Eaton, Hubbell and Encore Share Performance

Let’s take a look at some of the recent quarterly calls from manufacturers in the electrical space to see if there are any trends …

Eaton

From their analyst call, and we’ll focus on their electrical information rather than the entire company:

• Electrical Products segment
  • Revenue up 2% but organic growth was up 5%.  This is the segment with B-Line, Bussmann, Crouse Hinds, Wiring Devices
    • Strength in commercial and residential construction with global growth rates in the mid-to-high single digits
    • Growth stronger in the US market
    • Backlog has grown
    • For the US, could this infer alignment with distributors? (And it is interesting that Eaton, which is tightly aligned with WESCO, is outperforming WESCO overall (hence could mean WESCO either underperforming with Eaton or underperforming with others) and doing comparable with Rexel, another distributor they are closely aligned with in the US.)
  • For 2019 full year, expect
    • Margins of 19-19.6%, a 50 basis point increase
• Electrical Systems & Services segment
  • Revenues up 6%, organic growth up 8% (and remember, this is worldwide)
    • Saw double digit growth in commercial construction and data centers
  • Comments about the underlying activity defined as “negotiations” on projects in the sales pipeline is up 56%.
  • Backlog is up 11%
• From analyst questions
  • Revenue up double-digit for data center sales
  • Oil and gas market, as a vertical, has “come back”
  • Office and government sectors both up more than 10%
  • Institutional segment up a little less than 10%
  • EPG margin improvement due to “cost outs” and “better execution”
  • Resi strong due to taking share / success in wiring devices with AFCIs and ground fault with “code changes / regulations benefiting the business.” Seeing success in the resi renovation market. This resi construction is up with Eaton up mid to high single digits in this segment.

From their 10-Q

• US Electrical Product sales were $1.047 million, up from $960 million
• US Electrical Systems and Services sales were $976 million, up from $894 million

So, overall good performance. Lighting spin off is on-track (with some acquirer interest but nothing compelling).  The segments mentioned are overall markets … not limited to EPG, but highlight some market strengths.  As an overall benchmark … 5%.

Hubbell

From Hubbell’s quarterly call:

• Strong overall organic growth.
• Most end-user markets up with a focus on industrial, gas distribution and utility.
• Seeing some price / profit appreciation in the lighting segment, from a divisional perspective.  Operational improvement.
• Being more “disciplined” in which business to pursue … must meet profitability guidelines.  Using to rationalize some products.
• Strong balance sheet and announced “start putting it back to work to accretive bolt-on acquisitions.”
• 10% overall growth of which 5% was organic
  • Non-resi markets up low to mid single digits
  • Industrial – strong
• Electrical Segment
  • Up 3% organically (2% with foreign currency)
  • Harsh and Hazardous (oil segment) was down.
  • Industrial was up more than commercial construction.
  • Lighting business up 2% (below our Pulse of Lighting report results for Q1)
  • Division executed on pricing initiatives, hence improving profitability.
• Overall, for year, expect low single digit growth company-wide.
• Willing to do trade-off between price and volume to get more “attractive” margins.
• Mentioned electrical distributor survey projecting 6% for the year but discounted it by 1%, so, projecting 5%.

From analyst questions:

• Regarding lighting, mentioned some agency changes that have upgraded the company that required some “investment” as well as an investment into improving operations.

Encore

Encore provides a sense of what could / should be going on in the wire / cable market although given changes at Southwire and Prysmian / General Cable, could represent some share opportunities for Encore and/or some of the other privately held wire companies in the industry.

From their press release:

• Net sales for the quarter were almost $315M
• Copper unit volume increased 13.5%
• Average selling price of wire per copper pound decreased 5.9%
• “Increased top line was driven primarily by higher unit volumes.”
• Margins improved
• Average price of copper purchased decreased 9.6% while average selling price of wire sold decreased 5.9% (so costs dropping faster than selling price.)
• “We believe that significant internal management turnover at two of our larger competitors to some ‘odd’ pricing in the market.” (and, with this being a relationship-oriented segment of the market, management turnover can impact sales performance.)
• “End markets appear strong.”
• Aluminum wire is 7.8% of net sales
• Construction activity is strong. God outlook for construction projects for the next year.

Some other points from their 10-Q:

• COGS were 86.9% of sales, down from 87.1% of sales, hence margin improvement.
• Gross profit to 13.1% of sales.  The increase in margin was due to increase in “copper wire spread.”
• Freight costs decreased to 2.7% of net sales

Looks like Encore took share as well as benefited from a strong construction market which is an indication of the project business.

Overall, the market for publicly held companies appears to be decent with there being growth in the construction market.