Good morning. My name is Amanda, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the second quarter 2018 results conference call. [Operator Instructions] Thank you. Ms. Maria Lee, you may begin your conference.

Thanks, Amanda. 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 second quarter results for 2018 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 are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. In addition, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, and are included in the press release in the earnings slide materials. Now let me turn the call over to Dave.

Thanks, Maria. Good morning, everybody. Thanks for joining us. You can see from our press release that we had a strong quarter performance for Hubbell, and that’s obviously reflected in our results. It was just a couple of months ago at EPG, we said we remain confident in our ability to meet or exceed our expectations for the full year. And I’ll tell you, we’re even more confident today as you can see in the second quarter results and the guidance raised for the full year, which we’ll walk you through a bit later. Bottom line today is, we continue to feel good about the overall markets and our ability to deliver on our commitments. Before Bill gets into the details on our results, I just wanted to spend a few minutes on what we see at some of the really key takeaways from the second quarter performance. Starting on Page 3. First, our end markets continue to trend positively. Not only are all of our end markets growing, but they’re each growing at the high end of the range we’ve previously laid out. And we’re taking our overall end-market growth assumption upfront from 2% to 4% to 3% to 4%. Price material cost, in line with expectations. We continue to trend well overall. We certainly saw a little bit more headwind from material costs than previously anticipated, but that’s more than offset by the additional pricing actions, which we’re seeing good traction on in the marketplace. On Aclara, we continue to see strong execution in the largest acquisition on Hubbell’s history, with results trending ahead of expectations on better sales and integration performance. Our free cash flow was strong in the quarter and the good news is, we’re back on track for the year after a softer first quarter…

Thank you, Dave, and thank you, everybody, for taking time to join us. Hubbell’s performance in the second quarter was very strong, and the engine of that performance was the top line. You see sales of $1.17 billion, representing organic growth of 5%. That 5%, really, is coming from very constructive end-market backdrop, broad and consistent end markets contributing to that organic growth. In addition, we’ve successfully invested in inorganic growth as you see the acquisitions adding another 18% to our top line story. For OP, we executed very well. We saw 20 basis points of margin expansion to 14.4%, really using productivity and volume to help overcome the price cost headwinds that we are facing. And the outcome of that, margin expansion and sales growth is – earnings growth to $1.97, 38% increase from prior year. A very strong earnings performance there and all of that driving solid cash flow performance as well. And we’ll talk more about that and the importance of cash flow to executing our business strategy. So let’s start with the engine of this success, which is in the sales growth, I’m on Page 5. The 23%, obviously, largely driven by the acquisitions, but 5% from organic. And you’ll see a lot of green arrows there, very consistent and strong end-market support. We’re enjoying very supportive conditions here, obviously. In the non-res side, we first separate between public and private. The private non-res market, much more important to us and they’re still 10% below of the prior peak and in the seventh year of expansion. When you look at the leading indicators in terms of starts and momentum, it appears that there are continued growth out there for non-res. On Electrical Transmission & Distribution, both sides are strong. For Transmission, really small to midsized projects…

Okay. Thanks, Bill. On the capital structure, we ended the second quarter with $195 million of cash approximately 90% of which was held outside of the U.S. As for the decrease in cash from year-end, we repatriated about $210 million of international cash and used it to pay down debt, both commercial paper and some term loan. While CP looks like it’s been flat at $63 million for the 6-month period, it had actually increased pretty significantly in Q1 as the results of borrowings to fund the Aclara acquisition in February. So a lot of hard work from the team went into reducing that balance from the Q1 level. You can also see we started paying down the amortization of our $500 million prepayable term loan, which we issued in connection with the Aclara acquisition. We also have four tranches of long-term senior notes, all with rates in the low to mid-3s, and we have a $750 million credit facility that backs our commercial paper program and is fully available. Reducing our leverage is one of our capital allocation priorities. Our net debt to total capital is just under 50% and we remain on track to reduce our debt-to-EBITDA ratio by about 0.5 turn to approximately 2.7 times by year-end 2018. And with that, I’ll hand it back to Bill.

I think I’d also kind of comment more largely on capital allocation, as Maria mentioned. So we’ve been growing the CapEx, as I mentioned, at $47 million halfway through. We announced our dividend on Friday. We bought back about $10 million worth of shares in the quarter and anticipate doing more through the rest of the year. Maria mentioned some debt paydown and I think we got the balance sheet here poised to be able to invest in small acquisitions as well. So all of that cash flow and the state of this balance sheet, I think, are very supportive of us continuing our capital allocation strategy to support the profitable growth of the business. Page 13. Dave highlighted the end-market outlook and the fact that, essentially, each of our markets was performing closer to the top end of the range rather than the midpoint. So what we’ve done here is essentially raise the bottom point. So starting at noon, Transmission & Distribution was previously at 2% to 4%, we’re raising that to 3% to 4% here. Resi was 2% to 4%. We’re actually seeing positive performance there, so we raised that 5% to 6%. Non-res was formerly at 1% to 3%, raising that to 2% to 3%. Industrial was 2% to 4%, raising that to 3% to 4%. Oil and gas was 5% to 7%, raising to 6% to 7%. So the effect of raising effectively all of those bottom ends takes the end-market growth expected for the year from 2% to 4% up to 3% to 4%. So again, not necessarily acceleration that we’re seeing in the second half, but a recognition of strength that we experienced in the first half that we see, really, carrying through. So on Page 14, we wanted to revisit the price material…

All right. Great. Thanks, Bill. Yes, so maybe I’ll just highlight how we see the remainder of the year on Page 15. Obviously, with the end-market growth uptick that Bill went through as well as the performance of Aclara to date, we’re taking up the low end of our sales growth. It was 15% to 20%. We think it’s more of 18% to 20%. Still some new product development driving some modest market outperformance in there, but the big drivers are clearly acquisitions, specifically Aclara, and the better end markets. As I mentioned earlier, we’re raising and tightening the EPS range. Diluted EPS of $6.25 to $6.55, and adjusted EPS of $7.05 to $7.35. We’re raising the bottom on the adjusted by $0.10 as we go through the year. A lot attributing to that. The improved operational performance, for sure. As Bill mentioned, we’ve got the impact of 232 and 301 List 1 and 2, and List 3 is early. But I think everyone – I can assure you that the whole team is focused on the actions necessary to mitigate that. I can tell you from my recent industry experience in Washington, I think there’s still a view that not all of this will ultimately survive, but we can operate on that uncertainty. We’re operating on the basis that it’s here, it’s going to continue and we need to operate accordingly to do what’s necessary to mitigate it. So that’s how we’re working on it. And obviously, free cash flow, greater than net income. I think the second quarter, certainly, demonstrates that we can do that with the disciplined attention and getting through some of the – getting passed some of the noise from the first quarter that we’re dealing with. So if you turn to Page 16, this…

[Operator Instructions] Your first question comes from Christopher Glynn with Oppenheimer.

Thanks, good morning congratulations on Electrical margins there.

Thanks Chris.

On Electrical, I think long-term seasonality, 2Q to 3Q, there’s usually some seasonal lift. It wasn’t exactly the case the last couple of years. Is there any reason that notion of seasonality doesn’t stick – hold as the base case for this year with the better macro fundamentals?

No. I think, Chris, we would anticipate typical seasonality.

Okay. And anything on Electrical book-to-bill on second quarter?

In the second quarter? I mean, I think all of our businesses were book-to-bill over one. So I think we saw strength in the second quarter.

Okay. And on Lighting, a couple of quick ones. Any early indications of the price increases by all the majors that were announced starting to stick? And then secondly, I think the trade groups are working on making headway versus the offshores and the seemingly accepted assumption that the dynamic that’s taken place with that demographic is tantamount to product dumping.

Yes. So let’s start with your pricing question. I think it’s maybe a little too early to really see things, but we had about a point of drag. And that’s a little bit better than what we have been doing and – but was kind of in line with expectations, and so I think it’s still a little too early to tell. And I’m not sure, Dave, if we have much comment on the concept of dumping or not.

No. But I think that Bill made reference to particularly on List 2, big impact on List 2 is around Lighting products. And so I think that, that’s one of the areas that, in absolute terms, there could be a cost associated with it. But then there could be a competitive advantage because that would effectively, if in fact, there is evidence of, as you referred to dumping, then you would make the pricing more cost-competitive, make the U.S. manufacturers at least on even par. So that remains to be seen how that plays out, Chris. There’s a lot more to go on that, but that’s where I think a lot of that is going.

Okay. And I figured to sneak in one more for Aclara. Obviously, pretty exceptional growth this year. How do we think about that as you pivot to 2019? The run rates kind of – does that have to take kind of a pause here or is the backlog and the pipeline suggesting otherwise?

Well, certainly, the backlog and the pipeline is still solid. I mean, we’ve talked about $1 billion backlog, more importantly, a $3 billion qualified pipeline. And that pipeline continues to be significant and we continue to get our fair share of that pipeline. So I think it bodes well for continued strong performance, the magnitude of year-over-year improvement. It is only July, so.

Okay thank you.

Okay.

Your next question comes from Rich Kwas with Wells Fargo Securities. Richard Michael

On Lighting, just back on that. So in terms of the stuff that would be affected, my understanding is it would be the lower cost of stuff where the Chinese imports have really made some, hey, residential stock inflow like commercial. What percentage of the production you do is sourced from China or Asia versus what’s done in Mexico or on the continent? Is there a way to think about that, because that’s kind.

Yes. Our supply chain for Lighting, broadly speaking for residential, has a lot – a large percentage coming in from China. In terms of the Commercial and Industrial business, some of the componentry does, but really the manufacturing is done in Mexico and U.S. And so we want to keep analyzing List three, Rich, and try to really understand its impact before giving out too many of those pieces, I think.

But it would be fair to think that you would have capacity that you could utilize here to bring it back in-house if you have to bring it back in-house if you have to bring it back to the continent, right, some of the residential stuff?

Yes. If you’re saying is supply chain realignment an available lever, we would say that, that’s something we’re evaluating, yes.

Okay. All right. And then on Power, so the margin on the legacy business was a little bit better in first quarter year- over-year, but how should we think about the second half of the year? I mean, you indicated it’s going to be better, but how – in the context of being price cost positive exiting for the entire company, it sounds like – how should we think about Lighting and Power?

Yes. So Power, with that red and blue chart where we showed price cost, it shows the second half as having the price larger than the material costs. With Power, that’s really going to take until the fourth quarter for that traction to catch up, Rich. So I still think there’s going to be, in the third quarter, a little bit of the price cost headwind still within Power even though with Electrical you’ll see that flipping.

So – but so negative in third quarter for Power, and then should we think of it neutral by the fourth quarter?

Yes.

Okay. And then last one, Bill, on tax rate. What’s the updated guide you have for tax rate for the year? Is it still 24% to 26%? And then, now, you’ve had six months to look at tax reform?

Yes. I think 24% probably is feeling more in the range now that we’ve got the first half in our – in the barn here. So there will still be puts and takes, obviously, but I think 24% is a good expectation for us.

And then longer term, any thoughts on opportunity to bring that down further?

Yes. We sort of we’re happy with the first 600 basis point move. But yes, we’ll keep looking for opportunities.

Okay. Real quick, just in Lighting. Did you say Lighting – was Lighting revenue flat year-over-year? You said something about volume and price, I just want to clear that.

Yes. The volume was modestly positive and the price was one point negative. And so you had basically flat sales for us for Lighting, but we did much better on the profit side of that. So that equation, I think, it’s better for us to be not maxing out on volume and instead being focused on where we can get the most constructive price

Okay thanks.

And your next question comes from Steve Tusa with JPMorgan.

Hey guys good morning.

Good morning Steve.

So just on the free cash flow. Anything abnormal seasonally here as we think about it through the rest of the year or what happened here in the first half?

Yes. I’d say, the first half, the abnormality really was some outflows related to tax reform in the first quarter and paying some Aclara transaction costs. So I’d say, we were burdened by maybe $25 million of sort of onetimers. But for us, the seasonality of cash flow when you cut it by quarter, we have a very strong back end and the intention in a lot of that around collecting receivables at the end of the year and managing inventories down after the sales peak in Q3, and so this is shaping up, Steve. And it feels similarly so we’re talking target-wise of getting to $500 million of operating cash flow and 100-ish or so of CapEx. To get – those targets, we feel, are seasonally supported by where we are, but it was important for us to have the strong second quarter to get there.

So I guess, I’m just kind of like doing the math and I guess everybody does seasonal math differently using a certain amount of time. But it’s just simple, back of the envelope gets me higher than $365 million you talked about at EPG. Am I doing the right math on that?

Yes I think so.

I’m getting somewhere in the $380 million to $3.90-ish million range. Is that about right for this year?

I think that’s right, Steve. I think that’s right.

That’s well on the way to 500 plus, I guess. Plus does actually mean something here, that’s good to hear. And then just lastly on the T&D side, what specifically is kind of happening there? Is that just some of this pent- up pipeline coming through and anything in particular driving that?

Yes. I think on the transmission side, these small and medium-sized projects, which is really good business for us. I think our brand is very well set up to support our customers doing that. And I think on the D side, it’s much more – there has been some construction supported by some decent weather. But a lot of it is kind of O&M and system hardening seems to be the word of the day to kind of strengthen those last mile networks. But for us to be growing kind of 5% organic is a very healthy for T&D, as you know, so that’s good news.

Yes absolutely great cash flow and looking forward, thanks.

And your next question comes from Jeffrey Sprague with Vertical Research Partners.

Good morning. Just picking up on T& D, obviously, you’re saying you’re benefiting from good weather getting some work done. How do you think about the hurricane comps and the like? I mean assuming kind of a normal storm season, it seems that you feel like you can kind of just power right through those comps and grow nicely, just based on what you’re seeing in the pipeline. Is that correct?

Yes. I assumed there’s no pun intended there, but I do think that you’re saying it the same way we’re looking at it. We’ll power through based on – but you’re right, there is some headwind from some big volume comps last year. But certainly, the way we’re analyzing backlog and looking at it. We’ll power through based on – but you’re right, there is some headwind from some big volume comps last year. But certainly, the way we’re analyzing backlog and looking at some of the pent-up demand, you would power through those comps.

And I think also on Power, you were suggesting there was just more customer resistance to price than you were seeing in your Electrical businesses. And I mean, I guess, they’re still resisting, but you’re finding a way to overcome that. Or has something changed in the market, perhaps more of these investments going into CapEx sort of OpEx, for example, and anything like that that would kind of make it easier to get prices we’re looking forward.

No. I think one of the things, Jeff, from certainly the first quarter is the material cost headwind being more broad-based across – and affecting all the participants in the industry, so it just became commonplace. I think, early on, there were some participants who thought they might be able to hold price and gain share, and I think that lasted about two weeks until the reality of that material cost headwind hit. And then all of the sudden it was okay. We – I mean, we’re all in this. And I think that’s true for us, for all of industry. But I think the utility side, early on, had a little bit more resistance, as you call it. I talked about some people wanting their benefit from tax reform and all kinds of other interesting ideas. But I think the demand is out there, the reality of these cost headwinds is out there and so it’s been – I’m cautious to say this because Gerben would kill, but it has been a little easier, all right. To get it then, we certainly felt 90 days ago. So...

Right.

Right. And perhaps you could elaborate a little bit on what the impressive margin execution in Lighting meant in terms of year-over-year improvement or sequential improvement or kind of how you’re run rating in that business?

Yes. Just last year, around this time, we’re kind of dealing with some cost inefficiencies as they were spending – as they were spending a lot and that certainly caught up with our operating performance, service, et cetera. And that’s all been remediated, corrected itself and we’re sort of operating at what feels to us very sustainable and predictable cost rates that have benefited now from those restructuring actions. So the margin expansion was attractive in Lighting and very welcome to come back.

And then just one last one for me, just the actual underlying margin performance at Aclara itself. Just trying to kind of pick apart all these price costs and mix issues and everything – how is Aclara underlying margin execution actually playing here?

Yes. So they – we were talking on Steve’s question about seasonality. Aclara, we anticipate we’ll have similar seasonality to Hubbell namely, very strong third quarter and better second half in terms of margin performance. We’re anticipating, for the year, that they’re doing sort of and towards the mid-teens of EBITDA for the year. For the second quarter, they were helping us with double digits of OP. And of the $0.54 that we added at earnings per share, Jeff, Aclara, net of the interest expense that we took on contributed $0.11 of that $0.54. So their margins are lower than Power’s, but a good contributor to our growth and our earnings.

Great. Thank you.

And your next question comes from Nigel Coe with Wolfe Research.

Thanks, good morning. So just wanted to kind of like latch on to Jeff’s question on Aclara there. So if I understood the answer correctly, $0.11 of the EPS growth came from Aclara. I think you’ve got $0.50 in the full year guidance. So just maybe just talk about how you feel about that $0.50 which is unchanged from last quarter, about that $0.50 for the full year. How much more confident you feel in that number?

Yes. I think now we’ve got really five operating months under our belt, Nigel, and that feels better. So I think one of the drivers for them, we’ve talked about how good their volumes are. That’s been skewed, as David mentioned, to meters. If I were being a real picky, I’d rather have that volume be skewed to comps from a margin perspective. But given that underlying strength, we feel good about what they’ll give us for the year.

Okay. And what was the overall organic growth for Aclara in the quarter?

Well, we don’t have – we didn’t own it last year, so it’s not contributing anything but in that 18% of incremental acquisition growth. But compared to it, prior to our ownership, they had double-digit growth for the quarter.

Right. Right. Okay. Great. And then switching to industrial and obviously, it took up the low end of your year full year guidance for Industrial by one point. I think you said high single-digit growth for the Industrial for the – for second quarter. So it implies a little bit of a giveback, a little bit of – quite a lot of deceleration in the back half of the year. Is that conservatism? I mean I had a sense of accomplishment, did you really think that would lead to that?

Sorry. The mid – the high single-digit comment was to heavy industrial. So the light industrial, which is a higher portion of total industrial, is smaller. So I do think that, that heavy industrial piece is margin-rich for us, so we kind of watch it even though it’s a small percentage. But for us, this is a nice solid recovery out of 2015, 2016, first quarter 2017 of how industrial was performing. So we’re very pleased to see it doing what it’s doing.

Okay. And just one quick – just a quick one on light industrial. Any possible weakness in that light industrial bucket? And I ask the question that we have some weakness in food and beverage, for example, any possible weakness you’d put out there?

We’ve been not seeing that. So for us – and I think we have a pretty broad cross-section there, but I’d say it’s been growing just fine from our perspective.

Okay. Thanks a lot.

And your final question comes from Joseph Osha with JMP Securities.

Hey, Maria, good morning. Just to drill down on Aclara, again, a little bit. If I look at what’s implied by the year-on-year inorganic number, it would appear to imply that this business is a good deal bigger than that $500 million run rate that you talked about last December. Can you maybe help me a little bit to understand what sort of run rate I should be thinking about? And then, secondly, I am hearing from a couple of the other metering companies that certain components, especially passive components, are really, really hard to get. And I’m wondering how that might be impacting that business, especially on the Electrical side? Thanks.

Yes. So starting on the top line, doing $500 million last year with double-digit growth, should get you $550 million or better this year. So that’s straightforward. I think on the component side, we are seeing the same thing and it’s lengthening out lead times, for sure. And it’s made vendor relations important, it’s made forecasting important and managing inventory in anticipation of demand has all become more important skills. But we have seen those components impacting lead time on the supply side, for sure.

Okay. And so the $550 million then, would that imply that the business weakened seasonally in the second half of the year or is my math off on Aclara?

Yes. We’re anticipating a strong third quarter. So we’ll have to check the math offline. It’s not

We can follow up.

Alright, thanks very much.

And now I’d like to turn it back over to Ms. Maria Lee for any final closing comments.

All right. Thanks, everyone, for joining us and the IR team will be available for questions.

Thank you. That does conclude today’s call. You may now disconnect.