Summer 2016 Electrical Earnings Season – Rockwell & Hubbell

We’re in the summer earnings season so we’ll start to look at what some of the publicly held electrical manufacturers and distributors are saying, with a focus on their U.S. business. We’ll start with Rockwell and Hubbell.

Rockwell

From their slide presentation

• YoY down 4.8%, a little more than expected, but margins a little better
• Solutions and service orders in the US and Canada below expectations
• Weak heavy industry. Strong consumer and automotive (which may mean ag equipment and continued issues in oil and gas)
• Control products down 9.4% (7.5% organic) and 8.8% (reported) 5.1% organic YTD
• US sales down 8.4% for quarter and 7% YTD which, surprisingly, is down more than Canada (7.5% down for quarter and 5.9% YTD)
• Now projecting an annual organic decline of 4% (7% with currency changes)
• The are seeing some reduction in SG&A and expect spending to be flat with R&D up.
• Considering some acquisitions, but more focused on organic growth
• Continued pressure in metals and mining without much hope for improvement.
• Re-evaluating some “cost structure” in the solutions and services businesses” looking into their Q4 and first half of next fiscal year.

Hubbell (click here for their presentation)

• Sales at $909 million, up 4% with organic growth up 1%
• Mix driving margin challenges
• Continuing to focus on streamlining and controlling costs to adjust for margin challenges
• Non-resi (commercial construction) and resi markets continue to grow.  Oil / gas still down, utility is flat
• Launching new products.  Introduced a new Data Center eTour to help with training and explaining their product array for this end-user market
• Won six product innovation awards for lighting.
• Some expansions into other geographies for some divisions.
• Electrical segment generated $641M, or almost 70% of the business.
• Lighting growth in high single digits.  Think compares favorably to market growth.  Still doing some cost restructuring on this side of the business (probably will do continuously given how the LED market has changed and with pricing declining and technical investments / R&D continuing.)
• Trying to diversify the applications for Harsh & Hazardous explosion proof products into chemical, food processing, distilling
• For some lighting products have gotten aggressive on pricing to bring pricing into line with market.
• Lighting business … resi down low single digits, mid single digits for C&I business. Overall Q2 was 7%.  Hoping to get to 10% increase for the year, may end up high single digits (distributors … how is Hubbell Lighting performing for you in the field?)
• “Waiting” for industrial to improve, especially oil / gas and heavy industries as these segments will help drive margin improvement due to mix improvement.

So …

• The industrial side continues to be slow in both the MRO space as well as the project space (Rockwell’s control line highlights this)
• There is growth in the resi / commercial construction side of the business (and we see that Hubbell Lighting is underperforming Acuity, questionable re Cree and we don’t know regarding Eaton Lighting until we see their earnings.
• We can assume Hubbell’s construction offering (Raco, Killark, Weigmann, Burndy) is “unremarkable” (our words) given that there was no comment on it nor did the analysts ask (but they asked much about the Harsh & Hazardous side which is believed to be much smaller than Burndy)

What are you seeing from these two companies?