Hubbell Incorporated 2026 Q3 Earnings Call

Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter of 2026. The press release and slides are posted at the investor section of our website at hubbell.com. I am joined today by our Chairman, President, and CEO, Gerben Bakker, and our CFO, Joe Capozzoli. Please note our comments this morning may include statements related to the expected future results of our company. They are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, which are included in the press release and slides. Now, let me turn the call over to Gerben.

Good morning and thank you for joining us to discuss Hubbell's third quarter 2026 results. I will start my comments by summarizing three main themes we are seeing across the business in 2026. The first is that demand for Hubbell's critical infrastructure solutions remains strong. We see this clearly in our order book, year-to-date backlog build, and in long-term planning discussions with our utility and electrical end customers. Second, we are proactively investing to serve this strong demand. These investments have varying profiles across businesses, product lines, and factory footprint. Some areas, such as data center balance of system, electrical components, and certain transmission and substation product categories, are coming online quickly and are driving outperformance in 2026. While some investment in these same high-growth markets will enable us to serve longer-term visible project demand in 2027 and beyond.

What is consistent across the capital investment program as a whole is a highly attractive return profile accretive to our overall ROIC, which will enable us to grow our leading position in our core end markets over the next several years. Finally, we are managing effectively through a dynamic supply chain and inflationary environment. While broad-based inflation persists, we continue to aggressively drive price and productivity actions across our portfolio. Our recent track record, our unique positions in our end markets, and our visibility on actions taken and in progress give us confidence in our ability to continue to manage the price cost productivity equation to neutral or better through the cycle.

Looking more specifically at the third quarter, Hubbell delivered strong financial performance with double-digit growth in sales, adjusted operating profit, adjusted earnings per share, and free cash flow in the quarter, as well as on a year-to-date basis. Third quarter performance was highlighted by 22% organic growth in Electrical Solutions, driven by data center sales increasing more than 80% in the quarter on an organic basis, as well as continued progress on our segment unification efforts and vertical market strategy. The NSI acquisition is off to a strong start, with performance and integration efforts trending ahead of our initial expectations. Utility Solutions results were solid in the quarter, with strong core T&D performance offsetting a temporary component availability headwind in our meters business. We are raising our full year 2026 outlook this morning, primarily driven by stronger growth outlook in the Electrical Solutions.

As we look ahead to 2027, we see an attractive growth outlook across our largest, highest margin end markets, and I will talk further about the preliminary views on next year at the end of this call. For now, let me turn the call over to Joe to provide some details on the third quarter.

Thank you, Gerben, and good morning, everyone. I am going to start my comments on slide 4. Hubbell's overall financial performance was strong with double-digit growth across sales, adjusted operating profit, adjusted earnings per share, and free cash flow, both in the quarter and on a year-to-date basis. Net sales of $1.873 billion in the quarter increased by 25% as compared to the prior year. Organic growth of 11% was driven by robust 22% organic growth in Electrical Solutions and solid 5% organic growth in Utility Solutions. Acquisitions contributed 13% to growth in the quarter, with NSI off to a strong start in the electrical segment, as Gerben indicated, and DMC Power contributing nicely to our utility segment.

From an operational standpoint, Hubbell generated $477 million of adjusted operating profit in the third quarter, representing 33% growth versus the prior year, and delivered adjusted operating margins of 25.5%, representing 160 basis points of year-over-year expansion. Growth in adjusted operating profit was primarily driven by strong volume and high-margin businesses, as well as the impact of acquisitions, which were accretive to adjusted operating margins. Price cost productivity was approximately neutral on a dollar basis in the third quarter, including the net impact of IEEPA tariff refunds. While broad-based cost inflation has persisted as 2026 has progressed, we have driven strong price and productivity realization over the last several quarters, and we are executing additional actions as we exit the year, which we are confident will position us well for 2027. Adjusted earnings per diluted share were $5.91 in the third quarter.

This represented a 14% increase versus the prior year, driven by adjusted operating profit growth and a modestly lower share count as a result of prior share repurchase activity, partially offset by higher interest expense associated with the NSI and DMC Power acquisitions, and a higher year-over-year tax rate. Free cash flow of $280 million was up 10% relative to the prior year. We continue to anticipate approximately 90% conversion of free cash flow to adjusted net income on a full year basis, which absorbs the impact from increased CapEx, acquisition costs and working capital investments to serve strong current and future sales growth. Our balance sheet remains healthy, and we remain committed to deleveraging over the next two years, which will drive incremental adjusted EPS accretion in 2027 and position our strong balance sheet for further accretive M&A investment over the next few years.

Turning to page five to review our performance by segment. Utility Solutions delivered 10% adjusted operating profit growth in the quarter and 9% sales growth, which was comprised of 5% organic growth and four points of contribution from the DMC Power acquisition. DMC Power's performance will be reflected in organic growth starting in the fourth quarter of 2026, which we anticipate will be accretive to the segment's organic growth rate. Grid Infrastructure grew 8% organically in the third quarter, led by strong growth in distribution and transmission markets. Substation sales also grew strongly in the quarter, but modestly below our prior expectation, driven by timing of capacity expansion in our substation control house business.

From a demand perspective, we continue to see broad-based order strength across substation, transmission, and distribution markets, leading to further backlog build in the quarter as utility customers plan new projects supporting load growth and continue to invest in hardening and resiliency initiatives. Grid Automation declined 4% organically in the third quarter, driven by a temporary component availability headwind in our meters business, which we anticipate will be resolved by the end of the fourth quarter and results in a shift of approximately $15 million in revenue from the third quarter into the fourth quarter. Protection and Controls delivered strong double-digit growth in the quarter, led by continued strength in substation switching products, where project interconnecting load growth and recent capacity expansion investments are bolstering our performance.

Operationally, Utility Solutions delivered $267 million of adjusted operating profit in the third quarter, representing 10% growth versus the prior year, with adjusted operating margins up 30 basis points year over year. Adjusted operating profit growth was primarily driven by strong volume growth in high-margin businesses and acquisitions, while higher cost inflation and raw material costs were largely offset by price realization, productivity, and a net tariff benefit in the quarter. We also remain focused on executing and investing in capacity expansion initiatives to serve customer demand in high-growth areas of our utility business, which we are confident will drive strong organic growth and deliver attractive returns on shareholder capital, both in the near term and over the next several years. Moving to page six. Electrical Solutions results were very strong in the quarter.

On the top line, Electrical Solutions generated net sales of $845 million, which represented growth of 51% versus the prior year and ahead of our prior expectation, driven by outperformance in both our organic business and in NSI. Starting with NSI, as we highlighted at the time of the acquisition, this business is a strong strategic fit with our portfolio and enables us to double down on our attractive core of critical infrastructure components with complementary products and brands, similar channels to market, and clear opportunities for revenue and cost synergies. We are encouraged by the early integration efforts and strong performance, with NSI contributing 29 points to the Electrical Solutions segment revenue growth in the third quarter at accretive adjusted operating margins. From an organic revenue standpoint, 22% organic revenue growth was again highlighted by strength in data center and light industrial markets.

Data center sales increased over 80% on an organic basis in the third quarter as content gains, new product introductions, and capacity additions drove outgrowth in a strong underlying market. Most notably, our wiring device and pin and sleeve product lines have driven accelerated data center penetration through our vertical market strategy, and recent product innovations and recent capacity investments in these areas are enabling us to capitalize on strong customer demand. Outside of data center, light industrial markets remain strong, bolstered by U.S. manufacturing activity, and electric T&D and renewables markets also grew strongly in the quarter. Non-residential markets were solid in the quarter, while heavy industrial markets remained relatively soft. Across our HES portfolio, our initiatives around cross-selling and channel conversions have driven broad-based commercial success, and we see further opportunities to accelerate this strategy through the integration of NSI.