Hubbell Inc (HUBB) 2009 Q1 法說會逐字稿

Good day, everyone. Welcome to the Hubbell 2009 First Quarter Earnings Conference Call. Today's call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Bill Sperry. Please, go ahead.

Good morning, everyone. Thanks for joining us. With me this morning are Tim Powers, our Chairman, President, and Chief Executive Officer; Dave Nord, our Chief Financial Officer; and Jim Farrell, our Director of Investor Relations.

Hubbell announced its first quarter earnings this morning. Hopefully you've found that press release off of the wires or on our website. You'll also find presentation materials on the website that Tim and Dave will refer to during the call today.

Let me refer everyone listening to the call to the paragraph in our press release and in the materials regarding forward-looking statements. The press release and materials may contain expectations based on assumptions and Hubbell's performance in the future, particularly regarding our earnings. We also may make some comments today on this call or answer questions which may include forward-looking statements. All of this involves inherent assumptions with known and unknown risks and other factors that can cause our actual or future results to differ, perhaps materially from what we may discuss or project here today. So, please note that paragraph in our release and I'd like to consider it incorporated by reference into the call this morning. In addition, we may make reference to non-GAAP financial measures. Those measures are reconciled to comparable GAAP measures in the appendix to the presentation materials.

With that I'd like to turn the call over to Tim.

Thanks, Bill. Welcome, everyone, and thank you for joining us this morning. As is our usual practice with these calls, I'm going to provide you with a summary of the results we announced this morning and then Dave will work you through a more detailed discussion of our financial performance. I will conclude with my perspective on the outlook for the remainder of 2009 and some closing remarks. Then we will open it up and take some questions from you.

We will refer this morning to the presentation materials you have hopefully found on our website. I am starting on page three. Our first quarter results are reflective of the weak residential and non-residential construction markets that are being weighed down by the recessionary conditions that persist in our market and the lack of availability of financing. Our sales for the quarter were $585.6 million, a decline of 7% from the first quarter of 2008.

Those sales were aided by acquisitions, price increases, and storm related shipments. Base unit volume would've been down approximately 12% in line with the outlook we provided in our January call. Residential construction continued to decline sharply and non-residential construction is off significantly. Bright spots include our power segment, building automation, our high-voltage test equipment, and the retrofit relighting opportunities.

Obviously, we are facing a challenging economic environment and we are working hard to align our organization to that available market. Our workforce has been reduced since last fall and we continue to evaluate additional alternatives. The employment actions we've made in the first quarter resulted in approximately $3 million in charges and will net savings of nearly $7 million in 2009. When combined with the actions in the fourth quarter last year, the net saving impact will be nearly $23 million. But our story is not just cost cutting. Importantly, the net impact of price and productivity improvement more than just covered cost increases. These factors are a key focus in our management in this environment.

In asset management, our inventories are down in dollars and comparable in days to the first quarter of last year. And I am also pleased to highlight that our Hubbell Wiring Device division earned a Supplier of the Year award from Grainger, a great sign that the challenging environment is not changing our relentless focus on innovation, quality, reliability, and customer service.

Let me turn it over to Dave now and have him discuss the financials in more detail.

Thanks, Tim. Good morning, everyone. I'm on page four on the Company materials if you want to follow along. Let's start first with our first quarter results.

Net sales, as Tim mentioned, were $585.6 million in the first quarter, down 7%. The biggest item effecting net against the core volume was acquisitions which actually contributed five points of growth. So, excluding that, it was down 12%. Foreign currency was a detriment of four points of the growth and that was offset by the rollover impact of pricing actions that were taken last year and some storm benefit in the utility business. That offset the currency. Otherwise, we're dealing with, at the 12% organic decline of business, a result of broad based market weakness.

That resulted in gross profit of $167 million, down about 11% from last year and a gross margin of 28.5% down from last year's first quarter of 29.8%. That's really a result principally of the lower volume and the impact of reducing our inventory. It really exacerbates the overhead absorption issue. On the positive side, the combination of price and more importantly productivity improvements that we continue to focus on offset cost increases on commodities and more importantly some of the other costs within the business, particularly as we've talked in the past, our pension headwind.

Turning to page five, we look at our SG&A costs in the quarter. They were $109.7 million, down $2.2 million. That includes acquisitions of $6.1 million year over year. So, excluding acquisitions, actually down 7%. Not as much as the level of sales volume, so as a percent of sales, up 80 basis points to 18.7% but that increase is really attributable to two main components, probably equally split the cost associated with the work force reduction actions that we took in the first quarter as well as the year over year pension cost headwinds. That led to operating profit of $57.3 million and an operating margin of 9.8% down 220 basis points from last year's first quarter which we reported at 12%. That's all again due to lower volume, inventory reductions, and employment level cost actions.

Turning to page six, some of the other items in the P&L; net interest expense was up $3.1 million from last year's first quarter. You'll recall that we issued $300 million of term debt midway through the second quarter. So, that higher interest expense is really reflective of that higher level of outstanding debt that was used for some of our strategic initiatives last year, both share repurchase and the acquisitions.

Our tax rate, year over year up one full point to 31.5%, really due to a lower benefit that we see from some of our foreign operations as well as Puerto Rico. All that leads to net income of $33.8 million, down 30% and earnings per diluted share of $0.60 versus last year's $0.85, down 29% with relatively comparable outstanding shares. You'll note that we had no share repurchase in the first quarter of this year, so we're maintaining our level of outstanding shares.

Let me turn now to some segment insights on page seven, first on the electrical segment. We reported net sales of $402.5 million, down 14%. At the segment level, currency hurt us by a comparable four points and that was offset at the acquisition benefit from the acquisitions in the lighting business last year. And a little bit of price. But otherwise some broad-based market weakness. We saw our residential business down 27% and our wiring and C&I lighting businesses down double-digit. One of the contributing factors to the year over year decline and the impact in the first quarter was distributor inventory reductions as the channel was reducing their inventory. It's very difficult to measure that precisely. Certainly there's activity in that regard and it's activity that largely occurs in the first quarter but probably not solely. We know from our own experience how difficult it is to adjust inventories in response to the market and we expect that the channel will have some similar challenges and so it's likely to roll into the second quarter. On the bright spot, we did have good market performance continuing in our high-voltage test equipment with that business up year over year in the first quarter.

Operating profit and margin negatively impacted certainly by the volume decline with margin compression due to the lower volume and the employment action costs. We've got reduced inventory levels. You'll note that we had inventory down from year end by $15 million, all of that in the electrical segment as a result of the very weak market conditions there. So, the big impact is in the electrical segment but the good news is we still have productivity improvements that help mitigate that cost.

Page eight, on the power segment, we reported sales of $183.1 million, up 16%, very good performance in the quarter. Biggest contributor to that year over year improvement was acquisitions which contributed 14 of the 16 points. There was also incremental volume from storms in the first quarter and then some price realization. When you take all that into account, we think that the underlying core demand was down about 7%. On the profitability side, operating profit of $29.6 million, up 17% with a slight improvement in margin. We've got selling price increases covering our commodity costs. You'll recall there was a lag in getting the recovery of those costs and so what you see in the first quarter is reflective of the final catch-up against the price increases we saw last year. We do have productivity improvements and the acquisitions, while they were significant contributors on the top line were not as nearly as significant in the profitability side. So, from a margin standpoint they were slightly dilutive.

Turning to page nine, cash flow, very good cash flow performance. We're very pleased with our cash flow. Operating cash flow of $46.6 million in the first quarter, up nearly $14 million from last year's first quarter. And a good discipline around our capital expenditures. One of the contributing items to the decrease from last year, last year's $11.9 million included costs associated with the expansion of one of our facilities in Mexico to make room for more or our product transfers that helped us close some of our facilities. So, free cash flow of $38.6 million, 114% of net income, a big -- some good performance as we'll talk in a few minutes on working capital.

You see on working capital, receivables. Receivables contributed $26 million of our operating cash flow in the quarter. Good collections, good -- you'll note the days outstanding better than a year ago. We're very focused on receivable quality, receivable dating, making sure that we're keeping our days outstanding very tight in this tough credit market. And inventory as well. Good performance moving our inventories down $15 million from year end, about $12 million from a year ago. Keep in mind that year over year comparison has an acquisition impact. If you adjust out the acquisition impact, we're down close to 10% from a year ago. So, all that results in trade working capital just up as a percent of sales, up slightly from last year at 21.9%

Page 11, our capital structure continues to be very strong. We're very pleased with it. No significant changes from year end other than the contribution of our cash flow in the first quarter which brings our net debt to cap down a point to 18% from 19% at the end of the year. So, we maintain the flexibility in our capital structure and also maintain our conservative balance sheet.

With that, I'll turn it back to Tim to talk a bit about the outlook.

Thanks, Dave. Now, let's turn to page 12 and our outlook for the remainder of 2009. Non-residential construction is our largest market and the outlook for 2009 is for a decline in the 20% plus range as the recession hurts demand for new buildings and the lack of financing holds down construction. Residential construction continues to decline as the market struggles to absorb the existing inventories while rising unemployment hurts demand. Our industrial end markets are expected to decline in the low double-digit range given the soft outlook for demand. Our power segment should see double-digit declines in the distribution spending due to weaker residential construction activity while overall transmission spending may be flat to up low single digits. The maintenance and repair element of this business, while down year over year will soften the impact of the construction of the declines. Unfortunately, we do not see a recovery in 2009, but rather these conditions persisting. While the power and industrial markets can be expected to moderate and the residential construction may turn positive in 2010, the non-residential construction outlook should remain in recession for several quarters.

Turning to page 13, I would like to highlight that although challenging, this environment is manageable. We will take actions that are necessary and there are positives. The stimulus package is certainly a driver that may deliver meaningful sales for Hubbell but we do not see the impact in a quantifiable way in the short-term. We are excited by the trends that will drive growth at our Company, transmission spending, upgrading and expanding the grid, the need for energy infrastructure, energy efficient lighting technologies, but in the near-term picture will be dominated by volume declines which will put pressure on margins.

Through this challenging downturn, Hubbell will continue to rely on its strengths, serving a diverse range of essential end markets with a suite of branded products used every day that stand for quality and reliability, a focus on lean methodology that is continuously improving our cost competitiveness, a conservative balance sheet and liquidity position and a core competency in finding and integrating acquisitions with a compelling strategic fit at attractive valuations. Our strengths will carry us through these times and allow Hubbell to emerge more capable than ever before.

Thank you for your attention. Now we will be happy to take some of your questions.

Thank you. (Operator Instructions) Our first question today comes from Jeff Sprague, Citi Investment Research.

Thank you. Good morning, everyone. First, just on kind of what's going on with price and cost? You kind of blended some of those comments with discussions about productivity and other things. Could you just give us a little crisper view of where price stood in the quarter in the two segments and how it relates to underlying cost?

Yes, Jeff. I think as we've disclosed, price in the quarter overall was about two points, a little less in electrical, a little more in power. As you know, power has a much higher commodity material component. So, that's just the roll over from last year. I'd put it at two points in electrical and four points in power.

Okay. Tim, just on the non-res outlook, there's been this little bounce in the -- actually more than a little bounce, but a notable bounce in the ABI here just recently. Do you actually see any signs of a tangible firming in some of the kind of the early indicators that you look at in terms of bid and proposal activity?

Let's say our clarity is only still a few months ahead, to second quarter. And I would say that while there's optimism around, the tangible part of that is hard to find. I think people are feeling like there's some solid ground developing but when you look at the hard facts of it, it's just not clear in the very short-term.

As we look at the progression of your year here, particularly as it relates to electrical margins, and I know you want to avoid specific margin guidance, but as you think about the restructuring benefits and other actions that you have coming through, would you expect to be able to sequentially build off of what we saw here in the quarter even if volumes stay at these relatively depressed levels?

I would say in the second quarter, we have more actions planned to continue to drive our inventories down. We will have the same kind of absorption challenges as that continues. So, that's like our near-term picture on it. Beyond that, I'm very reluctant to make any comments just because I'm not convinced I have a clear view of the second half of the year yet.

When you look at what's going on with price, is there any kind of forward indication of how you think price will progress over the course of the year. Is there more push back on price? We're hearing a lot about project cancelations and delays resulting in rebidding of projects. Can you kind of discuss maybe how price was feeling at the beginning of the year versus where you're at now in this March and April timeframe?

I would say certainly the price pressures intensifying. All of our customers can see the decline in commodity costs and they want prices to reflect that. When you look year over year, first quarter last year to first quarter this year, the fact is commodity costs were higher in 2009 than 2008, although in sequence, from the fourth quarter to the first quarter, they were down a lot. There is price pressure. There is considerable rebidding. Part of that is that builders and developers have more time because projects are on hold or being slowed down. So, while they have this additional time, they are taking the opportunity to continue to put pressure on all suppliers to get the lowest price. So, there is price pressure, yes.

Thanks. I'll pass it on.

Your next question will come from Bob Cornell, Barclays Capital.

Thanks. Could you just take us through how your view of the non-res market has changed? In your guidance you took the expectation down. But if we go back to the fall, you guys were still saying the pipeline looked okay type of thing. And orders and inquiries okay. How has that view evolved, Tim? Could you take us back a quarter or two and then roll forward into what you see today?

I would say it's the roll forward of the financial crisis and also the crisis as it effects retail sales. So, I think what's happening is the view to increase empty commercial space caused by the decline in some retail change, the lack of available money is just an expanding story which is dampening demand.

What I'm getting at is when did you see the orders go negative and when did your view go negative? Was it last October or November?

October was just an excellent month for us. It was one in which our orders and sales were extremely strong and November was a month in which orders turned down significantly.

Could you give us an evolution in December, January, February, March? Just sort of a way we can understand how non-res has evolved for Hubbell and then couch that in the context of the view forward?

I would say that each succeeding month on a day basis was more negative to the prior year comparison. And just reflecting what you've seen in the general economy, we can see that trend continuing in the short run. But I don't know exactly what the second half looks like at this point. We are giving you our best estimates of market conditions, but certainly the visibility beyond a short time is still not particularly clear.

Sometimes you guys have indications and inquiries before you actually get orders. I mean, people call it various things. The funnel in the pipeline or various stuff like that. On non-res project, what's the view there in terms of the second half of '08?

I can tell you the inquiries are still at a decent rate but the amount of effort to get one to close to an order is greater. So, there's longer time, more effort, more quotes. Value engineering to reduce the -- get to the budgets on these jobs. It's just as you would expect with more difficult economic conditions, there's more grinding and time on the front end of every job than there was a year ago at this time or even a couple of quarters ago.

So, you go back to Jeff's question on price, some of the pricing you have in steel type products, you've got sort of automatic price pass through. How much of the price increase that you had in this first quarter was of the contractual pass through variety? And then based on what you're saying, it sounds to me like we should be expecting negative price and maybe negative price cost at some point during the year.

I think certainly on metal related products, if the raw material prices or costs stay where they are, the commodities that get sold on the basis of the price of steel or copper or aluminum will have lower prices in the second half of the year than they had this year than last year. So, prices will go down. I don't think you can conclude that margins necessarily will go down. So, we haven't come to see that particular story yet. But certainly if you're talking about switching outlet boxes or things that are dominated by what the material that they're made from, if we're looking at steel at today's price, it would be substantially lower than steel in the second half of last year. So, the price would be lower.

And a final thought from me, you go back a year or so and you guys were talking headwinds from a variety of things. The SAP, product launches, plant closings, probably forgot a few things. But where are you on some of the initiative drag versus headwind and throw in pension while you're at it?

I think certainly we've accomplished what we intended to do with our business system and we're pleased with the progress we're making on that and that we've closed the major facilities that we wanted to based on previous years and we continue to work on that. I think we've closed two or three smaller facilities in the first quarter and continue to work to reduce our cost space. There's no particular restructuring elements in the way. Certainly the cost of trying to scale our resources down in the face of volume changes. So, I would expect that we would have costs equal to or slightly greater in the second quarter as a result of us trying to get our cost structure down that we had in the first quarter. But there's nothing in our way that's a hindrance. Pension headwinds, Dave, are - ?

Pension headwinds are about $12 million.

For the year?

Year over year.

So, I think we're actually operationally, we're in pretty good shape, but reducing your employment levels to the amount you need to first compensate for volume and then decline -- reduce your inventories, these are big steps and for us at least they don't happen all in one move. So, we've been steadily working on that and we have more work to do to keep that decline in inventory moving ahead of volume.

Thanks, guys.

Sure.

Next is Christopher Glynn from Oppenheimer.

Thanks. So, just looking at the electrical segment, excluding power, the core volumes are really kind of outperforming every peer looked at so far in earnings, including the distributors, which given inventory destocking strikes me as a little anomaly. How are you doing that do you figure?

Chris, are you talking about electric?

Yes. Your electrical segment has really outperformed the comps from a core decline level. Just wondering if you had any thoughts on that?

Certainly I think we have a couple of very strong businesses that we pointed out and perhaps the proportion of those businesses like test equipment and lighting automation and things like that would be a little bit higher portion of our total business than perhaps it would be with others. But anyway, I don't really have too much to say about others, but for us, that's a bright spot in our electrical segment and the volumes were not down in test equipment year over year.

Can you just update the size of the test equipment business and what your outlook is for that specifically?

It's probably a $100 million.

It's a $100 million business that's operating at revenues equal to or slightly greater than last year. Our building automation business is kind of a small business, but it's in the $25 million or $30 million range and it's operating at a little bit better, significantly better than last year. It could just be the proportion of a handful of our businesses that are doing better. I wouldn't say that our mainline businesses should be doing anything substantially different than market conditions.

Are you seeing the high-voltage test trends as sustainable?

For the next few quarters anyway, yes.

Okay. That's good. And then just lastly, any kind of anecdotes or point of sale data you have to try to tease out what maybe stocking impact might be and how long that goes on for?

I think the economic conditions have distributors' attentions in full now and we saw in a number of our businesses product returns that would reflect their efforts to reduce inventory. And as Dave said, not all distributors act in unison, so I don't think that this whole effort will be completed by the end of the first quarter. I think it will continue on somewhat into the second quarter. But I think it will be a diminishing impact. But I would say that to the extent a distributor has 20% decline in their revenue, they're very much moved to reduce their inventories by the same amount.

Sure. Okay. Thanks for the help.

Sure.

Your next question will come from Scott Davis with Morgan Stanley.

Hi, guys. Good morning.

Good morning.

Hi, Scott.

One of the businesses that -- at least I think, correct me if I'm wrong -- has higher margins is your harsh and hazardous business. It performed pretty well the last couple years. Has that business come off materially or have you seen any type of mix shift or challenges there that stand out?

We would classify that as one of our industrial business and it's off a little more than 10% as we indicated the whole industrial activity is.

That just seem like a very big number when you think about how fast that business grew in the up cycle. Is that -- do you anticipate further weakness down the road? Or is that business more stable than maybe we would perceive it?

I don't have a strong or separate forecast for that. I would say elements of it will remain strong all year. It has become more project related than flow of goods kind of. So, it depends on what projects you win. And there still are some projects. So, it's hard to draw any separate conclusion about that business at this time.

Okay. I know it's probably challenging trying to quantify this but when you think about the whole opportunity and government retrofit and lighting retrofit, is -- and maybe part of the question is have you tried to quantify it? And part of the question is how much of this proportionally is 2009 versus 2010 or even 2011 impact?

I'm fairly close to some of this. And I would tell you that the actions, the preliminary steps that our government needs to take to act on any of the monies that have been approved are flat out minimum six months before the initial spending begins and so the majority of that, even though the President and Congress have said, "You've got to spend this as fast as you can," I would say most of it will fall into next year and beyond.

Any feel to quantify it? Do you guys think of it as a $50 million opportunity? $100 million opportunity? Anything? Even if it's ballpark?

We haven't really gotten down to what we think it is for us because we need to see the nature of some of those projects in more detail. I mean, we along with everyone, I think, has looked at the list of possible projects and we need to get a little more concrete yet about what are the specific projects going forward and then we can have a more concrete point of view about how much it could help us and when. But it's probably at least another quarter before we could determine that.

That makes sense. And then lastly, your cash balance, almost a couple hundred million dollars, what -- are you out there actively looking at acquisitions? Are there interesting opportunities? How do you think about priorities with your cash I guess is the real question?

First of all is caution in this day and age and with financial conditions being what they are. But second, there are opportunities and I think they're increasing right now. So, we find it an attractive time at this moment. So, we'll just have to see how it develops. But I think we're going to see an increasing amount of properties become available as this recession deepens and lengthens.

Okay. Good. Thank you.

Sure.

Our next question will come from Steve Gambuzza with Longbow Capital.

Good morning.

Good morning.

Good morning.

The margins -- you mentioned strength in the high-voltage test area within the electrical segment?

Yes.

I was just wondering if you could comment on kind of what type of volume trends you experienced in that business year over year and in the first quarter?

Those were up low single digits.

Low single digits. This used to be a separate segment that you used to report prior to 2008, correct?

It was part of the industrial segment. There were other properties in that.

Okay. It doesn't refer to all that business. Just a component of that?

Yes. A part of what was in the industrial segment is now in our harsh and hazardous group and in our industrial group and so it represented a portion of our industrial segment.

Okay. And that's -- I guess, the margins that that industrial technology segment used to report were fairly high in the kind of 20% operating margin range in 2007. Have you managed to maintain those favorable margins?

It's a tale of two cities on that. Where the business has remained strong, our margins have remained high, but a few of the industrial businesses serve as some of the basic materials industries in the United States such as steel. And so those businesses would be off by a significant amount and their margins would be down. So, a few of them are core suppliers to the steel industry, for instance, and so you can imagine that they're off by a fairly large amount.

Okay. And then you mentioned in your outlook that you expect transmission products to be up mid single digits this year in volume terms. Was that consistent with your January or with your prior outlook or have things trended one way or the other on that front?

I think it's consistent. We expected our transmission business to grow and there are some projects that will come to us, some substantial projects. The timing of those projects is the critical element here and when those utilities will really start to work and order the parts and so on. So, we're extremely optimistic about that and our participation in it. And even though you may have heard some utilities reducing their capital spending, they are going ahead with a number of key projects and Hubbell expects to do pretty well among those.

Okay. And do you sell those transmission related products through distribution or do you sell them direct to the utilities?

Primarily they're sold through distribution but it's always the utility's choice. So, about two-thirds of utilities chose to use a distributor for this class of product and one-third chose to buy direct.

Okay. And within -- I'm guessing that these transmission projects are housing within the power segment and utility end market is generally -- I think at least in your '07 10K, it was about 78% of the power segment sales?

Yes.

What would you say the mix within that of transmission versus distribution is roughly?

Okay. Well, the markets per say are 20% transmission and 80% distribution. But now you have to take the 20% up by mid single digits or something like that while the distribution went down by about 10%. And then you'll get kind of the mix.

Okay. So, your mix in '08 reflected the market which is kind of 80-20?

Yes.

And then transmission will grow and distribution will shrink as you grow with the markets?

Yes.

So, basically your product mix is no different than that of the end market essentially?

Not much because we have fairly substantial shares on each.

Okay. Thank you for your time.

You're welcome.

Jeff Beach with Stifel Nicolaus has a question.

Yes. Good morning. Congratulations on a good quarter.

Thank you.

Thank you.

A couple of questions. In looking at the trends that you said were kind of deteriorating from November through maybe the current level, can you make a comment about what you see across your businesses, a seasonal rebound occurring in the April, May, June period versus what you've seem over the last couple of months?

There's always some seasonal rebound. Whether that's very muted or whether it's plus 1%, 2%, 3% or plus 10% is really dependent on economic conditions, so we are in our guidance predicting the former rather than the latter. Obviously, just with the number, the weather and the number of work days outside, there's some little rebound but the negative to that is if there are fewer projects all the time, it mutes this and so we're on the cautious end, the bottom end of our view of this right now.

Okay. You said earlier that it is extremely difficult to quantify the impact of the inventory reductions that are occurring throughout the channel. But can you, if you can't quantify it, at least describe it? Is it the inventory reductions having a very significant impact on your sales in the quarter and probably ahead here into the second quarter?

I would say you have to kind of divide sales into the products that flow through shelved goods and the products that ship directly to projects. But the shelved good part I would say has been hampered 4%, 5%, maybe. This is my own personal view of it rather than a highly quantitative, this is more a summary of anecdotal information as we went through the quarter. Some of our distributors give us point of sale, so that you know, but that's not the whole market. That's one customer. So, they've been really seriously trying to ramp down their inventories since the middle of the fourth quarter and now the ones that are really on the ball have been working at it for four months and it should, as you know, happen within that timeframe because the distributor inventory is only about a month and a half. But it doesn't come out evenly and not everyone starts at the same time. That's why we think that whatever the impact is for the first quarter, it will lessen in the second quarter and everybody by then should be where they need to go providing there isn't another downward leg in the industry, in the markets out there.

Alright. And two more I think quick questions. One is I think you commented on an acquisition in the power segment but the acquisitions that you've made in the electrical segment, they were generating very high margins and I wondered if they were actually additive to your margins in the first quarter? Kurt Versen -- ?

Kurt Versen -- yes. Kurt Versen is doing extremely well and would've added to margin and our newest acquisition, Varon, is still going through purchase accounting and would be dilutive to the margins in the electrical segment. So, we're --

And that will continue?

That will continue for a couple quarters.

Okay. And then last, just you finally completed the closing of your lighting plant up in -- ?

Yes. As a matter of fact, that's true. Yes.

Okay. Thanks.

You're welcome.

(Operator Instructions) Our next question comes from Min Cho with FBR Capital Markets.

Great. Good morning. Thanks for taking my question. This is a question about your power business and a clarification on a couple questions ago. But you mentioned your revenue outlook for 2009 was flat to up low single digit percentage. And taking into consideration your commentary about commodity prices and understanding the timing uncertainty, but what is you expectation for volume growth in the transmission business? Are we talking 10% to 15%?

We think it's going to be mid single digit growth. What could make it better is the timing of projects but we can't be certain about what our utility partners will do on this. But there are a number of opportunities. We think we'll do well in those. But whether we can have the shipments that are effective in 2009 or if they'll go on into 2010 is more dependent on how fast they can get into production in the field. Construction in the field. Did I answer that for you or not?

Yes. You did. Thank you.

Sure.

(Operator Instructions) Next we'll hear from Rand Gesing with Neuberger Berman.

Good morning.

Good morning, Rand.

You guys have been -- had a long held interest in doing transactions and have been pretty patient I think in terms of doing a bigger one than some nice sized small deals. I just wanted to get your thoughts as given what you see out there, is there a pretty good likelihood that you're going to do a bigger transaction here in the next 18 months?

Rand, we wouldn't comment on the size of the opportunities we see but there's a variety of opportunities out there and as you can imagine, they vary in size and some of them are -- I think that's enough to say. I just think there's a good opportunity, there's a variety of sizes. And it's always whether you can ever close them and find the seller that wants to sell to you at the price you're willing to pay. But right now it looks like a good opportunity for us.

I just wanted to focus a little bit on the price you're willing to pay. Some companies are talking about difficulty in terms of thinking about valuation with what's going on. How are you guys sort of approaching that sort of sticky issue?

I think the most challenging aspect of the discussions with a potential seller is what earnings in 2009 are going to be from a factual point of view and then you can really talk about, "Okay, how many multiples of that number are you willing to pay?" And so, it's the stock reality of seeing that your business that you have for sale is declining and then we'll talk about what those price levels are. But if sellers are wanting to look backward in time to 2008, it's unlikely that multiples can be paid at anything that resembles '08. That's the crunch. What's the denominator of earnings?

I guess my expectation would be that you are using the current environment to leverage your bargaining power to try to force concessions.

You're always trying to pay the fair price given market conditions and that holds true. I don't think our view of value has changed one bit. I think there was a period for a couple of quarters up to now when sellers went through this period of expecting that they could continue to sell their businesses looking backward on earnings. I think we're coming through to the new period where they've had a couple, three bad quarters and now the reality of where we are is hopefully showing up more in their price discussions. But that remains to be seen.

Okay. Thanks.

Sure.

At this time, there are no further questions in queue. I will turn the conference over to our hosts for any closing or additional remarks.

Thanks, Mark, and thanks, everyone, for joining us. To the extent there are more questions we didn't have time for, please feel free to call me or Jim and we'll follow up. But thank you very much for joining us.

That does conclude our conference call. Thank you from joining us today.