Hubbell Inc (HUBB) 2005 Q2 法說會逐字稿

Good afternoon. My name is Carlita and I will be your conference facilitator today. At this time I would like to welcome everyone to the Hubbell second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. [Operator Instructions] I would now like to turn the call over to Mr. Tom Conlin, Vice President of Public Affairs. Mr. Conlin, you may begin your conference.

Thank you Carlita, and thank all of you for joining us here today. We released our second quarter earnings press release this morning, which is why we are having the conference call here this afternoon. The press release is available from the usual sources including the wire services, as well as on the Hubbell Web site at hubbell.com. The conference call is available by telephone and is being simultaneously webcast also through the Hubbell Web site. A replay of this call can be gained in two ways. First, two hours following the conclusion of the call you may hear it by telephone by dialing 706-645-9291 and will you need a replay passcode number which is 7803902. The second way of hearing a repeat of the call will be on the Hubbell Web site. It will be available there beginning 24 hours following the conclusion and it will be archived for the next year. If you want to access the audio replay through the Web site, it's hubbell.com, click on the Investor Relations tab and then the audio archives and you will be prompted as to how to start the replay.

Let me also refer each of you to the paragraph in the press release this morning concerning forward-looking statements. The subject of our conference call today and is the second quarter results, but we are likely to look ahead and provide some expectations for the remainder of the year. Those expectations will involve inherent assumptions with known and unknown risks and other factors that can cause actual results to differ from what we may discuss here today. Accordingly, please take special note of that paragraph on forward-looking statements. Please incorporate it into today's conference call by reference. With me as before Tim Powers, CEO of Hubbell Inc. and Greg Covino. I will now turn the call over to Tim for his introductory remarks.

Thanks, Tom. Good afternoon everyone and thanks for joining us. We will follow our regular format. I will give you an overview of our second quarter results and our current market situation, turn it over to Greg for more detail on the financials, and then come back to me for comments on the outlook for the year and our key initiatives.

Our results in the second quarter were in line with our expectations following first quarter conditions we experienced and discussed with you in April. The major factor is the lack of recovery in the nonresidential construction market, which continues to result in lower unit volumes for our effected businesses including our Commercial and Industrial Lighting and our Rough in Electrical business. Soft markets combined with a struggle to holds firm at necessary price levels created lower unit volumes in these businesses. These -- this condition clearly had a negative effect on our margins in the Electrical segment. Commodity and oil related costs continue to be the primary focus of our management team. We have seen a modest level of softening in steel, while rising oil base costs have caused utility, freight and transportation costs to increase.

On the other hand, we are very pleased with our ability to manage the cost price equation in our Power segment. And our Industrial and Harsh and Hazardous businesses saw double-digit sales and profit increases over the prior year. We see reason to remain optimistic about our results for the full year. 2005 is expected to be a better year than 2004. The lighting industry has just issued another round of price increases; which, if realized, will be a step in the right direction to allow these businesses to recover higher costs. In addition, our management has taken a difficult but necessary steps to lower our employment levels in the quarter; which in our Commercial and Industrial Lighting business alone has resulted in a 10% factory employment reduction just from the end of March or a 14% so far this year.

Our efforts in the quarter were clearly centered on managing through a slow start to the year in certain of our core markets. We haven't let this distract us from our focus on strategic initiatives. As indicated in our release, we closed a couple of small but important acquisitions which broaden the offering of our existing Power and IC Lighting products, but also represent a continuation of our global reach in both terms of markets and product sourcing. Our system initiative is proceeding well and we are on track with the next set of go lives this fall. As important our Wiring business, which went life last fall, has substantially recovered from the backlog of processing activities which we spoke about last quarter. Our management team at Wiring is now focused on improving its operating efficiencies, particularly in our plants where the effects of SAP have been magnified by plant closures and our strategic sourcing efforts. In addition, we are working to affirm our capabilities with our customers to maximize the advantage of the system. To date I am pleased with the work of our team and the functionality of the system.

Another area of improvement this quarter has been our Asset Management. As evidenced by our cash flow in the quarter, has improved as expected despite our decision to fund our domestic pensions by 10 million in the quarter. We have made progress on improving trade working capital despite higher levels of sales and planned inventory builds in selective businesses. Overall we are very focused as a management team on our strategic initiatives in the quarter and I am satisfied with our progress. Greg will lead you through the details of these and other quarterly figures in a minute.

First let me give you an overview of what I am seeing in the markets. The exact pace and magnitude of recovery in many of our markets continues to be hard to predict. However, we believe forecasts for moderate improvement are still valid. But the pace of any strengthening will be slow. Industrial production, maintenance and repair spending and capacity utilization have remained positive and are certainly good for our industrial businesses. Utilities are spending more on maintenance, although the major T and D grid infrastructure investments that we expect will occur over the next few years has not yet begun. As expected we have seen residential markets remain strong longer than some had predicted despite recent fed tightening. These rate hikes will likely take their toll on new residential construction, although we don't expect any significant fall off until later in the year or even possibly into 2006. Nonresidential construction markets remained a variable, although we continue to believe improvement will occur yet this year. To what extent and to what degree any improvement translates into higher project awards is difficult to predict. We continue to remain optimistic about the second half project activity and price levels.

Overall we continue to expect to view review the recovery as slow but steady, but also fragile and very much dependent on there being no shocks to consumer confidence, interest rate or other project deterants such as rising material costs. But lacking the shock to an overall economic recovery, we believe that the second half of 2005 will improve versus the first half. Now I'll have Greg give you more details on the numbers for the quarter.

Thanks Tim. Hi, everybody. Tim said our results for the second quarter continue to reflect similar challenges to those we experience in the first quarter. However, actions we've taken, combined with a higher level of activity in our markets, certain of our markets we are able to produce an improved level of sequential sales and profitability versus the first quarter. Year over year we also reported higher sales and operating profit. However most of the sales increase relates to the carry over effect of price increases put in place throughout last year as unit volume in the Electrical segment was actually lower quarter over quarter. Reported operating profit, profit margins and EPS were higher than the prior year quarter. However, excluding the impact of plant closure and other restructuring costs operating results declined as lower unit volume in Lighting and operational inefficiencies at Wiring reduced our Electrical segment margins year over year.

I will have a little bit more detail on the segment results in just a minute. Overall though for the quarter, our second quarter sales rose 4% versus last year and 7% sequentially from the first quarter and that is with one additional ship day in this year's second quarter. All segments reported higher year over year sales, and only the Industrial Technology segment reported lower sequential sales versus the first quarter. Second quarter EPS, $0.58 as you saw. That compares with last year's $0.51 per share reported. Both periods however, include restructuring expenses. This year about $0.03 per diluted share and last year about $0.11. With last year's charge reflecting a couple of large plant closures. So if you adjust for the special charges in both quarters this year second quarter earnings, $0.61. That compares with 2004 second quarter earnings of $0.62 or a decline of a penny per share.

Underlying our second quarter results, particularly in the Electrical segment is the fact that nonresidential construction markets, as Tim said, have yet to show any clear signs of growth, although we continue to agree with predictions calling for improving conditions throughout the year. But we have yet to see clear signs that these markets are turning positive. What we have seen is significantly lower levels of commercial construction projects through the first half of the year, which contributed to lower year over year unit volumes in our Lighting and Rough in Electrical businesses. Lower level of business quarter over quarter has intensified already competitive markets and heald price levels back from where we think they need to be.

On a more positive note however, oil and gas markets worldwide are strong. Utility spending is good and the U.S. industrial economy is active. We saw improved sales in each of these markets, which benefited our Power and Industrial Technology segments.

On to margin. Operating income margin was 10.2%, that compares with second quarter of '04 margin of 9.4%. But on an X items basis, again excluding charges I talked about in both years, margins this year were 10.7% compared with 11.5% last year for a decline of just under a point. If you look at margins sequentially versus the first quarter '05, margins improved by just under a point, excluding the first quarter unusual S and A costs. While we are not satisfied with these second quarter margins, particularly the Electrical segment, these results are not unexpected given continued high commodity costs, record oil prices which are affecting the costs of rate utilities, and lower levels of commercial construction activity.

Modest softening throughout the quarter in certain commodities, particularly steel, did favorably impact our cost. However commodity costs are still, on average, about 50 or 60% higher than the cost experienced coming into 2004. Price increases as we have talked about with you, they have been announced to offset a majority of these commodity cost increases including actions just this quarter by all of the big players in the lighting industry including our Lighting business. However difficulty in realizing higher prices remains and with the level of new project awards being down, price levels are very competitive. Its too early to tell whether the latest price actions in Lighting will be sustained and Tim is going to talk a little bit more about this in a minute. Cash flow second quarter, operating cash flow of $53 million that was 148% of net income, and that's after, as Tim said, a $10 million discretionary contribution that we made to our domestic pensions. This level of cash generation met our expectations as we improved our overall working capital levels from the first quarter. We made progress on working off the higher levels of inventory which accompanied the slow start to the year and our accounts receivable and accounts payable days outstanding were more in line with our expectations at the ends of June. However, we still see room for improvement here.

After $16 million of capital expenditures, free cash flow in the quarter was $37 million. That's down from a strong $47 million reported in the second quarter of last year due to both higher working capital and planned increases in our Capex. This years Capex compares with just over $8 million spent in the second quarter of 2004 with the increase being primarily related to the capital cost of the SAP business system and construction costs for our new lighting headquarters. We expect our full year 2005 capital spending to be in the range of 50 to $70 million that's higher than last year's reported $39 million driven by the two projects I just mentioned, the new lighting headquarters and the SAP project. Also during the quarter we purchased a million shares of our stock at a cost of approximately $46 million. And this activity substantially completed the $60 million authorization that we had from 2003; and as a result in June of this year you may have seen that our board authorized an additional $60 million repurchase program which we expect to complete over the next three years. This program should give us the flexibility we need to continue to offset the dilutive effect of employee stock option activity. However despite this level of share repurchase and our regular dividend, quarterly dividend payments, we remain net debt free as of the ends of June, 2005.

Now a little bit on the segments. Let me start first with the Electrical segment, as usual. Second quarter sales in the Electrical segment were flat year over year. As strong harsh and hazardous markets and the positive effect of year over year price increases were offset by depressed commercial construction markets and modestly lower sales in wiring systems. Overall we experienced lower unit volumes year over year in the segment primarily due to softness in Lighting and the Rough in Electrical products businesses. At wiring, weaker commercial markets and lower oil levels from our industrial customers produced a small sales decline. Sequentially in the Electrical segment sales rose 7% with improvement occurring in each of our four businesses within the segment. The increase primarily reflects the normal seasonal increases in spending throughout our markets, record oil prices which drove strong harsh and hazardous markets and an additional ship day. Margins for the electrical segment for the quarter excluding special charges were 9.4%. That is 2.7 points lower than last year's strong second quarter due to a combination of under covered cost increases, lower unit volume which resulted in some unabsorbed costs in our manufacturing facilities and higher costs and inefficiencies caused by the new business system. SAP business system related costs primarily include temporary employees and consulting assistance as our Wiring Systems management team completes its recovery back to historical rates of transaction processing and factory efficiencies. Margin decline in the segment occurred despite productivity gains and good market penetration within our Harsh and Hazardous businesses. We responded to these conditions, particularly the softness in commercial construction by being aggressive with price levels, remaining steadfast with our plans to consolidate facilities and functions in lighting and taking additional headcount actions to match the current levels of business. And we started to see the positive effects of these actions a bit already in June.

On to Power systems, you saw very strong results there. Sales improving by close to 15% year over year and up 11% sequentially from the first quarter. Year over year increase reflects higher shipments, carry over effective price increases implemented throughout last year, as well as about 2 points or so of improvement attributable to the Civil Anchor business we acquired at the start of this year. Operating margin in the segment likewise improved over 5 points versus last year and nearly 4 points versus the first quarter of 2005. Results of power principally reflects our ability to achieve parity in the cost price equation, as well as higher volume and throughput at Power, combined with lower cost from their strategic sourcing initiatives allowed to us realize the full effect of the strategy initiatives that are under way in that segment.

And finally, in Industrial Technology second quarter sales and margins increased very nicely versus the prior year second quarter as many of the segments of businesses continued to benefit from higher commodity costs, which benefit the customers that are served by this segment. Sales and margin gains were particularly strong in high-voltage and in the Gleason Reel businesses.

Just getting back to SAP for a minute over all on the project we have spent just under $2 million and capitalized approximately $5 million in the second quarter of '05, compared with expensing capital of $2 million and $3 million respectively for the second quarter of '04. Our outlook for the rest of the year is for expense between, to be between 10 and $12 million and capital to be a bit higher running at about 16 to $18 million for the full year. Total cost for the program are expected to be in a range of 50 to $60 million through the end of next year.

Lastly our effective tax rate in the second quarter, 28.7% that's a blended rate of the core earnings rate of just under 28.5% and a lower statutory rate applied to special charges that they have a component related to Puerto Rico which carries a lower rate. The core rate of 28.5 is in the range what have we would expect for the full year and that's up modestly from last year due primarily to a higher mix of U.S. taxable income. So with that I will send it back to Tim for some comments on the rest of 2005.

Thanks, Greg. Let's talk a little about our outlook for the year. We expect a full year 2005 sales to be fairly consistent with our earlier guidance coming in at the range of 4 to 6% above 2004. This includes a slightly better than GDP forecast of organic growth along with 1 to 2 points of price carry over and new product sales impacts. We expect full year operating margins to be at or near the levels reported last year before restructuring. Our full year 2005 earnings per share before restructuring is still expected to be in the range of 255 to 280. However given the lack of meaningful growth in nonresidential construction even into July, we certainly feel that our results will more likely be in the lower half of this range. The lighting industry price actions have generated an expected level of increase in our order rates for the -- for our commercial and industrial business,which will clearly benefit the third quarter. However, the extent to which these order rates continue and the selling prices firm will be important indicators of our second half results. We also continue to expect that cash flow from operations will exceed net income for the year despite the need to support sales growth and strategic inventory builds with additional working capital.

And finally some thoughts about our strategic initiatives. We are continuing our pursuit of lean thinking, execution of restructuring actions, a focus on working capital efficiency, low cost country sourcing initiatives and acquisitions. We are making good progress in our lean initiatives which have been extended to our new product development efforts and increased integration with customers and suppliers. We have transformed major areas of our operations and as a result have been able to consolidate factories and warehouses into less space and at the same time generate process improvement and productivity gains, but we are far from where we want to be. The more experience we have in lean thinking the more opportunity we see.

2005 will be an important year in our business system implementation as we take additional businesses live, leveraging the tremendous base of knowledge and skill we have built up in our Company over the last 18 months. Our lighting restructuring actions continue to be executed on schedule and returns on the amount we have invested so far have been good. Important plant and office moves are both underway and planned. We also are pursuing restructuring actions in other businesses. Factory consolidations, warehouse consolidations will continue for at least two years in most of our businesses as the positive effects of lean and low cost country sourcing take effect. We continue to increase the amount of product that we source from low cost countries, whether it be from our own factories in Mexico or sourcing from third parties in the Far East. And finally, our ability to finance substantial growth remains strong. In addition to our internal growth initiatives, we continue to search for acquisitions that will enhance our position in our 4 core markets. We have a history of buying smart and integrating acquired businesses smoothly into Hubbell. We will not deviate from this approach. We are confident that we can continue to find attractive, acquirable companies that are priced right.

In summary, we certainly have been challenged by the way this year has started. However, we are optimistic that our efforts will make 2005 the fourth year of consecutive growth and earnings for Hubbell. Tom, that concludes my comments and I think now we are ready to take questions.

Okay. Carlita, could you open the queue, please?

Yes sir, thank you. [Operator Instructions] Your first question comes from Bob Cornell of Lehman Brothers.

Good afternoon everybody. Hi, Tim. You just made a comment that you said operating margins for '05 would equal '04 levels. Did you mean before or after restructuring?

Before.

Well, you know, you are running at about a 10.4 year-to-date and last year the margin for the year was 11.4. I mean you are saying you are going to get to 11.4 for the year, it means you are going to have to do decidedly better in the second half. Is that what you meant to say?

That's it.

OKay. And why would margins be so much better in the second half?

Well, we've reduced our employment substantially which I indicated. We've continued to restructure. We've taken a plant out of service in the wiring device area. We continue to move products off shore in our lighting restructuring efforts. Any number of actions will help improve our margins in the second half.

Well, that suggests you are going to be running like a 12.5 rate in the second half, right?

I think that's the math, yes. That's pretty close.

You started out the year saying you are going to restructure to the tune of something like 20, 30 million this year and you are actually at a pace to run around 10. What's going on there? Why is the number coming in so much less than you originally thought and what does that mean in terms of plant closures and employee reductions, that sort of thing?

It just means that predicting the timing of this is not a precise situation especially the accounting for the timing of these things. And we do our best to tell you what we think those are going to be and then refine them as the year goes along. And certainly we are trying to arrange in the lighting scenario the movement of products and plant around the system implementation. So we are trying to produce both of these at the same time. So really that's what's effecting the timing of restructuring costs. But we expect to got most of this done by the end of next year.

Does that mean that because you are only spending 10 this year you are looking at 20, 30 million next year?

The size of the whole plan remains the same which is what 50, 50 to 70 -- it's the same.

I'm sorry, where is it going to be at the ends of this year in terms of that 50 to 70? We said at the beginning it would be three years ending in 2006, so what we haven't spent this year we would still expect to spend in '06. I guess my final question is just if you can expand on the, your comment around the nonres market. A number of other companies have come out and talked constructively about the nonres market and you guys still seem to say it's weak. Maybe earlier on the first quarter conference call you talked about the pipeline was still there, you saw the projects that are delayed because of the cost of the building type of thing, maybe give us a little more commentary there.

I would say that the, we've seen less large projects move from the bid stage into the actionable stage. Our business in lighting from stock has increased which means the design builder smaller jobs are still going at a pretty good clip. But the really -- the bigger jobs that you would normally see for office buildings and things like that are going along at a much slower pace. And we are still going through this process of multiple bids on the same job. In other words, trying to value engineer it so we get to a more acceptable level of cost per square foot for the owner.

And just -- you said in June that was starting to pick up, though, what was that and what did that mean?

We -- June was decidedly better than the other months in the quarter. Part of which was caused by this price increase in lighting and the effort by distributors and customers to get orders in under the old price. But generally speaking across the board June was a better month than the other two months.

Okay. Thanks.

Your next question comes from Tony Boase, A.G. Edwards.

Thanks and good morning. What kind of margin expansion can you experience without an improvement in nonresidential?

That's --I don't know how to answer that. We haven't had any improvement in nonresidential, or much improvement in the second quarter and we bounced back some from that. I would expect it would provide a head wind to us achieving what we have in our forecast. If that nonresidential market doesn't get any better than where it is we would have a tough time achieving our targeted margins for the second half.

On these orders you received in June those are at the preprice increase levels?

Primarily, yes, but we began to see some orders at new prices, yes.

Can you flesh out the acquisitions a little bit more? For example, what are revenues and operating margins for Victor and Del Mar and what was the purchase price for those.

They are relatively small businesses that contributed about, on an annual basis only about $25 million a year combined. What's important about them is where they are located in our portfolio. First of all the Victor business will go into our Harsh and Hazardous business with global business. It will be added into our Chalmit product line so that's a nice product line expansion and the Del Mar business is our first footprint on the ground in Brazil and makes insulators and arresters, which is the core product of power systems and gives us a beach head to begin to build around in Latin America. In the margins of these businesses in their first year will be around the average of our Company today. Average of the Company for the businesses that they are going to be put into? Say around ten or 11, something like that.

And then just kind of a housekeeping question. What's the after tax number for the 2.7 million charge?

If you do the math I think we applied -- I think it was a slightly lower rate of around 24% overall to that charge, Tony.

Lastly, any update on the CFO search?

We are making excellent progress. Believe me, I hope we are close. I expect to be close.

Great. Thanks a lot.

Your next question comes from Jeffrey Sprague of Smith Barney.

Thanks. Good afternoon, everyone. A couple of questions. First I guess on the implied lighting prebuy that you alluded to, I'm a little mystified by that id I think about a lack of price discipline in the marketplace, why would distributors feel compelled to prebuy in front of a price increase.

Mainly what will we saw were more stock products and a few jobs that would have been released in the near future. So this prebuy was by no means anything approaching last year at this time or even in November. So each one of these price increases brings a smaller and smaller response.

Just thinking about the restructuring that you are doing in Lighting, if I heard you right you've taken 14% of the heads out year-to-date. If I think about just the grinding restructuring that's gone ongoing, dating back to the recession and the LC A. acquisition that sounds like a fairly steep and deep cut. If you had any confidence that the business was coming back. And I'm sure some of its lean and sourcing, but maybe you could give us some perspective on the size of that number.

For one thing we anticipated the year would be running at a higher rate of production. And so our factory employment levels were set and remained constant coming in from last year. So what we were doing is actually building inventory and you saw that in our balance sheet. So we needed to cut back our production levels so that we could reposition our -- or rebalance our inventories and get back to the current level of business. And we have also been definitely impacted by outsourcing in this, too. So it hasn't really affected as much as the salary work force as the factory work force.

So a would a good piece of this in essence be temporary furloughs waiting for volume to come back?

Oh yes. This level of employment could be partially or completely rebuilt within a quarter. This isn't, some of it is permanent because it's related to restructuring but a lot of it is just a level of business in our factories right now.

And you alluded to feeling better about projects in the second half. Is there specific visibility on activity or that's just kind of a macro assumption?

It's a little bit of a combination, but I wouldn't say there's mass data that would support that the nonresidential construction market is turning. It's just bits and pieces of information. So there is no broad evidence of this yet but we are still optimistic about some improvement here yet before the ends of the year.

I may have missed it on lighting, but the price was actually up I would assume, no?

Pricing was up but pricing wasn't up enough to offset the newly increasing oil related cost. So it's getting better. Pricing is getting better and certainly I'm very hopeful about this price increase in the industry. So I'm anticipating that our lighting margins will improve from that.

I guess just one other point of clarification, the additional day you were referring to, that was I think probably on a sequential basis not on a year over year basis. Is that correct?

That's versus the first quarter, that's correct.

Thank you.

Your next question comes from Robert McCarthy with CIBC World Markets.

Good afternoon, gentlemen. I believe steel costs for the first quarter were up about 60 to 70%. What were they up for in the second quarter?

60 to 70 would be a comparison of -- to the prior year.

To the prior year for the first quarter, I believe. What about for the second quarter?

We've seen a seven to 10% reduction in steel costs on a comparable basis.

Year over year?

Yes.

And what do you expect the run rate going forward?

Well, we don't have a tremendous amount of visibility to that. About 90 days is all you can see and we see, because of Asia being able to bring on capacity and become a net seller of inventory instead of -- I mean steal instead of a net buyer, we think the market conditions have weakened. But really automotive plays into this and after these incentives that are going on we have to just see what the steel demand is. But right now it is softer and we are able to negotiate lower prices in steel.

Any other raw material costs that are worth commenting on, copper, aluminum, nickel, or, zink?

All of those remain fairly firm and are moving in a narrow range. Have not given up a lot of ground on the height of the prices that we have seen. Alternately, like copper they will reach new heights and then zink is the latest one that has taken off. And zink is in the plating of all of our products and in the blocks in our arresters.

With respect to volumes in your wiring devices you mentioned some softness in the industrial end market. Could you provide any more granularity on that? In terms of timing did it reverse through the quarter or was it weak throughout the quarter, was June different than April?

I wouldn't' t expect that to continue. I mean I think that we had some delivery problems that may have made our business a little softer first quarter and into the second, but I would say the market itself is very strong and sequentially our order are getting stronger in the Wiring business each month.

Finally on pricing are you seeing any kind of difference in terms of potential price sticking across your businesses from wiring devices to Lighting to Rough in?

For the new lighting price increase it's really too early to tell.

Okay.

That you really have to let that mature 90 days or so to see how it's going. In the Rough in Electrical business, price levels have not really risen enough to offset the steel price increases and I don't believe that they will. I think we are going to have to rely on the declining steel price to restore the margin rather than further price increases or re-establishment of the higher price levels. All right. Thank you for your time.

Your next question comes from Alex Rygiel of Friedman Billings Ramsey.

Thank you very much. Could you expand a little bit upon the demand you are seeing from electric utilities and also comment on what you believe the volume growth was in the quarter within your power systems business?

Sure. We see quite a steady level, an improving level of spending on maintenance and repair of the transmission distribution grid. Meaning that the utilities are concerned about the reliability of their grid and they are replacing the weakest link so to speak. Whether that be short runs of transmission or distribution lines or upgrading insulators or arresters or electronic diagnostic equipment on their systems. So they are trying to get themselves in shape for the coming regulations that will require them to have reliable and measurably reliable grids. We think that number if you take about probably 5% price increase, the rest would be real volume from our -- I think it was 15%.

Yes.

So maybe about 10% increase in units.

Great, thank you.

Also, this is Greg, I just want to add there was a question earlier about is shipped days in the quarter and that did add -- we did have an additional ship day versus both last year second quarter and sequentially versus the first quarter. I think it was an earlier question on that, just wanted to clarify.

[Caller Instructions]. Your next question comes from Bob Cornell with Lehman Brothers.

One of the other lighting companies that spoke today talked about the impact of the energy bill and the energy policy tax incentives in the act that it will spur demand for new energy-efficient lighting products. Do you see that as real, and if it is how would Hubbell participate?

We would participate the same way as the major -- all the major producers in that new more efficient lighting would have tax incentives to relight or relamp or refixture existing facilities. And on new ones to put in the kind of lighting that qualifies for these tax breaks. And what we are all concerned about is whether there is enough money in -- along with that energy bill to create the incentives for that kind of an investment. But it applies generally to all lighting both inside a building and outside the building.

Some people choose to mention this and talk about this as significant but you guys don't. Do you think it is going to have a real impact on '05, '06, '07 lighting for you guys?

It would if they really put some money behind it. The reason I haven't really raised this one is I'm really concerned that among all the priorities of where tax incentives may be handed out I'm not sure that there's going to be a lot of money put behind this end of it. But certainly to the extent that it would have some to get everyone's attention or whether the government, as has been described in earlier versions of this bill, called upon to that in its only facilities in some reasonable period of time, it would it spur demand for our lighting across the board.

Okay. Thanks.

Sure.

[Operator Instructions] Your next question -- your follow-up question comes from Tony Boase with A.G. Edwards.

Thanks. Just a quick clarification. The prebuy and also the extra day added how much in revenue in the quarter?

I think if we have about -- this is Greg, Tony. If we have about 63, 64 days in a quarter, if do you the math I think it's about $8 million a day or so.

Okay. Just a little bit more on guidance. You know, even with the prebuy, even with the extra day, this was clearly a pretty tough -- tough quarter despite a couple, maybe minor tail winds here. It sounds like you are really counting on a pretty meaningful improvement in nonres in the second half. And a little -- a lot of it seems to be kind of on faith because, as you said earlier, there isn't a whole lot of broad data to support that. Am I reading this correctly?

We think our utility business will remain strong all year. We think our residential markets will remain very strong all year. We think the industrial business will remain strong. And all those should have equal to or better comparisons in terms of sales volumes to the prior year. So yes, there is some dependence on an improvement in nonresidential construction market and, yes, it is our biggest market, but it is by no means the only factor in expecting improvements in performance in the second half of the year.

Right. But just those, the market, res and industrial, and the utility markets, those alone -- it doesn't sound like those alone are enough to get you to a 250 basis points margin improvement in the second half. And also pretty meaningful sequential jump in revenues that you need to have to make even the low end of your guidance.

If you take the declining steel costs, the fact that we took out one plant, the fact that we took out about 6% of our total employment I think the cost structure has been, I don't want to say dramatically improved but somewhat improved from the first half of the year.

Okay. Thanks for the comments.

Sure.

You have another follow up question from Bob Cornell of Lehman Brothers.

I forgot to ask you, what is your total restructuring guidance now for the year? You spent just a little under 5 million the first half. What is the target for the year now?

Well, we are in the 15 to 25 but we are probably closer right now in our view to the bottom end of that.

So tha's like 5 million a quarter the balance of the way.

I would say.

To go back to the question I asked initially how come you've been under spending so much? What's literally been happening? What happened in the last couple of quarters to make the numbers so much lower?

There are a couple of plant moves that are very expensive. When you get to those you generate a whole lot of restructuring expenses in one shot. And then there are many small actions, so it's just the timing of those, that's all.

On those couple of plant moves what's happening there in the second half, anything?

It's difficult to say right now. Some of those are timed either for the first quarter or beginning of next year and that's why I don't really have the precise number for you. But --

I have an update, Bob, this is Greg in our second quarter Q will have some further information but one of the things you see happening is that some of the costs for some of these moves that we are doing now are not necessarily restructuring in the technical sense. So some of the costs that have future benefits in them flow through the normal P&L. A little bit of that we've seen certainly some volume related reductions that is have reduced the estimates on some of these projects that are underway as well. As you make cuts volume related head of the action itself. So a couple of small factors in there.

Well, in the Q make sure you put in what's been spent so far and what the expectation is, not only for this year but the balance. And what I was really asking earlier was what we should expect in '06. Sounds like restructuring is going to bump up next year instead of going down.

We will give you a good analysis of the whole story.

I'm sure you will. Okay. Thanks.

You have another follow-up question from Jeffrey Sprague from Smith Barney.

Hi. Just a follow up on the composition of revenues. I think there was comment that acquisitions was about 2 points, but I think that was just electrical. Could you give us maybe just kind of a total Hubbell.

That was our Power business where we bought a very small anchor business.

That's right. That's the Cooper business.

No, no. That was Atlas, the name of this thing is Atlas and it's an anchor business. The Pole Line Hardware business is more than a year old, so it has no impact. So we only had a, what was it, about $2.3 million of sales in the third quarter from that acquisition.

Second quarter.

Second quarter.

But a total Hubbell basis can you give us volume price M&A, I guess M&A on a total Hubbell basis was probably a fraction of a point, but --.

It's an insignificant amount.

Let's see, what's the price volume mix for the total Company?

We are estimating that for the Company in the quarter unit volume is probably at or near flat with most of the price being -- most of the sales increase rather, being related to price carry over.

Okay. Thanks a lot.

Varies by business as I mentioned in my comments.

Okay.

You have a follow-up question from Robert McCarthy of CIBC World Markets.

Two more minor questions. One, what caused the sequential margin decline in industrial technology in your view?

We did have a little bit of cost take out in our European operation where we combined offices. That did small business and the cost is small so the effect was a little bit bigger, but we did see some severance in some reorganization costs as one example,second quarter versus first quarter. That business is also -- the timing of its shipments is somewhat lumpier than our other businesses as well, so you can see some swings quarter to quarter in the overall margins of that business, but I can't think of --

No I would say it was some costs for layoffs that appeared in the ordinary P&L.

And then Power systems is roughly at comparable revenues to third quarter. But obviously higher segment margins here. A lot of the dynamics must be from steel easing and some pricing, but could you quantify in any way what came from lean productivity, perhaps pricing or any kind of cost realization.

I would say the main lift is from recovering price and certainly a 10% volume flowing through the factories would be second. And steel price relief would be down the list because we really haven't experienced very much of that yet.

Okay. What do you see sustainable? Obviously we can back into the back half of the year. What is 14, 15% range for Power systems stainable going forward for a little while?

I would say 13, 14. In that if our volumes stay up. 15 or higher would depend upon the mix because we have some more -- significantly more profitable products and I keep hesitating to comment about thing that affect mix but this quarter was a good one with a higher margin products.

Right.

So if we continue to have that mix you can write down the same numbers.

Right, right. And then in terms of Harsh and Hazardous you have a pretty nice sales track there, double digits. We are entering a pretty nice up cycle here. Do you expect that to continue, to accelerate?

I expect double digits to continue.

Continue. For how long?

At least the balance of this year.

Okay. Thank you for your time.

At this time there are no further questions.

All right, then Carlita. Thank you for your help and thank all of those on the lines for joining us today.

Thank you. This concludes today's Hubbell Incorporated conference call. You may now disconnect.