Hubbell Inc (HUBB) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Hubbell Incorporated first-quarter 2013 earnings conference. Today's call is being recorded.

At this time, I would like to turn conference over to Jim Farrell. Please go ahead.

Good morning, everyone, and thank you for joining us. I'm here today with our President and Chief Executive Officer, Dave Nord and Chief Financial Officer, Bill Sperry. Hubbell announced its first-quarter results for 2013 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 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 also could include non-GAAP financial measures. Those measures have been reconciled to the 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 Dave.

All right. Thanks, Jim. Good morning everybody. Let me give you a few highlights for the quarter, a little bit of color, and we will let Bill Sperry take you through the details. As you see, we are reporting results of $1.10 per share on sales of $740 million, very much consistent with how we expected the year to start. Although obviously the pieces are always moving around to get there. Our sales were up 2%, a big part of that coming from acquisitions, both the ones from last year as well as the acquisition that we completed earlier this year, Continental industries.

But what I want to make sure we don't miss is the sales volume still holding up at a very high level when we look at -- compared to last year. You recall last year had a very strong start, particularly on the Power Systems, and we are pleased -- I am particularly pleased that that level of activity and volume has continued. But our expectations for the year has always been a bias toward the back half where the growth would start to come in. Our margins are below last year, for a couple of reasons. And we will talk more in detail.

We had a plant closing that we had talked about, Bill Sperry talked about back when we met at the end of February. One of our Power Systems plant that we started the closing activity. And that is part of our normal ongoing continued focus on productivity and cost reduction. And as well, we are impacted by some mix issues, particularly our Industrial where we have had lower Industrial volume and that is particularly a higher margin volume. Both high-voltage and the Harsh and Hazardous. As you also note that we had the benefit of the R&D tax credit that came through in the quarter. And because it wasn't approved until after the first of the year, but applied retroactively to last year, we had the benefit of 2012 having to be reflected in the first quarter.

All in all, I am pleased with the start to the year. I think it provides continued support for our expectations for the year. Across our platforms, the Electrical Systems platform, as I said, had the weaker Industrial markets but acquisitions continued to contribute. We were very active on the acquisition front last year and expect that to continue this year. On the Lighting side of the business, we have seen continued growth in that business. New construction, where there's pockets of activity and we are seeing particularly on the Non-residential Commercial business, starting to see some signs of growth, but that's again, very modest expectations, and against a very difficult market over the last few years. And certainly the Residential market being very positive.

And on the Power side, as I said, last year was an exceptionally strong start to the year, so I'm pleased that we are continuing at that high level of activity from last year. I think the margin in Power Systems really impacted mostly from the cost of the facility consolidation. I think in all of our businesses, the one thing that we are facing that's a little bit different than we expected coming into the year, was a little bit more challenging pricing environment. Not surprising in a slower growth environment, but one that we have a lot of experience, and we continue to navigate through.

I mentioned the acquisition activity continues to be positive. We closed on the acquisition of Continental industries back in January. That is integrating well and our pipeline continues to be active and expanding with a number of deals being evaluated in process and I expect this year to be a fairly active year. Some of the other items, we had our Analyst Meeting since we last spoke in January, in New York, where I think many of you attended or certainly if you couldn't, you listened to. Those who attended had the opportunity to see firsthand some of our product display and meet with some of our business leaders and to get more insights into those products.

We have also had some leadership changes since we last spoke. You saw one announcement most recently, we have a new Corporate Controller, Joe Capozzoli. He is replacing Darrin Wegman. Darrin has been our Controller for about five years, came out of our Operations and he is now moving back into a General Manager role, actually leading our Wiring Systems and our Industrial Products. We are expecting some big things from him on our Industrial Products side.

And another area that many of you have commented in the past and inquired, we are adding some resources to and that is on the tax side. We brought on a new Vice President of Taxes, Jim Van Hoof, to make sure that we are adding to our capabilities and focusing on what is a significant cost driver in our business. A lot of good things going on. And a lot more to come.

Let me now turn it over to Bill and he can take you through the details of the quarter.

Thanks Dave, and thanks everybody for joining us here. As I dive into the numbers, my overriding comment would be that it's pretty clear we are operating in, what we would characterize as a low growth environment, that has some variability from week to week and month to month. Not a lot of consistent trends going on and I think our platform is operating financially very well through that kind of environment. And as Dave pointed out, the numbers I am about to go through represent a first quarter that is consistent with how we planned the year. The sales growth of 2%, really driven entirely by new acquisitions.

Dave mentioned Continental, but this includes a portfolio of five different deals that we did investing about $130 million in that group over the past year, and they're spread evenly throughout Electrical and the Power segment. We will talk a little bit more about those when we get to the segments. Again, that compares against an organic end market that was very flat, essentially for us, in the first quarter. The operating margin of 13.2% compares unfavorably to prior year, and Dave described for you a little bit how we've got some mixed headwinds and the biggest contributor is the fact of the high-voltage test equipment and Harsh and Hazardous businesses, which come with very high margins, coming with lower sales this quarter. In addition, the acquisitions that are providing the growth in their first year, as is typical, operating a little bit below our corporate average.

So you've got some mixed headwinds there and then the facility consolidation process, as Dave described, coming in, and our Power business, the Enclosure business within the Power segment. And we had the opportunity to consolidate a facility there in the first quarter for efficiency purposes. And we're actually going to have the opportunity within Enclosures and related, to be able to actually consolidate another facility. We are going to continue some of that spending, so $2 million of spend in the first quarter on facility consolidation. We will be getting today's target of $1 million to $3 million. We will get $2 million done in our first half this year.

At the EPS line, up 5% at $1.10. And really benefiting from, and when we get to the tax page you will see the size of the impact. But certainly the R&D tax credit providing a boost there. I am using, by the way, the slides that Jim mentioned, and I will refer to the page numbers, which, hopefully, you found all those materials on our website.

On page 4, let's go through a little bit some of that. We described the fact that the acquisitions have been driving the growth. So let's go through the end markets and look at the organic story. The Non-res markets through the first quarter, really quite flat. On the Industrial side, you can see the fact that both the Extracting Industries, which is referring to Oil and Gas and some of the mining businesses where our Harsh and Hazardous business lines up, along with High-Voltage test equipment, getting a red arrow downward. As we look at the data, one of the best indicators for our Harsh and Hazardous business, as we have described for you all, is rig count. And in the first quarter, global rig count was down mid single-digits which really helps drive some tough headwinds for us in that business.

Second interesting indicator within Industrial production numbers, if you look at the Iron and Steel component of that, you saw some weak numbers in the first quarter. So that's really providing some Industrial headwind, which if you just keep a place mark on that, because that will end up, besides driving volume here, has an impact on margins which we will talk about subsequently. Utility side, we see again flat organic markets. Dave's characterization here is very appropriate, that it is a high level of spending because it is compared to a very high first quarter last year that had some pull forward of budgets and a very warm winter. And it compares very consistently sequentially from the fourth quarter to the first quarter to prior years. The spending level there feels healthy, just not a big growth rate in the first quarter.

And Residential, at the bottom, is really the place where we are seeing some significant strengths. Even though we're getting some mixed signals lately in terms of permits and things like that, we are really getting strong contribution in the first quarter from single-family, multi-family and renovation with the Resi segment. So we have experienced some nice growth there.

Going to page 5, and getting into margins, you will see gross margins of 31.9%, down 40 basis points. You can see the mix that we have referred to really attributing about 40 basis points to that decline, and $2 million in the Power segment of consolidation providing further headwind there. At the S&A line you see essentially $6 million increase in dollars of spending. Acquisitions really drove about two-thirds of that. And higher employee-related costs, just the inflation that we feel providing the balance. It keeps us very focused on that number, making sure we are efficient as we bring our acquisitions in, and trying to keep that S&A over the longer run in line with our sales growth.

On page 6, we describe our operating profit. Essentially $98 million, 13.2% margin. You see a 90 basis point decline year-over-year, and that is due to the factors we've just described, namely the mix and consolidation costs at the gross line, and some of that headwind at the S&A line.

On page 7 the story is the tax rate here. You see a 600 basis point decline to 26.8% effective tax rate. That is really driven by the implementation of that R&D tax credit as part of the American Taxpayer Relief Act of 2012. There's really two components to it that are worth separating for you.

The first is the retroactive application of the 2012 component of that, all condensed into the first quarter of '13. That was nearly five points. And then another 100 points, sorry, 1 point, 100 basis points, coming from the application of the 2013 spread, which will be spread evenly throughout the year. But overall, that has given us a big tailwind there, in the lower tax rate.

Page 8, you will see the result is net income growth of 4%, and we are able to grow earnings per share, as you see, to $1.10 by 5%, a little bit larger than net income just because of a slightly smaller share count in 2013.

I'm going to move now into some segment discussions. Drill down a little bit into what we have just described for the Company. Page 9, we will start with the Electrical segment. And again, consistent with the story of our morning here is the fact that acquisitions drove the sales growth. Really four different deals as Dave described, Electrical segment being active. Four deals here in the past year, and what is exciting for me is how they are spread out into different segments.

Dave referred to Continental, which we have plugged into our Connectors, Grounding and Tool business. You all know as Burndy. We bought Vantage, which is a bolt-on for our Harsh and Hazardous business. We bought TayMac, which is a great add-on for our Commercial Construction business. And Cable Form, nice add-on to our Industrial Controls. Good example across the entire Electrical segment there, of finding good ways to strengthen our strategic portfolio.

We described how the Industrial mix has been weak. As I said, given the rig count, Harsh and Hazardous has actually been slightly negative and High-Voltage Test Equipment was strongly negative, down double digits. And I think we have been spending a lot of time with you describing those dynamics. We are expecting this to be another down year, but really by the back half of the year, we are expecting that High-Voltage will have bottomed and start to grow again against some easier compares, and again we've got a high-margin business there. So that will be welcome as those two businesses come back.

I think it's fair to point out, as well, on Harsh and Hazardous that while the rig counts looked down in the first quarter, they are actually forecast to be up for the year. So again, those two mix issues, suggesting by second half, hopefully will be straightening themselves out a little bit. As we described, Non-res being relatively mixed and relatively flat, although good signs that hopefully as the year progresses we can see some improvement there. And Resi being strong in the first quarter. For operating profit in the electrical segment, you see 12% OP margins, a decline of 60 basis points, and that mix accounted for more than that decline.

Page 10, we will talk here about our Power segment. And again, being with the theme, the acquisition of Trinetics, attributing all of the growth for the quarter, and based on very high spending of last year, very flat organic spending at those high levels across the distribution and transmission spending levels. You see a decline of 120 basis points at the OP margin level down to 16.1%, and those facility consolidation costs, and a little bit of price cost headwind, where Dave described some of the price dynamics creating the downward pressure there.

Page 11, we lay out our cash flow for you. You can see the increase in net income and a slight step up in D&A reflective of our acquisition efforts. But I think the story here is the working capital. You see an increased investment order of magnitude of about $9 million there, really coming from the fact that our trade working capital, we did a very nice job, I think, of having inventory and payables finance receivables, essentially. Keeping those neutral but some of the timing of our tax payments created other current liability use of cash, which shows that difference. You see a little bit of pickup in CapEx, which we like, because that is reflective of efficiency that comes out of those CapEx payments. We get very good returns on all those projects requiring that capital. You see a seasonally low quarter here of cash flow. But I think, still fundamentally sound, and our year on track with how we are planning our cash flow, getting to our annual target of 1 times net income.

Page 12 illustrates the rolling trade working capital as a percentage of sales. You see the number being up slightly compared to the first quarter of '12, a sign of continued emphasis on our management's part, particularly on inventory and payables, more so than receivables.

Page 13, our capital structure continues to show you a very liquid balance sheet. Plenty of cash, especially debt relative to that being slightly positive, actually. And a very supportive liquid balance sheet to be able to implement the investment plans that we've got, Dave describing an acquisition pipeline we are eager to invest in.

For '14, let's start to look ahead a little bit and Dave is going to conclude our outlook, but I will give you a little bit of color on some of the markets and how that spreads to our different segments. Starting really in the Northeast side of the pie, you see Utility at low to mid single digits. That is not a change since we provided our outlook in January. And again, you saw flat first quarter spending, but for us the sequentials feel they are at a strong level of overall spending and we are anticipating easier compares in the second half that will provide us those kind of growth rates. You see residential at 15%. We had that at 10%, so adding five points based on the experience that we have had, particularly in our Progress Lighting brand, I think just so happens that that slice of our pie is small enough that that change just creates some rounding, doesn't change the overall outlook.

As Dave mentioned in his comments, Non-res still remaining at an outlook of 1% to 3%. Some of the drivers there, feeling better, ABI starting to put some real positive trend together as a leading indicator to put in place numbers for the second half of the year, maybe start to improve little bit. Vacancy rates look down. And certainly our historical relationship where Resi growth helps drive Non-res growth with the lag would suggest that gives us some belief that we will start to see more improvement there over time. And you see quite a flat low-growth Industrial outlook. Again, we are focused not just on those levels but on the mix and hopefully getting some of those Industrial businesses and the margin that comes along with them back into line there.

Overall, those markets give us a low single-digit expected organic growth rate. And if I turn to page 15, you will see how that spreads to our two segments. Where now, instead of organic, we are talking about sales growth of 4% to 6% at Power, inclusive of the acquisitions; 3% to 5% at Electrical. And the net for us, obviously 3% to 5%.

I'm going to turn it back to Dave to give you the full color of our outlook.

Okay. Thanks, Bill. I am on page 16. What you heard is a lot of things going on in the first quarter, but all contemplated in our expectations for the year. I think, starting on the top line, we're still expecting that our top line sales growth will be 3% to 5% compared to last year, with about two points of that coming from the acquisitions that we have done during the course of 2012, and then, what we have done so far this year. I would say there is upside for that for acquisitions we those this year but we don't contemplate that in our guidance. I think three months ago we would have felt that 3% to 5% was a lot more conservative. But I think the results of the first quarter and the level of activity suggests that the year didn't start any better than we thought. So I think it might still have some conservatism, we hope, but not necessarily at the level that we had three months ago.

And certainly, it is a more challenging period to try and forecast that, as we saw in the first quarter with tremendous volatility in our order patterns in January. We talked about very strong orders, and then falling back off on February and coming back. But I think all driving to supporting our low single-digit organic growth. I think the other dynamic that we're faced in our forecasting, besides the market volatility, is a bit of a shift in our business from what was more heavily-weighted toward project-related business over the last couple of years on the Power side, particularly on Transmission and the High-Voltage side, and even some of the Harsh and Hazardous, to more short-cycle short-term book and bill business. We're looking at other metrics to make sure that we are having a basis to forecast. We're very comfortable with what we're doing, but of course those markets can always change.

The flip side of that is, and I think Bill mentioned on our High-Voltage side, we have started to see that business start to book the orders that start to give us confidence on that side of the house for later this year and certainly into 2014. That provides some support. On the margin side, we are still expecting to improve margins by 40 basis points. Certainly, that is what we are targeting, although as I mentioned earlier, the pricing environment is turning out to be a lot more challenging. That puts some additional pressure on that. But we do what we normally do, is focus on the pricing, but also look at our productivity opportunities.

And I think to some extent, that is why you are seeing some of the acceleration of the plant closings that we had contemplated. We usually try to do them on a more ratable basis during the year, but we have worked with Bill Tolley and his team to try and accelerate some, to try and develop those productivity cost savings earlier, certainly toward the end of this year and setting up for 2014. Also that margin is also based on what is clearly a second-half bias volume pickup. That volume will be a big contributor to the incrementals. That can lead to that improvement. Still expecting and targeting that 40 basis points.

Free cash flow, still on track to deliver free cash flow equal to net income. And the tax rate for the year, still targeting at the 31.5%, which has contemplated in it the R&D tax credit for 2013, as well as the catch-up from 2012. All of this continuing to provide the basis for our plans to continue to deliver strong results in 2013, following our strong results last year.

So with that, I will open it up, turn it back to Jim and our moderator and open it up to questions.

Thank you.

(Operator Instructions)

Christopher Glynn, Oppenheimer.

Thanks, good morning.

Morning, Chris.

Hello Dave. On the facility consolidations, was checking which segment the second-quarter charge pertains to, and if we should expect some more activity in the back half. And then also from the first half activity, what kind of savings that should generate.

Yes, Chris, the second facility is also in Power. It's the same Enclosures business within Power segment. So, it is a couple of plant shifts and consolidation opportunity from a relatively recent acquisition that gave us the opportunity to move some of that volume into our existing footprint. And I think you should expect that, that'll probably cover some of the chunkier activity that we expect for the year. And I think you should expect that the returns that we get on this spending is pretty attractive for us.

Okay. And on the Non-res side. Was the comment for new Non-res improving, did that cover total Non-res or are you isolating out part of the market? If we could tease out a little more into Non-res.

Is certainly is built around the Commercial side. Keep in mind that, that is growth off of really low levels. But we're looking for any signs. I think an over-used term is the green shoots, but I think we view the growth and orders turning at least positive to be supportive of what we have said is going to be low single-digit growth year. But starting on that path.

Dave, are you seeing that with larger high-quality projects? Is that an inflection there?

Not really, any particular bias in the market for us, Chris. It is really more broad-based.

Great, thanks.

Rich Kwas, Wells Fargo Securities.

Hello, good morning, everyone.

Morning, Rich.

Dave, could we touch on the order trends as the quarter went on? You provided some updated color, but just wanted to see how March ended for you and what you are seeing early part of April. Back in January you talked about the fourth quarter had weakened, and then you saw the rally a bit in January. Just wanted to get some more color. Because it seems like there are some mixed signals out there, and some update there would be helpful.

Okay, sure. Certainly, we saw as we mentioned, back on the fourth quarter call, a lot of volatility between December and January. And as I have been out with our distributor partners and other customers, I guess I get some level of comfort. I'm amazed at how many people saw the same dynamic. Almost exactly the same, the numbers are slightly different. And then they have seen things the same way that we have, where February dropped back off to virtually flat, and started to get back to, in March, more consistent with what we expected overall, which is the low single-digits.

And I think that is, as we back it into March into April, I think that has continued. Which is certainly from our standpoint, much better to manage through a consistent, albeit low single-digit growth, but much more consistency. But again, as I have always said, I am always cautious even in the month of April, when you are less than halfway through the month, to draw an absolute conclusion. But we are feeling better that there's a lot of green numbers along the way. If not big green numbers, on our order charts. And hopefully we can continue to build on that.

And Rich, I think just building on some of that, to give you a little more color, our book to bill in the first quarter was above 1, and that is typical for us for the first quarter. Even though as Dave is describing, inconsistent between the months, when you aggregate it out, it behaves like the first quarter does. And as well, I think, the first few weeks of April were showing an order pattern that is very consistent with how we are planning our year. So the pieces are a little variable, but they are adding up to where we were planning to be.

Okay. All right. That is helpful. As it relates to Harsh and Hazardous and the high voltage business, for high volt you have some easing comparisons as you move through the rest of this year. I imagine the Harsh and Hazardous business is a lot stiffer in terms of the comps. So with the weakness you saw in the first quarter, it seems like high volt, seemingly at least, gets less worse here in the near-term and potentially see some growth at the end of the year. But then how are you thinking about growth in Harsh and Hazardous -- or I should say performance in Harsh and Hazardous top line, as the year moves forward?

Anything further, Mr. Kwas?

Yes, can you hear me?

Yes, please go ahead.

Yes, I was just asking about high voltage and Harsh and Hazardous. The high voltage piece of the business faces easing comparisons, as you move through the rest of the year. But Harsh and Hazardous I imagine is facing tougher comparisons. Any color on, I imagine high volt gets less worse. That is the expectation is the year goes on. Maybe there's some growth at the end of the year. Harsh and Hazardous, though, is tougher comparisons given what happened in the first quarter. How are you are thinking about the performance of both those businesses as we move through '13? Can you hear me?

Yes, Mr. Kwas, we're hearing you. Yes.

Okay. Were you able to get my question?

Mr. Farrell, we are not hearing you.

Anybody there?

I apologize, Mr. Kwas, we are hearing you. Just one moment.

Okay.

I apologize for the silence. I'm trying to currently reach your moderator. Please standby. Please continue to stay on the line. You will hear silence. We are trying to reach out to your speaker at this time. Once again, please continue to stay on the line, do not disconnect. Thank you for your patience. Once again we ask that you please continue to standby. We are trying to reach back out to your moderator and get them connected. Thank you for your patience. Jim Farrell and speakers have rejoined the conference.

Rich, I am sorry. You were in the middle of a question, I don't know if everybody is still on and somehow it went dead on our end and we couldn't hear anything. We tried another phone and it didn't work.

Bill gave a very eloquent answer.

Too bad I couldn't hear it.

You guys could all hear us, but somehow we just couldn't hear so we just kept talking. You asked about high voltage, and you are right that we really don't rely terribly much on market indicators or forecast. We just use our order book and as you pointed out, that order book is supporting some growth against some easy compares in the second half.

And your question highlighted the fact that Harsh and Hazardous is a little harder because they had strength and that is true, but again, based on third-party data of rig count as well as our operating folks' insights into the business, they actually still believe they can grow despite a soft first quarter. Grow for the whole year. It feels more like an anomaly in the quarter rather than some secular shift in the Harsh and Hazardous business.

Okay, that is helpful. A quick one on Lighting. What was Lighting in the quarter and then LED as a percentage of the total?

We grew lighting at about 4%. Resi was obviously leading that growth. And LED for us continues to be in the 20% range. So it still continues to be a really good revolutionizing technology that we think still has a lot of legs to keep growing.

Any pricing pressure on that front? One of your key competitors talked a little bit about pricing pressure a couple weeks ago. Anything that you saw that was noticeable in the quarter on the LED front?

I think Dave gave a macro comment on pricing and certainly the Lighting guys face it as much as anybody, to the extent that they get bid business.

Rich, pricing in most of our businesses was more challenging I think particularly in those businesses on the Power side where it has historically been tied around the commodity-based. But I think what we're seeing is while commodities have certainly moderated and most recently they have even come down more. There are certainly other material cost headwinds that we've got to deal with. Particularly for, as an example, product coming out of China where they are dealing with other cost inflation issues.

On the Lighting side, it's a little bit more difficult to try and sort through what is pure pricing on a comparable basis, and what is pricing that is attributable to LED and the lower cost associated with that. So overall pricing levels can be down, but not necessarily in the case of LED with a margin detriment. So that one is a little bit more of a challenge to even separate that. But clearly there's pricing dynamics that aren't really positive on the Lighting side.

Okay, that is helpful. I will pass it on. Thanks so much.

Steve Tusa, JPMorgan.

Hello, good morning.

Morning, Steve.

Can you help us baseline 2Q expectations? You talked about a lot of the volume and margin expansion being second-half weighted. I guess you gain a selling day in the second quarter. March is okay from a growth perspective, but maybe if you could give us any high-level commentary around saying the split for the year, first half, second half. Just so we make sure we are all baseline for how that's going to progress.

I will tell you broadly that the strength in last year was really in the first half. You still have some tough comparison the second quarter. But maybe Jim can take you through some of the more specifics.

Yes, Steve, I would say couple things. First, you saw the charges that we signaled that will be in the Power segment in the second quarter so you have those. And secondly, I think the Industrial mix comment that we made on Q1 continues, maybe a little less pronounced in Q1. But we will have a little bit more of that into the second quarter. I would expect the first half to be down, and then I would expect the second half to be strong to get you to that 40 basis points.

Okay, are the revenue dynamics first or second quarter normal seasonality, like similar to what we saw in the last couple of years?

Yes. So I would say again, that would be low single-digits first half and then it strengthens in the second. The order pattern that the guys described in April is increasing a little bit. We reported two in the first quarter. Does that build to four-ish in the second? Somewhere in that range. We are starting to see visibility to that, which would suggest the second half is a lot higher.

Okay. And lastly, on the Power side, you talked about a tough comp and some of these, the project's still going nicely. Do think at this stage of the game you have enough visibility to talk about whether you can actually grow in that business in '14? And is there risk of it being down in this economy? I'm just curious as to how you felt this year about the next year versus how you felt last year about the next year in that business -- on the T&D side.

The underlying dynamic, Steve, for us in Power, the predominating revenue stream continues to be Distribution. Which tends to have an MRO component to it. And the economic viability of the networks depend on utilities really doing a good job of maintaining those networks. So with that simple tailwind, you should be able to grow that business.

In addition, some of that housing cycle here, as we get more home construction, that last mile hook-up should help create some distribution more on the construction, as opposed to the maintenance side. But I think you are starting to get at an interesting question, more around some of those Transmission projects and as that activity, which is a smaller percentage of our whole, but from very high-levels, it is, I agree with you, it is hard to keep growing that. That said, the visibility we have for now suggests that it can into '14, it can continue to grow.

And on the Distribution front, I know you guys are a little bit different than the bigger ticket items like transformers. What you think that would -- is there any differences there? Or is it all moving together?

No, I think there are very different drivers. I think the maintenance side of Distribution, which you are right, can be very small piece parts that go on to those poles. That should be a GDP driver to it, as opposed to Transmission, which should have more of a construction and project driver to it. I think they are the drivers, yes.

One less question, price-cost in the second half. I don't know if you talked about this, I was on another call early on. How do you see that playing out in the second half of the year and you getting any relief as commodity costs pull back here?

We are not expecting that, as I mentioned. Pricing has been more challenging with the slow growth. And while the good news is that you've got some more commodity -- continued commodity moderation, customers are quick to recognize that they would like to get some of that back. So we are fighting to -- obviously, price-cost was favorable, had a lot of tailwind last year. Following some challenges in the prior year, and that is a volatility we are looking for this year to be relatively neutral on the price-cost side.

Do you think there is balanced risks around price being down at some point over the next 1.5 years, 2 years?

I guess price could be down, but we are not, as I mentioned, I think there's other inflationary pressures that we need to deal with, particularly as I have talked about in the past. Employee-related costs, specifically healthcare costs that aren't going to go away. You have had spikes from time to time in energy cost. All those things have to be dealt with. We continue to try and offset them with productivity. But some of those are coming our way, and some of our purchased materials, and with price increases on the other side.

Okay.

You know how that plays out.

Okay. Cool, thanks.

Nicole DeBlase, Morgan Stanley.

Thanks, guys. Good morning.

Good morning.

We talked a little bit about order trends within March and April. But I'm curious specifically on how that looked within Harsh and Hazardous. Have you seen any evidence that, that business is starting to improve?

Not yet, Nicole. We would expect that to be, again, second half.

Okay, got it. And can you talk a little bit within Non-resi? How is the retro-fit versus new construction growth?

The retro-fit continues to be a good market for us. There is growth in that business. I think our business tends to be, and others may as well, but certainly ours is very project-oriented. National account-oriented. So it can be more volatile. Is not a ratable business. We have a national account that had a major retro-fit effort last year. And they are tailing back on that. So you're going to have periods from time to time that are up-and-down. Ours was not up in a big way this quarter, but we still think that's a good market, and we are very well-positioned in the market.

Okay, that is fair. And on pricing, was pricing actually down this quarter in either of your businesses or is it just looking more flattish?

I would say generally flattish.

Okay, got it. I will stop there. Thank you.

Okay.

Mike Wood, Macquarie Capital.

Good morning. Could you give a sense of the lead times on the new Non-res construction-related orders? You hadn't yet to quantify the actual growth rate you're seeing in the first quarter. That would be very helpful.

The growth rate, the implied growth rate, is just better than zero. It is in very low single-digits. It really is the early indications of turning to positive from negative. So I don't want to overstate how excited we are, other than we like it being positive. And the lead times of some of the project-oriented are consistent with how they have been in the past. Some of those can be three, six, nine months. Depends really on the project.

Okay. And also can you talk about some of the main hurdles that you are facing in closing some of the deals that you currently have in your M&A pipeline? Whether or not the current low-growth environment is actually helping or hurting you getting some of these deals closed.

It is hard for me to attribute, Mike, any of the dynamics in our pipeline to the markets. But as Dave pointed out, we have been investing some people in this effort. We have been putting more time into it. And if you were to gauge our pipeline right now, we would say it is a little bit stronger than it's been for a year or so. I don't know if I can correlate that to any situation in the market or to the fact that we're putting some resources into it.

But all that really matters to us is that we are finding some really compelling strategic fits out there at good valuations that we think will be able to allow us to strengthen the strategic position of our portfolio of brands, become more important to our customers. And be able to add value to those things that we buy and create shareholder value out of it. We're feeling good about that level of activity that we are seeing.

Thank you.

Noelle Dilts, Stifel.

Thanks. Hello, good morning.

Good morning.

I first had a clarification question. You continue to expect 40 basis points of operating margin expansion for the year. And I'm wondering if, when you initially give that guidance, you are now expecting this headwind from the plant consolidation, were you anticipating that when you initially gave the guidance? Or something now incrementally better to help offset that headwind?

Yes, Noelle. Nothing has changed from our original January guidance. The consolidation costs were contemplated in our full-year guidance. We just were unsure of the exact timing of when those would come through.

Okay, perfect, thanks. That's helpful. And then you have discussed this a bit. But could you give us more detail on some of the price cost pressures in Power? Can you parse that out between what you are seeing in Distribution versus Transmission and then the International business?

Yes. It is difficult to parse it between those segments. I think that we have been, had a pretty aggressive year, last year, in pulling price. As you remember, we were making up for some headwind we had in '11. And I think we were efficient at getting price back in '12. And I think we are finding ourselves to be at an interesting resistance point and elasticity point there. Which is what Dave is referring to.

The cost side for them, their raws are in a very benign environment. But some of the componentry that the Power Systems group utilizes, I think for some of the reasons Dave was highlighting on the personnel side, et cetera., get some upward cost pressures. That creates an interesting dynamic. I think if it's a big large Transmission project, you can get a reasonably competitive bid going. And you are describing some of the International business parse-outs. They too, are involved in bids and projects. It's a competitive segment, for sure.

Okay, thank you.

Brent Thielman, D.A. Davidson.

Hello, good morning. Thanks for taking my questions.

Good morning.

Bill, would you happen to be able to provide organic growth for Electrical without the more volatile high voltage business?

You saw that they had the contribution from deals in the 3% range. And high voltage was down double-digits. You can figure out what it was ex-that. I don't know, Jim, if there's a --

It would have been up slightly, Brent. I mean, nothing --

That is helpful. Just looking for rough numbers there. Then, in your second-half expectations you mentioned high voltage business will see lower demand, but you are seeing some up-tick in orders this quarter. Do you think you're taking a conservative stance in regard to deliveries there, such that there might be potential we could see some of that show up in second half? Or is that out of the question based on typical lead times there?

For the most part, we never want to say it's out of the question but those schedules are usually pretty fixed. The amount of movement would not be material to our level of activity, certainly for this year.

Great, thank you.

That does conclude our Q&A session today. Gentlemen, I will turn the conference back over to you for any additional or closing remarks.

First of all, thanks everybody for putting up with our technical difficulty and hanging on the call. I appreciate that.

As Bill said, thanks for hanging in there and joining us today. Certainly I am available if anyone has any follow-up questions that you would like to follow-up on and we will talk to you soon. Thanks very much.

That does conclude this conference today. Thank you all for your participation.