Hubbell Inc (HUBB) 2014 Q4 法說會逐字稿

Good morning. I will be your conference operator. It is time to welcome everyone to our Hubbell Incorporated fourth-quarter earnings call.

(Operator Instructions)

Jim Farrell you may begin your conference.

Thank you. Good morning everyone and thank you for joining us. I'm here today with our Chairman, President and Chief Executive Officer, Dave Nord and our Chief Financial Officer, Bill Sperry.

Hubbell announced its fourth-quarter results for 2014 this morning. The press release and earnings slide materials have been posted to the investor section of our website at www.Hubbell.com.

Please note that our comments this morning may include statements related to the expected future results and 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 considered incorporated by reference into this call.

In addition, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and the earnings slide materials. And with that, let me turn the call over to Dave.

Thanks Jim. Thanks everyone for joining. I'm going to give a little bit of perspective on our finish to the year and then I'll let Bill in the normal course go through some of the details in the fourth quarter and the full year. And I'll come back to wrap it up and provide more insights into our outlook for next year.

Fourth-quarter results as you've seen -- I'm quite pleased with the performance in the quarter. Particularly as we're recovering from the challenges that popped up in the third quarter that we knew were going to face for the rest of the year. The organization certainly focused on finishing the year very strong and I think we see that in our fourth-quarter results- good improvement. We've got sales of 5% in the quarter-- a nice balance between the organic side and the acquisitions contributing.

I think some of our markets in the quarter were particularly good in our performance in those markets particularly in our C&I lighting was up double digits in the quarter. Our power business putting up some good organic growth numbers, so two positives. I think that's good and of course acquisitions contributing. Currency- we saw some of the currency headwinds starting to creep in, in the fourth quarter, and we'll talk more about that later.

On the margin side, operating margin's at 14.9% which certainly down from last year but better than we were anticipating as result of our focus on addressing some of the issues identified. That 14.9% includes some of the restructuring actions we talked about that cost us about 50 basis points.

So all of that leading to diluted earnings per share of $1.38 which has $0.06 of restructuring cost. All in all, I'm pleased with the recovery from the challenges that we identified in the third quarter and the actions taken. We will talk later about the actions that are in process of being initiated and planned.

With that Bill, why don't you get into some of the details and then I will come back.

Thanks Dave very much. Thanks everybody for joining us. We are aware that it's a busy time and a lot of news items out there so we are appreciative of you spending time with us this morning.

I'm going to use the slides that Jim referenced to guide my comments this morning. I will be referring to the page numbers as we go through. I'm starting on page 3, the summary of the fourth quarter. It was a good quarter, nice solid finish to the year. We had orders strengths throughout right through the end of the year that provided the balance that Dave referenced.

That organic growth of 3% reasonably strong sequentially throughout the year, balanced by the 3% from acquisitions, so 5% sales growth. The OP margin of 14.9% absorbed some of the mix headwinds that we've been discussing all here as the non-res markets which are outgrowing our other markets happen to contain businesses with lower margins for us as well as the restructuring actions.

I'll just try to pause and give you a bit of flavor of what those actions have been during the fourth quarter. I'd largely put them into two buckets. One, targeted headcount reduction in businesses that we're looking for more efficiency. And the second and larger bucket was facility rationalization.

On the facility side, we initiated actions at four different facilities all within the electrical segment on the lighting side including one distribution center and a few small manufacturing locations and one slightly larger manufacturing location. Those projects are each proceeding but they are not even halfway done yet. We're still at the point of needing to move the PP&E and get the production into the receiving plans. Those projects take some time.

You get some of the upfront costs now and some more in the first half of 2015 and the benefits we'll start to see in the second half of the year. I think that they will be describing a new level of those activities going through 2015 as we focus on making sure we manage our cost base as efficiently and effectively as possible.

Page 4 covers the end markets and how they are contributing to that organic sales growth rate of 3%. You see on the non-res side one of the bright spots of the end markets both new construction and reno, both going strong. Some of our business line C&I lighting that Dave referenced at double digits and electrical both going strong as they face up against those markets.

You see the real mixed nature of our industrial end markets where the more manufacturing-based, broadly speaking, growing modestly versus harsh and hazardous and high-voltage test equipment. Both showing strong negative trends and market wise in the quarter.

Utility market overall was positive. The strength coming more from the transmission and substation side where distribution was reasonably flat for us. And resi continues to show growth helping to support that blended 3% organic growth rate.

Page 5 we try to break down the two components of our operating profit into the gross margin and our S&A. You see on the gross margin side we earned 32.4% in the fourth quarter, a decline of 120 basis points, largely driven by these three factors where we saw price, cost and productivity headwind in the quarter where price and material costs were actually quite neutral. So the headwind came on the cost inflation side that Dave made reference to where some of those costs on managing our lighting platform as we discussed on our last call as we had expected running a little bit higher through the fourth quarter here. We also had to absorb restructuring costs and the mix headwind which drove the resulting gross margin.

S&A is going the other way. We have improvement in S&A. The dollar increase is driven by our acquisitions and partially by some of the restructuring activity. The 3% growth rate there, less than our sales growth so resulting in 30 basis points of improvement of S&A as a percentage of sales and that continues now a good three-year trend of leveraging S&A as a percentage of sales company-wide.

Page 6 is our operating profit and is really just the outcome of those two drivers. So you see the 14.9% OP, $126 million with gross margin driving down and S&A going the other way and supporting

Page 7 we get into non-operating side of the income statement and other expense. You see we picked up a couple million less expense in the fourth quarter of this year down to $8 million. That difference attributable to some foreign exchange losses we had last year that did not repeat this year.

On the tax rate side, you see a significant headwind there of 300 basis points. That headwind was driven by discrete adjustments which more than absorbed the R&D implementation that finally came in the fourth quarter and the mix that we are describing between non-res and some of those industrial markets also has a big effect on our tax rate. For example, the high-voltage test equipment and harsh and hazardous businesses tends to be more international and those earnings tend to be in lower tax jurisdictions versus our high-growth areas of non-res tends to be domestic earnings here in the US where at higher tax jurisdictions. So the net of those effects give us about $0.06 headwind from tax.

Page 8, you will see quick comparable levels of net income at $81 million for the fourth quarter of 2014, down less than 1% from prior-year. You will see comparable EPS at $1.38 absorbing that $0.06 of restructuring costs. That $1.38 was aided by some share repurchases that we did in the fourth quarter.

We acquired about 70 million worth of shares. The impact of that activity will likely be felt more next year. You don't see much impact here in the fourth quarter. We were buying right up to the blackout window and so we are expecting to see that effect carry over into next year a little bit more than impacted the fourth quarter.

On page 9 we'll transition here to talking now about our two segments, electrical and power. We'll start with electrical. You'll see in the fourth quarter, they earned $605 million of sales, a 3% increase from prior-year which is again some of that balance Dave referenced. Organic being up 2%, acquisitions helping with 3%, and FX being a two point drag.

That 2% organic was being driven by strong non-res as we've discussed. Our commercial construction and C&I lighting businesses both in double digits helping drive that. At the same time industrial was quite mixed where high-voltage test equipment was down double digits. Harsh and hazardous down low single digits in the quarter versus our other manufacturing-based businesses were up.

The operating profit you'll see generated $81.7 million of OP, 13.5% of sales, a decline from the prior-year driven by the restructuring costs. All those actions that we highlighted for the fourth quarter were in this segment as well as having to bear some of the mix headwinds that we discussed.

On page 10, we switch to the power segment. And here you'll see impressive growth of 10% up to $243 million of sales. You'll see the organic growth rate of 7%, compares very favorably to last year which I want to highlight was quite an easy compare.

Last year's fourth quarter we were down about four points on power sales. I think you'll see next year the first-quarter also is slightly easy compare. I think that's exaggerating that 7% organic growth rate a little bit.

The acquisitions of 5%, you'll see a skewing toward acquisitions here in power. They had quite an active year--we'll talk about that in just a minute. FX and price were each about a one point drag to the overall.

As we said, the distribution was quite flat and that growth was being driven by transmission and substation spending. You see, on the operating profit performance side, the 10 basis point improvement to 18.2%. They had nice productivity benefits in the segment but we were finding the market to be reasonably price-competitive and that prevented the margins from expanding further.

Page 11, we'll talk about cash flow for the quarter. You'll see a good level of cash flow, comparable levels of net income, slightly higher D&A as a result of our acquisition activity. Working capital was a slightly lower source for us as we had some inventory build in the fourth quarter supported by those higher order rates that we saw and the need to make sure we have our service levels carrying into the first-quarter are intact.

You'll see slight improvement in other which is higher deferred taxes offset by some pension funding. I will pause on pension for a minute to give you all a description of some of the changes that we experienced on the pension side. The new mortality tables caused us to increase our liability in the order of magnitude of about 5% to us. That's about $40 million.

Plus we had lower interest rates and that impacted us threefold. One is we had the higher level of liabilities, two is we funded half those in December about $29 pension funding and we are managing our assets in the portfolio to a higher level of risk.

And the net impact of all of that will create a drag next year on pension expense of about $3 million, as we get into talking about next year. I wanted to give you a snapshot of how the pension changes are impacting us both the quarter and next year.

Page 12 switches now to the full-year results. You'll see the sales growth of 6%, at about $3.4 billion of sales. That 6% contributed 2% from organic and 4% from acquisitions.

Again our business model showing the balance and the importance of that year-in and year-out contribution from acquisitions. Last year for 2013 the full-year contribution from deals was about 3%. So this is showing some acceleration and increase in activity that we're pleased with and helping to drive our performance for 2014.

With that, I will pause and talk about the acquisition program. For the year of 2014, we closed seven deals spread across the portfolio pretty nicely. One was in lighting, two were in electrical and four in power systems.

That shows a nice increase by our utility business in pick-up in their deal activity. For those seven deals we invested close to $185 million. The OP from those was in low double digits, so it creates a little bit of drag on margin but good contribution to earnings. We are paying in the mid-sevens for EBITDA multiples for those deals. That gives you a little flavor of our acquisition activity.

You'll see the 15.4% margins on OP so quite healthy, down 50 basis points to prior year which is about 10-20 better than we had discussed in Q3. So strong finish to get that better performance. We'll see some of the tax rate headwind continued for the full-year and quite comparable levels of net income and EPS.

Page 13, we talk about the full-year for electrical. Organic growth was 3%, total sales growth was 6% to $2.4 billion. Again resi demand was good for the year. Non-res was good both across C&I lighting and commercial construction.

And the industrial mix -- mixed performance was similar to the full-year where harsh and hazardous and high-voltage had negative compares year-over-year versus things like wiring and industrial controls were strong. The operating profit of 14.1% a decline to prior-year. We had those cost in excess of productivity as we've discussed and the mixed headwinds that we've discussed.

Page 14 we have the full year for power. You'll see 4% sales growth to $961 million. Acquisitions were 4%, the organic was about 2%. Price and FX-- a drag of 2% combined.

You'll see on the OP performance side 60 basis points of margin expansion to $180 million of OP. Good productivity. Those incrementals if you measure them are in the 30s, probably not normal because you see these lower facility consolidation costs. So prior-year in 2013 the first half was impacted by a recently acquired facility that we closed. So those costs were in 2013 and the productivity benefits were in 2014. So, you see a little bit of skewing of margin expansion to the favorable from the power side.

Full-year cash flow is page 15. Similar story to the quarter where you had comparable levels of income, higher levels of D&A from the higher deals. Working capital slightly more efficient there and you see the impact of the pension funding on other. Comparable a little bit higher CapEx to drive free cash flow of $332 million. The CapEx number, I think Dave at the end will talk more about some of our plans on cost restructuring actions and we can anticipate a ramp-up of this CapEx as we think about next year.

Capital structure, you see $654 million of cash. That overstates a little less in the first month of the year in January. We closed on three deals accounting to approximately $125 million of investment. We've put some of that cash to use already here in the first month. You see a debt to cap ratio of 24% with our revolver being unutilized.

The year in review I'll give you some thoughts and ask Dave to share his -- as he progresses into our outlook. The 6% sales growth again I think the balance Dave mentioned between acquisitions and organic is a healthy sign that our business model is succeeding.

Operating profit grew at 2%. I think you saw nice performance out in power segment. Their 4% growth, 18.7% OP, 60 basis points of margin expansion-- very strong for them.

Electrical guys had to overcome some of the warranty and related expenses that we had in our lighting business as they adapt to higher rates of LED adoption and some of those mix headwinds. But we began some very important restructuring work there in that segment that will carry into this new year.

And just to highlight the cash investments deployment strategy here. You saw about $180 million in the seven deals, dividend increase of 12% and I mentioned the $70 million in the fourth quarter of shares repurchased. We've done another 35 previously, so about $105 million of shares repurchased for the year.

At this early stage of the year for 2015, that feels like we should be thinking about comparable levels of share repurchases this year. We have authorization to do $230 million so we do have some flexibility there.

With that I'll turn it back to Dave.

Thanks Bill. Before we close out 2014, let me give a couple of comments and perspective. We accomplished a lot in 2014. I don't want to lose sight of that.

Obviously we had our challenges but as Bill mentioned accomplishments-- increasing our dividend, investing in acquisitions, ramping up our share repurchase, I think are all highlights. As we sat here a year ago, we thought that our sales would be up 5% to 6% with balance between acquisitions and organic. I think we outperformed on the acquisition side and I would suggest we under-performed on the organic side.

I think the markets may have contributed some of that but I think that's an area we have to have more focus on for 2015. Our operating profit -- based on our guidance we would have been just North of 16% finishing the year. And instead, we're finishing at 15.4%. I think a big part of that is some of the challenges that we faced within the lighting business for sure and maybe a little underestimation of what the mix implications were going to be around our high-voltage and harsh and hazardous business.

We've learned a lot from that. We're obviously don't want to lose sight of earning more than $300 million better than 15% margins. But still we recognize that, and we're disappointed that we came about $0.30 short of our own expectations. And I would put that equally between our forecasting on the margin expansion and our execution within the lighting businesses. Both of those things are important to consider as we look into our guidance and things that we contemplate as we are looking at 2015 and the actions that we are taking.

So with that, let me turn it over to our outlook for 2015. First on the end markets. We talked about the end markets three months ago on our third-quarter call. There has been some change in most of our markets and a significant change in one.

Starting at one clock our utility business we said was going to be flat to slight growth and I think that maybe has a little bit of improvement, more definition around 1%-2% growth. The residential side we said was going to be high single digits and I would say that we're thinking that's a little bit weaker based on some of the indicators that are out there. But still a good 6% to 8% growth.

The nonresidential side, certainly all the indicators point to that continuing to improve. We're at 3% to 5% before. We think that's more like 5% to 6%.

On the industrial side now, something we think is important to separate, embedded in our industrial historically was our harsh and hazardous business. With the movements being pretty much consistent in the business that represents 10% or so of our overall business, it was okay to do that. But obviously there is some dynamics going on in that sector that we wanted to make sure that we were clear and could spike that out. The core industrial business we still think is up 3% to 5%.

Last time we had it up 3% to 4% and that was with harsh and hazardous actually still continuing to improve. Obviously we're all aware there's a big significant change. At this time in October, we've talked for a long time about $80 oil being above $80 being good at below $80 being more challenging.

At the time I think we were about $82 or $84. Since then it's been a weekly progression to, yes it might to the below $80 but it will pop back. Well, it might dip below $70, it will pop back. That's been ongoing to the point that we're at now which is down almost 50% from that level.

So when you look at that magnitude of drop, we have been working very hard to try to assess what that means to us. And obviously in the worst case, you would say well if it's down 50%, the market is going to be down 50%

. We're obviously not seeing that yet. We don't expect to see that. It's somewhat of a function of where you play in the market. But our assessment of the end market we participate in is going to be down 15% to 20%.

So all of that comes together to suggest as we're looking at end market growth of 1% to 2%. We had 3% to 4% before, but I think the impact of harsh and hazardous can't be underestimated and we've got to deal with it.

So, what does that mean to our segments? Our power segment-- about one third of the business. With our slight growth in 1% to 2% on the DNT, plus acquisitions with a little bit of FX headwind we think they'll be up 5% to 6%.

On the electrical side, certainly we expect to participate in the solid growth in the construction markets. We've got to deal with harsh and hazardous down 15% to 20%. Our industrial growth is up. And then acquisitions will contribute another 5% to 6% with some FX headwinds there as well. Overall we're forecasting 5% to 7%, overall sales growth.

All that is leading to an earnings-per-share outlook as we cite a range and this is something that we're coming back to providing specific earnings-per-share guidance. We haven't done that for a number of years. We've tried to provide a lot of the pieces and allow investors to make their own judgments.

But with all of the dynamics that are going on, the story has certainly gotten more complicated. And so we want to make sure that we're clear as to what our expectations are and then I will take you through how we get there.

But that $5.35 to $5.55 includes $0.25 of restructuring and related costs. We are taking actions this year that we expect to realize the benefits at those levels in 2016. And free cash flow; forecasting to be a little bit less than net income simply because as Bill mentioned, we are contemplating additional investment as part of the restructuring action in capital, around our facilities, around our planned productivity and automation. That will be incremental to this year's levels.

To try to make it even clearer, on page 21 I've got a sense of how we look at this earnings guidance. If we start with our $5.48 that we're delivering this year, in a normal course our core growth combined with acquisitions would be delivering somewhere between $0.60 and $0.75 of earnings which would put us squarely in $6 to $6.15 range which is where we were targeting to do, taking into account some of the mix headwind that we faced last year.

Unfortunately we've got two big impacts that we are facing that we've got to address. One is the harsh and hazardous which, if you do the math on 11% of our business down 15% to 20% with what we've continually said is one of our highest margin businesses, the decrementals of that are, unfortunately, painful.

We've also got currency which is the new item that we are challenged by as we started this year more dramatic weakening of foreign currencies. The combination of those would be in the magnitude of $0.35 to $0.40.

As a result of some of that, particularly harsh and hazardous markets, we've had to increase our emphasis on our cost reduction actions. We already had contemplated and initiated some around our lighting business. But to continue to improve and deliver on our productivity, we need to increase our level of investment around restructuring and take some actions to address the market challenges that we're clearly facing in the harsh and hazardous. So that's the $0.25.

That leads us to our $5.35 to $5.55. I'm very confident in that number if the market behaves as we expect. We need to execute on our plans. I think the team learned a lot last year, particularly around realism in their planning and forecasting.

If we don't have realistic forecasts, we are guaranteed not to take the actions that are necessary to improve those forecasts if we don't like them. If we wait until they happen, we are behind. And so the team is very much focused on getting ahead of that. That's why you see a much higher level of restructuring and related costs.

There's certainly a lot of other things that will move around in here but whether you've got tax and the impact of an R&D, or the implication from share repurchase both the impact from last year's and what we contemplate this year. And those are levers that we are working on.

So, this is our starting point. It is by no means our ending point. And the team is very much focused on continuing to improve and outperform this outlook.

With that let me open up -- turn it back to Jim and open it up to Q&A and address some of your questions.

Beth, let's open it up.

(Operator Instructions) Nigel Cole, Morgan Stanley.

Good morning. I hate to start off with the obvious question, but harsh and hazardous. I'm seeing in the chart to scale so if I just run the ruler over the past, it looks like $0.40 or $0.50 of headwinds that you're expecting from that? Is that about the right zone?

I would say it's a little less than that Nigel.

Okay can give us a number?

I would say it's more in the $0.20 to $0.25 range.

Okay. And obviously the down 15 to 20 -- can you help us think about how you got to that number? Is it [singing] in the air? Educated guess based on customer conversations? What gives you the confidence that 15 to 20 is the right zone?

I would say all of those things are what we take into account, as well as what others are seeing. We're assessing our own business. We think our business is probably 75% upstream. As I said earlier, I think we started with a very simplistic oil's down 50%, so the business could be down 50%. But that's overly simplistic, depending on where we play. We have had conversations with some customers, but they are all coming up with different views depending on their own perspective.

So I think we've come up with the likely scenario. This 15% to 20% down, keep in mind, that didn't happen in the fourth quarter. We're not seeing that level of down so far this year. So I'd suggest that we're contemplating that there is a more significant decline as the year goes up, more to the tune of potentially finishing the year down 25% to 30%.

And it's important. The reason we're doing that-- and, listen. I might be conservative. I hope I am. But it's important that we are focused on what the implications are, so we are taking the actions that are possible and necessary to try to mitigate that within the business and throughout the rest of our enterprise. I would say Nigel the most hopeful analysis I thought we did was going back to FY08, FY09 timeframe and looking at what prices did and what impact that had on our sales. That was probably the most informative of the different techniques that you described.

Okay that's great. I appreciate the color David. Could you talk about how this business -- the price and volume impact in FY08, FY09 and perhaps on some of that, what you're seeing for price in 2015?

I think what we saw -- to me this is a two-level ratchet on harsh and hazardous for us. In 2014 the business shrunk low single digits, Nigel. And in so doing, I think, lost some of that price power that it had. And the margins went from great to good.

That was part of what Dave described as maybe a forecasting miss on our side during the year of 2014. So now we are trying to anticipate steeper volume drop offs and -- we don't have current data as Dave's saying. The order rates are not consistent with down 20%, so we are making some anticipatory guesswork here.

Sure. I appreciate that. But the down 15 to 20, is that mainly volume at this stage?

Yes.

Thanks.

Rich Kwas, Wells Fargo Securities.

Good morning everyone I'm doing some quick math. On the harsh and hazardous, 30% decremental, is that what you're assuming?

Yes, that's what we are assuming.

Is there a sensitivity we can think of with regards to rate counts and the impact on your business? I understand it's fluid right now. You're not seeing that in the real-time data and you're anticipating it. But as we go forward here is there a way to think about it in terms of percentage change and rate count and how that would potentially affect your business either way?

We tried looking at that Rich, and we weren't able to come up with an equation that would be satisfactory to you or to us.

Okay.

Will keep looking at it, though.

All right. On the margin decline ex restructuring for the year within the guidance, how much of that is M&A and how much of that is just the harsh and hazardous impact? If you had to split out? I'm coming up with a 40 or 50 basis point decline if you ex out restructuring.

I think the acquisitions, Rich, would be around 30 basis points of margin contributing to margin decline

So that's most of it, ex restructuring

Yes

And then Bill on your comments about buybacks, you expect to do 100 million or so this year. You did $70 million in the fourth quarter. With the stock down $20 or so from the highs, balance sheet is still in very good shape, what's the thought process of why not to stretch the balance sheet a little bit as it relates to typical Hubbell standards and take advantage of the stock being down a bit here? More aggressively, I should say

I will take that Rich. That is an ongoing conversation that we have. And it's certainly an ongoing discussion, sometimes debate, with my Chief Financial Engineer and economics guy.

One of the issues that we are always pushing on, and it's my strong view, is that, I understand the desire to do that. But if I've got a choice my priority is on acquisitions, which have the opportunity for earnings growth going forward. So, as you saw we closed three deals already this year for a little over $125 million.

As we're finishing the year, we do wrap up share buyback, but we know we've got some these transactions that are close to closing and that's always the debate that we have when we're looking at the pipeline of what's likely. But that is an ongoing discussion and if there aren't other good alternatives, we would ramp up share buyback.

Okay. Thanks.

Christopher Glynn, Oppenheimer.

Thanks good morning. I wanted to review a little bit of the linearity for the year, and I think I got my answer with Nigel's Q&A. But I was going to ask with the 1% - 2% organic for the year and the easier weather comp, in the first quarter, that's offset by the harsh and hazardous stating through the year that washes that out?

I think that's right.

Okay. And then on the lighting, just so we put the impact in properly I think it translates into a little over $20 million pretax. Should we think about that all in lighting and what proportion in the first quarter or the first half may be?

It's definitely not all in lighting, although there is a significant element within lighting. I think we are trying to execute it -- the key is to execute it effectively and the best way to do that is do rateably throughout the year. That's the ideal. It doesn't always work that way. I think we're planning on it happening that way, but it may slide between quarters.

Okay. And then just in terms of some growth rates as we subdivide the organizations. Could you comment on US organic growth in the quarter and then any comments on the lighting business?

I would say starting with lighting Chris, we had really nice growth rates on the C&I side. We had the resi business along with some of the other national account-facing parts of lighting have very lumpy demand dynamics where the big orders last year and some destocking on some of those projects this year, which created some more difficult compares there. But you saw mid teens growth in C&I inclusive of doing a deal and more like 10% organic. Very strong dynamics within lighting from a market perspective, and, I think trends that give us enthusiasm as we look into the new year for lighting.

I think on the resi side certainly some of that data keeps coming in mixed. And some of the home builders are giving, I think, some more modest outlooks. Certainly Texas market or things that might be over-exposed to the oil space seem to be more cautious than others. But in general I think we still think the resi support is good for lighting.

In terms of your geography question, domestically that non-res piece is essentially for us all domestic and that's where we saw some of the decent growth. Some of our more international-facing businesses are harsh and hazardous and high volt, which both were down.

I think maybe the exception would be our utility business, which has got some exposure down in Latin America and in Asia. But in general, if you're generalizing, we would say our domestic growth was strong and our international growth was negative.

Let me add a couple other comments on lighting. I think that certainly we had our challenges and disappointments, certainly, in the third quarter and second half of the year. One of the things that comes out of that is clearly a wake-up call to the team at lighting, which they are responding incredibly well to. One, focusing on the issues that specific issues that came up, but more broadly some of the other implications.

One, for example, we talk about the pricing pressure. And what you realize is that some of the pricing pressure is not so much the market pricing but our attempts to try and get price to provide a margin with a cost structure that's not acceptable. It's more of a cost issue than a pricing issue. That's why there is much more aggressive action going into the cost side and particularly around facilities.

What I find satisfying is that in a short period of time from feedback from a variety of market participants -- from suppliers, to customers -- they have commented that they have seen a change in attitude and approach much more aggressive, much more customer-focused, much more thoughtful in the development of new products and the engineering around that.

All of that are indicators to me that we're moving in the right direction and it's just a question of how quickly we can realize the benefits of that. It's still early, but I feel a lot better about how that business is moving right now.

Dave that's really interesting color. Thanks. What's the timeframe on that positive feedback you are getting? Must be the last couple of months even?

Yes. It's in the last couple of months.

Great. And then what your thoughts on warranty and obsolescence, one-off happenstance going forward?

The thoughts are it's got to be better. There's a lot of focus on it and it's a challenge within the industry as new participants with new technology have come in and offered up these wonderful warranties. That's all fine. The reality is if there's going to be a problem with a product, it's going to be early on. It's going to be caused by poor production or poor design.

That's where our focus has been, identify root cause and have addressed those, and are much more focused on that consideration in product launches. And the challenge is to make sure that doesn't unduly slow down the product launches so you fall behind. You just take that into account in the development process.

I certainly expect that to be an improved performance. I don't want to size that amount yet but I'm hoping that provides some of the tailwind for the lighting business performance in 2015.

Thank you.

Jeff Sprague, Vertical Research Partners.

Good morning, it's actually Ryan sitting in for Geoff. I was wondering if you could provide a little bit more color on the trends that you are seeing in transmission and substation both in the quarter and as we look out to 2015?

Yes Ryan. The fourth quarter, as Bill, said the transmission and substation were a little bit stronger. I think some of that has to do with the timing of shipments of some of those lumpier transmission projects. Again we've talked a lot this year about small and medium-sized projects. I think a few of those broke free in Q4.

I wouldn't view it as necessarily a significant uptick in underlying demand. I think some on the substation I think there was a little bit of push at the end of the year to do some maintenance on that. We got a little lift in Q4. I think as we turn to 2015 I think our guys feel pretty good about the pipeline of small to medium-sized projects and actually have cautious optimism that some of the larger stuff might actually come through. But again, gets you still to a 1% to 2% growth environment as we talked about. Q1 will probably be lot stronger. It's pretty easy comp and then it gets tougher as the year progresses.

Okay great thanks. And then on the pricing side, within power specifically, where exactly are you seeing the most competitive price pressure?

Ryan that comes on larger jobs where there is just more bidding pressure. There's a reasonably high percentage of that business which is maintenance and repair and it's not on that side. It is more on the project site.

Okay great. Thanks.

Stephen Tussa, JPMorgan.

Good morning. Just so I'm clear, harsh and hazardous is that 100% is oil and gas, that business?

No we've got about 70%-ish is oil and gas, another 10 would be mining. So you're up around 80 that's extractive industries, Steve, in that order of magnitude.

So that kind of dominates? It's not like you have Oil and Gas down 50 and the other market is flat. It's really dominates the segment from that perspective?

Yes it does.

It does Steve, but that's a good point. The way we're thinking about it for Oil and Gas is really down more like 20% to 25% for the 75% of harsh and hazardous.

And that's already down, right, this year?

It's exiting the year slower, but certainly nowhere near those levels. And, as Dave said, Q1 you've got some projects that are finishing out through completion, so Q1 probably won't be the best indicator for how this is going.

Yes

So, as Dave said, the back half is where we have to watch those 25% to 30% numbers.

Right. And just on the pricing but on the commodity side -- how are you planning on the commodity front? Any tailwind there in 2015?

As you can appreciate Steve, it's moving every day but certainly the major commodities that we have are pretty good. As you know, the challenge is on the pricing side. But absolutely the coppers, the steels-- all should help.

And you're embedding that?

It is embedded, but I wouldn't embed a net benefit of pricing commodity cost. You still have PFR, it's moving quite a bit every day, but I wouldn't view it as upside.

Got you. And then one last question. On the bridge, what exactly did you say the core was? Did the core plus acquisitions add this year from an EPS perspective? I didn't quite catch that.

Somewhere between $0.60 and $0.75.

Okay, so $0.60 and $0.75. And the restructuring as of now, do think that restructuring is what you need to do? Do you envision another major restructuring in 2016? It seems like a pretty big swing you've taken here, and that you've got a lot of good projects in the pipe. Do you feel like we're comfortable with what we've set out there on restructuring?

I think it's too early to call on that. I think it is. When I look at one element of our cost structure, which really is our footprint, the costs to shrink that are not insignificant. It is possible that we get the momentum and cadence down that we would be more aggressive on that.

That's not to say that there would be another $0.25 incremental, but that certainly could be the level of expenditure next year. It's possible. It's too early to tell I would say.

You wouldn't look at it and say $0.25 of cost this year. Call it $0.30 you said you're going to get more than that in net benefits in 2016 -- so it is not quite a $0.55 flip is what you're saying, for 2016?

Correct.

I think one of the drivers, Steve, is the success of our acquisition program means you're adding facilities and not each one of those is a world-class or global-scale facility. As you aggregate those it creates these opportunities, and we've been doing those in onesies and twosies year-in and year-out. I think the acquisition program is starting to outstrip that. That's really what's behind it.

So in essence, it's somewhere between a big one timer and a multi-year restructuring story. It's somewhere in between that?

Yes. I would say it's somewhere between that. What I believe is, certainly for some portion of it, the benefits could be greater. And so, in theory you could get $0.25 more next year and still be able to pay for this stuff. But that's why I say it's still very early. There's early costs, but tremendous benefits when you do these things, if you can execute them successfully. And that's always why it's a little bit more cautious to get to that point.

We appreciate you running this stuff all through the EPS guidance, because a lot of companies adjust and strip some this stuff out. Thanks for the visibility and running that through. It's a more honest way to approach it. Thanks.

Will now turn the call back to Jim Farrell for closing remarks.

Thank everyone for joining us again this morning. I know it's a busy time. Certainly folks who have follow-up questions feel free to reach out to me. I will be around all day today and tomorrow. Thanks again and we will talk to you in the next conference. Thank you.

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