Hubbell Incorporated (HUBB) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Emily, and I will be conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2017 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Question-and-Answer Session. [Operator Instructions]. Thank you. Maria Lee, you may begin your conference.

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

Thanks, Maria. Good morning, everybody. I’m going to start with some opening remarks just on Page 3 of the slide, hope you all have and then I will hand it off to Bill. So if you turn to Page 3, I think we are all very pleased with our second quarter financial results. We are particularly pleased with our strong top-line growth and that’s fueled by the increased demand across all five of our key markets. And that’s the major highlight certainly for us and Bill will talk in more detail about that. You see sales in the second quarter were up 4% driven by organic growth of three. Acquisitions contributed another two points and currency was a headwind of one. You know this is the highest level of organic growth we have seen in almost two years probably since the first quarter of 2015. You see our reported operating margin was 13.8% to down 70 basis points year-over-year. Adjusted for restricting and related cost, margins were 14.4%. The decline in margins year-over-year was due to the electrical segment and particularly and We will talk later about the lighting and the price headwinds in some of the productivity challenges that we are still working through in lighting. And so material cost headwinds across all other groups, as well as the acquisition dilution, as we spoke on the last quarter call primarily for the investment in iDevices that we finished in early April. Restructuring and related cost across the enterprise were $0.08 in the quarter and the overall program is on-track in terms of spend and savings and we continue to view that as a critical program as we improve our cost competitiveness. All that results in reported EPS of $1.43 which compares to a $1.45 in 2016. You know that includes $0.04 of loan of dilution from the acquisition of iDevices. Adjusted EPS excluding the restructuring related cost was a $1.51. Lastly, on our capital deployment for the quarter was very balanced, we invested $90 million in acquisitions. We had $40 million of additional share repurchases and we had our normal level of capital expenditures and are ongoing return to shareholders and dividends. Okay, so that’s a quick synopsis of the quarter. Before I hand it off to Bill, let me give you color on a few other things. Yes, certainly on markets and new products. We saw the positive trends from Q1 continued in the second quarter and customers continue to be upbeat about the outlook. Now, let me make sure I’m clear about that. I’m not suggesting that to a more upbeat, but they are as upbeat as they were and that’s what we saw in the second quarter and we expect to see through the rest of the year. And obviously all five of our markets were good from non-res and residential to the electrical T&D, industrial and oil and gas, they also up year-over-year growth in the quarter. In addition to that, increase in demand our product innovation is driving sales as well. Our wiring device introduced the first UL Listed countertop popup receptacle on the go cable charging stations and power exceeding boxes to make it easy to charge user devices. We also redefined the benchmark for safety with the insight 30 amp disconnect switch which allows users a clear display of electrical status right on the cover. On the Lighting business, many of you might have been at the light there, it was a major event for lighting. We showcased 177 new products and displayed our Tier-3 control solution the NX Distributed Intelligence. Our tunable white light engines SpectraSink, which has market leading capability controlled blue light. In industrial applications, therefore we are reluctant to use of LED because the negative implications of those blue lights and you think about food processing, milk, chip manufacturing. And our Power over Ethernet capability was introduced power hub, powering light fixtures directly from the Ethernet DC power. Our Burndy business was active with large compression pulley grips which will be coming as staple product for contractors for wired pulling needs and become the only company to offer complete line of connectors, tools, dyes, accessories, services and now these compression pulling grips. They also launched BurndyConnect, a mobile app that installers connects with requirements of videos, inspectors with the necessary validation information and the end users with search abilities for products and field service reps. Great example of satisfying one of our strategic objectives to serving our customers. We are also seeking to better serve our customers with our iDevice technology and we've got 90 days under our belt with iDevice and it's been going quite well. We've seen some tremendous cross selling excitement during joint sales team with customers on our residential lighting business. We are identifying opportunities in residential and light commercial applications and utilizing our device's capability with the three main residential ecosystems and expanding into related verticals. And the [indiscernible] expertise has already begun. For example iDevices was coming out with new in wall switch and it was at the knowledge of our wiring device folks that helped that their knowledge UL testing process that really helped them get that product for the UL process quicker, easier and to mark. When we turn to our operations and productivity. We obviously are constantly focusing on our cost discipline and increased efficiencies and productivity. You see that in our selling and administrative cost as a percentage of sales decline year-over-year as we control those cost even in volumes increased. At power, our productivity gains offset price and material cost headwinds. In the second quarter, power implemented some robotic winding in one of their facilities, the manual winding that can cost hand injuries. So this new technology increase the safety and generally more consistent process and certainly a more efficient process. For the electrical segment, in addition to acquisitions, we saw softness for pricing and restructuring driven inefficiencies of lighting that we discussed on our last earnings call. You know those inefficiencies unfortunately probably cost us about another deco in the quarter just from the inefficiencies alone. But that’s all in line with our expectations that we talked about last quarter. We talked about remediation efforts and those are well on-track, very disciplined three key areas that we identified early in the process and we have seen significant improvement there. We are still not out of the woods yet, but the factories are performing well and the band planning has got better once we were able to replenish inventory, which was one of the challenge. And our service is improving as well on time shipments, significantly better in both our C&I and resi business, but there is still work to do especially related to our new National Distribution Centre. Outside of lighting, our price cost productivity is favorable for the electrical segment. There continues to be focus on productivity everywhere and I think we have got that examples all over the place. Again in our energy group they implemented a custom design machine for color coding connectors that reduces the throughput processing time by 80%. A lot of singles that we hit to continue to drive our productivity throughout the factory and a lot more high return projects in the pipeline that paves the way for continuous cost improvement. And finally, any discussion of productivity is not complete without mentioning of our restructuring program, which has been realizing savings in line with expectations and supporting margins across [indiscernible] with that mind you see that you see that we actually have increased our estimate slightly for the year to $0.30 from the $0.25. So a lot going on, a lot of really positive things going on from our perspective. The market dynamics had been a nice change of pace for us and we are trying to build off of that, but let me let Bill take you through some of the details of the quarter. Bill.

Thanks Steve, Good morning everybody. Thanks for joining us today. I’m going to use the slides as well to guide my comments. I’m going to start on Page 4. Talking about sales in our end markets, as Dave mentioned its really been a few years since we have seen there is much green and that much consistency in our end markets are growing and showing upward progress. Starting with non-res certainly new construction reno both favorable, we are certainly seeing ABI data bounce around month-to-month but consistently above 50. The put in place numbers re indicating commercial strength as well as institutional and specifically in education and healthcare overcoming some weaker spending on the industrial side. Industrial there oil and gas you see green, we are seeing continued spending on the oil side despite obviously oil price volatility that rig count being up is helping driving some spending on the gas side for us much more of infrastructure MRO. Industrial, we see the yellow indication there, we are having experience much more favorable on the light side and the heavy side is where we are seeing some weakness that’s dragging that cover down into still up but yellow. Electrical T&D, we'll talk more about when we get to our power segment discussion. But distribution transmission both growing and we are seeing the influence on the CapEx and the project side over and above MRO spending, which is really welcome for us. And on the resi side, single family continuing to be the driver there as well as reno. So that organic 3% growth from those end markets showing acceleration for the first quarter and it could trend. Also worth mentioning, the acquisitions adding 2% and we have a number of acquisitions that are contributing to the second quarter. It give you a good indication of how we are choosing to allocate our capital. Firstly Dave described iDevices and the investments we made in our IoT strategy, but also contributing to that two points, we added to our natural gas distribution pipeline and we also added three different investments in our power segment. So, u see power systems, gas, IoT pretty good indication of where we are allocating that incremental capital right now. On Page 5, our adjusted operating income. You see roughly comparable dollars at a $137 million, but a lower margin at 14.4%, 80 basis points below last year. You can see at the S&A line, we are be in more efficient through using the volume and careful spending. But as Dave had mentioned, we have some of that lighting inefficiency and the investment in iDevice creating that difference there. At the EPS line on Page 6, you see a $1.51 of adjusted earnings per share, the $0.02 versus last year really being driven by a slightly higher tax rate in the quarter of 30.8% which hurt us by a couple of pennies and really driving the difference there. I’m going to switch on Page 7 to our segment results and going to start with the electrical segment. You can see sales growth of 2% to $656 million, that 2% growth really being driven on the organic side as the FX offset the acquisition contribution. And as our arrows indicated on the markets' Page, really good kind a consistent contribution to that growth. We had oil in the mid-single digits, gas in the mid-single digits. Our wiring at 3% and we spent a lot of time on lighting in the quarter had 3% unit volume growth with two points of price drag, which resulted in one point of sales growth. And that was really skewed to the resi side driving the growth for them. On the performance side, you see the 11.6% OP margins, 17 basis points below last year. The lighting headwinds really driving about two points of that. And so the balance of the electrical segment would have been able to absorb the acquisition impact of iDevice and expanded margin. So we really have some strong performance and the balance in this segment. Page 8, we have got our power segment results for 2Q. Noteworthy top-line there, the acquisitions we mentioned that they have been investing aggressively to get those four points, but the real story I think is the 5% organic that’s over and above I think what we would expect typically from a maintenance level of spending. So there is some CapEx in there coming from small and medium sized projects that are really helping grow the top-line for power. And at the performance line, we have been speaking with you now for few quarters about the material cost headwind and particularly driven by steel for them, which is actually a larger headwind than the tailwind created from productivity overcoming the other inflationary costs and then actually utilize that volume growth to maintain the margins at 20.9%. But as you can see with the growth adding $5 million of operating income, very, very healthy contribution from our power segment in the quarter. I’m going to switch on Page 9 now to half time and the year-to-date results. You can see here sales up 3%, year-to-date, the operating profit margins at 13.9% down about 30 basis points with the drivers since we have discussed being from lighting and the iDevice drag. Tax rate you see there at 30.3% resulting in earnings per share adjusted of $2.74 about a nickel better than last year and you see free cash flow a couple of million dollars better than last year at this half way point. We will break that down into segments now for you starting on Page 10. We will start with electrical, 2% sales growth and you will see the themes here are very similar to the first quarter, acquisitions offset by FX and so the growth coming organically, consistently coming from oil and gas, wiring, resi lightings similar to second quarter. And similarly that lighting price cost headwind creating a downward pressure on OP margins, segments and without that the balance of the segment would be expanding margins. Power year-to-date, continuing the impressive discussion we had from Q2, 7% growth of $557 million, organic strong at three. The performance here you see margin expansion to 20.9% as the productivity was actually larger, but were all in the first half than the material cost headwinds. So they are getting $13 million of contribution there year-over-year from power. I was going to ask our treasurer to please cover the cash flow and balance sheet with you all.

All right, thanks Bill. On Page 12 of the webcast, net income was comparable to last year on a year-to-date basis. Working capital was less of a use of cash as we used payables to support inventory growth. CapEx increased about 10% year-over-year and year-to-date free cash flow of $99 million was comparable to last year and about 70% of net income. So we are on-track to meet our full-year targets of free cash flow equal to net income. Turning to the next Page, capital structures Page 13. We ended Q2 with $360 million cash most of which about 95% was held internationally, which is pretty typical for us. We adjust under $100 million of commercial pay per outstanding and just over $1 billion of total debt. The first tranche of senior notes the 2018 is coming due within a year and as we expect, we are currently considering potential options and optional timing regarding this upcoming maturity. Net debt to cap is running at about 24% and so again overall a healthy balance sheet. I will hand back off to Bill.

Okay, so on Page 14, you'll see that we have indicated here a slight raise in our market outlook versus what we shared with you on our April call. you'll see most of the markets remain in line with that outlook we provided, resi at 4% to 6%, non-res at 2% to 4%. And those markets have performance reasonably well within our expectations. Industrial at 2% to 4% I would say, we've gotten there the same outlook, but maybe little bit different in terms lighter on the heavy side and a little bit more strength in the light industrials, but staying in that same range. And oil and gas markets at 2% to 4%, and so again the harsh and hazardous business for us very important, we've been talking with you for few quarters about how that's bottomed sequentially. And so now for us to start to see mid-single digit growth there in that oil slice is quite welcome and good news as we think about second half of the year. That should be a positive contributor and the gas side also been performing well. So where we've really made our raise is on the electrical T&D side. Back in April that was zero to two, we've raised that to one to three really on the backs of the strong second quarter. And some of the projects - the small and medium size outlook that we've got for the balance of the year. So that translates on Page 15, to 2.5% to 3% growth from our end markets. Again stronger on the T&D side than we saw, a little bit softer and the heavy industrial than we thought. Acquisitions we are anticipating to add about 2% and essentially neutral FX impacts. Resulting EPS range of $5.40 to $5.60 which is really a combination of a nickel better from operating performance and investing that nickel in as Dave called the success for an important restructuring program that we are utilizing to make sure our cost structure is as competitive as it needs to be. That range continues to absorb about a dime of iDevice dilution. And as Dave the description the performance of lighting has been in line with the reset that we gave you in April and so we are maintaining that. And Maria went through the cash flow, our expectation being equal to net income. So that's the update on our outlook in the quarter and I was going to ask Dave to make some comments.

Okay, thanks. Yes just before we open up to questions, just a couple closing comments. Hopefully, your take away from this is similar to mine. I’m particularly pleased that the markets are moving in the right direction, at least we have seen so far this year, we are able to take advantage of those markets and see that in our performance. That consistency had been on record as using different terms around the markets and I committed last quarter that I was going to stop saying that. So I’m particularly pleased with the consistency of the market and with favorable settlement. Obviously there is always some question, I think we have seen recent ABI come out and take their forecast down, but you know keep in mind that you know as we started the year we did start at the same level and we weren’t using that as a basis. We thought some of that might be a little bit too optimistic and so we are still very much in line with the expectations that are out there. So what does that mean, well that means that maybe some of the later year optimism that we hope would come through. Maybe that doesn’t come through, that doesn’t at all affect our plans to continue to outperform the market. We are continually operating with that mantra, both on the top-line and the bottom-line. Certainly has been challenged by the lighting business in particular, but that’s why the restructuring program has been so critical for us and we have really gotten a lot of traction on that throughout the organization and that’s why we have got the ability to and now that we are performing a little better could invest a little bit more. Now to be clear, moving to $0.25 to $0.30, we are working very hard to try and get more done now, so we need to do less later, because the objective that you know I have set out for the team here is that we get back to a more normal ongoing operating basis. You know probably at the $0.15 to $0.20 range serving for the next several years, but that would be part of the continual ongoing cost reduction and not something that’s unique and special. We have primed [puff] (Ph), we have got it blowing and I think the results are obvious and we want to start to see some of those results going forward. I think in addition to the market trends, I certainly expect that we are going to continue to build upon that particularly on acquisitions as well as through new product development. I think the acquisition market is certainly active, but it’s also pricey and so that requires us to continue to maintain our discipline around pricing. And lastly lighting has been a challenge. It continues to be a challenge but I think I’m very confident that our challenges are being fixed and no doubt it’s a tough market, its highly competitive. We are pretty well positioned in continuing to improve that position, we are making progress and I’m confident that moving forward we are going to continue to improve on that business and that will continue to support the overall portfolio. And not over shadow, an important element of our business and that is the performance of the other parts of our business, particularly within the electrical segment. I mean the same what I stepped back and reflected on the quarter's performance, one of the things that really struck me that most satisfying was really the strength that we saw in our other electrical businesses whether it's construction and energy or commercial and industry, both on the market side and the profit side. I think sometime that can get loss in the electrical segment particularly with lightings challenges, but that's what we are all about is building off the strength of at least three of the four pillars at any one time. And those who have followed us know that sometimes there is always one that - one of the markets is weak. But we are moving accelerating, so I feel really good about that, and I feel really good about the rest of this year and even into next year. So with that, let me stop and open it up to questions.

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

Thanks, good morning. So, good second quarter. Just home lighting, I think last quarter you had a minus one on lighting, plus one volumes, minus two price. And this quarter improved by two points on the volumes. Is that reflective of improvement in the market or were there some phasing some shipments being in 1Q and 2Q that's the first part of that question. And the second part is, can you maybe just provide some metrics on the [indiscernible] and the trend you seeing in licensing in terms of whether it's [indiscernible] et cetera.

Yes. So first of all your math is right tracking from 1Q to 2Q. I think some of that maybe as Dave is highlight as we improved our service and we are able to get some product shipped that were orders from 1Q. So I'm not sure I would say that we saw any kind of inflection per say in order pattern. I think maybe the complement to that would be our resi business was strong in Q2 which helped create some of that and resi can be driven by some more lumpiness whether it comes from big boxes or homebuilders. But I wouldn’t say, Nigel, any real change in kind of market condition from our perspective.

Okay. And any take price you can provide on the recovery in the lighting?

Yes, so as Dave said, we are focused on service and our service metrics are essentially back to where they were, we are taking advantage of the energy that we've created to actually improve that beyond our historical levels. And so I think on the distribution center side, Dave made reference to the new DC that we've installed and stood up down in outside of Atlanta. And I think having as we had commented before, few more quarters under our belt to have that run as it should be will really be helpful. And the one factory that we mentioned last quarter that was doing some new receiving as we had been restructuring. We are working on those things out too. So that the metrics that we go through very intensively with the operating team are showing our weekly stop light, review programs are showing positive trends there. So that’s what is giving us the confidence that they are performing with the reset expectations.

Nigel, I think just to add to that, I think that we have certainly had very dramatic improvement in our service levels and deliveries, but in order to do that in the short-run there is the incremental cost to do that. Whether it’s in freight or whether it’s in staffing. So that’s the next leg of improvement within lighting is to work that out of the system to still be able to perform at the level our customers expect, but doing in a more cost effective manner. So that’s the other leg of some of the inefficiencies that we have seen.

Okay, that’s great color. And then just one more question on the verticals. Your end market growth expectations and things about industrial oil and gas 2% to 4% for the full-year. First half and maybe 2Q, were you within those ranges for industrial oil and gas or is that more back half loaded. And then secondly any red flags on non-resi, you sounded pretty confident on the outlook, but any signs of slowdown that you see in there?

Well starting with non-resi I would say we had not. I think we continue to see the trends as we had started off now. Granted when we started the year, we might have had lower expectations than some parts of the market. So I think where we have seen people sayings its less good, because maybe they got a little bit more exuberant post election and right at the start of the year. So I would say from us Nigel, it continues to feel in line. As far as oil and gas goes, I think there is small bit back-end loading to that, but industrial I think the light side a little bit smoother, but on the heavy I think we could see some back-end lift as well for those two.

Great, that’s great color. Thanks guys.

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

Hi Good morning everyone. Just following up on a couple of those lighting questions. So for the headwind here upcoming quarter Q3 or current quarter we are in. Should we think there is another $0.05 headwind then you are done on EPS.

Yes, I think the way you can’t model things, but to the day but roughly speaking Rich that’s how we are expecting it, yes.

Okay, then fourth quarter is neutral at that point, I think it’s going to be hard for you folks.

Correct, what is specifically exciting there is the inefficiencies coming out of our restructuring, which happen to be on the distribution and some of the receiving issues. It doesn’t take away some of the challenge Dave was referring to with price dynamics in the market et cetera. So it’s just the effect that you are focusing on that $0.05 we do think in a base by Q4, yes.

Okay, and then on price lighting price. So it was negative two and it was negative two to three last quarter and you are confident against negative three numbers. Here as we get into the back half, how should we think about price as negative two or are you comfortable with how that’s going to play out in the second half of the year at that level or is there potential - how much of the market is getting worse is the market stable. How would you characterize it right now versus kind of your own self positioning on your own end that you can talk about?

Yeah, I think you are teasing out two really important issues in your question. The first is sequentially does the market feel better or worse. And I would say it feels to us reasonably consistent. And then you're asking compared to last year of the comps, because you are right to say the comps had a little bit more challenging in the back half of last year. But I think that our expectations are kind of continuation of the trends through this year.

Okay. And then as you think about the $0.05 for restructuring the incremental $0.05. where is that targeted, and then as we think about next year for restructuring, is can we get to $0.15 to $0.20 in terms of budgeting for next year in restructuring? And then just a quick update on savings, the savings anticipated for this year?

Sure. I would say in terms of the extra nickel, Dave used a nice description of the pump was primed with a number of projects in the queue. Nothing super lumpy, just able to turn on a couple of those projects as they became more formalized - as Dave said are interested in getting it the spending behind us, so we can get into a more normalized reported only sort of environment. And so one of the benefits of have this to be going on for the last couple of years is the more programmatic nature. So nothing dramatic just projects we are able to green light. And then maybe Maria can comment on the savings.

Sure. So on the savings, we are still moving toward what we said before which is $0.20 incremental this year. We are very much on-track to do that and could be even a little bit better. So that's all in line and same thing bias to be able to bit better.

Okay. And then just on the - you think about next year is a more normalized restructuring spend knowing what you know now I know we are still several months out but.

Yes, I think it is. But we don't see any major projects on the board that would change that. I think that’s certainly the target level that we are going for. There is you can have a debate about whether you're going to have too much or not enough in it. The simple science behind that Rich, is if you recall when we were about two thirds of the size we had a normal run rate of $0.05 to $0.10 that was embedded in our results. And there was period of time where we get off of that track a bit. And so some of what we've been doing over the last few years was a - some catch up. a lot of that was a reaction to the lighting market, but if you just extrapolate we are now 50% bigger and you have got to take that $0.05 to $0.10 and make that more $0.15 to $0.20. We are looking another way as we talked to our Group Presidents internally you all get a nickel. You need to and should be able to invest at least a nickel in cost reduction actions. But have you now develop the skill to be able to do that and self fund based on the investment that we've made. So that's the best more insight into the strategy and the basis for the $0.15 and $0.20 that we are working on.

Okay, great. Thanks for the color.

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

Yes thanks. Good morning. Hey, Dave it almost seem reasonable to assume that the need for remediation lighting impacts your capacity to have price in line with the market. As you see in the remediation efforts gain real attraction, what is your thought on visibility to reclaiming price that you are not claiming now. Is there a dynamic there?

Yes, there certainly is I think that’s a little bit of what goes into Bill’s response or response to the forward look what the impact is in pricing and lighting. You know while the market could be a little bit weaker, we certainly think we could be on the other side of that and quite honestly our lighting team has focused on the need to do that but it was very difficult for them to be in a position to have a discipline without having the commensurate service. Now they get the service level improve, but need to continue to improve that the next step is to hold and actually pursue price particularly in those areas where absent that price it’s not economically worth wile to take the business. So I think they have had some early examples of that where that has helped them on both sides but certainly what we want is the business at a higher price. And there has been some early examples of that so we are hoping that they can build on that. So you are actually right, there should there is potential for that but it’s all up to the market willing to take it.

Thanks, that’s interesting. And then on restructuring, you talk about going to a level that you don’t call out. Is the $0.30 this year is that above and beyond normalized rates or all-in?

That’s all in, $0.30 this year is all-in.

Okay. And the $0.12 remaining in the back half, is that tweaked out as equal in the quarters?

Pretty much so, pretty much.

Okay, thanks.

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

Thank you and good morning everyone. Just a couple more, just on lighting there are a couple of other things moving on in electrical products in the quarter versus Q1, but it’s actually not clear to me that lighting profitability improved in Q2 versus Q1 and I believe you said it did. So perhaps it didn’t but can you just give us a little bit of a framework on how the profitability changed Q1 versus Q2 in the business?

You know, you are right about that. It was back in April when we sort of reached that expectations around lighting and that we add sort of the history of Q1 if you will and then the outlook as the questions have been of the impact of those inefficiencies in Q2 and Q3. So the inefficient impact is about equal so the performance is about equal and so some of the comments that were asked about remediation efforts on service. Some of those leading indicators which are not financial, but service driven are starting to look positive which we think later in the year. You are right quantitative performance basis is flat with Q1.

Maybe we are pretty confident that AC on that has really the low watermark and you at least start trying to climbing up sequentially up this level.

Exactly.

And then just on the restructuring, I think the number Maria gave is the incremental benefit in 2017. Can you just clarify that and what you think the carryover benefit is in 2018 on the actions you are taking?

So the $0.20 EPS is the just the incremental piece. We had over $0.30 of incremental savings last year in 2016 and then $0.10 in 2015 for cumulative. It's a much bigger number closer to 65 and the $0.20 incrementally this year. And as far as next year, we haven't got out with specific incremental savings guidance. But most of our actions have roughly between two and three year paybacks longer term paybacks for the facilities shorter term for some of the headcount action. So let's say if you just kind a look for paybacks for certain two to three years maybe weighted more towards the three years and allocate the spend in that way. That would give good estimate for having to think about it going forward.

And then on wiring, can you also just give us a color on the resi volume versus C&I volume the growth rate there?

Yes, resi was closer to double digits. And C&I down just a little, Jeff.

Okay. And then one last one from me. Glad to see the little T&D falls happening and I guess if you could just provide a little bit of color on I guess there was some comment about project work picking up so something above and beyond maybe the normal time of maintenance repair sort of activity . Can you just shed a little bit more light on what you're actually seeing and the nature of the work that's coming through the pipeline.

Yes, I think if we were sitting back and planning out a year, a lot of that D especially Jeff, is driven by operating savings on utilities part, maintenance and repair. And we always think to that tends to be and should be probably in the GDP kind of range. So for us, we were encouraged to see 5% growth in the quarter without acquisitions. And that really came from our perspective from the capital side and some projects. And what's interesting for us was not driven by megaprojects sort of smaller and medium sized projects is really helping us, which is good news because I think the large of the project the more lumpy maybe that that trend would be right. And the small the nature of that project hopefully you can have a little bit of momentum sequentially in it. So that was certainly a positive for us for power systems.

It sounds like its developed within the quarter, right. You didn't really have a notable backlog or anything at the end of Q1 or maybe I'm incorrect on that?

No, I think it built nicely through the quarter and the backlog is actually in shape to support the kind of outlook that basically gave you the support for us raising our outlook.

Okay. Great, thanks a lot guys.

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

Hey guys good morning. Can you just talk about maybe a bit higher level strategically how you are thinking about the influence of more distributed forms of generation, storage, kind of the challenges to conventional power generation in what could mean for your business longer term from a T&D perspective?

Well we are certainly thinking about it and I actually think that, that is the direction where the industry is going. It’s a question of the magnitude and the pace and we are working on - we have supported that part of the industry with our traditional products, but we are looking at areas where we need to add to our product portfolio either through self development or through acquisition and that’s part of our acquisition strategy within our power business. Obviously that’s one of our highest return businesses and so they get first dibs at our capital and so they have tremendous opportunities to invest. And as a result they are very open to looking at those different areas and that is one area in particular that they are spending a lot more time on it, we collectively are spending time to look at and how best to take advantage of that market going forward.

Have you at all seen any change in behavior from your customers, maybe saying we are going to go this project, now what kind of rethinking what we are going to do because of this dynamic. I mean they have been a few utilities that have undergone some pretty big restructuring announcement. I’m just not sure how long that takes to kind of make its way to you guys, but just wondering how top of mind it has been for customers in the last really how its evolved over the last kind of six months.

I don’t know that we have seen a dramatic increase - certainly not a dramatic increase in activity. I think there has been a continual increase in the discussion. The recognition of that being a market dynamic, that’s the question of the pace and utilities are trying to figure out. Obviously there are some who will be more aggressive on that and they might win or they might be too far ahead of it. but that’s the beauty of our business, we got a lot of insights into - we have such a good market presence that we do get that advanced insight and that’s what we are trying to balance with our portfolio and our investment strategy.

Right, and then just also a high level, but a little more on the portfolio. It seems like fundamentally the ship has stabilized and done you guys have done a lot of heavy lifting around restructuring. You know you are executing pretty well here, are you ready for kind of a more transformational kind of deal. You know or I guess just if not just comment a bit on the acquisition pipeline out there. Are you ready for something bigger?

You know I guess that question has always been asked, always been out there and my view has always been we are always ready for it. Maybe other than when I first joined Hubbell we were in the midst of SAP implementation that would have been ill advised. But after that, we have always been ready for it. There just hasn’t been the right opportunities that really would present themselves with the right strategic grip combined with the right valuation. But we've evaluated those numerous times over my career in Hubbell and we continue to do that.

Is rolling up a kind of the industrial electrical chain something that still you think add value? Or is that would you have to kind if pivot to a different strategy given the dynamic world out there with the changing technologies is kind of rolling up core electrical products still a, do you think is still an very effective strategy to drive value?

I would say that that's not as obvious as it might have been three to five years. There is still value in that, there is still a benefit. But I think there is also another dynamic to consider as an alternative which is some of the changing technology and are there places that would be more value creating if you're looking at more of the technology dynamics in the industry. So, from my stand point I think it's actually added more possibilities to that consideration.

Got it, okay. Thanks a lot.

Your next question comes from the line of Joseph Osha with JMP Securities. Your line is open. Please go ahead.

Hello there, good morning. I wanted to - and in fact the previous question touched on this a little bit. There are a couple of very large HVDC projects one going from Nevada coming out here to California and another one through TDA. As those things happen, could we reasonably expect you all to participate? And then I do have a follow-up?

Yes. I think you shouldn't - would assume that we'll be participating in projects sort of pro rata absolutely.

Okay, thank you. And then the second one, just the balance sheet question. It looks to me like this $98 million in commercial paper just showed up this quarter. What is the plan there? And as that going to stick around maybe to way refinance the $300 million? Or some color there would be helpful.

Our cash flow is back half weighted. And so if we are active in the beginning of the year and acquisitions as we were this year. And the cash is overseas as Maria had mentioned. That's what the CP mark there for us to be doing stuff like that. To have inflows are there, but you're right to point out we've got some bonds matured in 2018 and refinancing those at the opportune time what will be considering that.

So just to clarify, we should assume that that kind a stays as it is maybe to you make these bigger decisions next year?

No, I think as your question was are there seasonal cash flows that would nationally cause CP to have some balances in the first half and to be paid off in the second half. And the answer to that is yes. But that more permanent capital those tenure bond that Maria showed you there is two tranches. I think you should continue to think of those are being refinanced as they come due. And then to the extent we have acquisitions that get up to critical math and you would term out those financings as they came along.

Okay. Thank you very much.

And there are no further questions at this time.

All right, well thank you to all for joining us today and I know that Maria and Steve and Bill are around the rest of the day and tomorrow for any follow-up question you might have. So I look forward to seeing you over the course of the next 90 days in various events or at our third quarter call in October. Enjoy the rest of the summer.

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