Hubbell Inc (HUBB) 2017 Q2 法說會逐字稿

Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2017 results call. (Operator Instructions) Thank you.

Maria Lee, you may begin your conference.

Thanks, Emily. Good morning, everyone, and thanks for joining us. I'm joined today by our Chairman, President and CEO, Dave Nord; and our Senior Vice President and CFO, Bill Sperry.

Hubbell announced its second quarter results for 2017 this morning. The press release and earnings slide materials have been posted to the Investors section of our website at www.hubbell.com. Please note that our comments this morning may include statements related to the expected future results of our company and are 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 the earnings slide materials.

Now let me turn the call over to Dave.

Thanks, Maria. Good morning, everybody. I'm going to start with some opening remarks just on Page 3 of the slides. Hope you all have it. Then I'll hand it off to Bill.

So if you turn to Page 3. I think we're all very pleased with our second quarter financial results. We had certainly -- particularly pleased with our strong top line growth. And that's fueled by the increased demand across all 5 of our key markets. That's a major highlight, certainly, for us, and Bill will talk more detail about that.

The -- see sales in the second quarter were up 4%, driven by organic growth of 3%; acquisitions contributed another 2 points; and currency was another headwind of 1%. This is the highest level of organic growth we've seen in almost 2 years, probably since the first quarter of 2015. You see our reported operating margin was 13.8% to down 70% -- 70 basis points year-over-year. Adjusted for restructuring and related costs, margins were 14.4%. The decline in margins year-over-year due to the Electrical segment and particularly -- and we'll talk more later about Lighting and the price headwinds and some of the productivity challenges that we're still working through at Lighting, and some material cost headwinds across all of the groups. As well as the acquisition dilution, as we spoke on the last quarter call, primarily for the investment in iDevices that we finished in early April.

Restructuring-related costs across the enterprise were $0.08 in the quarter and the overall program's on track in terms of spend and savings, and we continue to view that as a critical program as we improve our cost competitiveness.

All that results in reported EPS of $1.43, which compares to $1.45 in 2016. That includes $0.04 of a loan of dilution from the acquisition of iDevices. Adjusted EPS, excluding in the restructuring-related costs, was $1.51.

Lastly, on our capital deployment for the quarter was very balanced. We invested $90 million in acquisitions. We had $40 million of additional share repurchases and we had our normal level of capital expenditures and our ongoing return to shareholders in dividends.

Okay. So quick synopsis of the quarter before I hand it off to Bill. Let me give you color on a few other things.

Certainly, on markets and new products, we saw the positive trends from Q1 continue in the second quarter, and customers continue to be upbeat about the outlook. Now let me make sure I'm clear about that. It doesn't -- I'm not suggesting that they're more upbeat, but they're as upbeat as they were, and that's what we are see -- saw in the second quarter and we expect to see through the rest of the year. And obviously, all 5 of our markets were good, from nonres and residential to the electrical T&D, industrial and oil and gas. They all saw year-over-year growth in the quarter.

In addition to that increase in demand, our product innovation is driving sales as well. Our wiring device introduced the first UL-listed countertop pop-up receptacle, on-the-go cable charging stations and Powered Seating Boxes to make it easy to charge user devices. We also redefined the benchmark for safety with the inside 30 amp disconnect switch which allows users a clear display of electrical status right on the cover.

On the Lighting business, many of you might have been at the LIGHTFAIR. It was a major event for Lighting. We showcased 177 new products and displayed our Tier 3 control solution, the NX distributed intelligence. Our tunable white light engine, SpectraSync, which has market-leading capability control bluelight in industrial applications that heretofore were reluctant to use LED because of the negative implications of those blue lights when you think about food processing, milk, chip manufacturing. And our Power over Ethernet capability was introduced, power hub powering light fixtures directly from the Ethernet DC power.

Our BURNDY business was active. We launched compression pulling grips, which are becoming a staple product for contractors for wire-pulling needs. We've become the only company to offer a complete line of connectors, tools, dies, accessories, services, and now, these compression pulling grips. They also launched [BURNDY Connect], a mobile app that connects installers with requirements in videos, inspectors with the necessary validation information and the end users with search abilities for products and field service reps. Great example of satisfying one of our strategic objectives as serving our customers.

We're also seeking to better serve our customers with our iDevice technology, and we've got 90 days under our belt with iDevice and it's been going quite well. We've seen some tremendous cross-selling excitement during joint sales teams, with customers on our residential Lighting business. We're identifying opportunities in residential and light commercial applications, utilizing iDevices' capability with the 3 main residential ecosystems and expanding it to related verticals. And the exchange of expertise has already begun. And for example, iDevices was coming out with a new in-wall switch, and it was the knowledge of our wiring device folks that helped them -- their knowledge of UL testing process have really helped them get that product through the UL process quicker, easier and to market.

When we turn to our operations and productivity. We obviously are constantly focusing on our cost discipline and increased efficiencies in productivity. And you see that in our selling and administrative cost as a percentage of sales declined year-over-year as we control those costs even as volumes increase. At Power, our productivity gains offset price in material cost headwinds. In the second quarter, Power implemented some robotic grinding in one of their facilities, the manual grinding that can cause hand injuries. So this new technology increases safety, a generally more consistent process and certainly a more efficient process. For the Electrical segment, in addition to acquisitions, we saw softness from pricing and restructuring efficiency -- inefficiencies at Lighting, that we discussed on our last earnings call, those inefficiencies unfortunately probably cost us about another nickel in the quarter just from the inefficiencies alone. But that's all in line with our expectations that we talked about last quarter. We talked about remediation effect efforts, and those are well on track, very disciplined, 3 key areas that we identified early in the process, and we've seen significant improvement there. We're still not out of the woods yet, but the factories are performing well and the band planning has gotten -- got better once we were able to replenish inventory, which was one of the challenges. And our service is improving as well. On-time shipments significantly better in both our C&I and resi business. But of course, there's still work to do, especially related to our new national distribution center. Outside of Lighting, our price/cost/productivity is favorable for the Electrical segment. There continues to be a focus on productivity everywhere. And I think we've got that examples all over the place. Again, in our energy group, they implemented a custom-design machine for color-coded connectors that reduces the annual throughput processing time by 80%. A lot of singles that we hit to continue to drive our productivity throughout the factory, and a lot more high-return projects in the pipeline that paved the way for continuous cost improvement.

And finally, any discussion of productivity is not complete without mention of our restructuring program, which has been realizing savings in line with expectations and supporting margins across Hubbell. And it's with that mind, that you see that we actually have increased our estimate slightly for the year to $0.30 from the $0.25.

So a lot going on, a lot of really positive things going on from our perspective. The market dynamics have been a nice change of pace for us and we're trying to build off of that, but let me let Bill take you through some of the details of the quarter. Bill?

Thanks, Dave. Good morning, everybody. Thanks for joining us today. I'm going to use the slides as well to guide my comments. And I'm going to start on Page 4, talking about sales in our end markets.

As Dave mentioned, it's really been a few years since we've seen this much green and that much consistency in our end markets growing and showing upward progress. And starting with nonres, certainly new construction, reno, both favorable. We're certainly seeing ABI data bounce around month-to-month, but consistently above 50. The put-in-place numbers are indicating commercial strength as well as institutional, specifically in education and healthcare overcoming some weaker spending on the industrial side.

Industrial there, oil and gas, you see green. We're seeing continued spending on the oil side despite, obviously, oil price volatility, that rig count being up is helping driving some spending in the gas side for us much more of the infrastructure MRO. Industrial, you see the yellow indication there. We're having experience much more favorable on the light side, and the heavy side is where we are seeing some weakness that's dragging that color down and to still up, but yellow.

Electrical T&D, we'll more talk about when we get to our Power segment discussion. But distribution and transmission both growing and we're seeing the influence on the CapEx side and the projects side over and above MRO spending, which is really welcome for us.

And on the resi side, single-family continuing to be the driver there as well as reno.

So that organic 3% growth from those end markets showing acceleration for the first quarter and a good trend. Also worth mentioning, the acquisitions adding 2%, and we have a number of acquisitions that are contributing to the second quarter. To give you a good indication of how we're choosing to allocate our capital. Firstly, Dave described iDevices and the investment we made in our IoT strategy, but also contributing to that 2 points, we added to our natural gas distribution pipeline and we also added 3 different investments in our Power segment. So you see Power Systems, gas, IoT, pretty good indication of where we're allocating that incremental capital right now.

Page 5, our adjusted operating income, you see roughly comparable dollars at $137 million, but a lower margin at 14.4%, 80 basis points below last year. You can see at the S&A line, we're being more efficient through using the volume and careful spending. But as Dave had mentioned, we have some of that Lighting inefficiency and the investment in iDevice creating that difference there.

At the EPS line on Page 6, you see $1.51 of adjusted earnings per share. The $0.02 versus last year really being driven by a slightly higher tax rate in the quarter of 30.8%, which hurt us by a couple of pennies and really driving the difference there.

I'm going to switch on Page 7 to our segment results and going to start with the Electrical segment. You can see sales growth of 2% to $656 million. That 2% growth really being driven on the organic side as FX offset the acquisition contribution. And as our arrows indicate on our markets page, really good, kind of consistent contribution to that growth. We had oil in the mid-single digits, gas in the mid-single digits, our wiring at 3%. And we spent a lot of time on Lighting. Lighting in the quarter had 3% unit volume growth, with 2 points of price drag, which resulted in 1 point of sales growth. And that was really skewed to the resi side driving the growth for them. On the performance side, you see the 11.6% OP margin, 70 basis points below last year. The Lighting headwinds really driving about 2 points of that, and so the balance of the Electrical segment would've been able to absorb the acquisition impact of iDevice and expanded margins. So we really have some strong performance in the balance of the segment.

Page 8, we've got our Power segment results for 2Q. Noteworthy top line there. The acquisitions, we mentioned that they've been investing aggressively to get those 4 points. But the real story, I think, is the 5% organic. That's over and above, I think, what we would expect typically from a maintenance level of spending. So there's some CapEx in there coming from small and medium-sized projects that are really helping grow the top line for Power. And at the performance line, we've been speaking with you now for a few quarters about the material cost headwind and particularly driven by steel for them, which is actually a larger headwind than the tailwind created from productivity, overcoming the other inflationary costs. And so it actually utilized that volume growth to maintain the margins at 20.9%. But as you can see, with the growth adding $5 million of operating income; very, very healthy contribution from our Power segment in the quarter.

I'm going to switch on Page 9 now to half-time and the year-to-date results. You can see here, sales up 3% year-to-date. The operating profit margins at 13.9%, down about 30 basis points, with the drivers, as we've discussed, being from Lighting and the iDevice drag. Tax rate, you see there at 30.3%, resulting in earnings per share adjusted of $2.74, about $0.05 better than last year. And you see free cash flow a couple of million dollars better than last year at this halfway point.

We'll break that down into segments now for you starting on Page 10. We'll start with Electrical. 2% sales growth, and you'll see the themes here are very similar to the first quarter. Acquisitions offset by FX, and so the growth coming organically consistently coming from oil and gas, wiring, resi Lighting, similar to second quarter. And similarly that Lighting price cost headwind creating a downward pressure on OP margin segments, and without that, the balance of segment would be expanding margins.

Power, year-to-date, continuing the impressive discussion we had from Q2, 7% growth to $557 million; organic, strong at 3%. The performance here, you see margin expansion to 20.9% as the productivity was actually larger overall in the first half than the material cost headwinds, so getting $13 million of contribution there year-over-year from Power.

I'm just going to ask our Treasurer to please cover the cash flow and balance sheet with you all.

All right. Thanks, Bill.

On Page 12 of the webcast. Net income was comparable to last year on a year-to-date basis. Working capital was less of the use of cash as we used payables to support inventory growth. CapEx increased about 10% year-over-year, and year-to-date free cash flow of $99 million was comparable to last year at about 70% of net income. So we're on track to meet our full year target of free cash flow equal to net income.

Turning to the next page, capital structures, Page 13. We ended Q2 with $368 million of cash, most of which, about 95%, was held internationally, which is pretty typical for us. We had just under $100 million of commercial paper outstanding and just over $1 billion of total debt. The first tranche of senior notes to 2018 is coming due within a year, and as you'd expect, we are currently considering potential options and optional timing regarding this upcoming maturity. Net debt to cap is running at about 24%, and so, again, overall, a healthy balance sheet.

I'll hand it back off to Bill for the outlook.

Okay. So on Page 14, you'll see that we have indicated here a slight raise in our market outlook versus what we shared with you on our April call. You'll see most of the markets remaining in line with that outlook we provided: resi at 4% to 6%; nonres at 2% to 4%. Those markets have performed reasonably well within our expectations. Industrial at 2% to 4%, I would say, we've gotten there. It's the same outlook, but maybe a little bit different in terms of lighter on the heavy side and a little bit more strength on the light industrial, but staying in that same range. And oil and gas markets at 2% to 4%. And so again, the Harsh & Hazardous business for us is very important. We've been talking with you for a few quarters about how that's bottomed sequentially. And so now for us to start to see mid-single-digit growth there in that oil slice is quite welcome and good news. As we think about second half of the year, that should be a positive contributor. And the gas side, also been performing well.

So where we've really made our raise is on the electrical T&D side. Back in April, that was 0 to 2%. We've raised that to 1% to 3%, really on the backs of the strong second quarter and some of the project, the small and medium-sized outlook that we've got for the balance of the year.

So that translates on Page 15 to 2.5% to 3% growth from our end markets. Again, stronger on the T&D side, then we saw a little bit softer in the heavy industrial than we thought. Acquisitions were anticipating to add about 2% and essentially neutral FX impacts. Resulting EPS range of $5.40 to $5.60, which is really a combination of a $0.05 better from operating performance and investing that $0.05 in, as Dave called it, the successful and important restructuring program that we're utilizing to make sure our cost structure's as competitive as it needs to be. That range continues to absorb about $0.10 of iDevice dilution. And as Dave gave you the description, the performance of Lighting has been in line with the reset that we gave you in April, and so we're maintaining that. And Maria went through the cash flow, our expectation being equal to net income.

So that's the update on our outlook in the quarter, and I was going to ask Dave to make some comments.

Okay. Thanks. Yes, just before we open up to questions, just a couple closing comments. Hopefully, your takeaway from this is similar to mine. Particularly pleased that the markets are moving in the right direction, at least we've seen so far this year. We're able to take advantage of those markets and see that in our performance. And at that consistency I had been on record as using different terms around the markets, and I committed last quarter that I was going to stop saying that. So I'm particularly pleased with the consistency of the markets and the favorable sentiment. Obviously, there's always some question. I think we've seen recent ABI come out and take their forecast down. But keep in mind that as we started the year, we did start at the same level and we weren't using that as a basis. We thought some of that might be a little too optimistic. And so we're still very much in line with the expectations that are out there.

So what does that mean? Well, that means that maybe some of the later-year optimism that we hoped would come through, maybe that doesn't come through. That doesn't at all affect our plans to continue to outperform the market. We're continually operating with that mantra, both on the top line and the bottom line. Certainly, it's been challenged by the Lighting business in particular, but that's why the restructuring program has been so critical for us, and we've really gotten a lot of traction on that throughout the organization, and that's why we've got the ability to -- and now that we've -- are performing a little better, could invest a little bit more.

Now to be clear, moving to $0.25 to $0.30, we are working very hard to try and get more done now so we need to do less later, because the objective that I've set out for the team here is that we get back to a more normal ongoing operating basis, probably at the $0.15 to $0.20 range, certainly for the next several years, but that would be part of the continual ongoing cost reduction and not something that's unique and special. We've primed the pump. We've got it blowing. And I think the results are obvious and we want to start see some of those results going forward.

I think in addition to the market trends, I certainly expect that we're going to continue to build upon that, particularly on acquisitions as well as through new product development. I think the acquisition market is certainly active, but it's also pricey. And so that requires us to continue to maintain our discipline around pricing.

And lastly, Lighting has been a challenge; it continues to be a challenge. But I think I'm very confident that our challenges are being fixed. No doubt, it's a tough market. It's highly competitive. We are pretty well positioned and continuing to improve that position. We're making progress. And I'm confident that moving forward, we're going to continue to improve on that business. And that will continue to support the overall portfolio and not overshadow an important element of our business, and that is the performance of the other parts of our business, particularly within the Electrical segment. I mean, the thing, what I sat back and reflected on the quarter's performance, one of the things that really struck me the most -- most satisfying was really the strength that we saw in our other Electrical business, whether it's construction and energy or commercial and industrial both on the market side and the profit side. I think sometimes that can get lost in the Electrical segment, particularly with lighting's challenges, but that's what we're all about, is building off the strength of at least 3 of the 4 pillars at any one time. And those of you who've followed us know that sometimes there's always one that -- one of the markets is a little weak, but we're moving forward. So I feel really good about that. And I feel really good about the rest of this year and even into next year.

So with that, let me stop and open it up to questions.

(Operator Instructions) Your first question comes from the line of Nigel Coe with Morgan Stanley.

So good sort of quarter. Just help me on Lighting, I think last quarter, you had a minus 1 on Lighting, plus 1 volumes, minus 2 price. And this quarter improved by 2 points on the volumes. Is that -- does that reflect an improvement in the end-to-end market? Or was there some phasing of shipments between 1Q and 2Q? That's the first part of that question. And second part, can you maybe just provide some metrics on the (inaudible) and the trends you see in Lighting in terms of whether it's imagery stock outs or delivery time, et cetera?

Yes. So first of all, your math was right, tracking from 1Q to 2Q. I think some of that may be, as Dave was highlighting, as we improved our service, you're able to get some products shipped that were orders from 1Q. So I'm not sure I would say that we saw any kind of inflection per se in order pattern. I think maybe the complement to that would be our resi business was strong in Q2, which helped create some of that, and resi can be driven by similar lumpiness, whether it comes from big boxes or homebuilders. But I wouldn't say real -- Nigel, any real change in kind of market condition from our perspective.

Okay. On the -- any KPIs you can provide on the recovery in the Lighting?

Yes. So as Dave said, we're focused on service, and our service metrics are essentially back to where they were. We're taking advantage of the energy that we've created to actually improve that beyond our historical levels. And so I think, on the distribution center side, Dave made reference to the new DC that we've installed and stood up down in -- outside of Atlanta. And I think having -- as we had commented before, a few more quarters under our belt, have that running as it should be, will really be helpful. And the one factory we mentioned last quarter that was doing some new receiving as we had been restructuring, we're working those kinks out, too. So the metrics that we go through very intensively with the operating team are all showing, kind of our weekly stoplight review programs, is all showing positive trends there. So that's what's giving us the confidence that they're performing with the reset expectations.

Nigel, I think -- just to add to that, I think that we have certainly had very dramatic improvement in our service levels and deliveries. But in order to do that in the short run, there's incremental cost to do that, whether it's in freight or whether it's in staffing. So that's the next leg of improvement within Lighting, is to work that out of the system to still be able to perform at the level that customers expect but do it in a more cost-effective manner. So that's the other leg of some of the inefficiencies that we've seen.

That's great color. That's great color. And then just one more question on the verticals, your end market's growth expectations. And thinking about industrial oil and gas, 2% to 4% for the first -- for the full year. First half, and maybe 2Q, were you within those ranges for industrial oil and gas, or is that more back half-loaded? And then secondly, any red flags on nonresi? You sounded pretty confident on the outlook, but any signs of slowdown that you're seeing there?

Well, starting with nonresi, I'd say, we have not. I think we continue to see the trends as we had started off now. Granted, when we started the year, we might have had lower expectations than some parts of the market. And so I think where we've seen people saying it's less good, it's because maybe they got a little bit more exuberant postelection and right at the start of the year. So I'd say from us, Nigel, it feels -- continues to feel in line. As far as oil and gas goes, I think there is a small bit of back-end loading to that. But industrial, I think the light side a little bit smoother, but on the heavy, I think we could see some back-end lift as well from those 2.

Your next question comes from the line of Rich Kwas with Wells Fargo Securities.

Just following up on a couple of those Lighting questions. So for the headwind here, upcoming quarter Q3 or current quarter we're in, should we think about it as another $0.05 headwind then you're done (inaudible) on EPS?

Yes. I think the way -- you can't model things to the day, but roughly speaking, Rich, that's how we're expecting it, yes.

Okay. Then fourth quarter, it's neutral, at that point? You think it's going to be largely fixed?

Correct. And again, what we're specifically citing there is the inefficiencies coming out of our restructuring, which happen to be on the distribution and some of the receiving issues. That doesn't take away some of the challenges Dave was referring to with price dynamics in the market, et cetera. So we're -- it's just that effect that you're focusing on that $0.05, we do think abates by the Q4, yes.

Okay. And then on price, Lighting price. So it was negative 2 and it was negative 2 to 3 last quarter, and you're comping against negative 3 numbers here as we get into the back half. How should we think about price? Is negative 2 -- are you comfortable with how that's going to play out in the second half of the year at that level? Or is there a potential -- how much of the market getting worse or is the market stable? How would you characterize it right now versus kind of your own self, positioning on your own end with -- relative to that?

Yes, look, I think you're choosing out 2 really important issues in your question. And the real question is, sequentially, does the market feel better or worse. And I say, it feels, to us, reasonably consistent. And then you're asking compared to last year, if the comps -- because you're right to say the comps got a little bit more challenging in the back half of last year. But I think that our expectations are kind of continuation of the trends through this year.

Okay. And then as you think about the $0.05 for restructuring, the incremental $0.05. Where is that targeted? And then as we think about next year for restructuring, can you get to $0.15 to $0.20 in terms of budgeting for next year and restructuring? And then just a quick update on savings, the savings anticipated for this year?

Sure. I'd say the, in terms of the extra $0.05, we had, as David -- Dave used a nice description of the pump was primed, we had a number of projects in the Q. Nothing super lumpy, just able to turn on a couple of those projects as they became more affordable, as Dave said, our interest in getting it, the spending behind us so we can get into a more normalized, reported-only sort of environment. And so that -- one of the benefits of having this be going on for the last couple of years is the more programmatic nature. So nothing dramatic, just projects we're able to greenlight. And then maybe Maria can comment on the savings.

Sure. So on the savings, we are still moving toward what we said before, which is $0.20 incremental this year. We are very much on track to do that, and could be actually even a little bit better. So that's all in line and if anything, biased to be a little bit better.

Okay. And then just on the fifth -- as you think about next year is a more normalized restructuring spend knowing what you know now? I know we're still several months out, but...

Yes, I think it is. We don't see any major projects on the boards that would change that. And I think that's certainly the target level that we're going for. There's -- you can have a debate about whether you're going to have too much or not enough. The simple science behind that, Rich, if you recall, when we were about 2/3 the size, we had a normal run rate of $0.05 to $0.10 that was embedded in our results. And there was a period of time where we got off that track a bit. And so some of what we've been doing over the last few years was, admittedly, some catch-up. Some of it was -- a lot of it was a reaction to the lighting market. But if you just extrapolate, we're now 50% bigger, you've got to take that $0.05 to $0.10 and make that more $0.15 to $0.20. We're looking at another way, as we've talked to our group presidents internally, you all get a $0.05. You need to and should be able to invest at least $0.05 in cost-reduction actions. But you've now developed a skill to be able to do that and self-fund them based on the investments that we've made. So that's kind of a -- and that's a bit more insight into the strategy and the basis for the $0.15 to $0.20 that we're working on.

Your next question comes from the line of Christopher Glynn with Oppenheimer.

Dave, it almost seemed reasonable to assume that the need for remediation at Lighting impacts your capacity to have price in line with the market. As you're seeing the remediation efforts gain real traction, what's your thought on visibility to reclaiming price that you're not claiming now? Is there a dynamic there?

Yes. There certainly is. I think that's a little bit of what goes into Bill's response, our response to the forward look on what the impact is in pricing in Lighting. While the market could be a little bit weaker, we certainly think we could be on the other side of that. And quite honestly, our Lighting team has focused on the need to do that, right? But it was very difficult for them to be in a position to have that discipline without having the commensurate service. Now they get the service level improved, but need to continue to improve that. The next step is to hold and actually pursue price, particularly in those areas where absent that price, it's not economically worthwhile to take the business, right? And I think they've had some early examples of that where that has helped them on both sides, but certainly, what we wanted the business at a higher price. And there's been some early examples of that, so we're hoping that they can build on that. So you're absolutely right. There should -- there is potential for that, but it's all up to the market willing to take it.

That's interesting. And then on restructuring, you talk about going to a level that you don't call out. Is the $0.30 this year, is that above and beyond normalized rates, or all-in?

That's all in. $0.30 this year is all in.

Okay. And the $0.12 remaining in the back half, is that -- treat that as equal in the quarters?

Pretty much so. Pretty much.

Your next question comes from the line of Jeffrey Sprague with Vertical Research.

Just a couple more. Just on Lighting, there was a couple of other things moving on in electrical products in the quarter versus Q1, but it's actually not clear to me that Lighting profitability improved in Q2 versus Q1. I don't believe you said it did, so perhaps it didn't. But can you just give us a little bit of a framework on how the profitability changed Q1 versus Q2 on the business?

You're right about that. It was back in April when we sort of reset expectations around Lighting that we had sort of the history of Q1, if you will, and then the outlook as the questions have been of the impact of those inefficiencies on Q2 and Q3. So the inefficient impact is about equal, so the performance, it is about equal. And so some of the comments that were asked about remediation efforts on service, some of those leading indicators, which are not financial, but service-driven are starting to look positive, which we think bleeds. But you're right, on a quantitative performance basis, it's flat with Q1.

But you're pretty confident that H1 then is really the low water mark and you at least start kind of climbing up sequentially off this level?

Exactly.

And then, on -- just on the restructuring. I think the number Maria gave is the incremental benefit in 2017. Can you just clarify that and what you think the carryover benefit is in 2018 on the actions you're taking?

So the $0.20, yes, is just the incremental piece. We had over $0.30 of incremental savings last year in 2016, and then $0.10 in 2015, so cumulative. It's a much bigger number closer to $0.65 but $0.20 incrementally this year. And as far as next year, we haven't gone out with specific incremental savings guidance. But we -- most of our actions have roughly between 2 and 3-year paybacks, longer-term paybacks for the facilities, shorter term for some of the headcount actions. So I'd say if you just kind of look for paybacks of sort of 2 to 3 years, maybe weighted more toward the 3 years and allocate the spend that way, that would give you a good estimate for how we think about it going forward.

And then on Lighting, can you also just give us color on the resi volumes versus C&I volumes, the growth rates there?

Yes. Resi was closer to double digits, and C&I, down just a little, Jeff.

And then one last one for me. Glad to see the little T&D pulse happening. And I guess, if you could just provide a little bit of color on -- I guess, there was some comment there about project work picking up. So something beyond -- above and beyond maybe the normal kind of maintenance repair sort of activity. Can you just shed a little bit more light on what you're actually seeing and the nature of the work that's coming through the pipeline?

Yes. I think if we were sitting back and planning out a year, a lot of that D, especially, Jeff, is driven by operating, spending on utilities part, maintenance, repair. And we always think that, that tends to be and should be probably in the GDP kind of range. So for us, we were encouraged to see 5% growth in the quarter without acquisitions. And that really came from -- from our perspective, from the capital side and some projects. And what's interesting for us was not driven by mega projects, sort of smaller and medium-sized projects was really helping us, which is good news because I think the larger the project, the more lumpy maybe that, that trend would be, right? And the smaller nature of that project, hopefully, you can have a little bit of momentum sequentially in it. So that was certainly positive for us for Power Systems.

It sounds like this developed within the quarter, right? You didn't really have a notable backlog or anything at the end of Q1, or maybe I'm incorrect on that?

No, I think it built nicely through the quarter. And the backlog's actually in shape to support the kind of outlook that -- and basically gave you the support for us raising our outlook.

Your next question comes from the line of Steve Tusa with JPMorgan.

Can you just talk about maybe a bit higher level strategically how you're thinking about the influence of more distributed forms of generation, storage, kind of the challenges to conventional power generation? And what that could mean for your business longer term from a T&D perspective?

Well, I mean, I -- we're certainly thinking about it, and I actually think that, that is the direction where the industry is going. It's a question of the magnitude and the pace. And we're working on -- we have supported that part of the industry with our traditional products, but we are looking at areas where we need to add to our product portfolio, either through self-development or through acquisition. And that's part of our acquisition strategy within our Power business. Obviously, that's one of our highest-return businesses, and so they get first dibs in our capital. And so they have tremendous opportunities to invest, and as a result, they're very open to looking at those different areas, and that is one area in particular that they're spending a lot more time on it. We collectively are spending time to look at how best to take advantage of that market going forward.

Have you, at all, seen any change in behavior from your customers, maybe saying, "Hey, we're going to do this project now. We're kind of rethinking what we're going to do because of this dynamic." I mean, there've been a few utilities that are -- have undergone some pretty big restructuring announcements. I'm just not sure how long that takes to kind of make its way to you, guys. But just wondering how top of mind it has been for customers in the last -- really, how it's evolved in the last kind of 6 months.

I don't know that we've seen a dramatic -- certainly not a dramatic increase in activity. I think there's been continual increases in the discussion, the recognition of that being a market dynamic. But I don't -- that's the question of the pace, and utilities are trying to figure it out. Obviously, there are some who will be more aggressive on that, and they might win or they might be too far ahead of it. But that's the beauty of our business. We've got a lot of insights into -- we have such a good market presence that we do get that advance insight, and that's what we're trying to balance with our portfolio and our investment strategy.

Right. Right. And then just also a high level but a little more on the portfolio. It seems like fundamentally, the ship has stabilized here. You guys have done a lot of heavy lifting around restructuring. You're executing pretty well here. Are you ready for kind of a more transformational kind of deal? Or I guess just if not, just comment a bit on the acquisition pipeline out there. Are you ready for something bigger?

I guess that question's always been asked, always been out there, and my view has always been we're always ready for it. Maybe other than when I first joined Hubbell, we were remissed of a SAP implementation. That would've been ill-advised. But after that, we've always been ready for it. There just hasn't been the right opportunities that really would present themselves with the right strategic fit, combined with the right valuation. But that's what we've evaluated those numerous times over my career at Hubbell and we continue to do that. So I don't think that's...

Is rolling up the kind of industrial electrical chain something that still, you think, adds value? Or is that -- do you have to kind of pivot to a different strategy given the dynamic world out there with the changing technology? Is kind of rolling up core electrical products still a -- do you think it's still a very effective strategy to drive value?

I would say that, that's not as obvious as it might have been 3 to 5 years ago. There's still value in that. There's still a benefit. But I think there's also another dynamic to consider as an alternative, which is some of the changing technology and are there places that would be more value-creating, if you were looking at more of the technology dynamics in the industry? So from my standpoint, I guess it actually added more possibilities to that consideration.

Your next question comes from the line of Joseph Osha with JMP Securities.

I wanted to -- and in fact, the previous questioner touched on this a little bit. There are a couple of very large HVDC projects: 1, going from Nevada coming out here to California; another 1 through TVA. As those things happen, could we reasonably expect you all to participate? And then, I do have a follow-up.

Yes, I think you shouldn't -- would assume that we'd be participating in projects, sort of pro rata, absolutely.

Okay. And then the second one, just a balance sheet question. It looks to me like this $98 million in commercial paper just showed up this quarter. What is the plan there? And is that going to stick around maybe until we refinance the $300 million? Or some color there would be helpful.

Yes. Look, our cash flow is back half-weighted. And so if we're active in the beginning of the year and acquisitions as we were this year, and the cash is overseas as Maria had mentioned, that's what that -- and that's what the CP market's there for us to be doing stuff like that. Those ebbs and flows are there, but you're right to point out, we've got some bonds maturing in '18 and refinancing those at the opportune time is what we'll be considering.

So just to clarify, We should assume that, that kind of stays at it is maybe until you make these bigger better decisions next year?

Yes. I think your question was, are there seasonal cash flows that would naturally cause [CP] to have some balances in the first half and be paid off in the second half, the answer to that is yes. But that more permanent capital, those 10-year bonds that Maria showed you, those 3 tranches, those -- I think you should continue to think of those refinanced as they come due. And then, to the extent we have acquisitions that get up to critical mass, you term out those financings as they came along.

And there are no further questions at this time.

All right. Well, thank you to all for joining us today, and I know that Maria and Steve and Bill are around the rest of the day and tomorrow for any follow-up questions you might have. So look forward to seeing you over the course of the next 90 days at various events or at our third quarter call in October. Enjoy the rest of the summer.

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