price-cost just for the kind of for the company at a high level, what was the impact including, including the price in lighting, so just for the total co, what do you think price-cost was in the quarter?

So if we are looking at price and material costs outside of the productivity and cost increases, for overall Hubbell, it was about 1 point, actually just over 1 point.

Of margin?

Of margin.

Okay. And one last one you grew earnings $0.05, if you kind of use kind of all-in number this quarter, I think $1.45, second quarter last year, you have this dilution and maybe just help us with the quarterly profile so that we can kind of reset the second quarter base and any kind of good color using that kind of $1.45 as the base last year on how we should shake out for the quarterly progression?

Yes. I think absent kind of cutting our guidance to quarterly, I think the change from the way everybody has been thinking of it, the way we have been thinking of it is if you added or took away a nickel for Lighting in the $0.04 range for iDevice dilution, I think those – that’s the deviation from our...

Typical normal pattern, right.

Yes.

Okay, got it, perfect. Alright guys. Thanks.

Okay. Thanks.

There are no further questions at this time. I will turn the call back to our presenters.

Okay, great. Well, I appreciate everybody joining today. And obviously, Maria and Steve Beers will be around this afternoon for any follow-up questions. And over the course of the next month, we will be out with you all at various events including Light Fair in a couple of weeks. You will get to meet some of the iDevice folks who will be there. And then I will see you all at EPG and we could provide more of an update on progress at Lighting as well as more insights on to iDevices and some of the other strategic issues that we are contemplating. So, thanks again for your time and we will talk to you soon.

This concludes today’s conference call. You may now disconnect.