Hubbell Inc (HUBB) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hubbell Incorporated fourth quarter results conference call. Just a reminder today's call is being recorded. Now for opening remarks and introductions, I will turn the call over to Mr. Bill Sperry. Please go ahead, sir.

Good morning. Another exciting weather day for us here in the North East, so thank you for joining us. I'm here today with 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 it's fourth quarter and full year results for 2010 this morning, and hopefully you found that press release on the wires or on our website. You will also find presentation materials on our website that Tim and Dave will be referring to today during the call. Let me know for everyone listening, the paragraph in the press release and in the materials regarding forward-looking statements.

The release of materials may contain expectations of Hubbell's performance in the future, particularly regarding our earnings. We also may make comments here today on this call or answer questions which may include forward-looking statements. All of these involve 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 the paragraph in our release and I would like to consider incorporated by reference into the call this morning. In addition we may make references to non-GAAP financial measures. Those measures are reconciled to comparable GAAP measures in the appendix to the materials. With that I will turn it over to Tim.

Thanks, Bill. Welcome everyone, and thank you for joining us this morning. I will kick off the call with some overview comments and then Dave will walk you through a detailed discussion of our financial performance and our outlook for 2011. I will follow with some closing remarks, and then we will be happy to take some questions from you. I'm beginning on page three.

We had a strong fourth quarter with good sales growth and margin expansion. We improved our balance sheet by issuing new debt at very attractive rates and retiring old notes which resulted in pushing out our maturities, raising incremental cash and keeping interest expense flat. Consistent with the seasonal cycle we had a strong cash generation quarter.

I would like to put the year into context. We spent the bulk of 2009 reducing the size of our cost structure and ensuring that we felt the bottom of a very challenging cyclical downturn. Our objectives going into 2010 were to turn the top line to growth, but more importantly the focus on operating margins so we could emerge into the next cycle as a more profitable company. As the year progressed, our markets proved more constructive than we initially thought. While residential disappointed us relative to our initial expectations, utility spending grew as we had forecasted and industrial was strong.

The most significant trend was that nonresidential construction performed better than we thought driven in large part by spending levels in the public sector and by strength in the energy efficiency theme, our LED business more than doubled, retrofit relight and controls grew by more than 20%. The net result was organic growth for the whole Company.

Turning to margins, we experienced head wind from price commodity cost equations. We benefited from several favorable mixed contributions as some of the stronger markets previously cited generate above average margin. But the real story for 2010 was our productivity gains. Our people were outstanding. We took actions to consolidate facilities, improve our distribution network and redesign our products to become more competitive. A 200-basis point improvement in our margin was the result. A tremendous achievement that positions us to enter a new growth phase as a more available enterprise.

I would also like to highlight some important strategic achievements during the year. First, we were able to successfully integrate Burndy, our largest investment to date. We were very pleased with the financial performance. And also we are realizing the customer benefits as well as cost synergies we anticipated. It is proving to be very important to our distributor relationships to have Burndy in our lineup.

Second, we were able to bring together the electrical system business under the leadership of Gary Amato with a more coordinated approach to markets across a broad array as well as achieve cost-savings on the back end.

Third we successfully opened a new facility in China that is making the power segment products for us and that we feel will serve as a point of expansion for our Asian presence.

Fourth, our positioning in the LED market is proving highly successful. We are working with leading customers in designing new products that are working well in the field and saving money and improving the effectiveness of customer lighting systems. The result is a very high rate of growth that we will believe will continue into next year and beyond. Let me turn it over to Dave to have him discuss the financials and our outlook. Dave?

Okay. Thanks, Tim. Good morning, everyone. I'm going to start on page 4. Let's talk about the fourth quarter.

As we reported this morning, sales of $639.3 million. That is up $47 million or 8% from the fourth quarter of last year. Two of the key drivers, Tim mentioned higher utility demand. We saw our power segment business up 22%.

Now, I will caution that. That's coming off a low base. You recall the fourth quarter of last year was the bottom of the pull back on the utility space, but still within the market of good growth and a return to the growth that we started to see in the middle of this year.

As well on the industrial side, increase in the industrial businesses really impacting all of our electrical segment businesses, and those businesses that are purely industrial based. We have seen some of the 20%, 25% growth. That's embedded in there.

That's lead to gross margin of 32.3% which is actually just down slightly from a year ago. And while we certainly have experienced the incremental margins that you would expect from the higher sales volume, there is a couple factors that are coming into play that are mitigating that. Not the least of which is the ramp up in commodity costs, particularly in the fourth quarter. That cost us just over a point on the gross margin side. And that's a bit of a -- certainly a surprise for us.

You recall back in the third quarter we were working toward an expectation of getting to parity, and while the price increases put in place have help mitigate, the costs have gone up faster, and that's something we will deal with as we go into 2011. We also have less favorable inventory adjustments.

You recall the fourth quarter of last year we had a lot of favorable inventory most particularly from the LIFO benefit as it brought down our inventories. That's worth about a half a point on the gross margin. But all of that fortunately is offset with our on going productivity gains across the board that helped manage that gross margin declined to be only 10 basis points despite those two head winds.

Turning to page 5 on the selling and administrative expense, continued focus in that area despite 8% top line growth we are able to contain our selling and administrative costs at only a 3% increase bringing the percent of sales down to 18.1%. Certainly there is a lot of things that go on in the fourth quarter, but we're very pleased that we spend the time to get the costs out, and we are very conscious of not adding the costs back prematurely as the volume ticks back. So all of that leads to operating profit in the quarter of $91 million, 14.2% of sales up 14% due to the higher sales productivity and offset by the increased commodity costs.

Turning to page 6, some of the below the line items. First on net interest expense, a little bit of increase in our interest expense year-over-year largely due to the timing of our debt refinancing. You are aware that we and as Tim mentioned, we issued $300 million of 12-year notes back in November and at the same time we tendered and redeemed our 2012 notes, $200 million.

The process to do that though was not in perfect sync between the issuance and redemption and tender. And so at the point of issuance we only were able to get about 40% of the outstanding back on the tender and the rest required a redemption about 30 days out. Our average outstanding in the quarter was a little bit higher than the going forward basis. On a going forward we expect our interest expense to be comparable year-over-year, even in the face of $100 million more debt outstanding.

Turning to the tax rate, a couple things going on in the tax rate, certainly lower than last year and lower than we were tracking for the year. We had been tracking for a 32.5% rate. One of the things that we were fortunate and we signaled back in the third quarter was R&D tax credit and the extension there of, fortunate that was part of the tax package. And so that gave us in the quarter, since we have to recognize the entire full year impact, that's about half of the difference. And the rest is a lot of the benefits of on going initiatives that we have in the tax area to continue to find ways to drive our tax rate down.

We always have them on the board as things we are trying to work, but unfortunately we are bound by the accounting rules that make us only recognize them when they occur, and a lot of times they happen in the fourth quarter. I think we've had that experience multiple times over the last few years, and I think others see the same thing.

So turning to page seven, net income, and I will talk to -- obviously we reported $49.7 million of net income, but that includes the after tax affect of our debt tender and redemption and extinguishment. That was $9.1 million. That is really and truly an unusual item for us. The real run rate as we look at it is the $58.8 million, up 19% year-over-year. And comparably the earnings per diluted share adjusted for the debt extinguishment of $0.96 up 14%. So good drop through on earnings, even better than the 8% volume would indicate.

Now there is a little bit of head wind we have seen from our net income to earnings per share, and that is because as you note a higher level of average outstanding shares. Actually up a little over two million shares year-over-year and nearly 4%. Some of that is due to the full quarter impact on a year-over-year basis. You recall our equity issuance last year was during the fourth quarter so we had a full quarter impact this year.

We also had a higher level of activity in our equity compensation programs. A lot of that due to the maturation of those legacy programs, particularly on the older option grants which we no longer have which have a higher drag on our outstanding share count which we will work to mitigate through share repurchase. We started that in the fourth quarter and we expect that we would continue to do that into 2011.

Let me now turn to the segments. First the Electrical segment with sales of $449.9 million up 3%. Really attributable to the strength in our industrial markets. And even on the nonresidential in the fourth quarter with the assistance of our renovation relight controls business helping to mitigate what is otherwise the underling weakness that remains in that market.

And then residential was a little bit weaker. We certainly had expected a recovery as we started the year, and that has diminished. Particularly if you look fourth quarter year-over-year, the fourth quarter of 2009 was when we first started to see the benefits of some of the government programs, tax credits and so had a higher level of activity than an under lying run rate. That makes the compares a little more difficult.

On an operating profit side, certainly the performance is very strong there with operating profit of $63.6 million, up 19%; more importantly margins of 14.1%. A lot of that due to the certainly the higher sales volume including the favorable mix. A lot of the increase in volume coming from more higher margin business as well as the productivity gains. Both of those in particular benefiting one of our core legacy businesses and that's our wiring device business that we've been working to improve. They've seen year-over-year improvement of nearly five full points in their margins.

As well there is a contribution from Burndy year-over-year while the results were in both years. You recall that the fourth quarter of last year had some of the purchase accounting implications that dampened the results, so their fourth quarter off 2010 are more of the typical run rate that we have seen throughout the year.

Turning to the Power segment. Power segment where we have seen the strongest year-over-year volume comparisons at 22% attributable to a rebound in the distribution products and also a little bit on the transmission side, but still impacted by the delay in some of the larger projects.

On the performance side, not as positive a story. Certainly the higher volume, a positive contributor to margin as well as some very good productivity gains in excess of their cost inflation, but all of that being offset by a number of things. As we have said in the past, that's the segment that has the most impact from commodity cost increases particularly steel and metals and that cost them about two points in the quarter.

A little bit of a shift to a less favorable mix in products. Some of the lower margin construction projects, so that cost a couple points. And of course they also had the biggest impact from the inventory adjustments last year. So the year-over-year impact is about two points there.

So most nonrecurring, the positive news is that we get the incremental margins and productivity on the volume. The challenge is the commodity costs. Not unusual. It is always a volatile within quarters, but over the long-term working through pricing actions to offset that which we will expect to see beginning in 2011.

Let me turn now to cash flow. In the quarter cash flow continues to be a positive story for us and a key area of focus with free cash flow of $76.7 million in the quarter. Nearly one and a half times net income. You see our capital expenditures of just under $14 million starting to approach our more normalized levels in the $50 million to $60 million range on an annual basis. And that leads to a good full year performance.

Turn to page 11 and let's talk a bit about the full year just to wrap that up. We ended up with sales up 8% compared to 2009. Certainly Burndy was a very positive contributor, a good add and a big contributor to the year getting us six points of that eight point improvement. The industrial markets very solid. Utility spending improving and even nonresidential weakness being partially offset by the energy efficiency renovation relight as well as some strong public sector spending. More importantly is the margin improvement of 200 basis points due to our on going productivity activities, our favorable product mix and partially offset by the negative price cost for the year.

And I think that's particular -- I just want to stop for a minute there. That's particularly impressive from our perspective. When we look back just four years ago when we were dealing with margins that were sub double-digit, largely due to investments that we were making, but we were confident that we had -- those investments were the right things to do for the future, and they were going to give us the ability to drive productivity improvement that we could see. And so when you step back and think about the 200 basis points this year combined with the last few years we have improved our margins just over the last four years nearly five full points which gives us a lot of confidence in the foundation that we have going forward.

Free cash flow as well finishing the year at our target at or above net income.

Turning to page 12 on our full year results, again the sales up 8%, operating profit up 25%. The tax rate up 100 basis points year-over-year. Tax continues to give us some challenge as a head wind. Earnings per share on a reported basis up 14% adjusted for the debt issuance of extinguishment up 19% and free cash flow a very solid $219 million.

The segment results for the year, just to wrap that up, Electrical segment up 10% in sales with Burndy adding 9% of that. Biggest impact of the industrial market improvement, seen that across the board particularly benefiting our wiring business. And of course then still dealing with the head winds of the weak nonresidential construction, and operating profit up 52%. Margins up nearly four full points, attributable to our productivity improvements, our Burndy contribution and some favorable product mix.

On the Power segment side. Despite our slow start, a good finish to the year giving us a year-over-year improvement of 4% with the higher spending on distribution products. And the performance on the profitability side being impacted by the negative cost price, most significantly a little bit of the product mix, but with a significant offset from productivity improvements.

Full year cash flow on page 15. Finishing the year at $218.9 million just above net income and that includes some of the negative impact of working capital build as we start to grow back and the market recovers particularly on the inventory side. We saw some growth in inventory for a number of reasons. At the same time we have within our results we are still funding our pension plans. We included in the full year as $24 million of contribution for our pensions, our qualified pension plan.

Page 16. When we talk about working capital, certainly receivables very much on track and consistent with our expectations. The year end a typical seasonality bringing the year end balances back in line after the strong seasonal third quarter. And our over dues balance is are a low 4%. So the quality of our receivables is very high. Inventory a bit of a build and that is an area that we view as an opportunity going into 2011.

Page 17. Our capital structure continues to strengthen finishing the year with a cash balance of $521 million, a reorganizing of our senior notes taking out the $200 million due in 2012, replacing them with 12-year notes, $300 million with an all in cost of just about 4%. So we are very pleased with the timing and execution of that transaction. Now it is all about putting this money to work for us. So let me stop there for a minute, and we will turn now to looking ahead to 2011.

First on page 18, let me talk a little about our four key end markets. First we will talk about residential. As we have talked about, there is three important drivers within that business. Single family construction, multi family and renovation. Our outlook calls for residential market to be fairly flat in 2011 driven by some modest contraction expected in the single family construction which offsets growth that we would expect in renovation and the multi family.

There is some challenging obstacles in place. You have still a high overhang from the high volume of potential foreclosures and some uncertainty in the appraisal and documentation process and the lending standards. And certainly our conversations with our home builder client base deals a very low-level of confidence in 2011 time frame, and I think that's consistent with what you see in the latest home builder index which I think the last one I saw was still hovering around 16.

But we continue to believe that the market is at the bottom and there are several constructive elements including what are still attractive mortgage rates and some pent up demand for the very low-levels of household formation. We think there is attractive growth here in the medium-term, and we would expect that we are going to see that as we exit the year.

The utility markets give us about a quarter of our volume. We expect growth there in the 4% to 6% range. Our profile is 70% distribution and 30% transmission. And the distribution component driven by the maintenance and repair from the operating budgets of the utilities.

Latest third party forecast while pulling for electricity consumption to look relatively flat and rate increases to the extent that there have been any have been quite modest. We think the utility customer confidence level is reasonably strong and the operating budgets in general have moderate growth expectations in them.

The transmission segment is driven more by the project spending on the capital side. We believe that mid to high single digit growth expectations are probably reasonable here, but that's driven by an extensive backlog of projects that are built up as they have been deferred over the last year. And bottom up visibility on some of those projects is usually pretty good. The timing of when they start is always the question.

The industrial markets, another quarter of our business. Key components in that business include the maintenance and repair segment, harsh and hazardous, our high voltage test equipment. The MRO segment is driven by capital spending and capital utilization and we expect that to be very positive, and continue to be positive in 2011. Overall when you take into account the high voltage test equipment business, as an example, you get more of a composite for our business in the 2% to 4% range, very consistent with what we have seen in the past and have been reasonably good at predicting.

The largest market, obviously, is nonresidential construction. The outlook there continues to be challenging. Certainly there is leading indicators like ABI that is finally suggesting some positive performance, but the lag affect on the put in place spending suggests to us the likelihood of a modest single digit decline for 2011, although more bias toward the first half of the year and starting to turn around in the second.

Private commercial construction will probably will be off more significantly, but we expect to still get some positive contributions from the public sector spending and certainly continued growth in the efficient building demand in controls, retrofit and relighting.

So all of that from an end market standpoint suggests if you do the math which suggests about 1% growth in core volume. But our overall sales expectations are more in the 3% to 5% range. Some of that driven by price, but a lot of that driven by our continued focus on new product and introduction and development.

We have been doing that for many years now, and for example in 2010, new products introduced within the last year generated about two to three points of growth in our volume. And so we tend to measure that in a very conservative way. But we expect that would be a similar phenomenon in 2011 in the 2% to 3% range coming from new product growth.

So we would like to start cautious and make sure because as you have seen today, jobless claims up and so the market -- the overall economy is still finding its footing so we want to be a little cautious going in. So how does that translate into our outlook for the year?

As I mentioned sales expected to be up 3% to 5%. Our operating margin is anticipated to increase approximately 50 basis points. That would get us -- you can do the math. That would get us to what has been our stated goal for some time of 15%. That doesn't necessarily mean that 15% is the end. That's certainly one of our goals. And it doesn't mean that internally we are always striving to get more margin improvement, but we are always having to navigate on some of the head winds and some of the surprises that come up particularly on cost inflation. I think that was some of the most noteworthy items.

Commodity costs. While our long-term strategy is always to at least maintain parity between price and commodity costs that's going to be more of a challenge in a tough pricing environment and what is a very volatile commodity environment as we start the year. There is some head wind from our benefit costs, pension and healthcare, as an example, although the pension head wind concern from several months ago improved a bit as the interest rate environment raised discount rates a bit, but still a head wind year-over-year.

We are fully focused on growth. As I mentioned on our new product development, so there is additional investments in people and in capabilities on our growth initiatives. Our debt refinancing gives us more financial fire power but on a net neutral cost basis.

Then our tax rate continues to be a challenge and we think that at this point we are looking at a 50 basis point improvement or increase in the rate from the rate that we finished this year. So that puts a little bit of head wind to that. Certainly some of that is due to the initiatives that we undertook in 2010, but some of those are not recurring initiatives. They end up being discrete initiatives. Some of those are in the area of state tax benefits. Clearly an area that we are focusing on a lot to get ahead of what we expect will be continuing challenges as state and local governments try to manage their own budgetary difficulties with higher tax rates.

And then free cash flow forecast to be equal to net income for the year. So all in all, something that we are very pleased with.

And the last thing I would leave before I turn it over to Tim in just looking at the year, I would remind you that to make sure if you are thinking about our year, you look at the calendarization of our year because it is certainly not rateable throughout the year. I think we saw this phenomenon last year. And the first quarter is typically our lowest quarter of the year. As we are looking at the year we currently would expect that the profile of our quarterly results would approximate what we saw last year. So I will just remind you of that. So that's the view on 2011, but let me turn it back to Tim for some final comments and maybe some thoughts beyond that.

All right. Thanks, Dave. This outlook is exciting to us. It suggests a return to organic growth environment and improving margins. The result we believe will be that in 2011 we can surpass our previous peak level of earnings per share earned in 2008 and usher in a prosperous and profitable period of growth for the Company.

To sum up the year, Hubbell's financial performance was excellent. The end markets were mixed, but we were able to grow the Company's top line. Importantly, we focused intently on productivity initiatives that allowed us to expand our margins significantly. We improved our capital structure which will enable us to invest in the Company's future. Our key growth areas continue to perform and Hubbell's positioning continues to improve. The push for more energy efficient buildings is driving strong growth in our LED, retrofit, relight and control business. The electric utility sector drive to build and maintain a more efficient infrastructure is generating attractive growth in the Power segment. Our people stand ready to provide customers with a breadth of reliable and innovative branded products. I am happy to say the future prospects for Hubbell are as bright as ever.

And just one note in closing to put us in perspective of where we are in the business cycle relative to our expectations of achieving 15% margin, Dave pointed out clearly that half of our business that's the residential and nonresidential business, are either at cyclical bottoms or approaching cyclical bottoms. And at the same time our margins are approaching a high. We believe as we go forward our margins will continue to improve as the economic cycle returns.

And the other markets which have shown growth certainly are not even at mid-cycle stage so we expect the industrial business and utility business to continue to grow for a number of years. It is the combination of where the markets are in this stage of the recovery and our performance within it that give us a great deal of confidence in the future for our Company.

And with that we would be happy to take questions from you.

Thank you. (Operator Instructions). And our first question today comes from Bob Cornell with Barclays Capital.

Hi, you guys. I would say, Tim, you just repeated summary is a lot more upbeat than the rest of the presentation which sounded pretty mellow to me. Can you actually take the guidance though and disaggregate it between Electrical and Power? What we might expect in 2011 looking at those businesses discreetly as we try to model it this year?

Certainly. I think we highlighted it. We might be a little bit more conservative around residential point of view or nonresidential point of view. If we can get flat out of those in combination that's where our outlook is at this time.

Well I meant Electrical. If you would take the aggregate guidance, Tim, and look at how the Electrical segment might perform in top line and maybe the Power segment and then maybe comment a little bit on the profitability of those businesses relative to the aggregate.

I think we would expect to see more volume growth on the utility side, on the power side than we would on the electrical side because of the drag factor of resi and nonresidential construction in the Electrical segment. I think you would expect to see margin expansion on each side as we go forward and really the -- our traditional element of caution here is as Dave pointed out, wrapped around the commodity cost and price equation in a tough market condition.

We're confident we will get the price level up, but we are on a LIFO basis and seeing some of the costs hit us before we can recover in price. So it is just where we sit in this next movement up, and you know the story around copper, aluminum, steel and so on. We are all in the market with price increases. We expect to get them, but certainly there is a drag in that at the beginning. And as Dave also pointed out, our internal goals are to improve our margins more than what we are seeing here. It is really dependent on this commodity cost price equation .

Yes, maybe you can get a little more color there, Tim. I'm guessing given history that RACO is one of the ones that is having some problems. Maybe you could talk about which of the business units are experiencing much of this cost price squeeze. And what you are doing specifically.

You would expect that to be the case. Certainly RACO sells into the commercial construction, institutional construction area and it is facing quite low demand, but performing what we consider to be very well given weak market conditions. Also we are very pleased with the performance of our lighting business in its large commercial construction component given the head wind that it faces and tough pricing. The bigger the job these days they are few and far between, so the pricing is quite tough which is natural at this point in the cycle for those businesses. But our lighting business margins are up from last year in a market when their total volumes are down somewhat. So--

So which are the businesses that are having trouble then?

Well if lighting is below the average but it improves, it still doesn't help raise the total by much. Our industrial businesses are performing well and if you look at where we have had the most improvement this year certainly the return to profitability at the levels we would expect of our wiring system business has been a big component of us moving up. We would see this as a sustainable and yet growing position for us.

So we have done a lot of work in that business to make ourselves more effective. We did a great job in 2010, but we have more runway to go there. That and the addition of Burndy at its margins of a little above the average in the Company has helped lift the margins of Electrical segment.

Final question from me. When you look at the way you have migrated the Cap structure adding to your cash balance, it would suggest you are looking to add a piece here in 2011. Is that the right way to look at that?

Well, believe me if we were able to do that we would be as quickly as we can. We are in an excellent position to do that. There are a number of opportunities we are looking at. Unfortunately, none of those were just right at this moment or of the size of Burndy. But there are a number that we still have an interest in. I would say in the short run you would expect us to do a couple more bolt-ons perhaps before we get to another large one.

We are well positioned and we want to take advantage of interest rates and the financial markets, credit markets. We extended our terms of the debt for 12 years taking out the notes that were due within two years, and I think we pretty much hit just about the bottom or the lowest part in the interest rate moment, so I think we did a great job on that side.

Okay. Thanks very much.

We will take our next question from [Scott David] with Morgan Stanley.

Thanks. Good morning, guys.

Good morning, Scott.

Good morning, Scott.

Can we talk a little about timing of price increases? And you are one of the few companies we cover that has LIFO accounting so you get hit a little bit faster, but when you think in terms of the sharp increases we have seen in your costs in the last three months and we talked about that a great deal in the call. You have price increases that went through on January 1, or is it more toward the end of this quarter and that is what leads to some of your caution in the factoring the full value?

As it always does it varies by part of the business we are in. A lot of our industrial businesses were able to raise prices that would start right at the beginning of this year. But the lighting industry really is starting in March with the next round of price increases. So it just varies.

I would say when commodities ramp up, the whole industry is in a mode of chasing the cost, and right now with the world economic story as it is and everyone pushing money into the world market, the governments that is, it has cost a lot of inflation in commodities. We are all chasing it a bit, and it shows up a little more on LIFO companies than others.

For sure. When I think of your end market outlook and it is pretty consistent with some of your peers, with the exception of the industrial business, you are talking in terms of up 2% to 4% and that has to do with the mix of businesses you have. But a lot of your peers are talking more along the lines of 10% or even a little bit higher. I think if you look across the board, industrial CapEx levels are all up 10% or higher. What leads to the caution there? And maybe again you can reiterate some of the mix issues you have that might make --

Sure. We have sections of our industrial business that we believe will be up 10% or more, but one of them that will not grow will be slightly lower than last year is our high voltage business. The high voltage business is at a very high level in its cycle and it is performing extremely well meaning the margins are among the highest we have in the Company, but we would expect modestly lower revenues in that next year just on the basis of where we are.

I mean we shipped in the last two years some of the largest high voltage test equipment orders that we have ever seen, and the largest order that Hubbell has ever seen to Brazil that was $22 million. So for a company whose orders are normally measured in the low thousands of dollars, these were quite large orders. So we are expecting just an excellent year from high voltage, but one that is slightly lower than we saw in 2010. So that's setting right in the middle of the industrial forecast.

Okay. That is clear. And last question from me is can you comment on the state of your customers' inventories? And I guess my question is really is that if these folks are looking down the barrel of some price increases and obviously they can follow commodities as well. I would imagine they would have wanted to load up in the fourth quarter as much as possible. Have you seen any of that behavior and can you talk a bit about the general state of inventory levels?

Yes, I mean it is an area we monitor quite a bit through our operating executives and we really have not seen distributor loading at all. There might be a tendency to see a little bit of that the week before or something or right at the verge of price increases. But I would say given the economic conditions where they are and an uncertain situation out there in nonres, we don't see distributors loading up.

Okay.

We think distributor inventories are still quite lean for the level of business, and if anything as the recovery rolls out it should provide us some tail wind as they start to rebuild inventories.

Makes sense. Thanks, guys.

We will take our next question from Christopher Glynn with Oppenheimer.

Thanks. Good morning.

Good morning Chris.

Good morning Chris.

Back to the acquisition pipeline. Just on some of the larger targets you pushing out expectations a little bit there. Are you seeing some stepped up competition for some of the more appealing things you've looked at on the bigger side?

Yes, Chris. We have seen an increase and flow across our three sources I would say both from corporate orphans, from private equity sponsor portfolios and from entrepreneurs. All three places we have seen an increase in activity. But conversely, I do think you are right, there is a lot of competition.

I think typically for us it is more about getting the fit just right than it is competition. Something like Burndy, for example, the fit was perfect and we are kind of a fast mover and we are able to do that in a non auction environment. When we find the fit we will move fast and try to get stuff done. But I do think you are right. I think we're not unique in having a well positioned balance sheet looking to enhance growth in the acquisition market.

And Bill do you find the fit is a competitive asset when you find -- in terms of the bidding process?

I do, yes. Very much so.

Okay. On the lighting side I get a little confused when you talk about the outlook. You site the market outlook, but note that you have the controls and the renovation aspects. Was your lighting business up in the quarter?

It was about flat, Chris in the quarter.

Flat in the quarter.

Okay, flat. I missed that. Okay. Thanks a lot.

We will take our next question from Rich Kwas with Wells Fargo. Richard Kwas: Hi, guys. How are you?

Hi, Rich.

Hello, Rich.

Just want to ask on the volume. So the revenue growth target assumes 1% for the year. What was the number for 2010 year-over-year on volume? I know organically you grew [two], but what was volume as a piece of that?

Just a second. We are checking.

Yes, it was flat, Rich.

Flat on volume? Okay. And then as you look were there any one timers in the quarter? I know you didn't call anything out, but anything special in the quarter that affected margins? I know you cited some other things, but anything restructuring wise?

No. I mean there is restructuring, but we actually typically don't call those out. I think the number it was a $1.5 million, $1.8 something like that. So not a mover and fairly consistent with the type of expenditures we have an on going basis somewhere in the $1 million, $2 million range every quarter. Part of our cost of doing business.

Nothing special there. And then contribution margin and power. I know Dave, you cited some things here on product mix and favorable price. Which one? Was product mix heavier in terms of the negative on the contribution margin in the quarter? Which one was a bigger driver?

Heavier than what, Rich?

The order?

Just heavier in terms of a negative.

The cost price was the biggest negative, and then it would have been mix.

Last question for me on residential. The assumption there seems like starts single family wise are going to be up nicely this year. At least that's the expectation among most forecasters. Seems like your guidance from that perspective is a little conservative. Can you give us some color on that? What you are thinking there?

We conduct our own survey with the national home builders who are customers, and believe me there is not enthusiasm and optimism around the outlook for their construction for this year. Because they more than anyone guide our view on what residential is expected to be. So they are not optimistic about -- the best you get out of them is mid single digit estimates for new housing starts.

Rich, I think the other thing that is important to point out is when we talk about these market assumptions, this is our view of how these markets will impact us. In particular on the residential, one of the dynamics that impact us on the single family housing is that we model our own business on a two quarter lag. Right? So what you might look at as a full year estimate for new home starts, we will only get half of that benefit, and then it is going to roll over. So that may be another element of what -- if you are trying to reconcile those two.

Yes, so we have a very high correlation or have had historically using a two quarter lag with single family housing.

Okay. All right. That's helpful. Thanks.

Our next question will come from Jeff Beach with Stifel Nicolaus.

Good morning, Tim and Dave.

Good morning, Jeff.

Good morning, Jeff.

I have got a couple of questions. First, on your 2011 margin guidance what have you included in there for price versus cost? If you said it, I missed it.

Our historical guidance and our guidance now is parity of cost price. We've got to get price to make sure that it is offsetting the commodity costs.

From the comments here in the fourth quarter you are seeing greater margin pressure on your Power side which has had the strongest increase in demand this year. You are seeing, I guess, a greater inability to recoup higher costs than you are on the Electrical side. Can you give some color on that and then comment about going into 2011 again on the Power side with the guidance you have? Do you think you will be able to reverse that and achieve parity or better?

Well, the industry really has just announced price increases in the electrical or the utility business in the month of January. It is going to take us a couple months for that to work its way through and there has been a little more pressure than normal on price, but we feel that over this year we will make our way back to recover this. At least that's our expectations at this point.

Jeff, I think the other thing that we've seen in the year in all of our businesses, and it is I think a fairly common situation, is in the competitive price environment you will have competitors who are trying to hold price, maybe more price competitive and willing to absorb some of the cost increases. Until the cost increases get to the magnitude you are currently seeing, and then no one can afford to hold the line. If you look you will see every day there is another -- somebody else in the industry in the market who is announcing another price increase. The magnitude of some of these cost increases on the commodity side are so great that you can't overcome them simply with productivity gains.

The last question I have is as the large transmission project activity picks up, roughly how long do you estimate it is between the announced award of a project to the contractors to your receipt of orders for your components?

I don't like to generalize, but I will tell you that it depends on the project. Many of these really it takes a few months for site preparation work to commence so you can construct the towers and you then order our product. I would say typical lead time for us is probably three to six months before we are looking for insulators, arrestors and the rest of the product that goes on the lines. It is also dependent on the size of the line and the voltage of the line as to how quickly these things get constructed. If you are talking about very high end, the 765KB, that construction cycle is longer than these kind of lower ratings. I don't like to give you a generalized answer, but it really does matter about the length of the line and the voltage on the line. But I would say three to six months.

All right. Thank you.

Ladies and gentlemen, our final question today will come from Shawn Severson with ThinkEquity.

Thank you. Good morning, gentlemen.

Good morning.

Good morning.

Good morning.

You touched on it a bit in your comments, but could you just talk about this transition from MRO work into mid and even late cycle-type projects? What are you seeing in terms of anything from the EPC guys or just the shift from this shorter cycle stuff to mid cycle.

Well, if we are talking about the -- are you talking about electrical or are you talking about utility?

More electrical. Well, actually both. If you address both that would be great.

Okay. All right. Well, we are seeing a number of transmission jobs come to award. We feel that at the beginning of this year the bidding activity is quite high, and we feel that it is at the point where these jobs will be awarded and then proceed. So it makes us quite comfortable that we are expecting transmission to be up quite nicely in 2011. So part of those jobs that got postponed when demand slack hit, when the recession was here, have now started to come back because there really is a crucial need to connect the new clean energies wind and solar to the grid and the transmission piece of that network is not adequate to do the job. So you have any number of these transmission jobs that are now poised for award.

On the project end, the larger cycle on the electrical side, it is around industrial business. It still is around oil and gas. It is around high voltage test equipment. Commercial construction jobs are government oriented almost exclusively, so we have seen schools, hospitals, relighting of cities, those things continue on. Defense businesses important to us where the Department of Defense is re-aligning the bases in the United States and the housing to go with it for military personnel. So these are the kinds of jobs that are out there for us.

Also some international jobs. More international business for us on the Electrical side than we have seen in some time. Middle East oriented, for instance, would be an area where we are doing better lately. But the conspicuous lack of hotels, shopping centers, office buildings are really bottoming out through 2010 and into 2011.

Right now our view is that certainly residential will begin to pick up as we exit this year and that our belief that the nonresidential piece follows in about 12 months we feel that's in place. Right now we are doing some business off the government in a larger proportion than we might normally see. I think that's true of the entire market.

Just a quick follow-up on that. In terms of the lighting side and government work specifically, are you seeing the larger percentage of LED projects in the government type contracts be it for schools or military bases or whatever it might be. Is there a bias toward LED there?

Well, the LED bias would be towards directed light. That means parking lots, street lighting that's where that kind of light in the retrofit area works. Where you see schools being redone is not only the parking lot, but primarily it is installing new fluorescent with controls. And we have introduced a product that is great for this retrofit market that uses wireless technology to control the switch with the light fixture so that you really don't have to tear out walls. So those are the jobs that you see on the public side.

On the private side there is a significant investment in relighting. Still is going on with warehouses of the big industrials, the Caterpillars and so on have done a very good job. Pepsi and all those people are going through their facilities; Boeing, and doing their warehouses and factory lighting over. And in the factories you get mostly fluorescent, high energy efficient fluorescents. It is a mix.

But LED, certainly as a directed source of light is here to stay. We have had a tremendous move forward in the business. We would expect another huge step up in the LED business in 2011, and we see it accelerating.

And that is because of the price per lumen of light output is still declining at a rate similar to computers. So it is still a little bit too high priced -- it makes the pay back a little longer than everyone would immediately choose, but it is coming into the range of being more cost effective and making it more attractive for a broader audience to make these changes. So we're very optimistic about that energy efficiency story being a long-term driver and being something that grows at a high rate.

I assume that LED sale you have a slightly higher revenue just because of the pricing structure, but is your margin profile different on LED's versus the fluorescent project?

Well, LED margins would by its nature be higher than fluorescent. Fluorescent has the lowest margin and the highest volume of any individual source of light. But the new higher levels of fluorescent lighting have a higher margin than the other sources of fluorescent and LED has as high a margin as our other down lighting products with a higher dollar per sale because it includes the source of light. So if Hubbell were to sell down lights some of the time we would have the lamp in the light fixture when we sell it, but many times we wouldn't. But in the case of LED when we sell a new product we sell the source of light with the light fixture, so it gives us a much higher unit sale when we are selling that source of light.

I think everyone we are out time for this morning. I know we have gone on longer than we typically do. Jim and I are around, obviously, to take your calls in case any of these questions didn't get asked or we need clarification. Please check in with us, and thank you very much for joining us this morning.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference.