Hubbell Inc (HUBB) 2016 Q3 法說會逐字稿

Good morning. My name is Virgil and I will be your conference operator today. At this time, I would like to welcome everyone to the third-quarter 2016 results call.

(Operator Instructions)

Maria Lee, Treasurer and Vice President of Investor Relations, you may begin your conference.

Thanks, Virgil. Good morning and thanks for joining us.

I'm joined today by our President and CEO, Dave Nord; and our CFO, Bill Sperry. Hubbell announced its third-quarter results for 2016 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 of our Company and our foward-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 the earnings slide materials.

Now let me turn the call over to Dave.

Thanks Maria. Good morning, everybody. Thanks for joining us.

I hope you saw our press release this morning. From my standpoint and I think the team's perspective, we had another quarter of solid results. That is certainly with minimal help from our end markets.

I am on page number 3 of our slide deck.

Sales were $907 million, which were up 3%, driven by acquisitions which were up 4%, organic was flat and a little bit of continued currency headwind. We continue to execute on our long-term strategic objectives that we've talked about for the last several years. Certainly in our investor meetings around our customers growth, discipline and talent. I will come back to those in a minute.

Talking about the third quarter, we also saw the benefit in the third quarter of the share repurchases that we completed in the first half of this year. We bought most of the $250 million of shares that we communicated last year at the time we announced the reclass transaction.

Most of that occurred in the first half and in the first quarter of this year. As a result of all of this, we're reporting EPS of 1.63 up 7% year over year on an adjusted basis. Importantly, I am most pleased with the fact that we have got to, on a reported basis, operating margin at 15%. That's certainly, from our perspective, the minimum baseline for us to be working off of and improving off of; and I think it is reflective of the results of the results of some of the restructuring actions that we're taking, as well as some of the other productivity activity and that's a benchmark that we're going to continue to work to improve on.

In addition, you saw just last week we announced a 11% increase in our quarterly dividend to $0.70 per share per quarter. This is the ninth consecutive year of increases and it certainly represents a testament to our strong cash generation and our commitment to shareholder returns.

If I turn to the market, I will let Bill get into a little more detail on it, but they remain challenging. I have said before, that they're choppy and sloppy and I think there has been some question about what do I mean by that. And I think, to clarify, the choppy part is what we see in our order patterns, very unpredictable, difficult to discern a trend. The sloppy part is when we're trying to figure out, based on external data, external forecast and the volatility that exists there and really some of the inconsistency that comes out of that.

And we see that; I mean these economic indicators continue to be pretty unclear and pretty volatile particularly nonresidential construction in the industrial markets. You see ABI down below 50 for the second month and the Dodge data slips and then Dodge comes out with some more robust outlooks for the future and non-risk permits snap back

From month-to-month, it is very difficult to discern a really reliable trend. We hope that the most recent Dodge data and even the uptick in permits is an indication of continued and improving strength in non-res, but that remains to be seen. And the US industrial production, it still stayed steady for us, but with signs of a little bit of weakness as we exit the year.

Our business reflected this uncertainty, as well. Nonres, our lighting business grew less than expected with more significant pricing pressure than we anticipated. We see some of the choppiness in our industrial-facing businesses too, whether it's on our C&I businesses, particularly in the industrial wiring, as well as in the Datacom business, a little more weakness in the most recent quarter.

Despite the markets, our operating performance was solid and consistent with our strategic objectives. And we think about serving our customers in the quarter, our commercial industrial group, launched its first of a kind, first in the market new type C receptacle charger, the smaller, quicker, more flexible and powerful charger for new phones, tablets and computers. They also -- that group also continued to enhance our e-commerce tools; they have seen usage in their customer portal by our channel partners increase over 50% in the last several months.

And at Lighting, one of the industry magazines Consulting Specifying Engineer magazine selected the Orbian B connect as the product of the year. Now that's quite an accomplishment because it really is a reader poll. 400,000 subscribers polled and voting that to be product of the year. So, a lot of good work with our customers.

Growing the enterprise, I think, it is clear. Doing a lot on acquisitions. We mentioned earlier in July the acquisition of a polymer insulator Company in serving the Chinese market. We also saw in the quarter, the market receptivity to our recent acquisitions in the construction and energy business, both Lyall and GasBreaker.

We had a section in Milwaukee in August at the Midwest Energy Association Gas Summit, a lot of excitement there. They got a chance to see our team showcase our capabilities at a nearby facility that came with the Lyall business, some large diameter steel fabrication capability was especially well received. And from a market perspective, the outlook directX flow valves, which is a business that we acquired last year, is also very strong, driven by safety in recent regulation. When we talk about our operating with discipline strategic objectives, in our power business, the distribution center that supports all of the power business in Missouri installed unmanned lift trucks, adding great additional capacity and efficiency.

And of course our ongoing restructuring and related cost actions continue to deliver results and we continue to identify more and more activities that we're going to continue to invest in for ongoing cost benefit and efficiencies going forward. Our final strategic objective around our developing talent, that is an ongoing activity. I think it can best be exemplified from my perspective -- and we have talked over the last year and a half, the development of a new senior team and new assignments.

It's real exciting to see that team gel, start to round the turn to finish out their first full year in the chair. And how they have been navigating choppy markets to deliver the results that they have committed to, as well as setting up for the results that you and I all expect us to be delivering next year and into the future. It's all very positive. So with that background, let me turn it over to Bill and he can give you a little more details into the performance of the quarter.

Thanks, Dave. Good morning, everybody. Thanks for taking the time to join us here today.

I'm going to use the slides that we distributed and I am starting on page 4. We're talking about sales and end markets. With $907 million in sales in the quarter, you see a 3% increase with, as David mentioned, really no help from our end markets. That continues a composite picture of no to low growth that we have experienced during 2016. And the trends are generally consistent where we see the bright spots of growth, in nonresidential and residential construction, as well as some of the renovation spending that's going on in those two end markets, but we have softness on the industrial side including our oil harsh and hazardous business.

I think of note, in the electrical utility side, we had been experiencing some growth in transmission where distribution had been quite flat, and I think the warmer summer that drove some of our utility customers, OpEx, we got a little bit of better MRO spending there versus transmission projects getting pushed out and delayed a little bit, but retaining a flattish utility market. Sales for us, as David mentioned, organic, flat, all essentially driven via acquisition.

On page 5, operating income wise, $142 million essentially flat in dollars to last year, but down 70 basis points to 15.6%. And I am going to be referring to adjust it here to make the periods more comparable and taking out the restructuring and related spending. To get that 70 basis points down, you can see that that is all embedded in the gross margin. The gross margin is essentially where we feel the unfavorable headwind from mix, which more specifically is the decline in margin-rich volume in our industrial and harsh and hazardous areas and the replacement of that volume with lower-margin commercial business.

We also had price and material cost headwinds that hit the gross-margin line. Price being most acutely felt in our lighting business, and we will talk about that more when we get to the electrical segment. But we also had cost headwinds on the materials side for the first time this year as steel prices inflected upward. We were able with those gross margins declines, able to be much efficient on the S&A line. You can see down 90 basis points as a percentage of sales. Largely through some good cost control efforts and despite acquisitions adding $3 million of costs there.

On page 6, you'll see the Earnings per Share picture, $1.63 of adjusted EPS, a $0.10 improvement over last year or a 7% increase on basically flat operations. So the lift came from a lower tax rate, as we basically had R&D in the quarter versus last year that wasn't realized until Q4. And we had some favorable discrete return to provision credits there, as well as Dave mentioned, the lower share count resulting from the $250 million share repurchase that we executed. So those factors below the operating line are really driving the $0.10 improvement.

We will switch now to talking about the segments. We will start with the electrical segment Q3. You will see a familiar refrain here, the 3% growth to $635 million all essentially being driven by acquisitions.

There are two contributing acquisitions there. Dave made reference to both GasBreaker and Lyall that were investments in component makers that serve to the maintenance and repair of the gas distribution network. It's proving to be a very attractive vertical as David mentioned. Customer actions have been positive, and certainly the safety concerns around the quality of infrastructure, we believe, is going to lead a lot of spending and need for MRO parts there. And that is really helping provide that 4% of growth you see from acquisitions.

The trends in the market, similar to what we've been talking about all year, nonres and res growth where oil and corn industrial weakness, just to call out some notables from a business-unit perspective. Harsh and hazardous business, which we have been tracking separately for you all year, was down mid-teens in the third quarter and is starting to bottom out, which is quite positive news for us.

I think secondly, the lighting area is worthy of note, where the res-E side grew double digits on a unit-volume basis and our total lighting platform grew about 6% on a unit basis. But we experienced 3 points of price erosion there as we're seeing quite a bit of price competition in the lighting space. Our performance you can see, 13.6% of operating profit margin down 80 basis points to last year, which is really despite a 1.5-point lift coming from restructuring and productivity. But that mix that is resulting from a loss, harsh and hazardous and industrial volume combined with FX and the price cost relationship, especially the pricing within lighting, is helping to push those margins down on a year-over-year basis.

On page number 8 we have power segment performance. You see sales at $273 million up 5% over last year for the quarter. Again, acquisition is driving all 5 points. Then we saw some distribution spending, but delays on the transmission side. The two acquisitions within the power segment that are contributing to those 5 points, one is called Electric Motion Company, which makes connectors and hardware for the communications and power utility customers, so kind of an interesting continue to be able to serve a broader than just our electric utility customers, it'll serve the telecom utility customer with some pole-line hardware and connectors there.

The other was Longbow, as Dave mentioned, a high-voltage polymer insulator manufacturer, that's in Asia and helping us serve customers in China and across Asia and a good extension geographically of the great Hubble Power systems brand. On the performance side you can see a decline about 30 basis points to 20.5% OP margin. And here, you have got, with all that growth coming from acquisition, in the first year of ownership, they are not at segment standard margins yet. So you see drag coming from those acquisitions.

I'm going to switch now to the year-to-date, 9-month results. You can see sales of $2.65 billion for the 9 months, an increase of 4%, comprising organic of up 1 and really the balance from acquisition. You see operating profit margins down 70%, really the same drivers we have been talking about all year, namely the mix and FX drag. And earnings per Share $4.31 adjusted, a growth of $0.10 or 2%, that Delta coming, being earned in the third quarter. You see strong pickup in cash flow.

Just worth mentioning here, because I am talking about adjusted, just to update everyone on the restructuring program, thus far this year, now we spent about $0.23 on restructuring and related. The bulk of that this year has gone to footprint realignment and consolidation. Lighting area has been the largest group spender there. The savings of $0.30 for the year we are tracking nicely to be able to realize that. So restructuring plans are on track and we feel good about the success of taking the fixed costs out of business and improving and making our cost structure much more competitive.

Page 10 is year-to-date performance of electrical segments. Again, results reasonably consistent with the trends we've been talking about all year. 3% sales growth all coming from acquisitions as FX offsets organic. The weakness in oil, from harsh and hazardous and our core industrial markets, the same trends we have been talking about versus the growth in non-res and resi.

Of note for the year, here we have got lighting sales in units up high single digits for the year. With resi outgrowing C&I and experiencing about 2 points of price headwind for the year-to-date period. You'll see from the operating income down a little more than 1 point again driven by the mix in FX and those price cost effects.

On the power side, for 9 months year-to-date, 4% growth up to $792 million. You'll see there was some organic contribution to that from the first half of the year. But the acquisitions importantly adding 3 points, the OP margin at 20%, being maintained as some of the drag from the acquisition is being picked up by favorability from material cost and price and all the productivity efforts there and the higher volume driving some of the incrementals there.

So, a very strong year-to-date performance by our power segment. Cash flow on page 12 also very strong year-to-date. You see $215 million of free cash flow, a significant increase to last year being driven by a larger income. And notably, better working capital management. Within that, inventories being the highlight of that story, improving our days there. You can see CapEx at a little bit below last year's level. In other, in the previous year we had pension funding that we do not have in 2016.

So, strong cash flow which helps support the strong balance sheet which is on page 13. You will see that we have paid off since year-end of short-term borrowing, the overnight borrowings and commercial paper added a little bit to the cash balances and maintaining debt-to-cap ratios at 22% on net-debt basis. You see a $750 million revolver still all available. We believe a healthy balance sheet and one that is capable of supporting investment in the business as we move forward.

So with that, I'm going to hand it back to Dave to go to our outlook from here.

Thank you Bill.

As you can see, a lot of really good stuff going on. A lot of good results, particularly strong results when you think about cash flow When you think about the top line and for many of our businesses, our restructuring or cost-reduction actions all very god, but not without a few pockets of challenge. Certainly choppy markets, and in particular the pricing environment in lighting is one of our bigger challenges that we have got to navigate through.

So let's talk about the rest of the year, first on page 14, when we look at our outlook for the markets overall. Consistent with what we have been saying, a little bit sluggish as I've talked about particularly in industrial end markets, a little non-res in some of the transmission project delays, but all in all still expect it to end the year about flat, but we still expect to outperform these flat end markets, certainly with acquisitions contributing about 3 points to year-over-year growth. On the Earnings per Share perspective we see, we are tightening our range to $5.25 to $5.35 narrowing it to $0.10 from a $0.20 range.

So we are still maintaining the same midpoint, obviously with a lower tax rate, but also with some cost and mix headwinds that we expect to see in the fourth quarter. Certainly that some of the mix headwinds in addition to weaker industrial, if that occurs, there is an element of the growth coming in product areas that have a little bit lower initial contribution on the operating margin side.

Then you have the regular and recurring volatility around some of the costs in the fourth quarter. You have a lot of costs that get trued up in the fourth quarter and in some years those true-ups to get them right for the year, are positive; some are negative. We think this year it has a little bit more of a negative bias, not with a recurring implication, but more of a timing between the first three quarters than the last quarter.

We are still targeting about $0.35 of restructuring and related costs, with $0.30 of incremental savings from a prior restructuring action. As I said earlier, we continue to work on and identify more restructuring actions. We expect to take more next year, and, to the extent that we can pull some into this year, and do so effectively, knowing that they provide the sooner them, the sooner we start to realize the benefits. We would certainly do that, but I think $0.35 is still a good estimate at this point.

We certainly expect free cash flow will be better than 90% of net income. You saw through the first nine months a much stronger cash flow generation than the previous year. Fourth-quarter is always still a strong quarter for us. So we expect to continue to have good, strong cash flow in the fourth quarter and certainly it would be better than 90% of net income.

If I turn to page 16, just a few comments on an early look at 2017 end markets, overall we're expect modest growth from end markets. Across-the-board, in the aggregate about 1% to 2%. Now it is still early; we said earlier that the volatility and sloppiness of the third-party outlooks are really challenging. On the one hand, I was just with customers last week and the view on this year's performance was, it is okay. That is the consensus view. I

t could be better, but we're happy it's not worse, it's just okay. Well how do you feel about next year? Well we think next year could be better. We always think it could be better and we certainly believe it could be better and we're hoping that's the case. I think once we get through this election cycle and get that uncertainty out of the way, maybe we will have a little more clarity around that. We will have more to talk about that, certainly, in January.

The big drivers for us next year would be the stabilization and at least slight improvement on both the industrial and oil and gas markets. Even at a modest 0% to 2% would be a nice improvement from this year's declines, and that would offset the - what would be currently we see, the nonresidential market being a little bit weaker than we had initially forecast this year. I think that trend has certainly deteriorated as the year went on, but still positive. And so the good news is all markets positive in the aggregate up plus 1 to 2.

Turning to profitability side of the outlook, I'm certainly not going to get into any specifics here, but some of the things that we are looking at and how we are seeing the year shape up, on the positive side we have got tailwinds that we expect to come from volume growth, the ongoing benefits from our restructuring and related actions and to some extent the lower, what we are currently anticipating to be lower restructuring and related actions from the levels we've seen last year and the current year.

On the other side of the equation, you have got the headwinds from price pressure and that is true with all the businesses, certainly most acutely in the lighting business. I think we have got some material cost headwinds that we are assessing, particularly as we see in the increase in steel. And then pension expense, depending on where discount rates end up, but we have got that headwind to overcome.

And then some of the other considerations certainly around mix, there's certainly a severe headwind from FY15 and FY16 in the oil and industrial markets. It flattens out, so that is the good news. On the other side, as we look into new markets and new customers, new channels, new products, some of that comes with initially slightly lower margins.

And so we have got to evaluate that. And then, of course, on top of all of that is the potential for our ongoing acquisition strategy which we expect to continue to deploy particularly with good, strong cash generation and our ongoing restructuring actions. All of that is setting up for an improved 2017 over 2016.

With that, let me wrap up and open it to questions.

(Operator Instructions)

Nigel Coe from Morgan Stanley

Thanks, good morning. I want to pick up where you left off there. I'm not sure if you actually said down margins next year but when you put all of that together, the volume growth, price, materials, pensions, and then onto your mix, how does that look overall? Do you think flat margins? Maybe slightly up, slightly down? What sort of bias do you have there?

Well it is early to be definitive, but certainly our bias is to, as I said earlier, to build off our margin performance this year and improve on that. That is really what we're looking to do, and all of our efforts are in that regard.

Okay. And then, the 1%, 2% within oil and gas and I'm not expecting to pin you down here, just trying to understand how you think about that next year. If rig counts, mathematically are up 15%, 20%, or 25%, why-- maybe, I'm just going to step back here. If rig counts are up in that kind of magnitude, would you expect your growth rates to be better than your 2% in oil and gas?

I think the big part of that, Nigel, is gas, but I will let Bill cover that.

Yes, I would say, Nigel, when we regress our revenues, certainly rig count is an important driver of predicting that. I think it could be better. The gas side -- so right now, what comprises our outlook is a slightly more optimistic gas view where we think a lot of regulatory-induced MRO spending would be actually creating a little bit of lift and right now we have a reasonably flat outlook for oil.

So, we are kind of going a little bit on the momentum and sequentially of our harsh and hazardous business and that is really flattening out. This outlook assumes that, that flattening continues and that gas provides us a little lift, so something better than that would be welcome and would be additive to that outlook.

Okay and then one more. You mentioned some year-end accruals for this year, which is very normal. How does comp look next year? Some companies are flagging that as their headwinds, just given the way that your earnings would be moving, share prices would be moving. How does that look for Hubble in 2017 versus 2016?

We don't see any, at this point, any big headwinds on comp specifically. Other than excluding pensions, if you take pension out of it. Some on the other benefits like medical but not on the pure comp at least at this point, Nigel.

Okay. That is helpful. Thanks, guys.

Rich Kwas from Wells Fargo

Good morning, everyone.

Hi, Rich.

So Dave, on the non-res outlook for next year, the 1 to 3, you're the largest lighting fixture company in the US a couple weeks ago talking about mid- to high single-digit for North American lighting for their FY17. And I know lighting is not certainly all your non-res business, but it's a good chunk of it. How do we think of the components about what is underpinning your 1 to 3; and is that just seeing the choppiness in the market and taking a more conservative view or how would you put additional color around that?

I will let Bill go into specifics. But obviously there is and always has been, at least recently, a conservative bias in our outlook particularly on non-res. And I think, over the last two to three years, that's probably turned out to be closer to right than the initial forecast. But, as I said, some of those most recent forecasts are more optimistic, and I certainly hope they are right, but they are based on -- it seems to me they're based on some recent data. But we're analyzing that. I hope that we can be proven wrong for a change and be able to adjust this up with some better data over the course of the next several months. But Bill, maybe get some of the components.

Rich, your definition of lighting being a big chunk is quite accurate. I think to be really simplistic, if you can cut our non-res, it's half lighting and half wiring systems. Not too dissimilar from what you are saying. I think we are expecting lighting growth to be a little bit stronger than on the electrical component side.

Good. Okay. And then on harsh and hazardous, Bill, are you still expecting that exit the year down high-single digits here in the fourth quarter? Any change to that?

No. I think everything is tracking right to that actually. So that's -- they compare to last year, but reasonably flat sequentially, quarter over quarter.

So no change.

One thing that has become interesting is as the business has shrunk, the projects can create some lumpiness that moves things around a little bit. Versus that used to be when there was more projects out there a little bit easier to predict. That certainly is our expectation -- exactly how you described it.

And then on just a quick governance question, with Bessemer dip being below 5% here in terms of ownership, any implications for the shareholder rights plan that's in place now?

I don't know of any.

Okay.

That is set to expire in December, as you know.

Okay. Thank you. I'll pass it on.

Christopher Glynn from Oppenheimer.

Thanks, good morning.

Hello, Chris.

Dave, we have to get up pretty early in the morning to call you wrong but on organic, for electrical, that softened a bit, despite an easier comp. I'm wondering if you thought of any end markets that inflected to the weaker?

I think, Chris, we had a little bit on the light side of industrial, which was a little bit softer, and then I think the pricing on lighting is the other thing you will find creating that.

And do you think the light industrial was more channel inventory action?

Yes. It could be that. And it's not -- as Dave was pointing out -- not something we are anticipating carrying on through 2017. So we think shorter-term.

Okay. On the minus 3 price for lighting. How would you parse that in terms of LED cost curve versus -- I don't know what to call it -- like for like, or market pricing?

First of all, it was spread between our resi and C&I product lines, kind of across the whole suite of products there. And I think it's, from our perspective anyway, more of a like to like phenomenon, Chris.

Okay.

But remember, Chris, on that like for like, some of that is attributable to product that we said earlier in the year, and even late last year, was product that we identified was way out of line with the market; it was not competitive, which is what prompted us to have to take some more aggressive actions in some of the facilities that were providing those products. Because our pricing was based on those costs. We need to be much more aggressive in taking those costs out. It was really reacting to what was already in place in the market, and certainly not driving and creating the market.

Okay. You might have favorable anniversary impact by the second half next year?

Yes. On that, yes.

If there was some color on the tax rate I missed it, but that helped in the quarter, and I'm wondering if there's any sustainable work you have done on the tax rate that we should think about for modeling that line?

I think the bulk of the difference, especially if you go back to reported, we had some of the expenses that were going into our reclassification, were not tax-deductible last year. That created an easy compare. So return to provision items, which are not of the nature you are describing. There is a little bit, I would say, Chris, of more activity economically in geographies that have some better tax rates. A little bit of that, I think, can be saved, but the bulk of the change you have seen is more discrete, I would say.

So, how would you characterize your normalized tax rate going forward?

I think we are thinking in the 32% range is a decent operating run rate for us.

With some inflation that you are talking about, is that greasing the wheels to start to get a little price anywhere?

I think one of the challenges is the material inflation that we are seeing is a little bit isolated within the steel commodity. If you look across, at our copper and aluminum and a bunch of the other metals that we buy, we're not seeing that headwind. I'd frankly like to see a little bit more broad inflation, that would be a better sign to support growth in industrial markets and et cetera. I think the more isolated the commodity stays in steel, the harder it is to pull price, but there are some products that we have that are most obviously steel. Think of some of the steel boxes that we do in our rough-in electrical, and Chris, there it is more obvious that is the steel product, and you can ask for some price. I would rather see a little more broad-based inflation before I think we can start to ask broadly for price.

Thank you.

Jeffrey Sprague from Vertical Research Partners.

Thank you, good morning, everyone.

Good morning, Jeff.

Just a couple more, on thinking about Harsh & Hazardous, and the negative affects we have digested here for almost the better part of two years now, how much have the margins in that business actually come down? So you've had obviously a very great negative mix effect, but just thinking about the decrementals from that business, maybe you don't want to give us a margin rate, but kind of peak to trough, what has happened to the margins there?

No, I would say, Jeff, that the decrementals we experienced over the last six quarters, has been in the 35% range, which, given that the margins were attractive, has still brought them down. That being said, the margins are still an attractive part of our portfolio. It has not dragged it below that. But decrementals have been what would you would have expected, I would say, rather than worse than you could have imagined.

Okay. And on price, I appreciate the lighting color, just the total ET, what's it priced to, and it sounds like price costs neutralized in the towers. Does that mean you actually have positive pricing power in the quarter?

So price and power was sort of neutral. Very slightly positive. I would say neutral, and across all of Hubbell, particularly because of the lighting price, it was negative, half a point, actually a little bit more than that.

Okay. And then just on pension, Bill, we know where rates are today, but if you just snapped the line, do have a view of what headwind you are looking at for 2017?

Yes. If we look at discount rates, and our sensitivity to that, if we were to snap the line, discount rates are roughly about 100 basis points lower. For 100 basis points change, that would impact our pension expense about $10 million or so. That is a piece of the sensitivity. There's also some sensitivity related to asset returns, that's a little early to say. But I think looking at that discount rate, there certainly would be some headwinds from that.

Okay. And I'm sure you're probably still thinking about incremental restructuring for 2017, but do you have a view of what the carryover benefits of what you are doing in 2016 are for 2017?

Yes. I think as we have analyzed the $0.35 that we anticipate spending this year, the returns on that feel like they are in the two to three year kind of range. We probably still have some benefit that carries over even from some of the 2015 actions. We are anticipating in our January call giving you a nice way to think about how that will stack up incrementally in 2017. But those projects this year are kind of in that two to three year return range.

Okay. And then finally, just on lighting, to the point you were above market price, or cost-based pricing, was that aligned with the market? Do you think your pricing is now on-market? It doesn't mean that price competition necessarily goes away, but are you at a level where you feel you have stabilized market share and are competitive?

I think we have, Jeff. Our issue, from my perspective, in our volume being a little bit lighter from what we would have expected, and what might be in the market, is really as we work through the service issues that come with some of the restructuring actions and closing facilities, which were more of an impact early in the year, and we've started to work through those.

I think we have got some -- when I'm out with customers and some of our newly-signed agents, I hear both the negatives and positives. I think the trend is all positive and very optimistic. So I think that's -- that seems to be indicative to me that our pricing is right, and we have to make sure we get the product where it needs to be, when it needs to be.

Thanks a lot.

Okay.

Steve Tusa from JPMorgan.

Hello guys, good morning.

Hello Steve, how are you?

I'm good. So you guys seem to have a pretty good read on a cross-section of the economy and projects and things like that and a little bit of construction. And I know, Dave, you talked about kind of sloppy and choppy or whatever you said at EPG, things had been inconsistent. How close are we -- how close do you think your customers are to -- what would it take for your customers to really pull back?

And are any of them talking about, with all the discourse that's going on out there in the US with politics, are any of them saying I'm just going to wait until -- are they even talking about the stimulus that everybody on Wall Street is talking about from a buildings perspective? Or is it just still a very cautious, no one wants to put anything out there from a risk perspective, given the environment? I don't know if that is a confusing way to ask the question. I'm trying to balance -- figure out what the balance is between what looks like continued caution with the risk of downside, versus -- hey, I'm just going to wait, because maybe the government is going to throw some money at us in a year or so.

Yes. I'm not sure what discourse you're talking about, Steve. (laughter) I think you actually summed up the environment quite well, which is a bit of what we are hearing and what we are thinking is, there should be potential upside. But everyone is still cautious, because they're not sure where things are going to go. And how it is going to play out.

There is a number of legs that have to play out. One is getting through the election, I think there are a lot of things that are -- projects on hold to see what the outcome is going to be. So we get that uncertainty out of the way, then we at least know which candidate is in place and have an idea of what direction it is going to take. But I think it is going to be the longer-term implications of what that direction is, but there is certainly is some discussion about the benefits that could come with investments, particularly with infrastructure plans. But I think it's tempered by funding, and who is going to be paying for that, and how that is going to be paid for, that is on the other side of the equation.

At least for a lot of channel partners, who are very sensitive to those things. I think there's some cautious optimism that is out there. That may be leading to some of the outlooks. There's also a practical realism about how that will play out, and when it that could play out, and what are the implications. My answer is probably as convoluted as your question. (laughter) I don't know if that helps.

That definitely helps. Anything on the T&B front that is moving around at all, or is that stable?

Are you saying electric utility?

Yes.

Yes. I think I would describe it as stable in totality. We did see a little bit of transmission strength in the first half of the year that tapered off in the third quarter. But we also saw some distribution flatness in the first half that started to grow. Those two seem to be providing this low growth organic out of the utility right now, Steve.

One last question for you, with all of the puts and takes here and the end market dynamics you have given us, is 2017 an earnings growth year? Can you grow earnings with those dynamics?

I think so. We are certainly working toward that. It's a question of whether the headwind can overtake us. The team is working very hard to get ahead of that. We have a bit of a head start, I think, with the actions that we've been taking over the last couple years, and that's a mindset that has really gotten into practice.

But those are the things that we can control. The uncertainty will be the things we cannot control -- market demand and pricing -- and even pricing, we are going to be as disciplined as we always are, for as long as we can, and we hope that the market continues to be disciplined as well.

Okay. Thanks a lot for the color.

Okay.

Joshua Pokrzywinski from Buckingham Research.

Good morning, guys.

Good morning.

Just to maybe follow up on some of the Harsh and Hazardous commentary, not to put too fine a point on it, but with some of the macro data wanting to show, for lack of a better term, green shoe, is there anything your customers are saying, apart from some troughing out or some notion of less bad, if I am reading some earlier comments right? Is there anything you guys are actually seeing in the business that would suggest that as rig count starts to picks up in the next year that, that follows through into Harsh and Hazardous?

Certainly, Josh, we have pretty a extensive database of projects and RFPs, and some of those things have multi-year lead times on them. And so, I would say certainly our conversations with customers have encouragement that there is going to be spending going forward, but it's hard for us to say that there will be some kind of sharp improvement as early as 2017. But I do think the conversations, the kinds of projects that are being contemplated, are all -- suggests a healthy, medium-term outlook for the business.

Got you. On price cost and power, and Bill, I think you've talked for several quarters now about anticipating that to normalize, or maybe some of those cost headwinds to start showing up. Clearly, this has persisted longer than you thought -- the upside. Is there a chance with steel inflation now that you never really have to eat that and that there's some opportunity to go back to the market with some subtle price next year? Weaving the lighting out of the equation, just on the power side alone, how you're thinking about the transition on material prices?

I certainly look at it in similar terms, namely the longer we fight through it, the better that it is. And yet, I think our business folks on the power side are still a little bit anxious about that dynamic. I do agree with you, the longer we fight through, the better.

Got you. Thanks, guys.

You have no further questions at this time. I turn the call back over to the presenter.

This concludes today's call. Thank you for joining us. Steve and I will be available following the call for any other questions you have.

This concludes today's conference call. You may now disconnect.