Hubbell Inc.’s (HUB.B) fourth quarter earnings of $1.38 per share beat the Zacks Consensus Estimate by 12 cents. Earnings decreased 8.6% sequentially and were flat on a year-over-year basis. Earnings per share include restructuring cost of 6 cents.
Total Revenue
Hubbell reported revenues of $848.8 million for the quarter, down 5.2% sequentially but up 5.2% on a year over year basis. Reported revenues beat the Zacks Consensus Estimate of $838.0 million. The year-over-year increase was attributed to both organic growth and acquisitions. The bright spot this quarter was C&I Lighting, which was up in double digits. The company’s power business showed good organic growth.
The non-residential construction market did really well with both new construction and rental being strong this quarter. The residential market also did well.
The industrial business was a mixed bag, with wiring devices and other industrial businesses doing well. But overall market performance was pulled down by the harsh & hazardous and high voltage test equipment businesses.
The Utility market was positive overall. The strength came from the transmission and substation side.
Hubbell has two operating segments: Electrical and Power Systems, which generated 71% and 29% of revenues, respectively in the quarter.
Revenues by Segment
Electrical revenues increased 3.5% to $605.4 million from $585.2 million reported in the fourth quarter of 2013. The non-residential business was the major contributor to organic growth.
Power Systems net sales increased 9.9% to $243.4 million compared with $221.4 million reported in the fourth quarter of 2013. The sales increase was attributed mainly to organic growth.
Operating Performance
Hubbell’s gross margin for the quarter was 32.4%, down 115 basis points (bps) from the year-ago quarter and 65 bps sequentially.
Hubbell’s operating margin was 14.9%, down 109 bps sequentially and 79 bps from the year-ago quarter.
Operating Margin by Segments
The Electrical segment recorded an operating margin of 13.45%, a decline of 120 bps from year-ago quarter. This was attributed to restructuring costs of $5 million, or 6 cents a share.
Operating margin of the Power segment was 18.2%, flat year over year.
Net Income
Net income attributable to Hubbell shareholders was $81.0 million (excluding non-controlling interest and earnings allocated to participating securities) compared with $81.8 million the year-ago quarter. Reported earnings per share were $1.38, flat on a year over year basis. There were no one-time items.
Balance Sheet
Cash and short-term investments balance declined 11.8% from the year-ago quarter to $661.7 million while accounts receivables increased 6.6% from the year-ago quarter to 469.8. Long term debt was $597.6 million, flat on a year over year basis.
As much as 24% of the company’s capital structure consists of debt.
Outlook
Management does not provide a quarterly guidance and provides only limited guidance for the year.
Overall sales for 2015 are expected to increase in the 5% to 7% range with acquisitions contributing 5%-6% growth. Management expects earnings per share to be between $5.35-$5.55, which includes around 25 cents of restructuring and related costs.
Recommendation
Hubbell reported solid fourth quarter results with earnings and revenues beating the Zacks Consensus Estimate.
Though the company faces the risk of being impacted by lower oil prices in its harsh and hazardous business and unfavorable foreign exchange rate, it plans to offset these obstacles through productivity initiatives, restructuring actions and capital deployment for both acquisitions and share repurchases.
Currently, Hubbell has a Zacks Rank #3 (Hold). Better-ranked stocks in the technology sector include IAC/InterActiveCorp (IACI), PetMed Express, Inc. (PETS) and Ellie Mae, Inc. (ELLI). While PetMed and Ellie Mae sport a Zacks Rank #1 (Strong Buy). IAC/InterActive holds a Zacks Rank #2 (Buy).
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