Hubbell Inc (HUBB) 2012 Q4 法說會逐字稿

Good day everyone and welcome to the Hubbell Incorporated fourth quarter 2012 Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Jim Farrell. Please go ahead, sir.

Good morning, everyone and thank you for joining us. I'm joined today by our Chairman of the Board, Tim Powers, our President and Chief Executive Officer, Dave Nord, and our Chief Financial Officer, Bill Sperry.

Hubbell announced its fourth quarter results for 2012 this morning. The press release and earnings slide materials have been posted to the Investors section of our website at www.hubbell.com.

Please note that our comments this morning may include statements related to the expected future results of our company and are therefore forward-looking statements as defined by the Private Securities and Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call.

In addition, comments made here also include some non-GAAP financial measures. Those measures have been reconciled to comparable GAAP measures and are included in the press release in the earnings slide materials.

And now with that let me turn the call over to Tim.

Thank you, Jim. I would like to frame a little bit the year of 2012. I think it represents in a little bit of an economy that got softer as the year ended, with very strong and implement of proving performance of Hubbell overall. While December was slightly below what we anticipated and, therefore, our top line in the fourth quarter was a few points lower than we thought, overall the year was an excellent year. And as you can see in the fourth quarter, our cash flow got us to equal to net income just as we have done for many years. Also, we concluded an acquisition in January, and the pace of those acquisitions has quickened in the recent past. And we are pleased with the steady progress we have made over the last few years, and committed to continue that improved performance into the future. And with that I will turn it over to Dave for his comments.

Okay. Great. Thanks, Tim. Good morning everybody. Yes. Let me just give you some perspective -- my perspective on sort of the fourth quarter and the year and I agree with Tim. It's a very -- it's a very good performance for the year. Although it's a year that, you know, I can say, I'm happy is behind us because we saw a tremendous amount of volatility that we you know were able to successfully navigate, but would rather have a little less volatility.

I have been asked how I would characterize the year I would say it's a good year. It was a really good year. It started as great year, you will recall. We had a very strong start but we knew things would slow or at least we suspected they would slow in the second half and that turned out to be the case, with a lot of ups and downs along the way. But we are very pleased that we were able to navigate that and actually improve our margins more than we had anticipated.

The fourth quarter was particularly challenging with a lot of volatility. We expected things to slow but certainly not to the depth that we experienced, principally in the month of December. And there's a lot of -- a lot of contributing factors to that. Some of it is based on experience, some of it based on conversation, some of it's just anecdotal. But we have said in the past that the fourth quarter is always a little challenging to predict because of the volatility that can exist in the channel and buying behaviors. And so we experienced some of that.

We also experienced some -- certainly some disruption in markets caused by Superstorm Sandy. On the one hand very positive contributor to power in sales to support those efforts, but at the same time the magnitude of that -- of that work took away some of the activity from other utility-related businesses and so it wasn't all incremental. I think you also -- we also saw in the utility space some of the early spending because of the warm weather in the year exhausted some of the budgets earlier on and so we had much lower spending order rates in the month of December.

And so a lot of factors that go into that, but the good news from my perspective is it clearly was a unique phenomenon in the month of December because as we look at our activity through the first several weeks of January, you know, the orders have snapped back from what were down double digits to up double digits and so clearly indicative of what we suspected, which was a huge phenomenon. I spent a lot of time over the last week or two out in the market with our channel partners, some of our customers, and they pretty much confirm what we experienced, and to a large extent what we're expecting for this year. And we'll talk about this year 2013's forecast little later.

A couple of other highlights that we saw -- we spoke on the last call about the acquisition that we did in power systems, Trinetics, in October and so early in the quarter and then during the quarter we were working on a number of other transactions and most recently we closed on an acquisition for our electrical segment, Continental Industries, an additional grounding business. Purchase price just around $38 million, just slightly above even the one time sales. So a nice addition to that portfolio. And we expect it will be a good contributor just like Burndy.

I think some of the other things that we navigated through in the fourth quarter, I mean we talked about sandy. Sandy, while it was positive for part of our business, it certainly put a damper on activity in other parts of the markets. We were fortunate no one -- none of our employees were directly impacted, but if you live anywhere near the coast, you know that the impact was significant and it doesn't get reported as much now, but there's a lot of activity that has to occur to bring all of that back, which actually could bode well for us in 2013.

I think the other thing I would note and this is more of a Hubbell issue, is you are all familiar with the tragedy that occurred in Newtown and you may be aware that we have a facility, a manufacturing facility there, which has over 250 people. We also have a number of executives and employees. We were fortunate that none of our employees had a direct impact but clearly you didn't have to go far to have an impact because of the magnitude of the impact on the community. And so we've spent a lot of time with our folks in Connecticut making sure that we're providing support to that group.

So that was two big event outside of the norm for us that we -- that we worked through in the fourth quarter.

And lastly, one of the things that on a very positive note we had a summit of our top 75 leaders in the organization back in November to really start to think to work through, you know, what is it that we're going to do to make sure that we keep the success going forward. You know, we focused over the last five years clearly on price costs productivity, making sure that we're focusing on margin and we're going to continue to do that. But there's other elements that we're going to focus on and I will share more details on that when we meet at the end of February, okay?

So all-in-all a good year. A good finish. And we're looking forward to going forward. So with that, let me turn it over to Bill to give you a little more details on the fourth quarter.

Thanks, Dave. Good morning, everybody. I'm going to be referring to the slides that Jim referred to that you, hopefully, found on our website and I will be using the page numbers to help guide our discussion this morning.

So I'm on page three. And given all the volatility that Dave referred to in the fourth quarter I think we're pleased that we turned in performance that was consistent with the guidance that we gave you on our third quarter call. Net sales up 2%, with the markets being essentially neutral and acquisitions providing the volume. Operating margins of 14.7% and a dividend increase in December.

On page four let's dig in a little bit to the sales growth and some of the markets, some of the granularity of the markets here. So you're going to see a lot of mixed signals here. Arrows going in the opposite direction. Non-residential area, our biggest market, we still are struggling with new construction spending being down slightly. But there were some very bright spots, particularly the relight area which continued to have double-digit growth, and a very bright LED story where our lighting platform had over a 20% adoption rate in the quarter from this new technology.

On the industrial side, again, a lot of mixed signals. We had the energy markets which really drive our harsh and hazardous business being up double-digits versus the census data on manufacturing production showing a fairly flattish quarter, and the high-voltage test equipment business being down quite sharply in the fourth quarter. We'll talk about some of the mix effects that that drove when we get to some of the segment information.

Overall the utility business was flat for us, and while transmission was up a little bit -- Dave commented on Sandy and there was thoughts, I think, that that would be incremental volume. It turned out to be actually required to stay flat. I think what we saw on the utility side was the fact that all of the crews and linemen that came to the Northeast to do the repair work that entailed a certain degree of cannibalization of the spending. And Dave mentioned the second effect, which was I think part of the warm weather that we had last winter pulled forward quite a bit of the utility spending, and so we saw a very front-end-loaded spending that was expected level wise, just front-end-loaded.

And the fourth market of residential, again double-digit growth for us on the housing side. So we're starting to feel a lot better that that recovery is kicking in pretty nicely. So all of that added up to quite a neutral market picture and the 2% growth coming from acquisitions.

I will give you a little bit of color. Dave described our newest deal of Continental, that was closed in January. The deals contributing incrementally to the fourth quarter of 2012, there were five different investments. One a fire pump business, another industrial control business, weatherproof and closure business, a harsh and hazardous business. Those four all in electrical segment and rounding out important SKU breadth across the platform. and then Dave did mention Trinetics utility business that provided capacitors that helps improve the power quality and the distribution grid. So a lot of interesting acquisition activity contributing to that 2% growth, and Tim commented our focus there and our desire to continue doing that.

Page five you see impressive growth at the gross margin line, 130 basis points. Really driven by price and commodity costs adding about a point of that 130. On the S&A side you saw 10% increase in the spending there driven by pension and benefit costs and also a gain in the prior year that made for an unfavorable comparison.

Page six, at the operating profit line you see very flattish OP dollars, a decline of 10% -- I'm sorry -- 10 basis points at the margin line. Again, the drivers, gross margin up 130, S&A 140, for a net of 10 and we'll talk about some of the mix considerations when we get to the segment on our OP was driven.

On page seven, other expense up about $0.5 million. Tax rate was significant in the fourth quarter giving us 220 basis points of tailwind, some adjustments made in the fourth quarter as well as offset a little bit by the fact that we did not have R&D this year and we'll talk as we get to the full year and as Dave does the outlook the impact that R&D will have next year.

Page eight, net income you see up 3%, which is really a flattish OP contribution and helpful tax rates. The share count between fourth quarter last year and this year was quite consistent, so similar 3% rise in earnings-per-share.

Let's push now down into the segments, try to add a little granularity to the picture. I'm on page nine. And, again, at the markets you see we're neutral, with the acquisitions providing the incremental growth. The industrial side you had a sharply down high-voltage business, you know, but on the other hand harsh and hazardous being up very strong. The non-res side we had new construction side weaker, but the relight being strong. Resi was a good story, particularly for our lighting business and then the acquisition.

So at the operating profit margin line you see 130 basis point decline in the quarter and that's where the high-voltage test equipment product mix where you can really see that they had pretty steep declines. They're a high-margin contributor so the loss of that volume is seen pretty pronouncedly in the quarter and the other contributor being the -- that the deal volume itself coming in still takes a couple of quarters to burn off some of the acquisition accounting and so they tends not to be additive to margins early. And so you see that mix effect in the quarter for electrical.

On the power side for the quarter, similar profile to electrical where the markets were neutral and the acquisitions drove the growth. I think we've talked about the storms and how they needed to stay flat rather than be incremental, and that the operating profit line you see the significant increase in OP up to 18.4% driven by productivity and price being in excess of the costs increases and I think you really see some of the dynamics of the power segment business here. It's a high-margin business. It's driven in part by a very efficient S&A model and, therefore, COGS tends to be a more significant part of the sales and so it's quite sensitive to price costs dynamics. And I think over the last several years we've given you some pretty lumpy quarters, but when we get to the year here, I think we'll be able to show you we're at high-teens level, which is where we thought this should be on a steady state basis.

Page 11 and cash flow, a couple items to comment on. First is the change in working capital. The fourth quarter of last year, we had two tax payments made both the third and fourth quarter payment versus just the fourth this year. That drove the entire difference in working capital and at the other line that difference was driven by the timing of our pension plan funding. Both years we contributed $20 million, but in 2011 we put that all in the fourth quarter. 2012 we put that -- spread it across the first three quarters in an effort to get more return out of that contribution. So that drives the difference in the other. It's also worth commenting the CapEx line and we'll talk about it also at the full-year level, but very important for us to continue to keep investing that capital and maintaining our productivity initiatives to offset inflation, so watching that CapEx grow is encouraging to us.

Let's switch now, on page 12 to the full year and, again, this performance is consistent with where we guided everyone on our third quarter call, namely 6% growth, with 70 basis points of margin expansion. I think if you went back through the progression of the year, probably we thought volume could have gotten a little bitter when we were towards the halfway point of the year, but the margins exceeded our expectation and so we got to where we expected I think at the net income line. So very -- I agree with Dave's characterization, a very good year.

Page 13, we'll push down to the electrical segment for the full year. You see 6% sales growth. Similar mix dynamics, high voltage being down but the harsh and hazardous higher energy markets being up. Resi strong, not just for the fourth quarter but for the full year, and the renovation and relight dynamic aiding the non-res softness. OP margins up by 30 basis points to 14.4%. Price costs really being the big driver overcoming some of the unfavorable product mix from high voltage being down.

On the power side you see 7% growth for the full year and, again, I think that does a good job of illustrating the shape of the year. We were up in the mid-teen area at halfway point, so you saw that the bulk of that spending was really pulled into the front half of the year. We saw distribution spending up towards the mid-single digits this year, transmission spending up even stronger than that, so good solid year for power. Again, you see at the operating profit line to 18.1%, 180 basis points improvement, price costs and productivity really helping drive that. The productivity in power has been an area where we have been spending our capital and do see the productivity benefits here and, again, as I said, that 18.1% performance very consistent with the high-teens expectation. I think we've been drawing your attention to.

For the full year cash flow, we generate $300 million of free cash flow. First and foremost, that hits our target of one times net income. Secondly, I will draw your attention to the CapEx line. That $55 million last year included $13 million that we invested in a building, so I more consider that to be comparable $42 million, so a good solid increase in the amount of capital we're putting into our productivity initiatives and it should be a good positive as we go forward.

I think on the working capital line you see an increase in usage that is perhaps a little bit larger than our sales increase would suggest. Some of that is driven by the acquisition activity, but I would also say there is a healthy tension right now in the business and a place like power systems where you've got storm demand and a big part of our value proposition is serving those utilities with inventory on hand to get their customers up and running as quickly as possible and so there's a fight between inventory and the need to keep capital as efficient as possible.

Page 16, we like to show you the trade working capital progression over the past six quarters and I think you see the typical seasonal decline between the third and fourth quarter. We're a little bit higher than last year, but we've been liking to stay below that 18% target level so we feel good about that trade working capital.

The balance sheet on Page 17, 26% debt-to-capital ratio and as you can see, plenty of liquidity to support the investing that we hope to be doing over the next few years.

So with that I'm going to turn it back to Dave to give you more of a forward-looking outlook.

Okay. Thanks, Bill. Okay. Now let's turn to this year in 2013 and how we see this as we sit here today. I'm on page 18.

I think the good news is the starting point is that we see all of our end-markets, overall, growing. Generally with modest growth, although some very bright spots. And just going around the horn, the utility business, the end markets we see growing 2% to 4% with modest maintenance and repair growth on the distribution side. And continued high level of activity on the transmission side, but the year-over-year growth rate's not at the same level because we've had such tremendous growth there.

The residential business certainly up 10% and I would say that there's -- you know, based on reports that continue to come out more likely upside on that 10%, but having navigated through the environment that we have over the last few years, we err on the side of caution and -- but we expect to drive that better. Non-residential, you know, there's still some remaining challenges on the non-residential construction of your new construction site at least early on. I think we agree with most third-party reports that indicate that the second half will be up and I think there's even some indications now, I think the ABI is still holding above 50. In there was a report from McGraw-Hill recently that showed contract awards in December spiked a lot. As you know, we lag that by six to 12-months so that could be further evidence of a better recovery in the second half.

And on the industrial side, flat to up slightly 2% -- certainly still positive results on the factory utilization and then the energy sector. But one of the things that continues to challenge us is on our high-voltage test equipment. You know, we have thought that would be down. It ended up the downturn came later and the recovery seems to be coming later, although we see that -- the signs of that bottoming by the middle of this year and starting to recover in the second half.

So overall modest growth in all of our markets.

We turn to how that plays out for our on the power side, which is just under 30% of our business. You know, we think the sales growth there will be 4% to 6%, two points of that coming from the acquisition activity that we did last year. And on the electrical side, 3% to 5% growth with a slower recovery on non-residential but with a good residential market and industrial mix. So we think that 3% to 5% right now it is a good starting point.

Turning the page -- as I said, we see 2013 being the complete opposite of 2012 where 2012 started strong and finished weak and we were cautious then because we thought it might finish weak, but it was hard to really call that when things were so good in the first half. I think we have the inverse of that where we're cautious about the opportunities this year because they're more biased toward the second half of the year, although early indications say that the first half could be a little bit better. But as I have said, you have heard me say many times, I can't draw a conclusion based on one or two months of activity let alone two or three weeks, but certainly the signs if they continue would be positive.

On the margin side we're still working on improving our margins. We're expecting our margins to increase approximately 40 basis points. One of the things that we're dealing with in our ongoing efforts is the acquisition certainly in the near-term are not accretive to those margins. They have potential. Our strategy is to buy businesses that we think we can get to at or above, but they're rather at or above at acquisition. So that puts a little bit of pressure on.

We are assuming that pricing is going to offset any commodity costs increases in the year. I think we were -- as you now we were successful and as Bill talked about successful in 2012 in holding price and having some positive impact from price. I think the environment this year will be a little bit more challenging there, but at the same time I think we are well-positioned with ongoing productivity actions and, hopefully, some more moderating of other inflationary costs pressures that we dealt with in 2013.

And our free cash flow expected to equal net income which will give us, you know, ongoing opportunities for redeployment of our capital in returns to shareholders, particularly on our dividend, as well as investing in the business and we have a lot of projects on the board for improving our productivity as well as our acquisitions.

And then the tax rate that we're assuming is 31.5%. That has the benefit of the R&D and tax legislation, that reinstated R&D but actually last year's benefit also gets recognized this year. So that's in the 31.5%.

So we're anticipating another strong year this year although, you know, we are -- we have been and we continue to be conservative and cautious in our estimates.

I neglected to mention the one other events in the fourth quarter which was the announcement of the transition and so when it comes to establishing our outlook for 2013, Tim has reminded me and our Board has reminded me, and I'm share you all will remind me that it's on me. So I'm going to try to be a little cautious until we have better visibility.

So looking ahead we'll provide some more detail for sure at the end of February on our outlook. We'll have another six weeks of activity so we will have a better feel for how the year is starting and maybe better insights into the rest the year. And the other thing that I would offer is as I have been going around spending time in our operations, I have had the opportunity to work even closer with a lot of our Management Team. We have some very talented managers and leaders in our organization. I'm going to take the opportunity at the investor meeting at the end of February to start to introduce you all to some of those folks. And I'm going to try to it that continually over the next several years.

So with that let me turn it back over to Jim and we can field some questions.

Okay. Thanks, Dave. Rebecca, we can open it up for questions, please.

(Operator Instructions). Your first question will come from Christopher Glynn with Oppenheimer.

Thanks, good morning. Just on the orders sounding pretty good in January, is that both segments participating in that?

Yes, Chris. That's really -- it's really broad-based other than the high-voltage and some of the industrial sector. But really all of our businesses are up in January so far but, again, it's, you know, three weeks into the year so a little cautious, but I like the trend so far.

Great. And would you characterize -- would some of your caution stem from maybe characterizing part of that as just exhaling after kind of project deferrals in December?

Yes. Certainly. I mean the magnitude of the weakness, you know, in the last couple weeks, you know, we've had the situation before I think with some of the things are unique. There was a lot of uncertainty we've talked about around the election and fiscal cliff, and I think that had an impact and I have heard that from customers on buying habits. But it's difficult to quantify any of the things individually, but collectively it was very concerning. So just being a little bit cautious coming out, but I -- you know, there's early indicators are that it should be a positive year.

Okay. And sticking with the tough to quantify -- when we look at Sandy were you trying to say that that was really a net neutral that if you had a 6% help from the East Coast there that that was probably the draw were the rest of the distribution business?

I don't know that I would -- I mean certainly on reported results it's net neutral. I'm in the sure in absolute terms it was net neutral because there is some incremental volume that comes from that. But I think it was offset by what was exhausted budgets. And the other, to some extent -- I was with a group with utility executives both investor-owned and some of the contractor and support guys a couple weeks after Sandy, and I can tell you their entire focus was on managing their activities to support the efforts in New York and New Jersey and absolutely 100%. So I think a lot of resources got redirected for a period of time and I don't think all of that can get caught back up in the quarter, certainly not on the part side.

On the labor side, they might have had a lot more incremental. On the parts side, you know, they weren't doing other stuff for us. So I think -- but that's where it's difficult to quantify what the net impact is.

Okay. Got it. And then just on lighting, you mentioned 20% adoption LED. Was that -- is that the mix of your lighting business now? That's LED?

Chris, for the year it was 17%. For the quarter it was 20%.

Okay. And in the fluorescent side of retrofit is that still active or is kind of the relighting where most of the LED cannibalization is?

No. I -- it's still in part of the relight and retrofit. There's still energy efficiency and application because there's a costs element there.

Got it. Okay. Thank you.

And moving on next we'll hear from Rich Kwas with Wells Fargo Securities.

Hi. Good morning, everyone.

Good morning, Rich.

Question on distribution. So down in the quarter, Dave or Bill, did you -- have you seen any of the benefit from the housing starts activity? I know through third quarter you really hadn't seen anything. I imagine maybe in fourth quarter you didn't see much either, but what's within -- what's kind of baked into the outlook for power from that piece of the business for 2013?

Yes. You know, Rich, we haven't seen much effect and the majority of the distribution side of our utility business has a -- is really driven off of maintenance and repair, which for us has sort of a GDP kind of like feel. And so when Dave was walking through that piece of the pie, you know, the D is driven in large part by the maintenance. But I think you're suggesting that single-family housing will need, you know, hookups and we agree with that.

Okay. But it sounds like you don't l really have much factored in for the 2013 outlook in terms of contribution.

I would say -- I would say not much, but your directional point we agree with.

Okay. Okay. And then on the high-volt stuff, you know, that -- I know earlier in the year you said the orders were down, but then they maybe were looking to stabilize sometime later in 2012 which didn't really happen. What's your sense for right now in what you're seeing in terms of activity, you know, projects have been pushed out are you seeing any loosening on that front?

Yes I think that you're right to say that we hoped that the bottom would be 2012 and now it feels like the bottom is 2013. And the compares for them get easier, the last three quarters of the year versus the first, for example. But this larger capital-intensive kind of spending I think was the most sensitive across all of our business portfolio and these decisions seem to be deferred the most. So we're hoping that we sort of slog through 2013 and bottom in this business and then it -- but we still are very -- our outlook in the median term is for a very positive growth rate for the business.

Alright. Okay. And then just last one for me on the lighting piece. So this year non-res very slight growth expectation. Once you get into kind of a good run rate in terms of non-residential construction spending, that obviously helps the lighting business. What's kind of the outgrowth that you would expect apart from just the cyclical upturn from non-residential with re-lighting activity? And what have you seen over the last couple years? Because clearly the lighting business has held in a lot better versus the spending numbers. I'm just trying to get a sense for you what the re-light activity in terms of additional benefit could occur once we get into the turn upward in the -- on the non-residential side.

Yes. I think what we're hope, Rich, is that that re-light trend is actually independent of the new construction cycle. So our sense is that we're still in the reasonably early innings of the re-light trend, and so the fact that we've been doing double digits there, you know, we're hoping that that can continue, even if new you construction starts to feel some rebound. We hope that doesn't rob, you know, away from the re-light trend at all.

Okay. Alright. Thank you.

(Operator Instructions). Your next question will come from Nicole DeBlase with Morgan Stanley.

Yes. Good morning, guys.

Good morning.

I want to start with free cash flow allocation. I noticed when you guys were talking about it, you spoke about M&A, you spoke the dividend but you did not mention share repurchase. Could you talk a little bit about the potential for share repurchase activity in 2013?

Yes. I think, Nicole, it's a good question. You know, we continually are evaluating the best uses of our cash. I think our paradigm continues to go down the waterfall, where CapEx to us is kind of the first priority. We really think that we're getting excellent returns from a productivity perspective on the capital that we're putting out there.

Our dividend to us is kind of the second order. We would like to be a responsible increaser of that as our net income structurally increases. We're hoping to provide that to our shareholders in terms of kind of a steadily increasing return from there. And acquisitions and share repurchase then come next, in that order. So as -- I think depending on how re burst the pipeline is versus now will dictate the degree to which share repurchase versus acquisitions happen. But we've got to look at both of those levers I think as we're moving forward here.

Okay. Got it. And since you brought it up can you just comment on the M&A pipeline how that looks right now?

Yes. If you ask me to comment on it, it's never robust enough.

Okay. Got it.

I know you're laughing but yes, we're very busy. Tim and Dave both commented on kind of last -- we've got seven deals over really the last 15 months or so. That's a nice pace. I hope that we can continue doing that pace, but also it would be great if we could add maybe some larger things that the pace -- those last seven have been the very typical smaller size Hubbell tuck-in kind of size deal and, it's -- we've got some - as we commented on our balance sheet page. We've got the liquidity to support some good investing there.

Okay. Got it. And then if I could just squeeze one more in. If you could, you know, parse out the 40 basis points of operating margin expansion that you guys expect in 2013, it sounds to me that the bulk of that is coming from volume leverage and productivity rather than price costs. But if you could just talk about the puts and takes that would be helpful.

Well, I think you've got it exactly right.

Thank you.

We need -- yes. Volume. We need the volume to get there. Yes.

And from JPMorgan we'll go to Drew Pearson.

Hi. Good morning.

Morning, Drew.

So just at a very basic level, I just want to make sure I understand the revenue guidance. I think you're guiding to basically 2% to 4% on the end market growth. Presumably there is a little bit of positive price, maybe 50 bps, perhaps you can comment on that. And when I add that up I get inorganic growth that's probably a little north of 3% at the mid-point, whereas if I am reading your revenue guidance correctly, it looks like you're doing 1% to 3% organic embedded in that 3% to 5%. So maybe just check my math and just talk about relating the end market view to maybe your organic revenue view.

Yes. No. I think that's right, Drew. We're looking at right now 1% to 3% of organic with 2% for acquisitions those are closed acquisition. We're not contemplating any volume increases that would come from additional acquisitions, but certainly that would be additive. And I think that is -- acknowledge that we hope that turns out to be a conservative estimate of 1% to 3%.

Okay. That's helpful. And then just.

I was going to say just therefore that price costs is a very benign environment for 2013, based on our expectations.

Okay. That's helpful.

And then just back to the balance sheet. I mean have you -- you know, you remain in a net cash position. Obviously, you want to prioritize the cash deployment as you've talked about. But as you think about sort of a longer-term target, I mean is a net cash position a longer term sustainable target as you sort of continue at the current pace of bolt-on deals? At what point do you consider moving to maybe a more sustainable long-term capital structure?

Well, I think, Drew, that it's -- it would be fair to describe our objectives as having a conservative balance sheet. We like to be able to have liquidity on hand to support our investments and we've enjoyed a nice conservative balance sheet that has served us well in times of cyclicality. And so I would expect -- I don't know that I'm going to define that for you in terms of debt-to-cap or net to cash or whatever, but I think you should expect from Hubbell a conservative balance sheet.

Alright. Thanks very much.

From Macquarie we'll go to Mike Wood.

Hi. Your organic growth forecast does look conservative, but I was curious about the power outlook specifically. Most utility companies who give CapEx guidance have forecasted declining capital spending for 2013. So can you elaborate for that segment whether your performance is based on exposure to OpEx versus CapEx or a particular high-growth area that you have exposure to or contents or price?

Mike, I think your first point is the one I would remind you of how much of our power revenues are really driven off of maintenance and repair which come out of the operating line, not the capital line.

Okay. Got it. And the high-voltage test equipment -- I mean you had mentioned some order activity in January for that business specifically. I understand there is a fairly long lead time. Are you seeing any type of activity early on that would give you some encouragement for back half of the year acceleration or into 2014?

No. What we've seen actually is not what you said but rather that the -- that the first quarter of 2011 was actually the strongest year for them so our compares are actually the most challenging. And I think what Dave was saying is we think that will be bottoming by the middle of the year. So you're right that the lead times are long. There's certainly lots of activity and quoting that they see, but a lot of that has been pushed out and delayed and deferred. So that part is hard for us to pin down for you.

But you're right to say it's long lead time. The visibility that we've got through the half year suggests that it's going to be challenging compared to last year.

Yes, Mike. I think it's really the level of activity around project discussion and project bidding that gives an indication that things will start to bottom. It's just the timing of when those start to get, you know, converted into orders and they really step up.

Okay. Thank you.

From DA Davidson some we'll go to Brent Thielman.

Hi. Good morning.

Good morning.

Just a question on the outlook for the 1% to 3% growth for new non-residential that you're looking for. Are you assuming any new construction or is that essentially all retrofit?

No. There's some new construction there in the second half.

Okay. And then just one more on that -- the power guidance the 2% to 4% organic. I mean obviously that implies some uptick here from the growth you experienced in the second half, and I just wanted to get a little more feel for the sort of what gives you some confidence there that you will be above that second half run rate. And is that due in part I guess to some of the unusual events like Sandy here in the second half?

Yes. I think what I would -- we had 7% growth for the full year in power and I think the shape of the year was a little bit unusually pulled forward. It wasn't smoothly spent during the four quarters so as Dave was commenting, using weeks, months, or a quarter can be a little misleading. But when we stretch out those dynamics across the full year, and we understand the essential nature of the maintenance and repair work that we do with our utility partners in maintaining the quality of the networks gives us confidence that that maintenance and repair work needs to be done.

It's harder on the transmission side where you see large spikey, lumpy projects. I think Dave gave you a very good flavor around those as to the fact that spending really picked up through 2011, it continued to grow in 2012 and our outlook is for a high level of spending but it gets harder for us to show you lots of incremental growth on that because the level is so high.

Okay. Thank you.

And from Stifel Nicolaus we'll go to Noelle Dilts.

First I just wanted to touch on a few additional questions on the power side of the business. And I'm just going to ask first if you can quantify your growth expectations for the transmission business in 2013? And then, second, can you discuss what you're seeing in the international piece of the business and your expectations for 2013?

Yes. I think our outlook in 2013 for transmission would be low single-digits, Noelle, and I think that the international piece of our power business which has reasonable exposure to Brazil, and to a lesser degree, locally in China we actually have some more favorable views of that international potential versus a more challenging 2012

Okay. Great. And then, you know, the pricing impact was obviously positive in the quarter. Was there any beneficial impact from Sandy on pricing? And then, secondly, can you just comment on if you're seeing more of the price benefit on the transmission side or the distribution side?

I think the impact of Sandy is not so much on pricing. It's actually just a mix of the product, the nature --

Okay.

-- of those products. We do not raise prices on products. Prices actually deliver at the standard price, but those products generally have a higher margin so you do get a margin benefits there.

Right. Okay. Perfect. And then can you just update us on your pension expense expectations for 2013 versus 2012?

Yes. I think that in general we hope to -- we've had some decent headwind in 2012 from pension and we hope to be able to reverse that a little bit next year.

Okay. And then last question -- you know, you have said in the past that your LED margins are pretty consistent with your traditional product margins, but can you just give us some thoughts on you are looking at LED margins for 2013? Is there some room for expansion as input costs go down? Just your thoughts there.

You know, I think our -- we would give you the consistent story that we have, which is as the components -- the LED components themselves become cheaper to us, we would expect to be passing that through to our customers in order to continue to drive the adoption rate. So like I said for the year we hit 17%. The quarter was at 20%. So you can see that continued trend upward and we would like to help facilitate that change, and as a result of that our expectation is that that transition is margin-neutral on a SKU by SKU basis.

Great. Thanks so much.

(Operator Instructions).

And it does appear all questions have been addressed.

Great. Okay. That concludes today's call. Thank you everyone for joining us today. Certainly feel free to call us if you have any follow-up questions. We'll be happy to take those today. So, thanks again.

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.