Hubbell Inc

Good day, and thank you for standing by. Welcome to the Q3 2022 Hubbell Incorporated Earnings Conference Call. At 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 11 on your telephone. Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Dan and Amaro, please go ahead.

Thanks, Lisa. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our third quarter 2022 results. 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 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 in 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.

Great. Thanks, Dan. And good morning, everyone. And thank you for joining us to discuss Hubble's third quarter results. Consistent with the first half of 2022, our third quarter result was solid. Our markets are healthy, our positions in those markets are strong, and we continue to execute effectively from an operational standpoint. Our third quarter results exceeded our initial expectations, and we are raising our full year outlook to reflect a continuation of those positive trends throughout 2022. We are well positioned in attractive markets that are supported by long-term trends in grid modernization and electrification, which continue to drive strong demand for our products. Utility customers are proactively replacing aging infrastructure while investing significantly to upgrade, harden, and modernize the grid, driving another quarter of strong orders growth and backlog build. The work that we have done to streamline our portfolio and the investments we are making in strategic growth verticals are positioning Hubble for sustainable GDP plus growth as our economy becomes more electrified. From an operational standpoint, margin expansion in the quarter was driven by volume growth and favorable price cost. We have been active in pricing to address significant material and non-material inflation over the last 18 to 24 months. While general inflation persists throughout our supply chain, we have now started to benefit from easing in the portion of our cost base that is tied directly to certain raw materials. While the operating environment remains dynamic, we are proud of the way our employees have continued to effectively navigate through supply chain uncertainty to deliver on our commitments to customers. As we look to drive continued success on this front, I'm also excited to welcome Akshay Mittal to the senior leadership team as Hubbell's new operations leader. Akshay comes to Hubbell with an extensive operation and supply chain background across various industrial manufacturing industries, and we look forward to build on the strong foundation we have established while accelerating our efforts in footprint optimization, factory automation, and supply chain resilience. Turning to page four, I would like to highlight a few of the key financial outputs of the teams we just talked about before letting Bill walk you through the results in more detail. In the third quarter, we achieved organic growth of 20%, adjusted operating profit growth of 37%, adjusted operating margin expansion of 190 basis points, adjusted earnings per share growth of 45%, and free cash flow of 194 million. These results were driven by strong price realization and volumes combined with easing material cost and effective operational execution. Overall, a very strong quarter for Hubbell and attractive results for our shareholders. I also want to turn to page five and take a few minutes on two recent achievements which really highlight the strength of our franchise in the electric T&D market and the work we are doing to support critical infrastructure needs of our customers. The first is our storm restoration efforts through Hurricane Ian and Fiona with our 24-7 Hubble Emergency Action Team. Storms like these are unfortunate due to the impact on lives and community, and they also put a lot of strain on utility customers to restore, service, and repair damaged lines. We are proud to support our customers in these efforts through a dedicated team that prioritizes these requirements and gets our customers the needed expedited materials to enable successful and timely restoration of service. This is a unique differentiator for Hubbell, as we can fully utilize our industry-leading sales force, depth and breadth of the product offering, and operational capabilities to effectively serve our customers when they need it most. Our people truly distinguish themselves during these events which helps us forge long-lasting customer partnerships based on quality, reliability, and service. And on the topic of long-term customer relationship, we are also pleased to have been recently awarded the Annual Supplier of Choice Award by one of the largest investor-owned utilities in the U.S. This award was given to Hubbell for our strong service not only over the last decades, but through the more recent challenging supply chain environment as our industry-leading scale and the investment we've been able to make in our business have enabled us to effectively deliver on our commitments. While strong electric T&D market growth continues to be a key driver of our success, we also feel confident that we will continue to outperform these markets as we reinvest to first bolster our position. With that, let me now turn it over to Bill.

Good morning, everybody. Thanks for taking the time to be with us. I also want to welcome Akshay to the team. You know, I'm personally excited to partner with him. I think we can add a lot of value by ramping up our operational intensity. So looking forward to that. My comments are going to start on page six and really summarize the very strong financial quarter that Hubbell team turned in in the third quarter of 2022. So on the upper left, we'll start with sales. You see an increase of 21% to just over a billion three in sales. That 21% increase is comprised of 20% organic, 2% from M&A, and a point of drag from FX. The 20% organic is comprised of about a 13% price increase and approximately 7 percent volume. So, actually quite impressive contributions from both volume and price, which will filter through all of our comments around our performance. And those are obviously comparisons to prior year. We find it instructive to track sales on a sequential basis as well. And for sales to be up mid-single digits from the prior quarter where there's kind of equal contributions to that mid-single-digit growth sequentially from both price and volume. I think that's a pretty good sign that we may be seeing some modest easing in the supply chain. In other words, I would say we were trying to operate at capacity in the second quarter function of a high backlog and the need to serve our customers who wanted our material and for us to be able to grow the volume part of that from second quarter to third quarter sequentially, I think is a little bit of a sign of easing across the availability of staffing, availability of materials, and transportation as well. So, as we think about the demand underlying that sales growth, I would characterize it as broad-based growth, both electrical and utility experiencing impressive growth, and inside of the segments, quite a broad-based contribution to growth inside of each segment. Orders continue to outpace sales, and we are building backlog through the third quarter. That skews towards the utility segment, as our electrical segment has a much more balanced book and bill feel to it now, starting to get back in line and balance there, which I think is also good news as we track. So on the upper right, you'll see operating profit a growth of 37% in operating profit dollars to $224 million and nearly two points of margin expansion in the quarter. That margin expansion is really driven by price-cost favorability, and that favorability is needed to overcome the other inflation as well as some of the inefficiencies that the supply chain disruptions are causing inside of our factories. The results here indicate incremental drop through in the mid 20s. And that maybe gives you a little bit of a feel for that's quite normal incremental. So if it was just price cost favorability, I think we'd see better than mid 20s incremental. So you can see that we really needed that price to help us overcome the non-material inflation as well as the other inefficiencies. And then in the bottom left, you see the EPS quadrant, 45% increase to $3.08 a share, and that roughly $0.95 increase in earnings year over year is largely driven by the improvement in operating profit, but they're also Some below-the-line contributions. Tax is quite comparable. We did some share repurchases with the proceeds from the sale of C&I Lighting, and there was some slight non-op contribution as well. Free cash flow for the quarter, $194 million. Extremely favorable comparison to last year. I think maybe more instructive to look at the year-to-date performance on cash flow, where we feel very good about where we stand relative to delivering on our full-year promise, and we'll update you on our guidance slide as to how that's going. But we're making very purposeful and intentional investments in working capital, given the growth in demand, so both receivables and inventory are requiring investment for us to satisfy our customers. We also are keen to invest in CapEx and the flavor of that CapEx difference by segment. We'll talk about it in each segment, but it's skewed in electrical, the CapEx investing towards productivity. On the utility side, the CapEx is skewed towards expansion and capacity. So very strong performance, and I'd like to now unpack that by segment. And page seven, let's start with the utility solution segment, and just a really strong quarter turned in by our utility franchise, performing extremely well in these market conditions. You can see sales increasing 29%. and operating profit dollars up 53% with nearly three points of margin expansion. So very, very strong performance from the segment. Let's look at sales a little more closely. You see a 29% increase to $775 million. That's really mostly organic, small 1% contribution from acquisitions. ordinarily would like to tell you a lot about the acquisitions. Ripley Tools is new to the portfolio, is performing extremely well, but you can see it kind of pales in comparison to what's going on organically. And that organic performance, I would say, is comprised of volumes in the low double-digit range, and price in the mid-teens range to get to that 28% organic. So very, very healthy market conditions there, as well as a testament to our very, very strong positioning in this attractive market. The growth is really skewed towards the T&D components rather than towards the comms and controls. We had 38% growth from the T&D components. Gervin highlighted the trends there. Really have aging infrastructure that requires upgrades and hardening. We have the move towards renewables and that those new sources of generation need to be transmitted, need to be distributed, and need to be integrated into the system. And certainly modernizing with smarter and more controls all of which being supported by some infrastructure legislation that I think is giving our customers a confidence that there's funding for their demand. On the communications and control side, you see up a more modest 3%, and that's really being skewed towards the automation controls area, which is up double digits as the comms component still being constrained by the lack of chip availability. So while we see healthy demand, we're having a lot of trouble satisfying that demand. On the operations side, I see 50% improvement in operating profit dollars, very impressive performance to 144 million and three points of margin expansion. Price and material being a strong comparison but let's not lose sight of the fact that we've got double-digit volume, and that provides obviously good operating leverage lift in incrementals. And at the same time, there are headwinds coming from non-material inflation and just supply chain inefficiencies. But net-net, really strong contribution from our utility segment. On page 8, we unpack the electrical solution segment. Also strong performance, albeit not at the same high levels, but you see an impressive 12% growth to $542 million in sales. That's comprised of low single digits in unit volume and high single digit in price. So I think you'll remember that Our electrical team started pulling price a little sooner than our utility team, and so see the utility team experiencing a higher price now as it came on a little bit later. The demand here is broad-based across various product lines and across various end markets. The exception is the resi market. where we're experiencing double-digit contraction and thinking about order of magnitude about 15% of the segment being down double digits gives us a couple of points of drag in the segment from that resi market. But some of the verticals, namely data centers, renewables, and comms performing very well, And the industrial market's also doing very well, both on the light and the heavy side. So, again, broad-based support for that 12% growth ex-resi. And on the right side, you see quite a nice improvement in operating profit of 15% to $80 million. The you see the margin expansion of 30 bits driven by the price material favorability and the volume growth with the supply chain. Creating and headwinds along with non material inflation. I think it's worth a little bit commenting on orders here. We've had orders in line with sales, so. balanced between book and bill. We get a lot of questions from investors if we have seen slowing here in the order pattern, and we have not. But we're obviously very aware of what's happening to the consumer out there. And so that's causing us to watch our order pattern very carefully. It's causing us to invest in productivity, and it's causing us to contingency plan in case we do see a slowdown. As we think about watching carefully, it'll become a little challenging as we get closer to year end. Customer behavior in a year like this can get distorted. They each have incentive plans with their employers. It's very common. for those incentive plans for the executives to have a growth component as well as an inventory component. And in a year when people have reached their growth targets, they can switch towards managing inventories down. So it's not unusual in a year like this for us to see kind of distorted year-end order patterns. So as we watch orders, we have to be careful not to overreact to one week or one month, and be thoughtful and understand exactly what we're seeing. But again, for now, not seeing any slowdown. We also said we're investing in productivity, and you can see that on the right side in the last bullet. We've had extra investing in productivity and restructuring in this segment. That's caused about an 80-point drag in margin. So had we not been doing that investing, you'd have seen a better margin expansion. But I think investments in both automation and footprint consolidation that we're doing there proving to be very important for a successful future in this segment. So on page nine, I wanted to transition to... How the two segments performance with you just discussed as influenced our our view of the outlook for the balance of 22. And based on our better than expected performance in Q3, which we had talked about that a couple of weeks ago or last month in Laguna. We outperformed our expectations and are thus raising our guidance The effect of that is to take EPS from a previous range of $9.40 to $9.80, and we're taking that up to $10.25 to $10.45. That's really been a consistent outperformance throughout the year, Qs 1, 2, and 3, all showing both volume and maybe even especially price being able to do better than expected. If you look at the left-hand column on page nine, we started the year with expectations of 8% to 10% sales growth, which was centered at four points of volume and five points of price. And we've done considerably better than that on price and better on volume as well. And that's kind of been consistently shown throughout the quarters of the year. And as you look at, I like this visual of our performance because you can see that the volume is dropping through and adding nicely to last year's level of our EPS. But you can really see how important our pricing strategy has been in order to get price to overcome the costs and any of the inefficiencies. Good to see the M&A program when we had a couple of additions during the second quarter in the form of PCX, which is a data center business, performing really, really nicely since we've owned it. Ripley Tools on the utility side, extending our brands there, also performing really well. So good to see them contribute to earnings this year. And since they were mid-year acquisitions, they'll contribute incrementally next year as well. I think important to note, you know, we're not harvesting all of the earnings we could. We continue to believe it's really important to invest and make sure our future success is as bright as it can be. And the three principal areas there include productivity, That's, as I said, automation and plant consolidation. It's capacity additions in the utility segment, and there's innovation spending across both segments that we're trying to accelerate our new product development growth and allow us to outperform our end markets and do better in the future. The non-op items are offsetting here where Some share repurchases and other income are offset by higher taxes, slightly higher taxes. And I'd add at the bottom our free cash flow. We had been centered at a 95% conversion rate. And as the growth has exceeded our expectations, we believe we need to invest more heavily in inventory and receivables. to support our customers. We also feel the need to invest in CapEx. And so we're bringing that free cash flow down around 90% conversion. But with the increase in earnings, we're going to get to the dollars we are expecting, which is at a lower conversion rate. And I think as we get to next year, we'd probably be able to manage the working capital accounts and the balance sheet more efficiently and continue to improve on our customer service. So we've got some nice trends that we think we're finishing the year with, and I'll hand it to Gerben to talk about how that informs our outlook for next year.

Yeah, great. Thanks, Bill. And before we turn it over to Q&A, we wanted to provide some initial thoughts on our setup into 2023 and how Hubble is planning to deliver continued attractive results for our shareholders. While the macro environment remains uncertain headed into next year, we are confident that our markets are well positioned to continue outperforming GDP. In utility solutions, we believe there's still plenty of runway and above-average visibility to continued growth driven by long-term grid modernization trends. In electrical solutions, we expect residential markets to remain challenging, but we believe that the 20% of segment revenues exposed to our strategic growth verticals in T&D, renewables, data centers, and communications should prove resilient to cyclical dynamics. Operationally, while commodity prices have eased, we are planning for general inflationary and supply chain pressures to persist. We will continue to manage price and actively drive productivity to come out net neutral or better relative to our overall cost base. We also plan to continue reinvesting in our business to deliver long-term growth and productivity. In utility solutions, we plan to invest in capacity expansion to service a visible long-term growth profile. As we have highlighted in the past, the inflection in T&D markets from a low single digit growth to mid single digit growth over the past several years has caused us to bump against capacity constraints in certain key product lines. Looking ahead, we see a unique opportunity to further strengthen our position and better support visible customer investment plans by executing on high return expansion and innovation projects. In electrical solutions, we plan to maintain elevated investment levels to support footprint optimization projects as we continue our multi-year journey as a unified operating segment with structurally higher long-term margin profile. The net of these early considerations for next year, and acknowledging that there remains a lot of uncertainty, is that we are expecting to deliver solid performance in 2023 across a range of macroeconomic scenarios. We plan to provide a more detailed 23 outlook on our typical cadence along the release and discussion of our fourth quarter earnings results. With that, let me now turn it over to Q&A.

Thank you. If you have any questions, you will need to press star 11 on your telephone. We also ask that you limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Okay, coming to the stage now, we have Jeffrey Spratley of Vertical Research Partners. Please go ahead. Your line is open.

Hi, this is Jeff Spratley from Vertical. That introduction broke up a little bit. Good morning, Jeff. Hey, good morning. Hey, maybe just start big picture, Gerben, actually, just on kind of the operational plan and people. You know, you've had some movement at the senior levels with, you know, Susan and Peter Lyle moving and now Akshay in. Is there a fundamental change in, you know, your kind of operational priorities or some kind of change in what you're kind of expecting to deliver relative to maybe some of those longer-term plans that you've put out before?

Yeah, I'd say, Jeff, the short answer to that is absolutely not. You know, certainly, you know, not going to comment on specific personnel matters, but as you look at the environment generally, it's an environment in our organization, many organizations, of higher turnover. And I would say that, you know, while we've lost people, we've also attracted very talented people. we're actually in a very good position that if you look at the strength of our business, where we play, the markets that we're in, and the potential of this business, as we look to bring on people, and Akshay is a good example of that, they're very attractive to join a company like Hubble. So I'd say it's part of what us and many others are just dealing with, but we are continuing to be able to attract good talent to Hubble and continue to develop talent within Hubble. I'd say to the second question of is this somehow an indication on our strategy, the answer is no. And in Akshay's case, it's refilling, backfilling that position. There's a lot of work you heard Bill talk about, particularly in the electrical segment, what we need to do still on our footprint. But equally in the utility business, as we look to expand capacity, there's a lot of operational execution in those things as well. If you look specifically at the strategy on our two segments, it's something that we started to put in place, if you recall, when I was COO. It was a model after the utility business where we proved that to be very successful in in bringing all those brands under a common structure. So I would say, you know, a couple of years into that, I feel really good where we stand. There's still a lot of work to be done. And even as I've spent a little more time with those GMs here, as I kind of overlook at that business, why we look for a new leader there, I'm really impressed with the talent there. And so I'm you know, very bullish on being able to execute that strategy and unifying that segment. And that will lead to a higher margin profile for that business going forward. And I think growth that we're also seeing that we'll be able to get out of that by operating more as a unified segment. So reinforcement to my answer of no.

Okay, I appreciate that. Maybe just then on... on utilities, sort of maybe a two-part question, really. First, was there a measurable storm impact in the quarter on the top line? And maybe more significantly, just on comms and controls in Aclara, what is the visibility on potentially uncorking this and getting around some of these shortages and driving some growth there? Sounds like you expect T&D components to still be strong in the next year, but you're comping tough, right? It would be nice to see Clara finally catch a little bit of a tailwind there and begin to kind of fill in the blanks a little bit. Thank you.

Yeah, great. Let me answer the first one and maybe hand to Bill the second question. Clearly, there was an impact of storm. I highlighted that in actually highlighting our team that really supports those efforts. If you look at the order impact, it was about 15 million, 1.5, as a result of those two storms. That straddles a little bit. If you recall, the last one of those hit right at the end of the quarter. So that straddles a little bit, two quarters. So certainly there is always an impact to our business when we service that. As I've said, though, in the past, if you look at our overall business, it's less of a driver of growth than it is for us an opportunity to showcase to our customers why they do business with us, why we matter to them, because that's really where we shine is how we take. And even during a time when our capacity is constrained, we really go above and beyond to service those customers with needed materials to rebuild the grid. So A little bit of an impact to sales, but I'd say more importantly, an opportunity for us to showcase our capabilities. Bill, maybe.

The second half of Jeff's question was around a clear visibility. And I would say, Jeff, you know, the first nine months were challenging for us to see the value proposition of the solution of a smart meter have, great resonance with the customer base, have so much demand there, and yet have the supply chain struggle to support that has been challenging. So your questions now around visibility going forward, and there's kind of two dimensions to it. One is, you know, chip supply loosen up here as we've seen some demand for consumer electronics start to slacken and we think that will evidence itself. And secondly, we have been spending a lot of time trying to validate alternative sources for the technology and we're making progress on that. And so between those two avenues, we're hoping by the time we get together with you in January to talk more quantitatively about 2023 you know, we'll be able to give you a more quantitative assessment of that visibility. But it approves, it appears to us to be improving. And I agree with your last statement. That'll be quite welcome to have a Clara be a growth and margin contributor. Thank you, guys.

Thank you. One moment for the next question. I have the next question coming up. And the next question will come from Steve Tulsa of JP Morgan. Please go ahead.

Hey, good morning. Hi, Steve. Hi, Steve. Good morning. Hey, congrats on a real bang-up year. Great execution in a tough environment, for sure. Thank you. You're welcome. On the – but I guess on the 23 or fourth quarter and then the 23, on the kind of basket of costs you guys have and that you measure inflation off of, maybe just remind us of what's stuff that's – what percentage is a little more sticky and what percentage is like truly – you know, variable and moving around with the metals. And then on the pricing side, um, you know, just remind us of any kind of, um, and anything that's, that's, uh, you know, an index on the metals or, um, you know, anything like that, that, that just kind of mechanical, um, that moves around with, uh, with Ross prices.

Yeah. So let's, let's maybe start with the pricing half of it, Steve. I think that, uh, there's a, a reasonably small percentage that is specifically indexed and it's been much more kind of working with our customers to get the price increases through. And so I think about your question on stickiness, you know, there's probably a couple of points of price that can wrap around, you know, next year. and be part of the incremental sales. And I think that's supported by the incremental price experience in the third quarter. That's maybe an interesting gauge of given some of that stickiness to the price. And certainly to the extent we come up on a year end and is a typical time we talk to customers about program pricing and blankets and all that. So Again, at the start of the year when we get together to give you our formal 23 guidance, I think we can be finer on what we expect from price. But from the actions and indexing amount that we have in place, I think we see towards, you know, a couple points. And on the basket of costs, if we, you know, were to simplistically describe that – that half of our costs are materials and that the inside of materials, there's a proportion that's raw, and we can all see those prices every day. And then there's a proportion that has some bit of value add. At the far end, it would be a purchase for resale item. At the skinnier end, it would be some kind of component that's been assembled or has some kind of value add to it. And I think on the raws, to your point, super variable comes right through. We can all track that. I think on the value add part of materials plus the non-material part of our costs, sitting there at... CPI of 8% inflation, you know, gives you an idea of the math that we're trying to move around and why we're putting so much emphasis on pricing, right? Because typically if I talked to you, I would have set up a paradigm that we're trying to have price offset material and productivity offset non-material inflation. And In this environment, when that non-material inflation is in the 8% range, I think it's asking too much to find that much productivity. So we've put that incremental burden back on the pricing side. And so as we kind of contemplate our plans for 2023, we're very focused, I think the exact way you're thinking about it, of planning our costs to have inflation in a very significant portion, even though the RAS are coming down. And so we are trying really hard to retain the discipline I think we found in towards the end of 21 and throughout 22 on pricing. And I think you're putting your finger on an incredibly important part of our operating model is to make sure we can price effectively for all these other costs that, you know, seem to be going in different directions with the RAS going down and all the other stuff going up.

Right. So that... So that bar on slide 9, I mean, is that going to be similar to this year? Or it sounds like it's going to be less next year than it was this year?

Yeah, I would expect it to be green, but obviously smaller.

Yeah, and maybe another addition to what Bill said is we're managing right now in an environment where the magnitude of these changes are just much larger than what they would have traditionally been, both in how the cost is moving, how the prices are moving. And certainly as we look forward, that's a little bit the challenge. I would say our portfolio is generally well positioned to hold on to price. We're a low percentage of the total cost of ownership, high cost of failure, and that proves right, good for us. But on the other hand, the magnitude by which prices have moved gives us some pause to say that we'll be able to hold on to that no matter what. So it's that dynamic that we're trying to manage. I would say, though, if there is some slippage of price, it would be associated with a come down in cost, and we would still be able to manage to what kind of bill set is net neutral or better as a whole. But I would say managing those pieces is a little tougher than it would have been in a low inflation environment for us.

One last quick one. What's the fourth quarter embedded margin and is that normal seasonality? That's my last one for the total company. Thanks.

The top line, Steve, we're envisioning in the normal seasonality range and that's a function of having fewer shipping days that tends to be in the mid-single digits fewer days and therefore the same effect on sales. And so I think that the effect of that will be normal seasonal impact on margins. And so it is returning for us a little more to normal seasonality.

Great. Thanks, guys. Really appreciate it.

Yeah.

Thank you.

Thank you. One moment for the next question. For our next question, I am coming to the stage, Tommy Moll of Stevens. Please go ahead with your question.

Morning, and thanks for taking my question.

Morning, Tommy.

The 2023 early preview is helpful and appreciated, and now we get to ask more questions on it, of course. Specifically on the utility solution side, you did a good job framing some of the secular trends, the backlog trends you're seeing. We haven't yet talked about the recession sensitivity there. Can you help frame that for us, though? And is that a business or a segment, rather, that you can still grow top line even if GDP is down in the U.S., just given some of the positive tailwinds that you've called out?

Yeah, I think you're looking at that in the correct way, Tommy. And maybe I'll take a step back and first start to say what happened in the last time we saw slow, because that's actual data that we have in the business. And what we tended to see in the utility business compared to electrical, that it lagged. the electrical by a quarter or two. And then the decline was shallower and it came out quicker. So I would say that that's, and that was driven at the time too by the need to invest in this area. There was infrastructure investments that were coming out as a result of that slowdown and that really benefited our business. So I would absolutely see that the same way. And I could argue that it's actually intensify the need to to continue to invest in this grid no matter what the uh um you know macroeconomic conditions are of course i i don't think it's immune from it but you know when there is a sun depending on on how deep and how long um and whether it's a it's a consumer lead or whether that that goes into commercial and industrial eventually i would expect it to be affected but to a much lesser extent. And I do see the possibility that you kind of explored of can you continue to grow to an environment that there's a scenario that I could see that happening.

That's very helpful. Thank you. And as a follow-up, I just wanted to touch again on personnel, specifically on the electrical segment leadership. Can you just give us an update on what kind of process you're running and potential timing for when there might be some news there?

Yeah, so as we indicated in the press release, I believe this is an area where we're looking both internal and external. These are, of course, a very important position on my leadership team, and I'm very pleased both with the internal and external talent that we're seeing. I think an element of it is what I described earlier of that we're an attractive company. And I would say maybe we haven't always done the best job in describing what we do both to our investors as well as in our employees. And I think as we get sharper and really highlighting why it is that we're matter and what it is that we do, we find people interested in coming to join us. So we are very active in this process right now. And I would expect that here in the fourth quarter, we will backfill that position.

Much appreciated, and I'll turn it back. Thank you. Thank you.

Thank you. One moment while we get ready for the next question. I have the next question. It's coming from Nigel Coe of Wolf Research. Please go ahead.

Thanks. Good morning. And good. And I'll send my resume. I'll put my hat in the ring. Yeah, so just wanted to, obviously, the residential, you know, down double digits, I think 20% if I'm not mistaken, 15%. Can you just maybe delineate between lighting and components? Was that largely just lighting or do you see pressure in components as well?

Yeah, it is largely lighting, but there are some other components that we sell to the DIY market through big boxes. So there is some of the other stuff, but majority is lighting.

And then if we then looked at X-lighting, how would the margins have looked in lateral systems? How are the margins on Resi products, you're saying? No, no, no, yeah, well, yeah, residential margins, but if we looked at the segments and, you know, dial-out lighting, any sense on how that would look?

Yeah, so, I mean, the... Yeah, lighting's a drag on the volume by a couple of points, and certainly from a margin perspective, it is also a significant drag So, yes, X lighting margins would be larger and would be growing more because the resi margins have suffered as the volumes come down.

Okay, that's helpful. And then just one more for me. The restructuring, the upsizing of the restructuring, I think $0.10 if I'm not mistaken, should we think of that as a pull forward from 23 actions?

Yeah, I don't know if it's necessarily a call forward. It's in our restructure, and we have, and I think we've talked about this drug, the supply chain issues. It's put some pressure on being able to both manage our supply chain and do a lot of these projects. So I'd say it's more a program, a multi-year program that we have outlined, that we see the ability to do more of as some of those supply chain issues are easing. I would say they're not gone because we're still trying to balance our time between solving those and continue to invest in what will set up this electrical segment well in the future. So I don't know that it's necessarily a pull-in from 23, that it is a program that we're seeing we're able to accelerate a little bit here as we go to the balance of this year.

Understood. Thanks, guys.

Thank you. One moment while we prepare for the last question. Next question is coming from Christopher Glenn of Oppenheim. Please go ahead with your question.

Thanks. Good morning, everyone. So, yeah, T&D, obviously, lots and lots of good commentary and then a little more good commentary. One thing I did want to ask about... You know, I think U.S. onshore wind investments down quite a bit this year. Is that a timing benefit to T&D investment where maybe some of the upgrades are front-running, revitalization, and kind of wind investment? It seems more like an afterthought question given all the positive commentary, but I wanted to ask about that factor.

Yeah, look, I do think there's some timing involved in wind deployment, decision-making. Some of the policies are getting involved there, and it kind of gives, you know, Chris, I would say, a little bit brighter near-term visibility on solar, and yet I do think the wind in the medium term still is quite positive. I don't see that as having any special kind of I think renewables is an area that's been driving really good growth for us. And for us, it's just a question of is there wind in there, is there solar in there? And we would say for the foreseeable future, there's – we see renewable tailwinds on a combined basis with wind maybe getting – maybe it's the wrong way to say it, a little more tailwind for wind. in the medium term.

Okay. And a quick follow-up on residential lighting. I think the container costs are a big part of that, and they were super high and come down quite a bit. Are you still flowing through peak container costs in residential lighting?

No. As you observe, I think the costs are changing, coming back a little bit normal. I think they're a little bit higher than they have been, but that will work itself, you know, through our chain, Chris. And so, and you're right, it's a big variable, you know, to the business.

Okay. So you should see some improvement on that basis, on the lag, the flow through. Okay.

Well, there's benefit to as it comes down. And then I'm not sure if you're looking for a net effect because, You also have volumes coming down, which has a decremental effect. So you got a generally bad top line scenario, and that kind of offset is in the COGS that you're mentioning. But the outlook is still a little challenged.

Gotcha. Thank you.

OK.

Thank you. I would now like to send the call back over to Chairman Blocker for closing remarks.

Great. Thank you, everyone, for your support, your interest, and your questions on our third quarter results and the discussion we just had. And we look forward to reconnecting with everyone again in the new year. So thanks again, and we'll see you in January.

Thank you all for your participation in today's conference call. At this time, you may all disconnect and everyone have a great day.