Hubbell Inc (HUBB) 2015 Q1 法說會逐字稿

Good morning. My name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to the Hubbell Inc. first-quarter earnings conference call.

(Operator Instructions)

Thank you. Maria Lee, you may begin your conference.

Thanks, Chris. Good morning, everyone and thank you for joining us. I'm joined today by our President and Chief Executive Officer, Dave Nord and our Chief Financial Officer, Bill Sperry. Hubbell announced its first-quarter results for 2015 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 our 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 may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and earnings slide materials. Now, let me turn the call over to Dave.

Okay. Morning, thanks Maria. Let me start with a little housekeeping first. You obviously have heard a new voice on the call this morning, Maria Lee. Most of you are probably aware, but if not Jim Farrell, who has been a long time involved in our Investor Relations function is moving on to a significant finance role in the operations. I've worked with Jim as long as I've been with Hubbell and I've seen him as he's progressed through his career.

He's been an integral part of the evolution that I hope you've all experienced in not just the performance of Hubbell, but specifically around our investor relations agenda, both the quantity and hopefully quality and transparency of that communication. More to be done, we will leave that up to Maria, but I just want to acknowledge Jim. Jim is thankful that as part of our transition, he is sitting in the room today, so feel free to ask of any of the tough questions that you might have and give Maria a break.

We're fortunate to have someone like Maria Lee to join the team, certainly someone who is very familiar and comfortable around the industrial space and specifically known to some or many of you. So we are confident in what Maria brings to the team and will add as we continue to advance our shareholder communication agenda. Thanks, Jim. Welcome, Maria. Now onto the business of the call.

First-quarter results, I'm obviously pleased to report a very solid start to the year in the first quarter. 7% sales growth with a nice balance between organic and acquisitions, offset by a little bit of foreign currency headwind. The end markets performed largely as we expected. Notably some good strength in the non-residential construction, partially offset by the weakness that we expect and may be coming a little sooner on the energy-related businesses.

I won't steal Bill's thunder, but of particular note for me is the good performance on our lighting business, with our core business within lighting, both commercial and industrial as well as residential reporting double-digit sales growth. Our industrial business is up slightly, a little bit of weakness that we're seeing there. We'll talk more about that later. As you saw the power business, very nicely in the first quarter.

The one negative is around the harsh and hazardous in particular and we knew that was going to be a challenge going into the year and that certainly is turning out to be the case. But all that considered, 7% sales growth is very good from my standpoint as a start to the year. Our margin's at 13%. Again, nice performance, certainly we would of, in the normal environment, expected that to be closer to 14% with the incremental volume.

But that 13% on a reported basis includes a half a point of restructuring related costs and some of the unfavorable mix particularly associated with the harsh and hazardous decline and some of the acquisition dilution, as we've talked about in the past. So all that's giving us diluted earnings per share of $1.07 or $1.12 if you exclude the restructuring and related costs. On the restructuring front, as noted, we had $0.05 of impact on our earnings per share.

I think we're proceeding nicely with our cost reduction efforts and that includes facility rationalization, managing our personnel costs, as well as streamlining some of our back office operation. And we are continuing to focus on identifying and executing opportunities as they come up and we'll talk more about that as the call goes on. On the capital deployment side, I'm also pleased that we had a lot of activity in the first quarter. We had mentioned the acquisitions that we closed early in the quarter.

Acme Electric, a business that supplies dry-type transformers and that's in our commercial construction business. Turner Electric transmission and substation switching in our power business and electric controller and manufacturing providing DC contactors and crane controls in our industrial business. Combine that and we invested $126 million in those three acquisitions in the first quarter.

In addition, we returned $109 million to shareholders via both share repurchase, $76 million of share repurchase and then our ongoing dividend program, close to $33 million. So all in all, a very good start to the year. Let me turn it over to Bill at this point and maybe you can go through some of the details of the operations and specifically the segment and then I'll come back talk about our outlook for the rest of the year. Bill?

Thanks, Dave. Good morning, everybody. I know what a busy morning it is here with a lot of (inaudible) so I appreciate you joining us. I'm going to use the slide that I hope you found and I need to echo Dave's comments and thank Jim. He's been a great partner of mine for the last seven years and I'm really looking forward to working with him in his restructuring work that he's doing going forward and also very excited to be working with Maria. So welcome, Maria.

So Dave walked us through page 3 of those slides. I'll start on page 4 where we are focused on the sales story. So you see the $110 million of sales there, growth of 7%. We break that down into end markets here in terms of the organic story. And you really are seeing some bifurcation here in our end markets. The non-res market showing some decent strength, both in the new construction as well as renovation.

That appears to us to be reasonably broad-based and touches several of our business units. When we get to the discussion of our electrical segment, I'll describe a little more detail, but that feels like reasonably good news to us on the non-res front. On the industrial side, you see a different story. You see the harsh and hazardous that Dave described as being down. You see the general manufacturing and industrial production providing just very modest growth.

So big difference between those two markets and utility market growing, but also quite modestly. And so that's really the state of our end markets. I think on the residential side, feels to us like it's growing. We have some differences between orders and shipments based on some of the big-box activity that can be a little bit lumpy on the national account side, but it feels healthy. I know some of the data comes across a little bit mixed. Some of the builder sentiment, though, is reasonably, using our color or vernacular here, is reasonably green I would say.

A good story on the organic side, I think as Dave highlighted. I think from the acquisition side, 4% growth, very nice balance, I think complementing that organic growth. The fact that there is seven deals that are contributing to that, I think is a good sign of the business development program success. You've got three new deals that Dave described from 2015 and four that are wrapping around from last year that are contributing incrementally.

Those seven deals are spread around across the lighting, power and electrical systems segments. So quite a broad-based success there and something I think worthy of note. On page 5, we are really breaking a little bit here from our traditional convention and we're using adjusted measures for these next several pages. We believe that that's a more helpful way to describe the comparability year-over-year of the actual performance of the business.

And so what we've done is we've taken that $0.05 or $4.4 million of restructuring and related expense and pulled it out, as Dave commented earlier. The lion's share of that spending is at the gross margin level rather than the S&A. So the bulk of the adjustment affects there, but I'm going to be speaking about adjusted measures as we go over these next several pages. So you see gross margin declining 60 basis points from 32.3% to 31.7%.

And you really have mixed drivers on three levels. You've got product mix, which really describes within a business, the less profitable products. Within the business, you've got that different market growth that I was describing, which has been a trend of ours for the last few quarters, where you've got higher non-res growth where we've got some of our lower margin businesses and lower industrial growth where we've got some of our higher-margin and that creates this mixed headwind.

And then with acquisitions being half the growth, those, as you all know, come in in their first year at lower margins and all three of those things combined to create those mix headwinds. On the selling and administrative side, you see an improvement of 30 basis points from 18.5% down to 18.2%. I think it's noteworthy to realize that that dollar growth is largely driven by the three new acquisitions that Dave highlighted. So again, it often takes time to get those integrated and get the S&A on the new acquisitions functioning at the most efficient level and so a good sign to see good leverage there in S&A, I think.

Page 6, we're switching to operating profit and again, we are adjusting out the restructuring and related expenses. You see the 30 basis point drop on adjusted basis from 13.8% to 13.5%, 4% growth in dollars. And again, the drivers are the mix and the volume leverage on the S&A side. On page 7, we've got our non-operating expense and you will see significant growth there, but obviously small dollar amounts. Basically, last year's first quarter was essentially our net interest expense, while this year had some foreign exchange losses and that's why you see that growth there.

I'm going to pause and just give you a little bit of color on FX in general. It affected us to the tune of about $0.05 for the quarter and that includes the translation of sales and OP. It includes the transactions of the purchases made in foreign currencies and includes this non-op impact of our monetary accounts. It does not try to quantify any impact on the competitiveness of some businesses that might be selling and revenues in one currency with the COGS in another.

The most notable example for us might be something like our high voltage test equipment business, which would be selling in dollars or euros and have a lot of their COGS in Swiss francs and that can have an impact that doesn't get quantified in that $0.05. But that's about that magnitude of the headwind we faced in the quarter. Moving on to taxes, you'll see about a point pick up there in the tax rate.

That's because last year's period had a favorable discrete item, which was a settlement with the service and it's really the mix of earnings towards higher tax geographies, which is namely more domestic that's driving that up a little bit. Both periods, just for clarity, have similar treatment to the R&D tax credit, namely not included. Page 8, the outcome of all of those drivers is adjusted net income, $64 million, up 2% and you will see our adjusted diluted earnings per share up 4% at $1.12.

That improvement of 4% versus income growth at 2%, driven by the fact that we purchased about $76 million worth of shares in the first quarter. Just to update you on our share repurchase program, during all of last year we bought back about $105 million of shares. In the fourth quarter, though, after we were reauthorized with a $300 million authorization, we purchased about $70 million plus this $76 million, gets us close to having utilized about half of that authorization.

Switching now to our segment discussion on page 9, you will see 6% sales growth to $570 million. Again, that balance of acquisitions with four points and organic with four points. Again, here, you are seeing that bifurcation we talked about on the end market page, where the non-res is showing us some strengths. We see that in areas like [core C&I], part of our lighting business, which was up mid double-digits, mid teens of double-digits, strong growth there.

You see similarly strong growth in areas like our rough-in electrical and some of the other non-res facing businesses versus on the industrial side, you saw harsh and hazardous down about 10%. And that's consistent with how we described the year, expecting to be down where the first quarter would be down less than the rest of the year. So we see an accelerating decline and we can talk more about that when we get to outlook.

But the remainder of the industrial businesses that face off against general manufacturing were quite modest in their growth. So that dampening by harsh and hazardous and the price of oil was quite significant. On the performance side, you'll see a decline in adjusted OP margins of 90 basis points to 11.7%. They had that mix headwind that we've discussed.

They had price cost productivity headwinds, which included a discrete charge that we took in the first quarter around a commercial issue that was just less than a point. So price cost productivity ex that discrete item was a little bit better. I know you all watch how material costs are unfolding in productivity, but that proved to be unfavorable with that discrete item. And the volume, obviously, brings incremental profit with it. Page 10 has the power segment and a very strong performance in the first quarter by our utility team.

You'll see very $240 million of sales, a 9% growth rate, 5% of that growth coming from acquisitions. That's a very strong level of activity by them and again, a good payoff from some business development activity that we invested there. And the organic of 4%, we feel is outperforming the end market there, so nice organic growth as well. The drop through on operating profit, you see an increase of OP margins to 17.8% or $43 million. That represents in the low [30s] of incremental drop through.

I would argue that's a little bit better than we would expect typically. You'll see those acquisitions had some headwind impact on the margin, but price cost productivity for power was favorable and again, you saw some material cost benefit that was driving that equation. We find those variables tend to even themselves out over time and so that favorability doesn't feel like it's sustainable all the time for us. That's a very strong quarter for power team.

Page 11 is cash flow and you'll see a comparable amount of net income, higher level of D&A as a result of our acquisition activity, slightly more efficient on the working capital side. And the other is driven by some pension funding that we did in January. As a result, I think we talked about it at year-end, where we had mortality tables and low interest rates necessitated an unrequired, but optional funding that we did there.

And on the CapEx side, you see a good pick up there being driven in large part by some of the productivity projects that are typical, but also some of the restructuring activity that Dave highlighted earlier. So first quarter is always our lowest cash flow period of the year, but I think those drivers reasonably as expected. On page 12, we've got our capital structure. You'll see comparable amounts of debt, but the change you'll notice is a little bit less cash.

We had significant amount of deployment in the quarter. The $126 million of acquisitions that Dave mentioned, the dividends, the CapEx and the share repurchases driving deployment of some of that free cash that we had on the balance sheet. So still very opportunistic balance sheet in terms of being ready to invest with net debt to cap of 5%, debt to cap of 24%. So that concludes my comments on the quarter and I'll switch it back to Dave to discuss our outlook and the balance of the year.

Okay. Great. Thanks, Bill. On page 13, our pie chart with our end market outlook. Let me start with the positives first, so up in the upper right-hand side on the utility market. We continue to think that that will be growing at a modest 1% to 2%, consistent with where we saw as we started the year. Certainly, our performance in the first quarter would indicate that it could be a little bit better, but that one we'll stay with our 1% to 2% for now. That's our best outlook.

On the residential side, similarly, no change there at our 6% to 8%. There certainly has been volatility over the last few months in some of the data points as well as some of the builder indicators and builder optimism. I think the more recent view is more positive, but nothing that would be outside of the 6% to 8% on either end. So we are comfortable with the 6% to 8%. The non-residential, equally consistent with how we started the year at 5% to 6%.

I think our results in the first quarter would suggest that that could be stronger. I think some of the indicators might suggest it is going to be stronger. I know the latest ABI was up and there is a view that that is a positive. Although as I look at it, I look back at the -- recognize that has a six to nine month lag associated with it. And I think it peaked six to nine months ago, so we are just being very cautious about how that plays out.

I think the other part of it is, within our business, we see two different dynamics here. One, certainly as we've seen on the lighting side, the lighting element of non-residential is stronger. But the flip side is that those businesses within non-residential construction that are more geographically aligned with some of the oil and gas markets, Texas, Oklahoma, North Dakota, even in Pennsylvania, some of our businesses have seen some pockets of weakness there as collateral impact from the oil and gas markets.

So 5% to 6% still holding there. The industrial side, a little weakness that we've experienced, so we're looking at that market being a little bit weaker, taking that down to 2% to 4% from 3% to 5% previously. The big item is on the harsh and hazardous market. Recall, last quarter we sized that at being down 15% to 20%. We weren't seeing the declines early on and so the expectation was in order to even do 15% to 20%, it was going to really decline rapidly as the year progressed. We started to see more declines earlier.

That business actually finished down for the quarter. So as we look out, we think that's got more weakness. Hope 20% to 25% is a good number at least for this year, but that's the one place that we see more softness in our outlook. So as a result, when you put that together, the composite is more on the low end of the range. Before, we had 1% to 2%, we still think you could see 2% with some of the strength that we've seen in other businesses.

But at the same time, if that doesn't continue and the harsh and hazardous plays out as expected or worse, you could be on the low end right now. So, I turn to how does that play out for the segments. On the power side, on page 14, that business is expected to be up on a sales reported basis of 5% to 6%. With the growth in the market, as well as with the acquisition impact, up mid single digit.

On the electrical side, equally we expect that to still be up 6% to 7% with solid growth continued to be expected in the construction markets. General industrial with some modest growth, but the harsh and hazardous being a dampening item and of course we have acquisitions contemplated in that growth as well. Largely, acquisitions that have already been completed, but there is some element of that is around the acquisitions that we are anticipating and certainly attempting to bring home this year.

That's always a point of uncertainty because they are not closed until they are absolutely in the house. And it very often happens that you can get it right to the finish line and something comes up. But we think we've got enough in the pipeline that we are working on, it'll just be a question of timing. So, all of that, turning to the outlook page, as I said, gives us a sales increase of 5% to 7% with our end market growth of 0% to 2%.

Organic growth expected to outperform the market, particularly with some of the new product introductions that I think are benefiting us and then the acquisitions contributing mid single digits. That's still contributing to our outlook for the year of earnings per diluted share of $5.35 to $5.55. That still includes $0.25 of restructuring and related costs and the savings in next year being at the same level of the costs this year. That's the plan.

I would tell you that that $5.35 to $5.55 is certainly more challenging. Three months from when we first established it, as you look at particularly the impact on the harsh and hazardous. But the trade-off is some of the strength that we've seen in the other parts of our business, particularly the great performance that we're seeing improvement from the lighting side as well as some of our other businesses and utility being an example.

So I would tell you I am more cautious about that outlook than I was three months ago, but we also have gotten a lot of focus and attention around our cost reduction actions. A lot of possibilities, but trying to maintain a very disciplined approach to returns and successful execution. Again, the last piece on the outlook and our free cash flow, continuing to target to be at 90% of net income.

I think the other point that I would make is, as we look at the year and certainly the bigger risks are in the second half of the year, depending on how the harsh and hazardous plays out. And if there's any other softness, I think our normal calendarization might be a little different this year as we are -- particularly if you think about the challenges that we faced in the third quarter and fourth quarter of last year and the improvements in lighting, that's going to continue throughout the year.

So I think there's a little bit more of a bias toward the third quarter from the second quarter. As well, I think some of our restructuring actions have some other implications. One in particular would be on our tax rate. Some of the things will result in -- as we are currently anticipating a little higher tax rate in the second quarter than normal. Don't think it's going to affect the full year because there's other actions that will come out in the second half, but just to provide some color on that -- on different balance.

So all in all, we're still working, a lot of years still to go, a lot of opportunity to continue to address some of the market challenges that we face. But at the same time, some optimism around at least our performance in some of the markets and if that can continue, we would be well on our way to maintaining this. So, with that, Maria, I'll turn it back to you and if you want to field questions.

Sure. So Chris, I think we can open it up for questions.

Certainly.

(Operator Instructions)

And your first question is from Rich Kwas with Wells Fargo Securities. Your line is open.

Hi, good morning.

Hey, Rich.

On the restructuring, so the $0.25, now that we're three months into the year, what are your thoughts around having to do incremental restructuring now that you have more visibility on the state of the business? And is there more to do as we think about next year? You typically do a little bit of restructuring every year, but I'm trying to get a sense for 2016, if it's going to get back to a normalized rate in 2016 or if there's a number that's probably maybe above that.

Rich, I mean, it's only April and you want 2016 guidance already. That's really pushing. But on the restructuring, I understand and I would say that as the organization has been much more proactive in identifying, evaluating and assessing potential opportunities, I would say that there's more opportunities that we're identifying and that would likely be -- could be a little bit more this year.

Although, again, I've got to remind our team that we've got to make sure that whatever we decide to do, we're going to deliver the savings and we can execute successfully. But I think there's some things that we'll certainly move into, if not started by the end of this year, would move into 2016. So the level of spending should not be higher than this year. But it would more likely than not be higher than our normal historical run rate. So there is still little bit of catch-up going into next year.

Okay. And then, Bill, on the buybacks, pretty meaningful relative to trend for the quarter at $76 million. What are your thoughts about it? Is this going to be, do you think there's going to be a more consistent approach to returning capital? I know that you're focused on M&A and keeping powder dry, but there's an argument to be made that, you know, act now and then if you have to take on some leverage later in the year or next year for a bigger acquisition, that would create more shareholder value. So just wanted to get your updated thoughts there.

Yes, you know, I would say, Rich, that you know, the $100 million a year, I think is more likely the new new than $76 million a quarter, I would say. I think a higher level of activity, but we sort of got an early -- I would describe it as getting an early jump on it this year rather than just spreading it equally throughout the quarters.

Okay. And then harsh and hazardous, so based on what you're seeing right now there's incremental pressure. I guess, just taking a temperature, the 20% to 25%, Dave, what's your level of confidence at this point? And I realize it's a fluid market, but you know, with your customers and what you're hearing and seeing out there from them, how would you characterize confidence level in that number at this point?

I think that's, you know, from my standpoint, our best estimate from what we're seeing and hearing. There are certainly -- we're cautious because there are some indicators. You look at rig count down 50% and that could drive a more dramatic impact. We have heard and we're starting to hear a little bit about some push outs into 2016, not in a large way, but when you first hear about them, there is the potential for more.

And then not surprisingly, as a result of the magnitude, you're getting into a little more pricing pressure out there. So I would say from a volume standpoint, I feel pretty good about the 20% to 25%. I think what remains to be seen is the margin impact become greater. I think certainly that magnitude of volume change, it causes us at least another $0.05 of headwind, at least. And that's assuming that there isn't a dramatic change in pricing.

So we are very focused on that, but it's a little too early to make an absolutely firm call. As you know, a lot of our business is driven in the second quarter and into early in the third. So we're monitoring this closely and to the extent, you know, we see something different and we're also listening very carefully to what other people are experiencing as well. So I know that's a long-winded answer to hopefully get to it. I'm confident at the number today, but we're monitoring it on a daily basis.

All right. Great. Jim, best wishes. Good luck. Thanks, everyone.

Thanks, Rich.

Your next question is from Christopher Glynn with Oppenheimer. Your line is open.

Hey, good morning, team Hubbell. So it seems like you're one of the few companies where the quarter actually went as expected, at least on the surface. I'm just wondering if there was anything strange about the linearity in general or in specific businesses, kind of the March versus January look and maybe a comment on April.

Yes, I would say, Chris, your word linearity I think is a great word because I would love to have it and we really don't, right? So for example, I would say March started reasonably choppy and ended strong. And so there's not a ton of linearity within a month even, let alone, you know, from month-to-month. There were interesting things in the quarter, like businesses where we do a lot of grounding that are -- the weather sensitive stuff was a little softer than we had hoped. And then as Dave said, some of that other non-res was reasonably okay.

So it was difficult to get to linearity and therefore, your second question about April, you know, we're 21 shipping days -- no, sorry, 15 I think shipping days into the month. And there's nothing unusual in that pattern, given that we've had ups and downs. So the order pattern within April, I'd say is consistent with the way Dave was describing our outlook. But it is not a nice, smooth, consistent, linear set of data with which to make our forecast.

Okay. But the year-over-year's didn't really diverge, comparing say January and March?

No, I think between those months you just saw choppiness within the month. No, you didn't see a big intra-quarter like back-end loading or anything like that.

Got you. And then, Dave, did you say that you have your traditional seasonal peak into the third quarter, you said that would likely be accentuated this year?

No, I was talking more about the earnings side, on our profitability and the balance in profitability. I think the seasonality of our volume in the third quarter is the point of caution because I expect that to be the same and so much is dependent on that. When I look at the full-year outlook, it clearly is dependent on the third quarter playing out as would be normal from a volume standpoint.

That makes sense. Thanks. And if we look at the roughly $0.20 remaining in restructuring to get to the $0.25 for the year, could you just comment generally how we would spread that out? And also, any kind of early information you could give on expected timing and amounts of savings from this year's restructuring?

I think the restructuring, let's take the timing of the costs first. Certainly, we are getting more traction. We're initiating more actions and I would expect the second quarter to be at least at twice the level of the first quarter. Could be a little bit more, but it's around the executability and the action item.

From a savings standpoint, to the extent that they are staffing related actions in the first half, you'll start to see some of those benefits in the second half. But on the facilities side by comparison, those benefits don't start to get realized until late into the year or early next year because there's more of a tail on that. So we're expecting that [though] currently looking for some mid single-digit savings as we exit the year, something in that order of magnitude, Chris.

Mid single-digit millions?

Millions, yes.

Okay. And then when, all grossed up and you're at the full run rates, would it be comparable to the spend?

Yes.

Yes.

Great. Thanks a lot, guys.

Okay.

Your next question is from Mike Wood with Macquarie. Your line is open.

Hi, thanks. Good morning. It seems like non-res seems to be one of the bright spots by end market. You gave the lighting growth, but I'm curious if the first quarter organic growth for non-res in total is tracking in line or above your full year forecast. And if you just give what kind of trends you are seeing there in terms of if you're expecting that to slow down or if recent trends have been more robust and could exceed your expectations.

Yes, I think, Mike, is what you're seeing is our use of that description that we think that we outperformed the end market a little bit. So you're right to point out that both C&I lighting and some of the other non-res businesses grew higher than that end market outlook of the 6% that Dave described. But that's what we think that was. So we are not expecting market deceleration, if that was the question.

But just in terms of the non-res overall growth, do have that number just relative to where it was in the first quarter for that end market?

Yes, we think the end market's consistent with our 5% to 6% outlook. I don't think there's a lot of choppiness there.

Okay. And then in terms of utilities, I know you're expecting a lot of the growth from transmission rather than distribution, what you think prevents that distribution market from getting to its more typical GDP type growth rate?

I think we need to see the housing expansion continue and to get the construction to continue to the point where all that last mile hook up is needed. I also think you've got, on the MRO side, so really, the D is driven by MRO. And we sort of need utilities to have some good financial quarters where they feel like they've got -- because that MRO spend, as you know, comes out of their operating budget not their capital budget. So we need them to feel comfortable spending on the operating side based on the amount of revenues they can generate, which would be helpful if they had some support from their local commissions on pricing and things like that.

But I think they've got some interesting challenges in fuel price changeovers and where they are kind of putting their attention and their dollars right now. So there's a lot of, I think competition, for those dollars. But I agree with you, it should be in that nice normal GDP level, typically.

Thank you.

Your next question is from Noelle Stilts with Stifel. Your line is open.

Hello? Noelle? So, Noelle, we can't hear you if you're on mute, maybe.

One moment, just having a slight difficulty here. It looks like she's dropped from the queue. So we will take the next question, which is from Brent Thielman with D.A. Davidson. Your line is open.

Good morning.

Good morning.

In terms of the harsh and hazardous outlook, a little worse than previously thought, is there a competitive factor built in there as well? Are you starting to see any pricing pressure in that business or are the nice margins you tend to have there holding up?

Brent, I would say that you know, the outlook that Dave described has kind of this U-shape to it, right, where the first quarter, though down dramatically, is not down as bad as we expect year and then it'll kind of hang down there for a while. So the pricing -- the days of where we're seeing kind of the more normal pricing dynamic against that lower volume haven't happened yet.

So I think that's all still in front of us and to the extent that competitive reaction is strong there, that's still I think a little bit ahead of us. So what we're describing in our outlook is still ahead of us, not something that is based off of run rates that we are experiencing right now.

Okay. Understood. That's helpful. And then, Bill, you mentioned the deals you've done, you know, coming in at lower margins this year. As those anniversary and you move into next year, do most or all those become margin accretive to Hubbell's consolidated, all else equal in terms of your mix?

Yes, I would say that in general that's a reasonable assumption. I think this batch is maybe going to take a couple years to get to that point, but your mindset is right. That our expectation is to be able to take something and improve upon where it was and make it more like incremental to our fixed costs and therefore contribute that incremental accretive contributions.

Great. Thank you.

And we have no further questions in the queue at this time. I'll turn the call back over to Ms. Lee for any closing remarks.

Thanks. Well, we know it's a busy day so thank you for taking the time to join us this morning. I'll be available throughout the day for questions. Feel free to call if you have any follow-ups. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.