Hubbell Inc

Good day, and thank you for standing by. Welcome to the first quarter 2021 results conference call. At this time, all participants' lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Speaker Dan Inamorato. Thank you. Please go ahead, sir.

Thanks, Operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the first quarter of 2021. The press release and slides are posted to the investor section of our website at hubble.com. I'm joined today by our President and CEO, Gerben Bakker, and our Executive Vice President and CFO, Bill Sperry. 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. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures that are included in the press release and slides. Now let me turn the call over to Gerben.

Great. Thanks, Dan. And good morning, everyone. and thank you for joining us to discuss Hubble's first quarter results. I will start my comments on page three with some key takeaways for the quarter. At a high level, we are seeing strong improvement in demand across each of our end markets, and we'll give you some data points around that in the next page and throughout this presentation. Our operating profit and margins expanded in the quarter as we continue to actively manage our cost structure and realized savings from the investment and restructuring initiatives. Our results in the quarter are consistent with the guidance we laid out at the beginning of the year and put us well on a path to achieving our full-year EPS guidance, which we are raising today. We'll walk you through our guidance in more detail later, but overall, we remain confident in our ability to deliver on our commitments. Let's turn to page four with more details. You see here that our sales were down 1% year-over-year and down 4% on an organic basis. In our utility solution segment, secular growth trends around grid modernization and renewable energy continue to drive strong demand for Hubble products, and that is reflected in broad-based double-digit order growth in the first quarter across each of our major business segments, power systems, gas connectors, as well as Eclaire. While revenues in the first quarter continue to be impacted by installation delays for certain projects, we anticipate this dynamic will normalize beginning in the second quarter and drive growth as we ramp up our capacities to meet the growing customer demand. Backlog in our shorter cycle T&D components business was up almost 40% year-over-year exiting the quarter, while the Aclara backlog is back up to approximately a billion dollars following a strong first quarter with over $200 million of orders. In our electrical solutions segment, markets continue to improve as orders turn positive year over year, and we realize solid sequential growth in revenues in the first quarter. Light industrial markets are strengthening as the broader industrial economy recovers, a positive sign for Hubble that demand for electrical products and solutions will drive growth over the balance of this year. Our backlog across the electrical solutions was up more than 30 percent year-over-year exiting the first quarter. And our focus over the near term is to continue managing through a tight supply chain environment to serve the critical infrastructure needs of our customers. In terms of our operations, we achieved 30 basis points expansion in our operating margins in the first quarter. as we overcame lower volumes and the impact of price cost turning to a headwind as we absorbed significant commodity inflation on our cost base. We recognized and anticipated this towards the end of last year and took early actions to address it through price and productivity. However, inflationary pressures have continued to accelerate through the first quarter, which necessitated and drove additional pricing actions and will continue to take further actions while this inflation persists. Over the last six months, we have implemented price increases which have led most of our markets in frequency, pace, and magnitude, and will continue to utilize the strength of our product portfolio to drive profitable growth. While commodity inflation remains a moving target, we've contemplated a range of scenarios within our guidance and have levers at our disposal to effectively manage our operations and deliver on our near-term and long-term commitments. You also see here that we delivered $1.72 of adjusted earnings per share in the quarter and $39 million of free cash flow. And I will turn it over to Bill in a minute to give you some more context around those results. But before I do that, I wanted to highlight a few key accomplishments for us in the quarter. First of all, Hubble is very honored to have been named one of 2021's world's most ethical companies by Ethisphere. And I'd like to thank our over 19,000 employees who have demonstrated the highest standard for integrity each and every day. And note that this achievement is a recognition of their commitment to compliance and ethics as a foundation of our strategy and culture. I'd also like to highlight that Hubble recently received two major awards from one of our top distributor partners, out of only three given annually. Our gas connectors business received the top award for sales and marketing, while power systems received the award for above and beyond service excellence. Both of these awards are recognitions of the strength of our brand and the quality and reliability of our products in the marketplace. They demonstrate our commitment to service, which is a key differentiator for Hubbell, particularly in recent years as our utility franchise had been so effective in serving our customers' needs to increase storm activity. And finally, we closed the acquisition of Beckwith in the fourth quarter, and I wanted to congratulate the leader of that business for being recently elected to the National Academy of Engineering for his contributions to digital protection and control devices for the grid. This is a recognition of the strength of Beckwith's technology solutions and a testament to the talented people that joined Hubble as part of acquisitions. which we are confident will drive further innovation and differentiation. With that, let me turn it over to Bill to walk you through the financial results in a little more detail.

Thanks, Gerben. Good morning, everybody. I realize how busy the release schedule is today and appreciate you being with us. I'm going to start my comments on page five. You see the sales down 1% to $1.78 billion. That figure includes the three acquisitions that we closed in the fourth quarter. And it's good news for us to see all three of those investments off to a very strong start. Just to remind everybody on the electrical side, we made an investment in the 5G space antenna and housings for that space. On the utility side, Gerben just mentioned Beckwith which is a controls business, and ArmorCast, which makes enclosures for utilities, all three high-growth, high-margin areas, and happy to see them being well-accepted by customers and off to good starts and contributing to our performance in the first quarter. Also, as Gerben noted, a clear inflection point in orders for us where we had orders up double digits and strong – feeling like strong demand ahead of us leading to expectation for stronger sales. On the OP side, you'll see 30 basis points of margin expansion and – There was some headwinds that we overcame there, starting with the headwinds from the sales decline on the organic side, the price-cost lag that we experienced, and the new acquisitions early in their integration phase tend to perform at less than their fully integrated margins, and so you tend to get a little drag from that. So the 30 basis points of expansion overcame those, really using productivity gains as well as, importantly, restructuring benefits. Those benefits from restructuring came really from both sides of the restructuring program, namely savings from dollars we invested last year as well as the tapering spending level that we had communicated to everybody. So those contributions helped us pick up those 30 basis points. You see EPS expanding 5 percent to $1.72. Besides the increase in operating profit, there were also some tailwinds from the non-op side, including from pension expense as well as from the effective tax rate down to about 22.6%. On the free cash flow side, you see $39 million generated in the quarter. It compares unfavorably to last year, but we have a significantly different mindset. At the end of March last year, we were stomping with both feet on the brakes on the inventory side. this year we're feeling that order expansion. We're looking to invest in the working capital to help grow the company. So that 39 is in line with our full-year target of getting to $500 million and has the same seasonal shape that we had in 2019. Just in thinking about talking about the balance sheet, I also wanted to mention a bond refinancing that we executed in the quarter. We had 300 million of bonds maturing in 2022. They were paying an interest rate of 3.65%. And it became clear to us that fixed income investors were starting to demand higher interest rates as they saw inflation coming and the effects of stimulus And to get ahead of that, we were able to execute on some new bonds at 2.3%, so a saving of over 130 basis points. There's a slight anomaly in crossing the quarter end, because the new bonds priced the end of March, and... The old bonds were not called until first week in April. So those of you who look at the queue, you'll see both bonds still outstanding and the cash kind of on hand. And then as a subsequent event and in the second quarter, you'll see that we bought out the old bonds and we'll pay the May call there. So a good opportunity for us to get our interest rate fixed for the next 10 years at 2.3%, which we were quite quite pleased with that execution. So, I think the big takeaway from page five is twofold. One is clear evidence that the recovery is underway, attractive orders expansion. And secondly, that the self-help window continues to contribute to Hubble's performance in the form of programmatic acquisitions as well as a restructuring program that continues to help drive performance as we go forward. Next two pages like to unpack between our two segments, electrical and utility. We talked to you before about reorganizing the segments and specifically having the electrical solutions segment really run as one business. And our attempt is to replicate when Gerben was running power and how he turned all those different brands into really a single operating segment. And Pete Lau is going to help us do the same on the electrical side now. The other implication is we have built up over acquisition over the last couple of years a gas distribution components business. that had been in electrical and starting now in the new year, because it's customers on the utility side and in front of the meter, we've got that business now located inside a utility. And so the first quarter has been adjusted for that change to make these two periods comparable on both sides. So starting with electrical here on page six, you'll see Sales down 3% to $546 million. Two important signs of recovery for the electrical solution segment. First is the sequential growth from the fourth quarter to the first. That normal seasonal pattern is for a contraction of about a point or two. And in this period, it grew 5% from the fourth quarter. So clear sign that there's some recovery underway there. Second was that the order rate was up year over year. And so that's, I think, portends good news going forward for the electrical segment. As we reorganized inside of industrial areas, We have the light vertical, and we're really seeing that responding the quickest and soonest, not unusual for a recovery period. The heavy industrial responds a little bit later, and we're starting to see some of the early indicators showing heavy having signs of improvement ahead of it. The non-res side, remains soft inside of non-res. We still have our commercial and industrial lighting business. They had a 7% decline, which is contributing to that softness in non-res. On the resi side, we saw markets being quite strong, in particular on the single-family side, so there continues to be demand. as people are looking to get out of multifamily into single-family solutions. On the operating profit side, you'll see 30 basis points margin expansion. The same story for the enterprise, namely the headwinds from the lower volumes and the price-cost drag was overcome by the productivity in expense management as well as the benefits from the restructuring program. Page seven, we've got the utility solution segment, and you see a, and again, reminding everyone, this now includes gas components, and you see a 1% increase in sales to $532 million. We've really got to unpack that to tell the story. So you see that legacy hubble power systems business, what we see as components on here, up 6%. So we continue to see grid hardening driving the distribution spending. The renewables, most notably solar and wind, causing transmission spending to grow. And right now, that renewable trend is causing transmission to outgrow distribution right now. And we'll talk about that a little bit more later. On the Clara side, you see down 8%. They continue to have access issues with COVID. We're anticipating that that frees up now in the second quarter period. and they start to grow. Gerben made comments about their order pattern and orders across the utility space were really impressive in the first quarter. We had double digits on the power systems businesses, double digits in gas and components, and double digits in Eclera from terms of order generation. I think signs of good future growth and visibility for our utility solutions segment. And as well, you see margin expansion there. Again, similar story of lower organic volume headwinds and price-cost headwinds being overcome by the productivity and expense management. I wanted to highlight on page eight The renewables vertical and the wind and solar business that we feel has a real secular megatrend type growth rates anticipated. The energy industry clearly pivoting. from fossil fuels to renewables, and we think Hubble will benefit as the economy continues to adapt to that. Positioned really well in two different ways. We've got about 350 million or so of transmission sales, and right now the renewables are requiring, you know, are harvesting wind and sun in places that are farther from the population centers, and and that energy needs to be transported across the transmission lines to get to where it will be consumed by users. And that will be quite a favorable trend for the components we sell, the transmission grid. As well, on the electrical solution side, you'll see a variety of products, brands notably of Burndy and Wiley, that are selling lugs and connectors bonding and grounding products, wire management, and we've had a couple of wins recently on very large solar and wind farms that make us believe our brands and our products are in high demand, and we're anticipating strong growth rates going forward off of that $50 million base that we have. I think a very positive story for a megatrend and one where Hubbell, I think, is very, very well positioned to serve our customers with high-quality solutions. We've also talked about the drag from price-cost, and I wanted to just illustrate the price-cost relationship as our business model dictates it, and we've shared some data over the last 13 years or so here. And we don't use derivatives as a hedge against inflation. We use price. We think that's a better mechanism because it lets you actually get ahead. The downside of it is it can create a lag and of a quarter or two between when we experience the inflation and when we realize on the price. And that lag can sometimes create some margin distortions inside of the quarter. But it's important to show you all that through the cycle, we net out net positive. In this period, there's been four interesting phases of spikes, which you see in the yellow line. And in each case, we've been able to capture the price. And as soon as those costs flatten, and in fact, they seem to always turn down after they've spiked, that's when the lag reverses itself and we start to harvest some margin. I just wanted to make sure we were clear with showing you that we've experienced really from later in 2020 through the first quarter a spike of quite significant magnitude. That really is a composite for us. We're buying a lot of steel, but also that's the largest component, but it's also copper, aluminum, resins. And this has been a very significant spike compared to the last decade or so. But as Gerben had mentioned, we've been actively pricing for it, have a very dynamic dialogue with our customers, and have been pulling price in some areas multiple times through 2021. And we'll create that blue curve that gets ahead of this price-cost trend. And we anticipate we can start to catch up in the second half of this year. But the second quarter, I think, will still be a headwind for us. So, with that discussion, I wanted to hand it back to Gerben to give you more feedback on our outlook.

Great. Let's turn to page 10, and starting with the end market pie chart on the left. With the first quarter behind us and increasing visibility on an economic recovery, our markets overall are trending ahead of expectations that we had at the beginning of the year. Particularly, we see industrial markets performing better, driven by strengthening light industrial verticals. We see strong order growth in the power systems and gas connectors businesses in the first quarter. And we also see our utility T&D components market performing ahead of our initial expectations. And while our expectations for non-residential markets remain more subdued than our other end markets, we here see steadily improving markets and believe we could start to see some recovery towards the latter half of the year. We now expect full-year sales growth of 8% to 10%, with acquisitions still expected to contribute 3%, and organic growth now contributing 5% to 7%. This increase of two percentage points versus our prior expectations is driven by stronger volumes as well as incremental price to address higher inflationary headwinds, which Bill just gave some color on. On net, we are raising our full-year adjusted earnings per share outlook to a range of 820 to 860, which represents double-digit EPS growth at the midpoint of our guidance range. along with 110% free cash flow conversion on our adjusted net income. Turning to page 11, I'll give you some more context for our guidance. You see a solid contribution from increased volumes as our expectations for market growth are higher than our initial outlook. We're also getting strong contributions from two key drivers of our financial models in acquisitions and restructuring. both of which are under our control and tend to be more programmatic and consistent in nature. On acquisitions, we continue to expect about 25 cents of contributions from the three deals that we closed at the end of 2020, each of which is performing well early on. On restructuring, we continue to make good progress in driving cost savings with an incremental 15 to 20 million of savings flowing through this year, and continued savings moving forward, even as we begin to taper investment from the elevated levels of the last two years. We'd highlight here that while we've invested in R&R consistent with the expectations we laid out over a year ago and our investor day, we've overdriven on savings, which has been a key contributor to operating margin resilience. As our markets recover and our volumes ramp back up, we'll be able to drive sustainably higher margins performance across the company with a more efficient operating footprint. Then, as Bill walked you through earlier, we remain confident in our ability to manage price material and will continue to drive this to a net favorable outcome over the cycle. We're taking aggressive pricing actions with further actions to come. Though price capture tends to lag commodity inflation by a quarter or two, and we continue to expect price material to be a net headwind for 21, consistent with our prior guidance. And finally, we'll also see an impact from the return of some temporary cost benefits, particularly in the second quarter as we lap the impact of compensation reduction actions we took last year in preparation for the pandemic. Recall that in 2020, we managed to decremental margins of approximately 15 percent as we aggressively controlled our cost structure and drove productivity. As our markets now begin to recover, however, we plan on investing back into our business over the balance of 2021 to accelerate future growth, particularly in attractive areas such as the renewable markets which Bill just spoke about, along with the significant opportunity we see for Hubble and distribution automation, which we highlighted on our call last February. All of this adds up to our full year earnings per share guidance of 820 to 860. We remain confident in our ability to deliver on these commitments and are focused on returning to growth as we serve the critical infrastructure need of our customers while continuing to actively manage our costs and deliver value for our shareholders. With that, let me now turn it over to Q&A.

As a reminder, to ask a question, you'll need to press star one on your telephone. And to withdraw a question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jeff Sprague with Vertical Research. Your line is open.

Thank you. Good morning, everybody. Good morning, Jeff. Good morning. Hey, just maybe first on price-cost, thanks for all that additional detail on the chart. Just to have a little bit better understanding of what you're expecting, obviously price cost was negative in Q1, going to be negative in Q2. Do you actually see it turning positive in the second half of the year? I understand you're saying negative for the whole year, but do you see the second half of the year flipping back into positive territory?

Yeah, I think we do, Jeff. A lot of that depends on that yellow curve flattening at some point during this year, but that, that would be our expectation that if that happened, then we, then we could catch up and start to eat into the lag. Yeah.

And, uh, you pointed out that you've been kind of, uh, you know, leading, uh, price up. Um, are you seeing kind of the competitive response, uh, be rational, uh, as it relates to that or any, uh, kind of push back from the end customer standpoint in terms of being able to absorb pricing?

Yeah, I'd say broadly speaking, it's been an understanding channel. And I think in all walks of everyone's life, they're seeing prices increase. And we'll get to bigger numbers in the second quarter. And so we keep pushing into that, Jeff. But so far, the channel understands and the end user understands. But it feels like that yellow spike is pretty steep right now relative to the last decade of activity or so. And so watching everybody react to that will continue to be something we study very closely.

Maybe I'll add a couple of comments to that, Jeff. One is Bill talked about the curve of that incline is so steep. So while in many instances we're leading the price, we see a quick follow on it. The other sign that that is encouraging is that our stick rate of price increases is actually running ahead of what it would historically do for our business. you know, and I can speak even going back a few years when I ran the power business and, you know, I think it was in the 2018 timeframe when we saw commodities go up and we saw tariffs go up, you know, and our approach was perhaps a little more cautious and hesitant with those customers. We are currently, you know, it's April and we're going on our third price increase in the utility business. So it's just a sign of how we've, learned and how we're going much more aggressively after when we see commodities go up that we go up with price.

And maybe just one other one for me. Just thinking about, so you manage the positive margins despite price costs. It gets a little tougher in Q2, I guess, but I would imagine you get some help on the M&A. How are you thinking about margins in Q2? Is it kind of a fight to hold them flat, or is flat actually ambitious, do you think?

Yeah, I think flat would be ambitious. So I think the simple way we're looking at it, Jeff, is volume and restructuring are going to give us a decent tailwind, but price-cost is going to kind of continue at the same drag rate percentage-wise in second quarter, and then we get as well really the absence of the furlough. So all the cost management initiatives that were sort of temporary rollback, and I think that gives us a temporary margin headwind in 2Q, Jeff.

Yeah, understood. Makes sense. All right. Thanks a lot, guys. Appreciate it.

Your next question comes from the line of Steve Tusa with JP Morgan. Your line is open.

Hello? Hey, Steve, we can hear you.

Hey, good morning.

Sorry. Thought I did something wrong there for a second. Getting the silent treatment. The non-res outlook that you're seeing out there, the activity, I mean, some companies that have reported so far have actually had some pretty good results when it comes to their non-res business. Obviously, it you know, the data remains reasonably weak? I mean, what are you guys seeing out there when it comes to U.S. non-res when you think about it from, you know, the difference between kind of like the core commercial side and then maybe institutional?

Yeah, we changed, you know, our outlook up a little, Steve. We still have it down. I think maybe one of the elements that continues to color us is half of our non-res is commercial industrial lighting. and they had a first quarter, you know, at kind of down 7%. So that kind of weighs a little bit. But the outlook, which is I think the emphasis of your question, does feel better than when we started the year. And the other kind of commercial products are showing, you know, some order patterns that would suggest, you know, some good firming. So for us, it's a little bit mixed, I think, because of that.

Got it. Okay, and then just the outlook for the T&D side?

Yes, I think we continue to see strong growth despite having a first quarter compare in power that was actually impressive last year. We see the demand really pulling through. I think the driver's are pretty solid, namely you've got grid hardening against environmental problems, you've got this renewable trend, and you've got just an aging infrastructure that needs to be updated. And so we continue to see pretty healthy demand there and have a pretty positive outlook for that.

Got it. Okay. Thanks a lot. I appreciate it. Thank you, Steve.

Your next question comes from the line of Tommy Mall with Stephens. Your line is open.

Good morning and thanks for taking my questions.

Good morning, Tom.

Gerben, I wanted to start on a Clara, maybe make sure I heard a couple of these data points correctly. I think you said you booked about 200 million of orders in the first quarter and that revenue should be up starting in second quarter. But then more broadly, I'm just curious what anecdotes you could share. Does it feel like planning is back to business as usual for customers there, or is there still some hesitancy? I mean, the 200 number was an impressive one. I'm just trying to think about if there's any continuing headwind to customer planning. And if you run all that through as mid-singles on the revenue side, is it still the right way to frame up the full year? I know that was a multi-part, but thank you.

Yeah, no, no, Tommy, let me respond to some of the financial questions and let Gerben talk on the operating side a little bit. So 200 of bookings we thought was good as well against essentially a $600 million revenue base. You know, that looks like a pretty strong situation there. Backlog, which we report on to you all periodically, is up at $1 billion. Again, relative to a $600 million revenue base, you've got a year and a half's worth of visibility there. So that all feels good. Maybe let Gerben comment a little more on the access issue and how we see that evolving.

Yeah, and if we just look from an order and an activity, market activity perspective, the underlying... fundamentals are still very much there for growth, right? The project planning is there. So it comes down to what you alluded to is during the pandemic, you know, how are we managing through quoting these big project working with utilities to spec them? And those take time. So I think what you see here in the first quarter is a little bit the effect of projects that we're working through even pre-pandemic with our utility customer that we've continued to work through that are now coming through in orders. We talked earlier about the dip we saw when the pandemic happened in our proposal and quote activity. So I think those we'll start to see coming back later. So there's definitely demand out there. We're seeing more you know, activity back in taking up these projects. But there is a lag of time in this. And as we've also talked about, these tend to be lumpy. So I certainly wouldn't take the 200 for a quarter and multiply that by every future quarter. But I will say we're continuing to be positive on this space. And, again, your bottom line, I think, of make single growth is very much what we see in this business.

Great. Thank you. That's all helpful. As a follow-up, I wanted to talk about the disruptive storms in Texas earlier this year, and maybe you could just share any anecdotes, observations you have, anecdotes you can share from customers on the utility side of the business. You know, the world's attention was focused there, or certainly within the U.S., attention was focused there, and specifically your customers. Is there any takeaway there in terms of the the fundamentals, any potential tailwinds you might see in Texas or elsewhere, just seeing what took place there.

Yeah, I think, Tommy, you're right that if you look at the utility side, these environmental challenges continue to place a valuable premium in the eyes of utilities on grid hardening and making sure they can operate whether it's through wind or ice or, in this case, unexpected real freezing in Texas. So I do think, ultimately, it reinforces the value proposition of grid hardening. And I think that's to Hubble's benefit. I think if you go on the industrial side, You know, the resin supply side, it seems to us, went through a challenge with the freezing there, and that's kind of disrupted their supply chain a little bit. And so I think, you know, between the utility, maybe a favorable impact on the industrial side with that resin, you know, production being disrupted, I think that's to the negative.

Great. Thank you, Bill. I'll turn it back.

Your next question comes from the line of Josh with Morgan Stanley. Your line is open.

Hey, good morning, Bill. Hey, good morning.

Good morning, Josh. Good morning, Josh.

Just to maybe ask the margin question with a little bit finer point on it since there's a lot of moving pieces. When do you expect to get to kind of normal incremental margins again? It sounds like 2Q, you know, definitely not. You know, margins might be, you know, flat to down year over year. But, you know, is it more third quarter or, you know, are we really talking about next year? Because you have the temporary costs, you have some of the price cost actions, some investment, just trying to put all those pieces together when folks should start to expect kind of normal operating leverage start to filter into business again.

Yeah, Josh, I think our view, it would be fourth quarter and then into next year. You know, once you get, Gervin kind of described the aggressive pull of price that we've made. So you sort of really need that to flatten out. And if it even were to come down as some of that spiky activity suggested it could, then you start to actually get you know, some super normal activity because you're actually getting kind of tailwind. But I think it's – you are talking ultimately about fourth quarter and into next year.

Got it. That's helpful. And then I understand we still have some bottlenecks on the acquirer side or I guess, you know, communications controls now. How fast can that business really grow when – Folks are able to go out in the field and do installations again. I would imagine there's a labor component. Can this business grow double digits when we're out in the wild again, or are there kind of bottlenecks that say that billion dollars of backlog could take a while to get out of the way?

Yeah, I think if you just put it in perspective of what we talked about before, that we think it's mid-single-digit growth, but even if you look at the first quarter, that it's still down if you just do that math. You're in that range, which you just talked about, of around the double-digit growth. It is a lot of labor, and, you know, I talked about that in the last call, that that's not an unlimited resource, and it's, you know, quite challenging, as a matter of fact, right now. So I would say that's probably the biggest constraint. But, yeah, you know, we definitely expect a ramp-up, even in the second quarter from that business.

I'm just going to try to squeeze one more in. I really appreciate slide nine there, Bill, with that price material spread. Hard not to notice that that gap was super wide over the past couple of years. Is there some sort of philosophical change in pricing behavior or strategy that you guys have had that could instill kind of a wider range once we normalize here on the material side?

Yeah, I think, you know, Gerben made some reference to that period when tariffs were pushing the spike up, and there may have been a little bit of caution on the part of our sales and customer service teams. And there's a lot to this pricing actions, right? It starts with the brand quality and standing for quality It continues to service levels. It extends further to customer relationships and communication with customers because ultimately we're implementing a price crease that goes through a distributor to the user. So we need kind of this two-step coordination. And I do think perhaps that 18 period that Gerben had referenced maybe made that dynamic you know, function a little bit more smoothly that's allowing us to be a little more aggressive during this spike, I would say.

Yeah, maybe just to add to that, I would also say that one of the things that we continue to invest and work on is the discipline around the analytics of pricing and the organization around our pricing discipline with, you know, people that solely focus on pricing. So I think it's a combination of just learning from the past, being a little more aggressive, and having better tools to manage this.

Great. That's helpful. That's all, guys.

Your next question comes from the line of Chris Snyder with UBS. Your line is open.

Thank you. So I guess starting with the updated guidance, if I take the midpoint on the raise, it embeds just around high single-digit margins on the incremental 200 bps of top line, if my math is right. So is this all just more challenging price cost relative to the Q4 guidance, or are there other headwinds here, you know, potentially a Clara installation ramp, or just did Q1 come in softer than maybe you guys thought weighing down the full year?

No, Chris, I think you're putting your finger on the math the right way, which is, if you got a point of extra point of price and all that does is offset cost, it, it, it puts a, um, it alters the incremental math, which is what you're pointing out.

Okay. I appreciate that. And I guess just following up on that point. Um, so of the 200 BIPs, um, organic growth guidance, um, would you have to separate volume and price as it does seem like the pricing increases have been more meaningful, um, than maybe you did on the Q4 call?

Yeah, that's about half and half. I'd say attribute one point of the rise to price and the other to volume.

Thank you.

Right.

And your next question comes from the line of Justice Berdner with G Research. Your line is open.

Hi, good morning. Good morning. Good morning. Thanks for taking my question. I guess first off, the infrastructure bill that was just proposed, how do you see the framework and the numbers potentially increasing or extending the T&D cycle?

Yeah, I was just going to say, I mean, I think that, you know, it can affect both halves of our business in front of the meter and behind the meter. I think it suggests there would be investment in buildings to make them more efficient. But certainly on front of the meter seems to be a lot of intention to to promote renewable energy. And as we said, I think that really benefits us on the transmission side. And it's not exactly clear to us when some of the spending really starts. If it's the middle of next year, that almost feels optimistic. So the flavor of the stimulus seems, we seem to be well poised to benefit from, but I'm not, I'm not sure I have great visibility as to when that would start to benefit us.

Yeah, and maybe just to add, because the clear one that everybody sees is the renewables, and that clearly is positive for our utility business. But as Bill alluded to, there's proposals to invest in the telecom infrastructure. There's proposals to invest in transportation roads, and we play in those areas. verticals as well, whether it's with our enclosures business for fiber installations or with our grounding and connectors and products that we use for rail and roads. So it's a net positive for us. It's more what, as Bill alluded to, is what's the timing around the spend.

Okay, that's helpful. And then one other question. Just big picture question. I mean, you did a few acquisitions at the end of last year and they seem to be tracking well. How do you view the M&A landscape as you look throughout the rest of 2021? Obviously, we may see some tax code changes, valuations are expensive. What are sort of the puts and takes and how eager does that make you to do more deals this year?

Yeah, I think our enthusiasm, you know, is driven by a couple of things. I think one is where We might have a white spot in our offering where we can extend our brands. The growth rate in the vertical, the margin potential, and I do agree with you that prices and multiples can start to look like an inhibitor, especially if you get into areas maybe like software and it seems two larger transactions seem to have a larger multiple associated with them. But an average Hubble deal, which is about $50 million in size, our business development teams continue to be quite hopeful and are in active dialogue with a pretty robust pipeline of appropriately multipled and valued situations that can extend our franchise. So I would hope that we can continue to do a programmatic level of acquisition investing year in and year out at reasonable valuations that ultimately will contribute quite a bit of value to our shareholders. So even though I do agree there is some priciness in certain places, I think we still have our eyes on some appropriate targets.

Great. Thank you.

All right. There are no further questions at this time. I'd like to turn the call back over to the presenters for their final remarks.

All right. Thanks, operator. Thank you, everyone, for joining us. I'll be around for questions the rest of the day. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.