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Edited Transcript of HUBB earnings conference call or presentation 29-Oct-19 2:00pm GMT

Q3 2019 Hubbell Inc Earnings Call

SHELTON Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Hubbell Inc earnings conference call or presentation Tuesday, October 29, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Joseph Innamorato

Hubbell Incorporated - Director of IR

* David G. Nord

Hubbell Incorporated - Chairman & CEO

* William R. Sperry

Hubbell Incorporated - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Charles Stephen Tusa

JP Morgan Chase & Co, Research Division - MD

* Christopher D. Glynn

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Deepa Bhargavi Narasimhapuram Raghavan

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Justin Laurence Bergner

G. Research, LLC - VP

* Michael Gary Metz

Wolfe Research, LLC - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2019 results call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Dan Innamorato. Please go ahead, sir.

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Daniel Joseph Innamorato, Hubbell Incorporated - Director of IR [2]

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Thanks, J.P. Good morning, everyone, and thank you for joining us. I'm joined today by our Chairman and CEO, Dave Nord; and our Executive Vice President and CFO, Bill Sperry. Hubbell announced its third quarter results for 2019 this morning. The press release and slides are posted to the Investor 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 and the slides.

Now let me turn the call over to Dave.

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David G. Nord, Hubbell Incorporated - Chairman & CEO [3]

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Thanks, Dan. Good morning, everybody, and thanks for joining us, just to discuss our third quarter results. Hopefully, you can see from our press release this morning, another quarter of solid earnings growth and free cash flow generation for Hubbell. We continue to feel confident about our market position and our ability to deliver differentiated results for investors.

I want to start my comments on Page 3 of the presentation, some of the key takeaways for the quarter. Now first, the end markets are growing modestly overall. You can see that Transmission & Distribution continues to stand out as driving strong growth, both top and bottom line. And that's driven by our ongoing investment at our large utility customers and hardening and upgrading the grid. On the Electrical side, things are a bit more mixed with some pockets of growth offset by some softness in certain markets. I'll talk about that in a couple of slides.

On the margin front, we remain effective in actively managing price/cost across the portfolio, which is driving margin expansion. You'll see a 30 basis point improvement on an adjusted basis, year-over-year. Free cash flow remains a critical aspect of our story, and we're tracking above prior expectations driven by continued working capital improvement. We continue to invest restructuring dollars in our footprint optimization initiative with more to come in the fourth quarter and into next year.

Putting a lot of work organizationally into improving our operating intensity. It's paying early dividends with strong cash flow generation, and we see these efforts driving significant upside to margins over the next few years.

See, we also completed the divestiture of the Haefely high-voltage test business in the quarter, and recognized the gain that we have adjusted out of results. And also a recent agreement for a bolt-on acquisition for our Power segment. We think these transactions add value for our shareholders, and we're exiting a noncore business with lower return characteristics and redeployed the capital to acquire a higher-margin business in an attractive adjacency, and we'll walk through the details later.

Finally, our strong year-to-date results position us well to tighten our full year earnings per share expectations. We're certainly incrementally more cautious around top line trends, particularly the Electrical business, than we were a quarter ago. But we have solid visibility into continued strength in our Power business in the fourth quarter, and we're executing well on margins across the portfolio. It gives us confidence to tighten our full year commitments, and we remain confident in our ability to deliver on them.

Before I turn it over to Bill, let me just highlight a couple of key accomplishments as well in the quarter. First on the Aclara front. They launched a pilot program for its synergized RF communications and controls platform with a large electric IOU customer and was also chosen for an AMI deployment with one of its largest co-op customers. This is laying critical groundwork and demonstrating proof points on the scalability of Aclara's AMI platform as well as the synergies between Aclara and Hubbell and our unique breadth of product offerings across the distribution automation space, key elements of the strategic basis for that acquisition.

BURNDY released the tin zinc plating solution for its compression terminal line, which is more environmentally friendly and safer solution with improved corrosion protection. Lighting won a product innovation award from the Architectural Solid State Lighting magazine for best retrofit for their lighting design for the Duke Ellington School of Arts in Washington, D.C. It's the fourth consecutive year Hubbell Lighting's won this award. They also had 4 products included in the IES annual progress report for their innovation and unique product attributes. All good testimony to their investment in new product development.

And on the electrical side of Commercial and Industrial, they delivered their largest single order for bridge controls ever in August. Industrial controls division has become a safe and reliable supplier of choice to replace the U.S.'s aging lift bridge population.

Organizationally, we had different changes during the course of the year. Most recently we had a leadership change in Lighting as a previous leader has taken on a new opportunity outside Hubbell. We named Jim Farrell as the acting Group President of Hubbell Lighting. Many of you know Jim from his experience as -- in Investor Relations. He's got over 15 years' experience at Hubbell, and he has been at Lighting, you recall, as the VP of Finance for several years and has been instrumental in a lot of the activity there in improving their performance.

We're excited to have Jim continue executing on our strategy and wish him well in this new role. With that, let me turn it over to Bill.

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [4]

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Thanks very much, Dave. Good morning, everybody. I appreciate you joining us. I know it's a busy morning. Like Dave, I'm going to use the slides to govern some of my comments. I'm going to start on Page 4, the overall results.

You'll see that we generated $1.2 billion of sales in the quarter, 2% growth. Considering the divestiture that Dave mentioned, organic growth was up 3%.

Operating margins expanded 30 basis points to 15.8%. That was absorbing some extra investment in footprint restructuring. It was really driven by a very solid performance on the price/cost side. Adjusted EPS of $2.34. As Dave mentioned, reported results have the gain on sale, which we've adjusted out to help facilitate your ongoing comparisons of operating results. And for free cash flow, $151 million generated, which has a year-to-date increase for the 9-month period of 16% on cash flow.

So let's look at sales and disaggregate that into how each of our end markets is contributing to our 3% organic story. We can see some bifurcation on the page with some strong areas and some other areas of softness. Let's start with the strengths. Starting with nonres and new construction. We continue to see low single-digit performance there. Our commercial construction and roughed-in electrical areas are benefiting from that. And as Dave mentioned, utility-facing markets are really the most noteworthy. I am including gas in there. As you all recall, we're in the distribution components business there. So utility-facing area, where conversions to gas have been increasing, and the MRO spends, upgrade and strengthening infrastructure, continues to drive impressive growth there as well as across transmission and distribution of the Electrical side. We're seeing grid hardening and projects on the transmission side, including renewables.

So very favorable trends in utility. On the softer side, upstream oil continues to be an area of softness. In our Lighting business there, relight in national account area has experienced softness. Those are proving to be discretionary projects, more nice to have and we have seen some deferral of that spending. And then heavy industrial, where we have quite a bit of exposure into the steel industry, for example, where in sympathy with steel prices, we're seeing some spending by the producers coming down there. So the good diversification across that portfolio of end markets delivered us 3% organic growth, helped by some strong pricing.

So let's -- how do sales translate down into operating income? Remember, 2% sales growth, now you see here 4% OP growth to $190 million of adjusted operating income, a 30 basis point margin expansion to 15.8%. That's absorbing the extra investment in footprint restructuring driven by the price/cost management, which has been very constructive really all year. On the earnings per diluted share, $2.34. The increase in OP you see on the left being absorbed by higher tax rate. That tax rate is quite in line with our expectations this year, around 23% on an adjusted ETR rate. Last year happened to be sub-20%, I'd say unnaturally low as we had some favorable true-ups for tax reform in the third quarter of last year.

So let's take that enterprise performance and unpack it into our 2 segments, Electrical and Power. And starting on Page 7, we'll cover Electrical. You see sales of $689 million, roughly comparable to last year. Considering the divestiture, organic growth of plus 1%. Some of the strong areas, gas, as we mentioned; nonres construction, both the connector side and commercial construction products benefiting from that. You see industrial and the national account side of Lighting being weaker. And as that translated into operating income, you see $96 million, a 13.9% margin. Two decisions we made in the quarter: one to invest in the footprint restructuring; the other, the divestiture, drove down those margins. Had we not done those 2, the price/cost positives would have offset the lower Lighting volumes to have margins be flat in Electrical for the quarter.

On Page 8, we'll transition to the Power segment, which you see had a really nice performance in the quarter. Net sales grew 5% to $515 million. That's essentially all our legacy Hubbell Power Systems products, which grew high single digits. Aclara had flat contribution on the sales line. They've got some natural lumpiness as they live off of large project orders, and as some roll off, the new ones roll on in different time periods. We've got a very nice pipeline of projects in front of Aclara, and their growth for the year is going to be solid in the mid-single digits despite a flat quarter.

The operating income for Power segment, you see $95 million, up 160 basis points to 18.4%. You are seeing both strong volume and good price/cost. So really attractive incremental drop-through on the volumes there.

On Page 9, we wanted to give you an update on our operations, starting with the footprint work that we're doing that we have spent a lot of time talking to you all about. Just to level set, remind everyone, we had started the year with 58 manufacturing facilities and about 11 million square feet. We've got 10 projects underway that will take about 0.5 million of the square feet out this year. Those projects are all going well. We think we've got some good ones right now. And in one case, we're consolidating 2 foundries into a big 24/7 operation, moving out of a high-cost Northeast location into Puerto Rico. And another couple of regional consolidations: one in our Harsh & Hazardous business, one in gas distribution.

So those projects are all proceeding, and we're happy with them. We've been talking to you about $0.40 of spending in this year to improve our margins next year. As we enter the fourth quarter here, it turns out some of our cost estimates were a little bit conservative and some of those costs are coming in a little bit under budget, and we're going to reinvest that into incremental productivity actions in the fourth quarter and help deal with some of the Electrical volume softness Dave was talking about.

We've indicated sales per square foot at the bottom of the page and the target of improving that by 20%. We've improved 20% from '17 to '19, so we want to keep that momentum going as we go from '18 -- 2018 to 2020. And of note, we think those footprint actions are really helpful, 2 important free cash flow levers, which is a high area of focus for us. Number one, we're taking out fixed cost, and that allows us to enhance margins and increase our income. But secondly, the fewer facilities and more efficient operations are allowing us to reduce inventory days. And with less working capital, that's also helping us drive free cash flow. So we're really looking to have free cash flow outstrip our earnings growth, and you'll see 16% year-to-date. We're trying to get to -- you recall last year, we did $420 million. Trying to get next year, 2020, to the $500 million that we promised you. So the $460 million will be about halfway, which would be about 105% conversion rate on adjusted net income, and we think we got a path to get there. So operations really helping us drive free cash flow.

Also wanted to comment a little bit on the portfolio actions that Dave mentioned at the outset. Starting with divestiture of Haefely, our high-voltage test equipment business based in Switzerland. As you may recall, they made large impulse generators and transformer test systems. And we found that, that business was noncore with what we were trying for. They had atypical project sizes, which are large systems, different than the rest of the company. The drivers of the business tended to be electrification in developing economies as well as transformer technology changes. We found it to be a cyclical business and had been in a trough for an extended period of time. And so we found an opportunity where we think the business was more valuable to another player. And we're going to take the proceeds from that, which were $38 million, redeploy that into our next acquisition, which is in the Power Systems arena. It's a business that protects substation assets with tight-fitting components that are fire resistant. It's got a high-margin, high-growth profile. And so for balance sheet neutral, just redeploying those proceeds, we think that's a good portfolio move to make. That acquisition's been signed, but subject to customary closing conditions, and so we're expecting either in late fourth quarter or early first quarter to close that. I'd say also on the business development front, we've got a potential other acquisition that could close in the fourth quarter. Those are often hard to predict, but wanted to just highlight that we're reinvesting in acquisitions as our balance sheet is very supportive of that. So with that, I want to hand it back to Dave to talk about outlook for our markets and outlook for the rest of the year.

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David G. Nord, Hubbell Incorporated - Chairman & CEO [5]

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Okay. Thanks, Bill. Turning to Page 11, let's talk about the end markets first, and then outlook. As we've talked about this morning, we're seeing some mixed end-market trends with some puts and takes across the portfolio. On net, I think end markets are trending a bit below our prior expectations at closer to 2% versus 2% to 3%. And as a result, we've tweaked down our growth expectations across a few of our Electrical end markets. But again, we're once again seeing stronger growth in the full year in Transmission & Distribution. Going around, starting clockwise, the Electrical Transmission & Distribution is now, we think, 4% to 5%, it was 3% to 5% prior, closing in closer to the high end on better visibility.

The nonresidential still 1% to 3%. We talked about the softness in Lighting, particularly on national accounts. But core nonres, we think it's still solid.

Industrial now 0% to 1% versus the 1% to 3% prior. And that's driven by softening mostly on the heavy industrial side, steel and heavy industries. The light is still holding okay.

Oil and gas now 0% to 1% versus 1% to 3% prior. Oil markets, I think most people know, haven't been recovering. Rig counts down, and so you've seen that, we're taking that down a bit.

And then residential, 0% to 1% versus 0% to 2% prior. We continue to expect modest growth, but a little more modest than prior. So if we turn the page and pull that together for our overall outlook. That market dynamic plus price, we expect sales growth of 3% to 3.5% for the full year. As we talked about in the prior slide, this embeds this modest end market growth, but we expect to continue to achieve solid traction on price. The wrap-around of Aclara and the impact of the Haefely divestiture adds about 1 point on net, and then we think that foreign exchange would be a headwind of little less than 1 point.

We're tightening our full year adjusted EPS expectation to $7.95 to $8.10 based on our strong year-to-date results and the expectations for continued execution in the fourth quarter against what we anticipate will be somewhat softer market conditions, at least in the Electrical segment. And we're raising our expectations for full year free cash flow conversion to more than 100% of adjusted net income based on our results through 9 months and what we see in the fourth quarter.

We feel good about our ability to continue executing on our working capital initiatives and generating good cash for shareholders. So if we turn to Page 13, we put this in a little bit of a graphical form. So we expect strong growth from core operations with some, what I call, nonfundamental headwinds from incremental R&R investment, and a higher tax rate that Bill talked about. So in closing, I think we all start to think about and talk about next year, 2020, and we're certainly committed to continuing to execute on the fundamental drivers within our control.

We continue to actively and effectively manage price/cost and will start reap some of the cost saving benefits from the restructuring actions we've taken this year. We expect to invest another $0.40 in restructuring spend next year, and continue delivering significant cost savings and margin improvement over a multiyear period. As far as markets, we continue -- we see continued runway in our T&D markets with all the fundamental drivers around grid hardening and modernization still intact. Maybe we'll have a potentially more moderating growth and as we have more some difficult comps, but still certainly continuing to grow. On the Electrical side, things are little more uncertain with some puts and takes across the end markets, but we remain focused on executing, again, on the fundamental drivers within our control. And we're confident in our ability to deliver differentiated results regardless of the macroeconomic, while continuing to position the company for long-term success.

So with that, let me open it up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Christopher Glynn of Oppenheimer.

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Christopher D. Glynn, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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Dave, was just wondering a little bit more on the Power fundamentals. You mentioned grid hardening and modernization. From a couple other perspectives, wondering how much runway you are seeing with respect to maybe utility CapEx fundamentally shifting from Power-Gen to T&D. And also besides that, is California starting to come into play prospectively?

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David G. Nord, Hubbell Incorporated - Chairman & CEO [3]

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Well, I think on the first part, I mean, I think that the shift from Power-Gen to T&D has been a contributing factor, and we expect that dynamic to continue. And that all is part of modernization, grid hardening, smart in the grid. On the second, on California, certainly, there has been increased investment, increased intention -- attention to the need to focus on more reliability of the grid throughout California. Certainly, in the northern parts, and we're seeing some of the implications of that right now with the need to shut down power to protect. And so we expect that to continue, although that's only been part of the story for us. I think it's the broader shift into T&D from Power-Gen that's contributed. Okay?

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Christopher D. Glynn, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [4]

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Okay. And then on your acquisition pipeline, just wondering if that's skewing more Power or Electrical.

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [5]

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Yes. We're seeing opportunities, Chris, in both. If you looked backwards, we've had a skew towards Power over the last 5 years or so, but as we look forward, we're seeing opportunities in both segments.

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Operator [6]

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Your next question comes from the line of Deepa Raghavan of Wells Fargo.

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Deepa Bhargavi Narasimhapuram Raghavan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [7]

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Couple of questions for me. First one, did you benefit from storm activity this quarter? If yes, can you quantify that for us? I was also thinking on Aclara coming in flat. Is that something -- what you'd expected? Or was that slightly below what you are expecting?

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David G. Nord, Hubbell Incorporated - Chairman & CEO [8]

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Well, first on the storms, there was no meaningful incremental impact. I mean it's more of a normal level of storm activity that we saw. So nothing that was positive year-over-year. On the Aclara side, I think it was a little less than we expected, but remember that last year, we had some very significant growth, high-double digit, high -- 20%-plus in some of the periods. And so the comps got a little tougher this year. I think there's also some projects that have pushed out a little bit to the right. So -- but there's a whole lot of order activity that we expect to be coming online, certainly in the next several quarters.

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Deepa Bhargavi Narasimhapuram Raghavan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [9]

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Got it. My follow-up is on Lighting. Can you provide us your general thoughts on Cooper Lighting sale to Signify and what this perhaps could mean to Lighting assets such as yours? If you can help us parse some of the competitive merits or demerits, that will be helpful. Secondarily, how are you thinking about your time line to fill in the Lighting vacancy?

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David G. Nord, Hubbell Incorporated - Chairman & CEO [10]

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Well, I think the merits and pros and cons of Cooper/Signify would have to be addressed by them. They are the ones doing it. As we look at -- from my history in the market, I think there's been a lot of churn throughout my 14 years. And it's not clear that all of it has resulted in the positive impacts that are intended. It's a tricky industry. I think there's dynamic that sometimes suggests that, in some places, bigger isn't always better unless executed well. So with any large transaction like that, I'll put that in the category of large, I think it's all about the execution. We feel very good about our position, our position in the market, our position with our technology and product development. So -- but it's always -- we're always paying attention to what's going on from a competitive situation. So hopefully that answers the first question. The second question around the time line, there's no time line that I can commit to. I mean we evaluate candidates, internal candidates as well as Jim is in position, and we expect he is going to be doing a great job. So I don't think we're going to miss a beat as we're going through this process. Okay?

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Operator [11]

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(Operator Instructions) Your next question comes from the line of Josh Pokrzywinski of Morgan Stanley.

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [12]

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Josh, we can't hear you if you're -- you may be on mute.

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Daniel Joseph Innamorato, Hubbell Incorporated - Director of IR [13]

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We'll just take the next question, operator.

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Operator [14]

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Your next question comes from the line of Nigel Coe of Wolfe Research.

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Michael Gary Metz, Wolfe Research, LLC - Analyst [15]

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This is Michael in for Nigel. So just touching up on the implied 4Q guidance. Can you talk about some of the moving pieces inside the segments? Just looking at normal seasonality, it seems like a bigger drop-off than usual. I'm just kind of wanting to know what your thinking is that's driving that.

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [16]

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Yes. I think one of the pieces is the pricing and how that layered in over last year. And as we get to fourth quarter, we're anniversarying some of those increases, and so you kind of lose the lift that comes from that. And then on the Lighting side, we are anticipating some of that. We were down mid-single digits in the third quarter, so we're anticipating some of that continuing into the fourth. And then strength in the rest of the Electrical and certainly, as Dave was saying, continued strength in the Power side.

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Michael Gary Metz, Wolfe Research, LLC - Analyst [17]

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Got you. That's very helpful. And then on Aclara, just looking at the backlog, does that provide more clarity and visibility into 2020? Or were customers hesitant to spend in the quarter and that got pushed out to the right?

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [18]

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Yes. No, I think we've got 2 concepts, right? A backlog, which is even nearer term, and then a pipeline. And we're finding there's even a little bit of gray in between those as part of the pipeline starts to become very close to backlog, and that's where we start to see some 2020 volumes coming in. So there does -- it is lumpy by its nature of kind of large customers putting in large orders. And so you do -- if your question is, is there visibility to that, there is, and we feel confident about the forward look there.

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Michael Gary Metz, Wolfe Research, LLC - Analyst [19]

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Okay. That makes sense. And if I've time for one more, just speaking of the kind of sell-in to sell-out, what are you guys hearing from channel inventory levels from your customers and the inventory drawdown from customers that we saw earlier this year? Is your perspective that that's mostly over? Do you expect it to continue into the back -- the end of the year?

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David G. Nord, Hubbell Incorporated - Chairman & CEO [20]

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I would say that the meaningful amount of it is over. I think there are certain customers that we've heard are still working off some of their inventory. But we're not expecting that to have a significant impact, although you'll find some -- at least we have found some distributors who still have some inventory to work off. But the vast majority, I think, have gotten to the level that they want to be at.

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Operator [21]

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Your next question comes from the line of Justin Bergner of G. Research.

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Justin Laurence Bergner, G. Research, LLC - VP [22]

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First off, I want to ask about Power margins. They remained very strong in the quarter, I guess they were even up a little sequentially. How sustainable is that? I know you have seasonality and some timing of price/cost, but did that sort of exceed your expectations? And what can we expect going forward?

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [23]

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Yes. I think it was -- it did not exceed our expectations. We had both volume at the legacy Power Systems products, which those drop-through with attractive incrementals. We also had price/cost favorability. Continuing that price/cost favorability I think is the essence of your question, where that will start to flatten out. Some of the pricing comps, for example, in fourth quarter get harder. That probably is offset by maybe easier raw material comps and then how that plays into next year. We're sort of hoping we can hold onto some of that benefit, but hard to have the same, as you noted, sequential quarter-over-quarter kind of walk. I think the other driver, ultimately, of Power margins will be from within Aclara. And as the previous question, talking about some of that project pipeline and the more AMI kind of richness that can come through. And Dave highlighted in his opening comments, some of the AMI advancements on some piloting within IOUs as well as some larger deployments inside of the co-op world start to suggest as that margin richness comes, that would help power margins as well.

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Justin Laurence Bergner, G. Research, LLC - VP [24]

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Great. One clarification question, if I may? In terms of your revised guidance, are you absorbing some additional headwinds in terms of either tax restructuring or divestiture?

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [25]

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Yes. So the tax is the same as we've thought. The restructuring is the same as we thought, and we are absorbing the lost OP of our divestiture. Yes.

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Justin Laurence Bergner, G. Research, LLC - VP [26]

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Is that like $0.05 or something in the order of that?

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [27]

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Yes. That's a good ballpark.

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Operator [28]

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

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Charles Stephen Tusa, JP Morgan Chase & Co, Research Division - MD [29]

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Just on the free cash, I know you guys kind of reaffirmed the long-term targets, but it seems like you guys are obviously doing pretty well against that. I missed the beginning of the call, so I'm not sure if you kind of clarified. Is there anything kind of unusual in the base this year that kind of reverses at all? Because it just seems like you're really kind of close to the long-term targets even though you're not quite there yet on -- from a timing perspective.

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David G. Nord, Hubbell Incorporated - Chairman & CEO [30]

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No. I think we -- what you missed is that we feel good about this year. And you're right, we are -- but we've been focused on trying to get ahead on those long-term targets. I wouldn't say I'm ready to advance those long-term targets, but if we can continue to do what we've been doing, we certainly think there should be upside to those targets as well. But that remains to be seen. We'll have a better insight into that with another quarter behind us when we close out this year and see exactly how this year closes out. But certainly, the things that we have been doing that are driving the focus that we've had on it, I think are leading us to where we want to be.

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Charles Stephen Tusa, JP Morgan Chase & Co, Research Division - MD [31]

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Any major influences yet from the supply chain initiatives that you guys have been talking about? Or is it kind of too early to see the fruits of that labor?

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [32]

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No. I think you have seen, Steve, you've seen our inventory days improve, which I think is a direct result of that. And to Dave's point, the way we're modeling next year, we're seeing a continued step-down and improvement in inventory days. So I think that feels like it has legs to it to help drive, as you mentioned, the long-term target.

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Operator [33]

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(Operator Instructions) We have a follow-up question from Christopher Glynn of Oppenheimer.

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Christopher D. Glynn, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [34]

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Just wanted to go back to the kind of preliminary 2020 comments, Dave. Did you suggest that both segments are positioned for some positive margin trends next year over 2019, granted if the economy doesn't fall off the cliff?

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David G. Nord, Hubbell Incorporated - Chairman & CEO [35]

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Well, certainly, the easier one to say is going to be positive is on Electrical, just because some of the challenges there, particularly on Lighting. But I think Power can continue to power through it. They're at high levels, but certainly, we see the opportunity for those to continue to grow. So our objective overall is with our focus on margin as well as growth and cash generation, that we're going to continue to improve on those.

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Operator [36]

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We have a follow-up question from Justin Bergner of G. Research.

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Justin Laurence Bergner, G. Research, LLC - VP [37]

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If I do the math on the Lighting down mid-single digit, that would suggest, I guess, that the commercial and industrial and construction and energy, sort of combined, were up 3% organic. Am I sort of in the right ballpark there? And are you actually doing better than your end markets? Because that would seem to be a little bit better than your end market view, even if we maybe ex out the Lighting piece?

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William R. Sperry, Hubbell Incorporated - Executive VP, CFO & Treasurer [38]

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Yes. Your math is good. And the -- I think when we consider the end markets, we're incorporating some of the Lighting into that. So it feels like our products and brands are doing just fine. I'm not sure that I would say there's a ton of share gain or outperformance. There's been -- Dave made reference at the top to some new products that have done well, some new introductions, but I'm not sure I'd note any great share shift.

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Operator [39]

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(Operator Instructions) No further questions at this time. Presenters, please continue.

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Daniel Joseph Innamorato, Hubbell Incorporated - Director of IR [40]

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Thanks, operator. Thank you for joining us today, and I'll be around all day for follow-ups if anybody needs us. Thanks.

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Operator [41]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.