Hubbell Inc

Good day, and thank you for standing by, and welcome to the Hubble Second Quarter Earnings Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during this session, you 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 like to hand the conference over to your speaker today, Dan Inamorato. Please go ahead.

Thanks, Operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the second quarter 2021. The press release and slides are posted to the investor section of our website at hubble.com. I'm joined today by our Chairman, 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. in our 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 and are included in the press release and slides. Now, let me turn the call over to Gerben.

Gerben Bergeron- Great. Thanks, Dan. And good morning, everyone. and thank you for joining us on this busy day to discuss Hubble's second quarter results. I'm going to start my comments on page three with some key takeaways for the quarter. As you can see from our results and our press release this morning, it was a quarter of strong growth for Hubble, with revenues and earnings each up over 20%. We are seeing broad-based growth across both our electrical and utility segments and within each of our major end markets. As anticipated, our operating margins declined year over year in the second quarter due to the lapping of prior year cost actions, as well as inflationary headwinds, which we are actively mitigating through price and productivity. Operationally, our second quarter results are consistent with our prior guidance, but we are now raising our full year adjusted earnings per share expectations at the halfway point. We'll walk you through our guidance in more detail later, but at a high level, we see stronger market growth and a modestly lower full-year tax rate relative to our prior guidance. And while inflationary headwinds are greater than initially anticipated, we are proactively driving incremental price and productivity to offset. We'll give you some more context around each of these dynamics throughout this morning's presentation. Turning to page four to provide some more details on the results, second quarter sales were up 26 percent and organic growth was up 21 percent year over year as markets and customer demand were strong across both segments. In electrical solutions, we saw broad-based inflection across end markets with light industrial continuing to lead the recovery and heavy industrial and non-residential markets beginning to improve as well. We noted coming out of the first quarter that electrical orders had turned positive, and this trend accelerated in the second quarter as demand remained strong and electrical orders continued to exceed shipments. Looking ahead, we expect our electrical markets to benefit from these recoveries in industrial and non-residential markets, as well as longer-term trends toward increased electrification. In utility solutions, we continue to see strong demand for T&D components driven by aging infrastructure and grid modernization trends. Recall that despite the economic impact of the COVID-19 pandemic, our power systems business remained very resilient and grew revenues in 2020 as our electric utility customers are actively investing to upgrade and modernize the grid. These investments are driving attractive growth over the near and long term, including in our gas distribution business, which is effectively serving the growing need from gas utilities to harden and upgrade critical infrastructure. As anticipated, communications and controls markets return to growth in the quarter as project deployments, which face pandemic-related delays, have steadily returned. Operationally, Adjusted operating margins of 14.5% were down year over year. As previously communicated, we took a series of temporary cost actions and salary reductions in the second quarter of 2020, which resulted in a one-time benefit of approximately $20 million. And we lapped that benefit this quarter. We also continue to face significant inflation from materials, freight, and labor as the impact of tight supply chains across the industrial economy drives higher input costs. However, we are being aggressive in our response. We continue to utilize the strength of our brands to lead most of our markets in frequency, pace, and magnitude of price increases, and we achieved strong price realization in the quarter of 3.5%, with increasing traction into the second half. We also continue to realize significant savings from our prior investments in restructuring actions, particularly within the electrical solution segment, where you're already seeing the productivity benefits of unifying that segment under a common leadership structure come through in our results. We will give you some more granular color on our outlook section at the end of this presentation and our expectations for the second half, but we are managing through a dynamic environment aggressively and proactively and we now expect to deliver stronger full-year results than from where we set a few months ago. Let me now turn it over to Bill to give you some more context around our financial results, starting on page five.

Good morning, everybody. I know how busy you all are, so I appreciate you taking time with us. Page five has got some graphical representations of what Gerben walked through. So you see the 26% sales growth to $1.192 billion. that's got four points of acquisition in it, and it's got about three and a half points of price. It unpacks to electrical growing at about 28% and utility at about 23%. So quite a broad base, and I think fair to describe this as a V-shaped inflection for us comparing against the second quarter last year, where we were down just a little over 20% in total, a little more skewed towards electrical, as Gervin highlighted. Utility was a little more resilient last year. So I think the other thing to comment on about the sales growth and about the billion 192 is sequentially, the pickup from the first quarter is better than typical Hubble seasonality. So not just does the V-shape feel like it's rebounding from last year's dip, but it also feels like building some momentum and some improvement from first quarter to second quarter. The OP line... $173 million is an increase of 15% year over year. Gerben highlighted the fact that this V-shaped recovery is bringing with it a significant amount of inflation, and so we're working hard to get our pricing up to that level, and we're making quite good progress on that, and we'll talk about that a little bit more in our segment discussions. And as you look at earnings per share on the lower left of page five, you see an increase of 26 percent to $2.36, a nice increase that's in line with the sales level. To get there, we had some help from the non-op areas. most notably from tax. Some discrete items allowed us to have an effective tax rate in the quarter in the mid-18s, which would cause our full-year tax rate to come down to that 21-22 range from what we started to expect of 22-23. Second contributor on the non-op side is interest expense a little bit lower this quarter. We mentioned last quarter we had refinanced $300 million of bonds at about 130 basis points, lower interest rates. So we're getting the benefit of that lower interest rate here in the second quarter. And the free cash flow of $131 million, it's important to think about what the right comparison and context for that $131 million is Last year is a strange compare. In the second quarter of 2020, we were certainly reacting to the sharp contraction in demand, and we're harvesting the working capital section of the balance sheet, collecting receivables, not building or investing in inventories. And this quarter this year is a 180 to that. You basically have gone from the contraction to the expansion. And so we're investing heavily in receivables and inventories. So I think looking back to 2019 is actually pretty instructive. We've got a full year target this year of getting to $500 million of free cash flow, which is around the level we achieved in 2019 and at the halfway point of 2021. This 131 plus the first quarter gets us to about 170 of first-half cash flow, which compares favorably to where we were in 2019. So it feels on track, and I think you've got a story of quite strong revenues and continuing to navigate the inflationary environment as we work to get our margins up. to where they were last year. I think it's instructive, though, to unpack the enterprise results into the two segments because they are performing a little bit differently. We'll start with the electrical segments. On page six, you see a 28 percent growth rate to $603 million of sales. That includes 1 percent from acquisitions You'll remember us talking about the Excel text acquisition, a really good investment made by the segment in the 5G antenna space. There's about four points of price in that organic growth of 26%. And so you'll note that that's a little bit ahead of the average for the company at three and a half. We're finding that The ED channel is quite receptive to these price increases. We find that they're passing that along the channel to the end user and installers. And most of what we're selling, we're finding selling through and not any kind of pre-buy situation that we're noticing in the channel. Um, the broad based nature of this recovery is certainly, uh, notable. Um, uh, the electrical segment was, was down about 26% a full year ago. The next quarter is down about 14, the next quarter about 10 and then flat and now up. So quite a noteworthy inflection and, and quite broad based. Um, I'd say, if anything, leaning to the industrial side as kind of leading us in the V-shaped rebound. Certainly light industrial has been our strongest end market. We're selling connectors, grounding, wiring device-type products into that end market and experiencing attractive growth But the heavy side is showing positive signs as well. Our harsh and hazardous business, which has been quite oil and gas-based, we've worked hard to diversify the end markets they serve with explosion-proof devices, and they've returned to growth, which is quite welcome, as well as heavy industrial components, which are serving factories, steel mills, rail transportation alike, also showing good signs. On the non-res side, we had started the year a little bit cautious on non-res. We're anticipating some contraction there. We've been experiencing growth. And interesting, I think, to be led at this point by the Renault and retrofit side of the business. I think new construction, the early indicators, the leading indicators are looking positive there as well. So, certainly we have a brighter outlook for non-res than we started the year. Inside of there, we've got not only wiring devices, but our commercial industrial lighting, which grew over 20 percent in the quarter. And the resi business, It continues to be strong, and it sort of was strong all through last year. So they'll have harder comps to lap in the second half, but still showing some decent resilience there. So the team did a great job of getting margins to expand to 13.4%. 41% growth in operating profit to $81 million. The higher volumes are important. The restructuring work that Gerben mentioned at the beginning, quite important. We've been investing money, as you followed us here a couple years ago, We spent about $37 million on restructuring last year, about $31 million, anticipating to spend about $20 this year. You're getting both a tapering effect of that spending, but also the benefits from the projects we did last year, creating some good lift. Those were substantial enough to help us overcome the headwinds from the inflation that we're facing. I think it may be worth Just a comment, I'm pulling the lens back on restructuring. We continue to feel quite good about the program. We've taken out by our analysis about a million five square feet from our manufacturing footprints. That's over 15%. And we continue to see opportunity both on the manufacturing side ultimately on the warehouse side as well, and as Gerben described in his opening comments, the ability to take the segment and compete collectively under a unified leadership rather than have three different vertical businesses we think is opening up good opportunities to share warehouses, to share factories, and become more efficient, and we see continued runway there. I would comment that in the first half of the year, we didn't spend half of the $20 million we anticipated. I'd say a lot of our engineering focus was on capacity and making sure we had production to service our customers' needs. And so the back half outlook for electrical will contain an increase in R&R spending compared to the first half. But we anticipate the demand to be strong. They start the second half with a big backlog, and the pricing actions continue to increase as commodities continue to increase, most notably steel. We've seen copper and aluminum starting to show signs of maybe flattening out Steel is still showing signs through the third quarter of increasing until hopefully it looks like some rollover in ultimately in the fourth quarter. So we continue to price for that. I think we've also had to expand our definition. I think those of you who followed us know we try to maintain a parity between price and commodity cost and then use productivity to offset inflation in non-commodity areas. We're finding that the inflation in areas like transportation and some labor costs are such that natural productivity levels are insufficient. So we're starting to sweep those other items into the bucket that need to be covered by price. And again, we've been encouraged by the channel's reaction and will continue to offset those and to get back our margins. On the utility side, on page seven, you see 23% growth to $589 million. There are six points of acquisition inside that utility growth number and three points of price compares to the four points of price in electrical, so utility customers moving a little bit more deliberately than the ED channel serving the electrical side. Those acquisitions, to remind you, included in the enclosure area for electric utilities, water utilities, and telecoms. That business is high growth, high margin. We also bought a company that's called ArmorCast. Beckwith is wrapping around here, which is controlling the infrastructure. And maybe also of note, we sold a very small line of business from within Eclara, the customer engagement business that didn't fit well with with our set of solutions and was worth more to someone else than it was to us. So, it has no material impact on our sales or OP going forward, but we feel we can use the proceeds from that to invest in areas with a better fit. We've unpacked the sales here and utility solutions between the components and the communications. The components is both electrical T&D, the old legacy Hubble power systems continuing, though resilient last year, continuing to grow very, very nicely this year. The grid modernization trend and renewables trends continue to push spending there. We've noted a little better strength in distribution and transmission this quarter. that can go back and forth. And the gas distribution components that go into the last mile of natural gas distribution had been, you'll recall, slightly held back by some site access issues and happy to see those conditions improving, seeing nice growth and nice margins out of the gas distribution business. Business and Aclara, we had also had site access issues there, and as those have improved, we see that returning to growth. So, again, a broad-based situation of healthy demand inside of utility solutions. 93 million of operating profit is comparable to last year and at lower margin than last year. The price-cost area continues to be a source of drag here in the second quarter. Our three points of price is up from about a point in the first quarter. We've had our fourth increase already announced, which will influence the second half. That's, I think, an unprecedented number of increases. And we feel we're certainly leading the market as we announce those price increases. But we continue to be very confident that we'll catch up as this inflation from the commodity starts to level out, that we'll catch up and restore our margins. There's two other factors worth mentioning here in the margin profile. First is the ArmorCast acquisition that I mentioned. It's located in Southern California. And we closed on the very early January. So we've had it for about six months. And I'd say they've endured significant labor turnover and having a hard time staffing the facilities in that geography. So it's not been contributing much, though it's on the bottom line. And so we're working hard, and we're very excited about the acquisition, and we're confident we'll have a better second half and set up well for a better 22. I think a third driver I'd mention to you is inside of Eclairia. Recall there's three lines of business there, the communications, the meters, and the install. The install business is at the lower end of profitability of the three lines of business. That's where the access had been constrained. As that was loosened, we saw the install area be the largest level of growth and therefore being mix unfriendly. And so those pieces conspired to result in flat OP for utility. And I think that describes the two segments and where they are. As we think about the outlook for utility, we feel great about the backlog that's starting the second half. The demand feels broad-based and solid. Perhaps of note, the chip shortage that we're all reading so much about The place that would affect Hubble is more in the Eclera on the communications side, and we're sort of watching those supply chain situations closely. But our guidance is contemplating some of those risks. So I turn it back, Urban, to you to talk through the outlook in general.

Great. Thanks, Bill. Let's turn to our 2021 outlook then on page 8. And starting with our end market pie chart on the left, with the first half behind us and increasing visibility into the unfolding economic recovery, our markets overall are trending above expectations that we had at the beginning of the year. Most notably, as Bill indicated, industrial markets have strengthened throughout the year, and we now expect these markets to be up high single digits on average with light industrial verticals leading the way. and heavier industries expected to continue recovering in the second half. We're also more optimistic on non-residential markets, where we were expecting modest decline a quarter ago and now see modest growth. While newer construction activity remains mostly soft for now, we expect to see recovery here heading into 2022 as major leading indicators have rebounded strongly in recent months. Near-term, our incremental optimism in non-residential is driven by reno and retrofit markets, which have been solid as the economy has reopened. On the utility half of our business, we are sticking with our prior end-market guidance for approximately mid-single-digit growth for the full year, with communications and controls outgrowing components primarily due to prior year comparison dynamics. This all adds up to mid-single-digit market growth for the full year, and we are now anticipating high single-digit organic growth as we drive approximately four points of price realization. Then, when we layer on the contributions from acquisition, we now anticipate total sales growth of 11 to 13 percent for the full year. We've also tightened and raised our adjusted earnings per share guidance by 25 cents at the midpoint versus our prior range, and continue to expect approximately 500 million of free cash flow for the full year. I'll give some more context on the drivers of this guidance race at the next page, but with half the year behind us, we are confident in our ability to deliver on these race expectations. Now turning to page nine for our year-over-year EPS bridge. We've shown this earnings bridge throughout the year, and we think it's a helpful way to summarize the various moving parts of our guidance. At a high level, what has changed relative to our prior guidance is that we now expect stronger volume growth, stronger incremental price realization, and some non-operating tailwinds from a lower tax rate, all of which is more than offsetting inflationary headwinds, which have also turned out to be more significant than contemplated in our initial guidance. The net impact of these dynamics allows us to raise the full-year guidance to now reflect mid-teens adjusted earnings per share growth. A couple of other points of note on this page before we turn it over to Q&A. Restructuring continues to be a key driver of our financial model with ongoing investments generating strong savings throughout this year. We continue to include restructuring investment in our adjusted earnings framework and are still targeting investments consistent with our prior guidance of approximately 30 cents. Though we now expect this investment to be more weighted to the second half, as Bill highlighted, as our operational efforts over the first half has focused more on increasing our production capacity to meet the strong demand from our customers. We still have a multi-year pipeline of footprint optimization products to drive incremental savings well into the future. On price material, as we've reiterated consistently throughout the first half, we are highly confident in our ability to manage this equation to net favorability over the course of a cycle. Although inflation in material, as well as freight and labor, have persisted throughout the second quarter, we have taken aggressive pricing and productivity actions that will accelerate in the second half and generate wraparound tailwinds going into 2022. As is typical, our financial model tends to operate with a one to two quarter lag between commodity cost and price capture. So while we anticipate catching up to net positive on price material across the enterprise by the fourth quarter, this will continue to be a headwind on a full year basis. To conclude, we are raising our full year adjusted earnings per share guidance to a range of 850 to 880. We remain confident in our ability to deliver on these commitments, and we are focused on serving 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 the Q&A section.

Your first question is from Jeff Sprague from Vertical Research. Your line is open.

Thank you. Good morning, everyone. Good morning, Jeff. Hey, morning. A couple from me. First, just on maybe where you closed, Gerben, with kind of getting net neutral on price-cost. I assume that comment was just on you know, the raw materials, or are you talking relative to the broader scope that Bill was talking about, trying to, you know, get the labor and the logistics inside that construct also?

Yeah, I mean, we're talking about getting the material piece covered, and we think we got the actions lined up and already asked, but as we've been through our reviews with everybody, we keep showing them those other chunks, Jeff, and so... I think we've got to, you know, keep pushing on this and making sure that there's other forms of inflation outside of commodities that we've got to sweep up into our pricing.

Yeah, and then, Chip, maybe add a comment on that. It's, you know, in much lower inflationary periods, we've generally adopted the strategy of, you know, price for commodities, and then we're driving productivity in our business to offset inflation. you know, more general inflation. In this environment where we're seeing this steep inflationary pressure, we're definitely thinking around our pricing strategy more than just commodity, but think inflation more broadly. So, a lot of our actions are with broader cost inflation in mind.

And understood. And then the comment on restoring the, you know, power margins, Could you just clarify kind of when and to kind of what level you're talking about restoring?

Yeah, I think, Jeff, if you look at the utility segments March from 18, 19 into 20, you saw a nice healthy couple hundred basis points of margin expansion there. And so we're definitely catching the utility segment here. off of a nice high watermark. And even specifically, it's interesting thinking about the third quarter last year when they actually rebounded nicely from the second quarter. They actually had some factory closures with COVID in the second. And they still had some favorable price costs going such that they had real nice margins then. So we've got some tough comps. not only in the second half of 21, but looking back. And yet, as we continue to grow and manage price costs, you know, we think we can, you know, we're hoping that 2022 kind of recovers a lot of that margin that we faced the headwinds on this year.

And what you should expect to see is sequentially improvement on that margin as we go through the balance of this year.

Okay, great. And then just one last one from me. Just on Aclara, obviously the comp was super easy. The growth in the quarter doesn't really stand out relative to that comp. I assume there was still access and other issues, but could you just give a little more specific color on how you see things playing out there over the balance of the year?

Yeah, I think that the access will be even despite some of these variants, still feels like access is better. I think in terms of demand, the backlog plus the blanket orders continues, Jeff, to be healthy and is higher than last year. And so, the lumpiness of the business makes it a little tricky to be too predictive to you narrowly, but certainly what we're looking for is the comms and meters business to be the drivers of the growth, not the install side, right? So we sort of need that to stabilize. But again, I would say The pipeline, the backlog, all looks where we want it. And so if you take out little quarter-to-quarter distortions, I think we still see this medium-term outlook for us is mid-single-digit growth there with margin expansion. Great. Thanks a lot, guys.

Your next question is from Steve from JP Morgan. Your line is open.

Morning, Steve.

Morning, Steve.

Steve, if you're talking, we can't hear you. I don't know if you're on mute or maybe you got dropped.

Maybe take the next question and come back.

Operator, can we move to the next question in case there's a problem with Steve's line?

Certainly, sir. Your next question is from Tommy Mall from Stephens. Your line is open.

Morning, and thanks for taking my question. Hey, Tommy. Morning, Tony. So in terms of your end market strength, you've talked about a V-shaped inflection versus last year. Also pointed out some momentum in the quarter-over-quarter comparisons. and then obviously raise your full year outlook. As you look across the business, and as we start to think about next year, I know we're not going to get guidance today, but do you have any sense of the duration of this momentum? I mean, any pockets of your business where you can start to see a more normalized rate of change, or is it just... Yeah, I think, Tommy, the

The first piece that's hard, and you're right to point out, is comparing a second quarter when last year we were down 21% to this quarter. That's hard to describe that as normal. And so we took a decent amount of enthusiasm from the sequential from 1Q to 2Q to see that behave. in a better than normal seasonal fashion. Not by a lot, but when we look at orders, the orders did improve by a lot. And so that suggests to us the demand profile is improving. I think the cloud in our crystal ball comes when if you told us that customers were anticipating price increases and a choppy supply chain that would be a little bit irregular in delivering customer service, that could lead to, you know, earlier buying than needed. So we keep watching, you know, what's selling through in the channel versus, you know, what's out our doors. And so far through the first half, Our sense is that everything is kind of moving. Whether the end user is doing a little stockpiling is hard for me to see or to know. But I think we're going to get past the down V and the up V here in the second and start to have a slightly more normal-looking second half when we start to do a VPY basis on the top line. So I think... I think the units versus price will be interesting to keep looking at. There's going to be quite a bit of price in the second half. If you think about us anticipating a full year at four points of price, you know, Tommy, and we had a first quarter of one point and a second quarter of about three and a half, you can see that we're anticipating a second half, you know, over five. So that'll be, you know, that'll be on top of units, you know, and so we'll have to keep our eye on sort of those organic pieces and make sure we track the units, you know, as well.

And maybe just a couple of comments to add to that. I would say what gives us confidence with our guidance going into the second half is what Bill just indicated. We build backlogs. in the first half. So we have that going into the second half. We also have not seen meaningful restocking in the first half. So that certainly, you know, helps, gives us confidence that we can deliver in the second half. Pulling that lens out a little further going into, you know, 2020 and even beyond, I would say, and this is an area that we've talked about around some of the secular growth trends in our industries, right? So whether you look at renewables or grid reliability, those are areas that we feel are setting us up well longer term to continue to enjoy growth. Of course, the comps get tougher if you spike up like this, but we're still very optimistic about our growth going forward.

And as we think about, Tommy, stimulus and any kind of infrastructure package that government policy may be behind, You know, it's certainly too early for us to see any impact of that, obviously, and it's not even clear where 2022 might be impacted there. So, we think the demand we're seeing is solid, and we're pretty confident in that.

Thank you both. That's very helpful. I wanted to follow up on capital allocation. You've taken care of your near-term maturity Your leverage appears to be well under control, so what would you offer to help frame up priorities in terms of M&A, shareholder returns, any areas of increased investment in terms that you've got in mind?

I would say, Tommy, if you think about us generating an order of magnitude 600 or so of operating cash flow and I'd anticipate there being a couple hundred million of dividends, 100 million of capex. That dividend is meant to be at a relatively around that 45% of net income payout ratio. So as our net income kind of structurally gets better, anticipate increasing a dividend payout in relation to that. The $100 million of capex is order of magnitude, you know, a couple points of our sales and, you know, we're finding that that's adequate to handle capacity plus productivity needs. Our share repurchases tend to be in that 40-ish range, 50-ish a year, which we really, At a starting point, Tommy would think about offsetting dilution rather than, per se, trying to shrink the shares outstanding. And that leaves about 250 of acquisitions. And we continue to think that would be a nice amount for a given year to be able to spend that, invest that in... in new acquisitions. You know, Armourcast started the year, its first day was new, and so we're eager to get back and close some acquisitions. We've got a nice pipeline of opportunities there. I'd say the market is a little bit hot if you're on the buyer side. I'd say valuations are tending up. Processes move fast. And so we've got to be mindful as we are on the buy side here to make sure we can find good things, good values, and we're confident that we'll continue to do that.

Thanks, Bill. That's helpful, and I'll turn it back.

Your next question is from Christopher Glenn from Oppenheimer. Your line is open.

Thank you. Good morning. Good morning. So, you know, more good numbers, top line from utility, and you broke out the 19% for T&D, 9% for Clara Organic. Curious how you pegged the market growth there, because I think you kind of have a legacy of doing a little bit better.

Yeah, inside of T&D, you know, I think our perception is that we maybe have been share gaining a little bit of, of share. Um, um, but it's, uh, maybe hard for me to prove that to you, but it feels to us like, like we are Chris.

Okay. Is there any way you benchmark the Clara side of the house?

Yeah. I mean, certainly there are, uh, a couple of, um, public comps, uh, who report sales growth, um, from the meters and com side. And as we looked at them quarter in, quarter out over our ownership period, I would say it feels like we've outpaced them a little bit, probably on the meter side. But again, we continue to see that as a good mid single-digit kind of long-term grower. a couple of decent public comps that we can track ourselves to to make sure we're growing with the market.

Yeah, it's strictly easier on that side, on the communication side, where you have some public companies to compare, than on the legacy power side, where there's less or they're within larger companies, so it's very hard to get to that in exact numbers.

Okay, and then on electrical curiosity, to do any uh deeper dive on the book to bill and then within non-res the particulars of what's improving uh there if it's kind of bifurcated in your product categories or not yeah i mean the book to bill was over 115 in that neighborhood so uh decent bookings um and uh in non-res uh

we had higher performance on the reno retrofit side than we did, uh, on the new construction side. So something that like CNI lighting, Chris, that's become, uh, more dependent on the reno and retrofit, I think benefit. And it was interesting to see them grow at over 20% in the quarter. Um, but the, uh, the leading indicators on new construction and non-res are actually leaning favorable, too. So, despite the fact that we started the year a little cautious on non-res, it's proved to be stronger than we were predicting back in January.

All right. And then just clarifying, I think you said lower tax rate. I'm not sure if you gave us a level to model, if you could comment there. And also, I'm not sure what's driving that, but would we expect just kind of normalized tax rates back in 22?

So I would say our normal tax run rate has been in that 22 to 23 range. In the second quarter, It was down around 18.5-ish, and so that will cause kind of a one-point reduction in the full year to 21.22 rather than 22.23. So the discrete items in the quarter don't repeat and don't reverse. They just help. They create a little bit of tailwind in the second quarter, and that gets kind of smoothed out over the full year.

Understood. Thank you.

Your next question is from Josh . Your line is open. Hi. Good morning, guys.

Good morning, Josh. Bill, just to follow up on some of the price-cost commentary and kind of that broader definition that you're using, you know, what would be the expectation as, you know, maybe some of the material side of the equation starts to level off, maybe things like freight or labor or other logistics costs remain high. Is that something that you feel like you can go to the market with price width or the customers really want to be able to circle a chart with steel prices and tie back to that a little bit better?

Yeah, I mean, I think we're trying to position that conversation in the broader sense. And you've captured the two biggest drivers that we're going to throw in the bucket, which is transportation costs and labor costs. So, um, we certainly owe our customers, uh, every effort at, at us having, uh, productivity. Um, and I would say, you know, to expect that productivity to give us a couple points, you know, off the cost base is, is realistic, right? And an inflationary environment like this, you know, that, that, you just going to, it's just those two items you mentioned, transport and labor are going to outstrip what productivity can do. So, you know, we, we feel the more, um, surcharge-y the discussion is, Josh, right? Where you're just pulling out a graph of, you know, uh, here's steel, here's copper, here's aluminum. I think that's too, that feels like you're just surcharging for the metal and, and, uh, it misses the part of the quote conversation that we think is important, which is, you know, overcoming inflation. So, that's sort of a new initiative and drive of ours. And Gerben and I spent last week in operations reviews and really met with all of our key BU and P&L managers, and they're all pushing for that definition of what price needs to cover. So we're going to keep driving here in the second half.

Yeah, I would maybe just add to that. We have definitely evolved in pricing in the businesses, both how we organize around it as well as our approaches. We're doing it more aggressively, and I'd say we're doing it with more analytics around it and organization around it. So I fully agree with Bill's comment. It's less about indexing and surcharging than it is looking at pricing across your entire portfolio and where can you get price and where do you need price. And I think we're managing both those probably better than we've ever managed it. And I think you see that by price realization and Commodities have continued to go up throughout this year, right? And it's now, I mean, steel, as an example, it's one of our highest uses. And, you know, a year ago that was sitting at about 600, 700 a ton. We're at 2,000 a ton. And so, and it's sitting at a high right now. So, you know, will that eventually level off? Will that come down? Who knows? You know, the thing that we can't control is the actions we take. which is pricing and we're going after that really aggressively.

Got it. That's helpful. And then just on the utility side for you, Gerben, you know, obviously a lot, especially on the legacy, you know, power systems business going on in the marketplace, whether it's some of the like energy transition stuff and renewables or grid modernization. But I also know that there's, you know, some heightened kind of near-term activity with places like Texas and California and what's your sense of, you know, kind of what is going on there that you would say is a bit more kind of secular and forward-thinking on the part of your customers versus, you know, stuff that's more reactionary in the here and now? And my guess would be it's all of the above, but, you know, anyway, I'd take that a little further.

Yeah, man, it is kind of laughing that you asked that question because it is, and I would say it's still, I see it very much consistent with how we've communicated this. Absolutely some secular drivers in this market that will continue to set us up. It's a very aged infrastructure that with the push for renewables, which is real, I mean, this is happening, is putting a ton more stress on the system. So I think there is a desire to retire less efficient renewables. assets and to put on more efficient, which is the renewables, and we benefit from that. Very secular. And I think in that there is a heightened realization of how fragile this grid is, and that's where you see the upgrading of the grid. You get reminders of that when there's storms and there's fires, but I'd say those two kind of go hand in hand. And we're very bullish on this over the next few years. But as you point out, it's Not necessarily one thing, but it's positive for us. And I also say that there is generally good support from regulators on these types of investments. The public utility commissions are recognizing need for this as well. So I think there's a lot of momentum here.

Great. Appreciate the call. Thanks, Chris.

Your next question is from Chris Snyder from UBS. Your line is open.

Thank you. I wanted to follow up on some of the commentary around raw material inflation. Could you remind us how significant raw material consumption is as a percentage of cost of goods sold in a normal year? Just so we can put some math around the Q4 price cost neutral comments, which it sounds like is reflecting price up in the 5% kind of plus range.

Yeah, Chris, your math, I like the way you're doing the math. I would put our RAS in the order of magnitude of the low 40% of sales and a little bit more than half of COGS. And so there is a mathematical equation between what you need on the top line in price versus the inflation you're getting in the RAS. So I I think about it exactly the way you are.

Okay. Um, I appreciate that. And then, um, for the second one, I want to follow up, um, and particularly on the non-res, um, business. And then within that, um, specifically the new construction side, um, you know, which feels like it's beginning to turn. Could you, um, just remind us where you sell into the, um, you know, new construction, um, you know, life cycle? I know lighting is quite late stage, but, you know, maybe more on the electrical side, just so we can kind of feel for how you realize that recovery.

Yeah, I would say the rough and electrical is fairly mid-cycle to the construction, so think of boxes that would be inside of the wall, but then Some of the receptacles and lighting and poke-throughs in the floors, those would all be quite late cycles. So we're kind of mid to late and skewed towards the late in the timing of that.

Appreciate that. Thank you.

Okay.

Our last question is from Justin Bergner from G-Research. Your line is open.

Good morning, Gerben. Good morning, Bill.

Morning.

Two quick questions. On the grid side, the T&D side, what is the potential upside from bearing power lines, for example, in California? And then on the utility infrastructure bill, if the bipartisan bill passes, Looking out to the medium term, do you see that as sort of extending this 5% to 6% organic growth rate environment for your T&D business or actually, you know, increasing that growth rate?

So, Justin, let me take the first part and I'll give Bill the second quote. So the first one on the grid T&D, the particular question was around underground production. I think you probably saw recently a large IOU utility talking about perhaps doing this. I'd say our portfolio leans more to the overhead side, but if you think about transmission infrastructure and the distribution grid, most of the U.S. actually is overhead, except when you're going to neighborhoods. We do have a presence in the underground. I would also say that when... You know, as you look at the investments required to bury this, it's humongous. So it's generally at least 10x or more the cost. I think many utilities don't find the economics to be able to do this. So I don't see it as a threat to our franchise, truthfully, but it's something that in certain situations can happen and we can, you know, serve materials for it as well.

Yeah, I think the second half on the infrastructure, I think areas like renewables can really be quite favorable to where Hubble's exposed. Solar and wind components on both sides of our segments, we would have utility benefits as well as some of the grounding and component elements inside of electrical Anything on grid reliability certainly would be favorable. There's talk on telecom reliability. Just making buildings more energy efficient for our behind-the-meter piece of our business. So there's a lot inside of that that ultimately I think could contribute to maybe what I'd call a stimulated period of demand that would be a little bit more than sort of our normal level if that comes to pass and gets spent over, who knows, a period of five years or so. So it would be, certainly on the top line, it would have bullish implications, I would say.

Thank you. I'll take my other questions offline. I appreciate the color.

Okay, great. Thank you.

There are no questions over the phone. I'm going to turn the call back to Dan in Amarado.

All right. Thanks, operator. Thanks, everyone, for joining us. I'll be around all day for questions. Thanks.

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