Hubbell Inc

Good day and thank you for standing by. Welcome to the first quarter 2022 results conference call. This time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. And now, it is my pleasure to hand the conference over to your first speaker today, Dan Inamorato, Vice President, Investor Relations. Thank you. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our first quarter 2022 results. The press release and slides are posted to the investor section of our website at howell.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 and 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. And with that, I'll turn the call over to Gerben.

Gerben Bergeron- Great. Thanks, Dan. And good morning, everyone. And thank you for joining us to discuss Hubbell's first quarter results. Hubbell is off to a strong start in 2022. Our markets remain healthy, with broad-based demand driving strong sales and order growth. In particular, our utility solution segment continues to build backlog, even as customer shipments picked up sequentially. Grid modernization initiatives continue to drive robust investment levels from our core utility customers as they seek to upgrade aging infrastructure and integrate renewables onto the grid. Operationally, supply chain headwinds persist. Inflation in raw materials and labor, tight availability and higher cost of containers, as well as shortages in key materials such as chips and resins, are leading to higher input costs and manufacturing and transportation inefficiencies across our businesses. However, we are executing effectively through these challenges to serve our customers, and deliver strong results for our shareholders. We continue to accelerate our price and productivity initiative, and we have now turned the corner on price material, which was a net positive in the first quarter. The combination of strong volume growth and positive price material enabled us to return to year-over-year margin expansion a quarter earlier than we had initially anticipated. Overall, we are pleased with the performance in the quarter. and we are confident that we are well-positioned to continue executing effectively over the balance of 2022. While the macroeconomic environment remains dynamic, our strong order book, significant price traction, and operational discipline gives us the visibility and confidence to race our full-year outlook today, which now reflects mid-teens adjusted earnings per share growth. We will provide more color on the full-year outlook later in the presentation. Before I turn it over to Bill to walk you through the financial results, I'd like to highlight some key accomplishments in the quarter. First, on capital deployment, we deployed 150 million of proceeds from the CNI lighting divestiture to share repurchase, returning cash to shareholders and generating approximately 10 cents of accretion in 2022 in line with our initial guidance. Our balance sheet and cash position is strong, supporting our bolt-on acquisition strategy, which we expect to continue executing over the short and long term to generate attractive returns for our shareholders. Next, I'm proud to highlight that Hubble received two of four annual awards from a major customer. Hubble Power Systems was awarded the Above and Beyond Award, for successfully managing through supply chain constraints to serve its customers. While Burndy was awarded the operational and technical excellence awards for improvements in operational efficiency and proactive management and communication. This recognition is particularly well deserved for our teams who are working so hard to effectively serve our customer needs during these challenging times. Not only is this an example of the strength of Hubble's individual brands and businesses, but it also demonstrates the quality of our portfolio across utility and electrical end markets. We have made good progress in our efforts to go to market collectively as one Hubble, and we see significant opportunity ahead in building on our strong channel partnerships to better serve our customers. And finally, Hubble is honored to have been named one of 2022's World's Most Ethical Companies by Ethisphere for the second consecutive year. I'd like to thank our over 17,000 employees who demonstrate 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. We also released our second annual sustainability report in the first quarter, highlighting the progress we have made on ESG over the past several years. as a core element of our business strategy and product offering. We encourage all our stakeholders to view this report on the sustainability page of our website and to continue to actively engage with the Hubble leadership team on ESG topics. Let me now turn it over to Bill.

Thanks, Gervin. Good morning, everybody. Appreciate you joining. I'm aware of how busy the day is, and I'll try to keep my comments short and sweet and open with a Happy birthday to our own Dan Inamorato today. And as Gerben said, really off to a strong start to the year. And there's really two notable management accomplishments that are driving the results, and you'll hear us comment several times. The first is price. I know you're all aware that we got behind last year, and as inflation persisted throughout the last of the five quarters we relentlessly kept working with our channel partners to raise price. And I think the fact that we caught up and created a tailwind in the first quarter of 22 is really good evidence of the high quality of our products and how well positioned they are, both in front and behind and at the meter, where essentially at low cost relative to the value that they add. The second besides price was our production levels. I think, as you know, we'd been operating for a while constrained not by orders but constrained by supply chain. And so it was a great sign to see sequential increase from Q4 to Q1, which is typically a decline in output. And for us to increase the units there, some evidence that – getting better and fighting through some of the supply chain constraints. And when you have both that price and production level raise and with the backdrop of strong orders, you're going to see very high growth in sales and earnings, which is what you'll see in our results released today. I'm going to start on page four of the materials. You can see sales increase of 21 percent to 1.16 billion. That 21 percent was driven by organic growth as well as price. As I mentioned, that's a comparison to the prior year. Sequentially, as well, we saw mid-single-digit growth versus the fourth quarter of last year, with both units and price being up sequentially. At the operating profit level, you see 20 basis points of margin expansion to 13.9 percent. Welcome to see that return to margin expansion. And we really have the price material tailwind complementing the volume growth to help drive that. Earnings per share, you see an increase of 30 percent year-over-year to $2.12. driven by the operating profit growth as well as some other income tailwind. On the cash flow side, we had a use of $36 million in the quarter. The extraordinary high level of sales required a large investment in receivables, and we also invested aggressively in inventory, and we continue. Gerben pointed out that the customer awards that we received We continue to try to serve the customer, make sure we've got inventory on hand, and keep our service levels as high as possible, given some of the choppy operating environment that we're in. On page five, you see the results laid out a little more graphically. That 21% sales growth unpacks into 12 points of price and nine points of units. That skews slightly higher for the utility segment, which we'll talk about separately, both in units and price, but the electrical segment also showed very strong growth, so a very broad-based demand profile here. And despite the 21 percent increase in shipments, orders were up 25 percent, so we actually built more backlog in the quarter. At the operating profit level, you see the impressive 22% growth to $160 million in the quarter. And that volume growth and price material tailwind really combining to create some nice lift. On the margin side, there's a partial offset for the non-material inflation. Think of things like compensation costs and transportation costs eating into some of those gains as well as some inefficiencies in the factory where the supply chain inconsistency, think of both labor and material not being available as consistently as is typical. And so when you're operating at high levels of volume, there's some inefficiencies in spending that are going on inside of our plants. Uh, EPS is up 30%, uh, just under 50 cents of new earnings coming from all this growth to $2 and 12 cents. The growth rate is higher than the OP growth rate. Um, because of some, we have interest expense lower as a result of a bond refinancing we did last year, as well as, um, uh, transition services income. But, um, the taxes were comparable in the period, so not a tax driver there. Here you see the cash flow use laid out compared to a small source of cash last year. Typically, the first quarter is our weakest cash flow quarter in the year, and we still anticipate meeting our initial targets on free cash flow. This is just early investment in the year at a time of high growth in receivables first and inventory second. We're going to now unpack our results by segment and we'll start on page six with our electrical segment. You can see the impressive growth of 19% all organic Ten points from price, nine points from volume. Quite a broad-based contribution to the demand profile. Light industrial up in the mid-20s. Data centers and telecom, I would note, as verticals inside of that space. Non-res similarly up strong in the mid-20s. Heavy industrial up. Up in the mid-20s, the strong commodity prices that we see in both steel, for example, and oil and gas are good indicators for our heavy industrial business customers still pushing demand up. And the exception to the really strong outlook is on the residential side. We had some tough compares to a very heavy amount of home remodeling done last year as people were spending more time in their house than they wanted to. No travel, not commuting to work. We saw a lot of attention spent to remodeling, which has been difficult to compare against. On the OP side, double-digit growth for the electrical segment at 11% to $58 million. You see that the Margins, though, did not expand in sympathy with the company. And though we got good drop-through on our incremental volumes and price material was favorable, that was more than offset by the inflation in transportation. And that was really most acutely felt by a residential business, which is essentially a purchase for resale, and the container costs, transportation costs become higher. a very large hit to that business as those costs spiked up. And as well as extra spending on restructuring. So if the residential business had had a comparable year to last year, you would have seen comparable margins and the extra investment in restructuring, which will create productivity and higher margin in the future, cause an additional half point drag. I think the underlying business is very healthy here. And page seven, we transitioned to showing the utility segment and very strong performance. We've built quite a strong franchise here on the utility side. 22% growth, which is actually 23% organic. We sold a very small product line from inside the Clara business area. And that 23% organic unpacks to 13 points of price and 10 points of volume. Again, kind of note that the volume was 7% higher sequentially versus the fourth quarter of last year. And inside the utility solution segment is where we have the more pronounced buildup of backlog. And so getting the bottlenecks eased out and our production capacity up has been a very welcome sign. And you can see that drop through on the operating profit side. But finishing on sales really saw strength from the power system side and the transmission and distribution components, as well as gas components, We had growth in the 30% range. And on the communications and control side, the Eclair AMI and meters business continues to be constrained by the lack of availability of chips. And we expect that condition to persist throughout the year. But the entire segment is still powering with very strong growth. And you see the drop-through effect of having price material tailwind, which this was the quarter that the power team caught up on that. And you see the welcome lift in margin expansion of nearly a point. And so you got above 20% sales growth with 90 bps of margin expansion. You get a lot of OP lift there. and really helping add to our earnings per share story. So that gets me to page eight and the impact of those trends and results on our outlook. And I would say usually we would consider this to be too early a point in the year to consider a raise, especially with as much macro uncertainty as there is. But we started with a higher-than-normal backlog. We added to that backlog despite shipping 21% increase in sales. And the prices really seem to be sticking. And we're going to get some incremental price. And so that's causing us to anticipate higher sales than we had initially expected. guided you to, and we're going to reflect that new outlook in this guidance. So when we came out in January, we were describing an expected sales growth of 8% to 10%, which was comprised of 5% price and 3% to 5% of volume. And so given what we've seen through the first quarter on price sticking as well as some anticipated incremental price that we're going to ask for, we believe that price will be more in the range of 7 percent for the year. And that volume, which we had anticipated at 3 to 5, we feel now would be coming through at 4 to 6. And the effect of this change at the sales side, effectively imagining the price being absorbed by incremental inflation, so it leaves us an extra point of volume. that extra point of volume we think should drop on the order of 20 cents to the year. And so what we've done is raised the midpoint of our outlook range from $9 to $9.20. So in other words, we've kind of maintained our margin outlook and we've maintained the percentage drop through free cash flow that we're expecting between 90 and 100%. Worth noting, I think, that there are no new incremental acquisitions included in this guidance. We are pleased that that pipeline seems to be refilling, and we feel we're quite intentional in finding verticals that have high growth and high margins in them. And so, just a comment there that acquisitions are not included in this outlook. So, with that, I would turn it back to Gurman for some closing remarks.

Gurman Ramos- Great. Thanks, Bill. And before we begin Q&A, I'd just like to underscore a couple of key points from this morning's presentation. Hubble is off to a running start in 2022 after strong execution in the first quarter. And while the macroeconomic environment remains dynamic and uncertain, we have strong positions in attractive end market with long-term growth drivers, and we are executing well in the areas that are within our control. We are confident that we are positioned to deliver on our 22 outlook, which we raised this morning, and drive strong results for our shareholders over the long term. And with that, let me turn it over to Q&A.

Thank you, sir. We will now begin the question and answer session. If you have a question, please press star then 1 on your telephone keypad. Again, it's star 1 on your telephone keypad. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jeff Sprague with Vertical Research. Please go ahead.

Good morning, everyone. Good morning, Jeff. Good morning. You know, maybe just start off on, you know, on the volume side of the equation. And the reason I go there, you know, we're seeing a lot of results here recently where, you know, companies are posting top line that maybe is almost all priced with little or no volume. These results, therefore, kind of stand out in that regard even though the price is impressive. You know, if you look at, in particular, what's going on in the utility market, you know, is there anything additional to add around, I don't know, infrastructure spending coming in or other actions? Or is this just really kind of a sort of an uncorking of some of the supply chain headwinds and you're kind of better able to just kind of keep up with the overall pace of demand here?

Jeff, let me maybe break those down into two sides. One is on the demand side and one is on the supply side. Fundamentally, demand is strong in the utility market. We've talked about the need to harden the grid, upgrade the grid, and that's still absolutely fundamentally there. As Bill stated, we continue to see orders exceed shipments. We're building Now, of course, there's an element of lead times extending, and that creates maybe a little bit of an unnatural demand, but it so far exceeds a supply right now that we believe even if that moderates, that at the levels that we're producing, we can maintain those and continue to see growth. The second part of it is we were able to increase our productive output. And no small feat, I would say. It's part of why I'm so proud of the team being recognized for some of these service awards. Our customers are truly telling us that during this time we are outperforming in delivering. It's a real focus for us, I would say. the things that we are doing on the supply chain side make us more resilient, right? So we spend a lot of time approving alternate materials and design, qualifying new suppliers for redundancy, making capacity investment, particularly in the utility business. We're making some investment there because that business has really seen growth throughout the pandemic and automation. So I would say the investments that we're making into the business are helping us improving what we've seen, not at the rate we've wanted it to be, but we have seen quarter over quarter continued improvement despite what are still, you know, very, very challenging time, whether you look at containers or supply chain or the Omicron that we dealt with in the first quarter. So I think we're just building a more resilient operation, but still plenty of chance. So, you know, hopefully I answered both sides of the equation there for you.

Yeah, no, thanks. And then just again on utility, You know, there's been a little bit of concern, and I don't know if it's just kind of chatter at this point, but just, you know, pressure on the consumer bill, you know, from inflation possibly, you know, feeding back into, you know, some pressure on T&D spending. I mean, obviously, that didn't show up in your results in this quarter. I just wondered to the extent you could speak to, you know, do you see that creeping into the conversation anywhere? unpack kind of CAPEX versus OPEX on T&D and, you know, the sort of visibility that you have looking forward kind of 12 to 18 months in that segment?

Yeah, I think I don't know that we have any particularly acute insight into the balance there. I mean, I think it's quite an important question as to how supportive the PUCs can be, and if the consumer starts getting quite pinched here. Um, I do think you're right that, uh, utilities have been, uh, quite effective in, in getting a lot of, uh, their spend into capital and away from O&M such that, uh, um, that can be, uh, they ultimately would get reimbursed with a return on capital for that. But, um, I think your question is one that we'll have to keep watching because, um, not something that's evidencing itself yet in any of our demand profile.

Great. Thanks a lot. I'll leave it there. Thank you. Thanks, Jeff.

Your next question is from Steve Tuzo with J.P. Morgan.

Please go ahead. Hi, Steve. Good morning, Steve. Steve, you're on.

Sorry, guys. Yeah, work from home. Sorry about that. Yeah, yeah. Dog's going to bark in a second. Just be ready. Although I've been accused of barking before, so it is what it is. So I guess my question is really around kind of the second quarter. How do we think about the progression over the course of the year? Is there any lumpiness with this? you know, price cost dynamic that's going on that we have to think about when it comes to, uh, either year over year sequential performance as we kind of move through the year. Cause clearly the year looks conservative here, but I'm just wondering, uh, how that plays out, you know, um, seasonally and sequentially.

Yeah. I think, um, Steve, as we look at the second quarter, uh, there's, there is, uh, some momentum, you know, in the sales side and, um, I think you're right to point out that the commodities, starting really at the very beginning of March, I think triggered by the invasion, started to re-inflect and re-inflate. And that creates only the need to keep getting price. And so we're anticipating getting some more in the second quarter and trying to just navigate through that. But we're just anticipating, Steve, with the visibility that we have in our book and the backlog that we'll have, you know, some similar trends to what we saw in the first quarter. I'd say of note, we usually see, you know, a decent-sized seasonal pickup from first quarter to second quarter. And because the first quarter was really using some of its backlog to support its levels, I don't think we'll see that same level of sequential pickup of seasonality. I think that'll feel a little more muted, and it'll look a little more like momentum, I would say.

Maybe the only thing to add to that is as we've or one month into the second quarter, the order patterns remain quite robust, similar to what we saw in the first quarter.

Right, so a pickup, but maybe not as much as normal seasonality.

Yeah, that's the way.

One more question for you. What happens when these Raws, you know, roll over? You know, historically, you guys have had some negative pricing in some instances. what's the kind of playbook for when things, you know, soften up on the input side?

Yeah, I think it's going to start with, you know, the dialogue we've been having with our customers, you know, and the channel, Steve. And we've been very clear that our price increases are not a surcharge on steel or copper or something like that. It's really part of quite a broad-based approach. inflation profile. So yes, commodities are a big part of that. Yes, people costs, compensation costs are a big part of that. Transportation costs are a big part of that. Medical is a part of that. So, you know, even if, let's say, steel or copper were to start to soften, you know, we've, I think, got the right dialogue with our customers that that's not you know, an immediate cause for a price decrease. And so, at the same time, you know, I'm sure, you know, those conversations will be had, and we'll just need to make sure we keep reinforcing the value proposition of what our products play in front of the meter, behind the meter, and the solutions they provide, but also... It just feels to us, Steve, like there's still a real shortage in supply. And so having the supply, you know, is really worth something. And that's why Gerben, I think, keeps pointing out the awards that we're getting for serving the customer and trying to keep that as positive relationship as we can. So that will be a battle, but we feel we'll be up to it.

All right. I hope the Rangers give Dan a win for his birthday tonight, and I'll go figure out my car issues. Good luck with the loaner. Thanks.

Your next question is from Tommy Moll with Defense Police. Go ahead.

Morning, and thanks for taking my questions.

Hey, Tommy.

So backlog up quarter over quarter. One – gating factor you highlighted is just the chip shortages that have impacted shipments for your AMI meters business I'd be curious for any context you can provide there but also more broadly to the overall enterprise what additional detail can you give us on maybe the magnitude where your revenue constrained or the areas of constraint that are most acute thank

Yeah, I think the areas, Tommy, if I were to point to them, on the material side starts with chips. You pointed out the area of our business that that impacts. I would say resins would be an example of another material that's not been consistently available and that causes some disruption in our enclosures business inside of power systems as well as our electrical products business inside of the electrical solutions segment. But I think also other inputs outside of those materials, I do think that our absenteeism, you know, continues to be higher than if I air quoted normal, you know, going back a couple of years pre-COVID. And so when you combine, you know, when you combine, you know, sort of a 9% volume increase going through the pipe and your staffing at individual cells is kind of uncertain day to day and week to week, and you don't exactly know which materials you're going to have. We just are ending up with spending more inside of our plants and not running as, you know, efficiently as we could. And I think the third place to point out is, You've got materials, you've got labor, and the third is transportation. And that's really been most affecting, I would say, our residential business, where they've got a purchase-for-resale model, taking a container in, and those container prices really spike. That just really ate into the profitability of that business. So I'd say those are the most acute contributors to... preventing us from being firing on all cylinders here.

Yeah, and I'd say on those two, you're absolutely right, Bill. Those are two that are fundamental. They, you know, in our view, will probably take the rest of this year, which shifts probably into next year to solve that. So one of the things we're spending a lot of time on, as I said at the beginning, is to kind of redesign product, whether it's alternate materials or alternate design with chips. Now, chips are going to be hard to get no matter what chip you do. So it's a little more challenging. But what's really causing some of the inefficiency is that consistency of supply. And that's probably a bigger issue for us right now is the starts and the stops. And, you know, when you're running factories, that's not good for output and even worse for cost. So, you know, that's where we're perhaps struggling the most in that it's, you know, not the most efficient cost on that volume that we're getting, and then you see the falter on that volume not being as good as it could be.

Appreciate the context there. Shifting gears for a follow-up, on distribution automation, you talked about some growth-related investment. I wonder if you could frame for us what that entails. What are the opportunities you're chasing down, and what's the rough type of timeframe to be able to harvest some benefits from that investment?

Yeah, so you're talking specifically about DA or specifically about the investment that we put in our Outlook bridge?

My assumption was the former is a subset of the latter, but... It is a subset.

It's just not all of it, so... But I think, so let's start with the bigger piece. And I'd say some of that investment is going into capacity, as Durbin highlighted in our power systems segment. But a decent amount is going into new product development. And, you know, Tommy, we've got an investor day planned in the next six weeks or so. and we're eager to see some folks there. And we're anticipating doing a little bit deeper dive into some of the new product development that we're working on. But we're targeting certain applications, certain areas of high growth that we think we've got the right to compete in. And yet your question is a good one, which is that kind of investment isn't going to pay back this year we'll start to see some benefit next year, but I really think you're right to point out that that's got a couple years before you really start to see that. And yet we think that's a really important part of the story going forward is being able to grow faster than GDP and to really get the gross margin growth by having new products that have a a value proposition that can extract a better gross margin. And on the distribution automation side, we just happen to be one of those areas where we think the control and protection of the grid in between the meter and the infrastructure is really an area that's got just a lot of opportunity for growth given some of Jeff's questions about the need for utilities to keep their O&M down, and it's just a place where we think we've got a right to play and a right to win. And so you're right to call that a subset of the other.

Thanks, Bill. I'll turn it back.

Operator?

Yes, sir. Our next question is from Nigel Cole with Wolf Research. Please go ahead.

Thanks. Good morning, guys. Morning, Nigel. Good morning, Nigel. So I'm 10 minutes late joining the call, so I apologize if you've addressed this already. But what was the major reason for the divergence between the electrical margins and the performance down margins in electrical and obviously very strong in utility? Sounds like logistics and inflation more impactful there, but any more color there would be helpful.

Yeah, I think a couple things that were specific inside of electrical. One was the business unit facing off against residential. Nigel is facing some difficult compares. The first quarter, really the first half of last year, saw some extraordinary changes. spending in the home remodeling area because people were essentially trapped in their homes and weren't allowed to get out and about. So they decided to invest in their nest, as they say. And so those volumes were down. And then that was exacerbated by the fact that our resi business is a purchase for resale largely. And so the cost of containers then to bring that product to across the ocean really, really hampered the margin. So if we had had the same year as last year, you would have seen margins flat in electrical. We spent an extra half point on restructuring in the segment, and we are excited about the fact that that will create productivity and margin next year So we think a very good investment. But those two things, you know, you would have seen margin expansion without those. But you're right that just the non-material inflation and some of the inefficiencies that Tommy was just talking about, that sort of eats into the tailwind provided by volume and price material tailwind.

Okay. Okay. Obviously lots of questions on price already, but I'm just curious if you maybe just put a bit more definition on how you see the price-material balance sort of through the year. And what is your assumption, just to be clear on commodities here, Bill? Is it flat from here over the balance of the year, or do you assume some modest, I don't know, deflation? That's not the right word, but what are your assumptions on commodities?

Yeah, our assumption is that there's continued to be inflation throughout the year and that materials are going to cost more than they did last year. And we are priced for that and have actions in the second quarter consistent with that. But it's also important to say that our pricing is informed by more than material because we certainly on the transportation side, on the human resource cost side, medical salaries and wages, benefits, P&E, our salespeople are back out on the road. So there is just non-material inflation and it's more, it's overwhelming what you can do with productivity initiatives and so I think Nigel, it puts a little more burden on price. And so it's maybe to our benefit that we have been so obsessively focused on price as a company for the last five quarters because we really, really, really need it.

Yeah. Well, 12% price is pretty wild. And then just finally, a quick one on your oil and gas business. Can you just mark us to market on where that business is right now? I think it used to be mainly an offshore business. But, you know, in light of the oil price and, you know, the drill, baby drill kind of stance from the administration, you know, what are you assuming for that business this year? And, you know, where's the tracking relative to, you know, kind of 2014 levels?

Yeah, so, you know, it's down to about 5% of our sales at this point, Nigel. The... but it saw a good quarter, you know, that's inside. We combine it in our heavy industrial piece inside of the electrical segment. And we saw a good return of margins as the volume came back. And so we continue, you know, important as energy is to the economy here, we continue to feel that us providing, you know, explosion-proof products, mostly, you know, in the upstream part of that process, you know, it's, I think it's near-term future with energy prices where they are looks pretty good. It just is a much, it's quite a small piece of the total at this point. Yeah.

Okay. Thanks, Bill.

Your next question is from Chris Snyder with UBS. Please go ahead.

Thank you. So in the prepared remarks, the company noted that orders outpaced revenue, leading to further backlog build. Can you provide some color on what the 2022 guidance assumes as it relates to this backlog, whether it be a release at some point during the year or even just further build over the next three quarters?

Yeah, it's a very interesting question, Chris, because I don't know that we have a great crystal ball. I think we would start with the premise that orders of 25 percent is probably not the sustainable rate of orders that we anticipate seeing over a prolonged amount of time. And so, I think your question is getting at when you know, will those orders start to more normalize? And I think the contributors right now continue to be, they're expecting price increases, so you'd rather put the order in before. The promise delivery date is on an extended time rather than fast, and so they're ordering more to make sure they get in line. And I think Urban was saying on the utility side, there's still quite a bit of fundamental drivers on the volume side. And so we think as lead times come down, so as the supply chain smooths out, that should bring the orders more in line. I'm not really sure when that happens, and so we don't really have something explicit, but I think we are saying that we see enough momentum and orders combined with enough backlog that gave us the confidence to raise our sales outlook for the year by two points of price and one point of volume. But your question's harder for us to really see, and we're sort of hoping that as that correction happens, we've got the backlog in place to be able to make that a soft landing rather than a dislocation. And at this stage of the game, that's our anticipation.

I appreciate that. I totally understand it's a hard question to answer with a lot of moving parts. So just for my follow-up, maybe a bigger picture one on utility. Obviously, this has always been a long-cycle, resilient business. But, you know, with the addition of Aclara, which now presumably has a pretty sizable backlog, and, you know, an increased focus on renewables, which appears structural, you know, how has the floor on this business been raised? And by the floor, I'm talking about from a growth perspective, just because it feels like these secular drivers are now a bigger piece of the business. And, you know, it's somewhat hard to see why those secular drivers reverse away from the company. Thank you.

Yeah, I would say Chris and Gerben may have more to say, but, you know, we traditionally have really probably thought about that business, that segment as a GDP grower that had a really high MRO, you know, driving base to it. And so we would have kind of in a traditional way you know, medium range plan had a low single digit growth rate for that. And, and I think we've seen that fundamentally shift towards a mid single digit growth rate. And I think we continue to believe, you know, that's the case. So I totally agree with you, uh, kind of went from a GDP MRO to sort of a secular grower. And that's, you know, because we, we, we can, um, garner some decent margins in that area, that's a welcome shift from us. And Gurman may have more to say.

Yeah, no, I would be bullish on both, really, sides of that portfolio because, you know, as more renewables come up onto the grid and the grid continues to get older, it just is very, very stressed. So I'd say on the core business, it's just a lot of hardening going on. That's multi-year work. projects. I see that business, GDP plus as well, and then certainly on the Clara side, the automation, the grid automation, the modernization of the grid, making it more efficient. We've talked a lot about that, how that has attractive growth. I'm quite bullish on that whole utility business.

Thank you.

Your next question is from Josh with Morgan Stanley. Please go ahead.

Hi, good morning, guys. Morning, Josh. So within the new four to six on the volume piece, how should we think about what you guys are sort of holding back as contingency, you know, unable to deliver and backlog because of supply chain? So I guess maybe said differently, like, If you could get everything you needed to supply chain-wise, like what does that four to six look like?

Yeah, I mean, I think it's a hard question because if you look at our order rates, they're so far exceeding our output that if you could miraculously solve everything and have unlimited capacity, it could be much harder. But that's not the reality. I think as we kind of look at the year, I think, you know, Bill said it, We do see momentum carrying into the second quarter. Where it gets more uncertain is towards the back half of the year for us, and probably most pronounced in the fourth quarter, where we're projecting perhaps a more seasonal, return to a more seasonal level. So, you know, if orders hold up and we can continue to solve for supply chain problems, and keep our productive capacities increasing. You know, there could be some upside there, but it's, I'd say, by single-digit small increments, not huge. The order pattern should not be reflective of what the possibilities are.

Got it. Okay, that's helpful. Then on the restructuring front, I mean, as much as there's been kind of a multi-year assessment of, the footprint. You guys sort of have different challenges today than you might have, you know, three years ago. I think for bandwidth purposes, for, you know, maybe contingency on where you need to make stuff, like how much has maybe that footprint assessment changed as a result of what we've gone through over the past, you know, call it year, and are you spending that restructuring, you know, differently than maybe you had been historically?

Yeah, I think that... We had, as you pointed out, sort of started out with a multi-year vision accompanied with a multi-year Gantt chart of projects. And we feel really happy with the result of those. I'd say the biggest thing that's changed, you know, to inform that, Josh, is not COVID. It's been the creation of an electrical segment and bringing... all the businesses on that half underneath a single management team. And I think as they think about competing collectively, they see opportunities to share production and become more efficient with the square footage. So, what we started, I think, has been breathed even a new, some new life into it. And again, we anticipate talking to you a little bit about that at our investor day, uh, in June, if you have the chance to join us, I think you'll hear Pete Lau runs the electrical segment, talk, talk a little more about that. And, um, so we think that I'm sort of happy to try to keep the spending, you know, sort of flattish. So we don't really have to talk maybe about, you know, year over year. I don't want to kind of distort our performance. And so, I kind of like where we are in terms of the spending and the saves being, you know, kind of creating some earnings momentum, but not necessarily creating dramatic headwinds from year over year anywhere.

Got it. That's helpful. I'll leave it there. Best of luck, guys.

Your last question is from Christopher Glynn with Oppenheimer. Please go ahead.

Thanks. Good morning. Congrats on the recognitions and on executing all that price. I'm curious if there's any sense that the need for incremental pricing is starting to taper, notwithstanding that you have some incremental price coming through in the pipeline. But from a holistic sense, is there any basis now to start to develop that view of a leveling on the horizon?

Yeah, maybe I'd say, you know, if we compare it to last year, you know, the magnitude and the frequency is we clearly anticipate that to be less. However, I think it's important what Bill pointed out. We're still seeing inflation this year. We saw it tapering a little bit towards the end of the year going into this year, particularly steel. But after the invasion, we've seen not only steel but aluminum, copper. And then the normal ongoing inflation. I think, you know, if you look at the numbers, they're quite robust for inflation. So we have additional pricing actions that we'll need to take to continue to offset price-cost. We've done quite good at it. So I'd say more actions are expected, but not at the probably frequency and magnitude that we saw last year.

Okay. And... I want to go back to Chris's question. We talked about the further, you know, the advance of the organic profile for the utility solutions. You know, you're at really high levels right now, and T&D up, you know, 30, 31 percent, maybe mid-high teens volume on nicely positive comparisons. Is it possible for correction at this point, or is this just the fundamental higher gear shift from, you know, connecting renewables and those fundamental secular drivers.

Yeah, I think the nature of a correction that we could envision, you know, Chris, would be kind of what Gerben was describing. We had the magic wand that could make as much power systems products as was demanded, and the lead times went down to overnight. I think demand would quite adjust to what's needed. And I would argue, though, that what's needed still is something in the mid-single digits order of magnitude greater than last year. So the correction, I don't really see being in the form of it going to contraction. I see it you know, settling in at that mid-single digits. And the question is, do we get there nice and smooth? Or do we get there, you know, rapidly? And how do we, do we have enough backlog to bridge that? And those are, that kind of question is just, is a little bit difficult for us to predict.

Okay. Great. Thanks for those thoughts, Bill.

Okay. Okay.

And that ends the question and ends the session. I will now turn the call back over to Mr. Gerbenbacker for closing remarks.

Great. Thanks, everyone, and I appreciate the participation and engagement with us this morning. I'd like to close with reminding you that our investor conference will take place in person again after a few years, a couple years, I think it has been, on June 7th in New York City, and we look forward to sharing further detail on our strategy and our long-term value for customers and shareholders, which are there. So thank you, and have a great day.

This concludes today's conference call. Thank you for participating.