Hubbell Inc (HUBB) 2017 Q3 法說會逐字稿

Good morning. My name is Tasha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2017 results call. (Operator Instructions) Thank you. I would now like to turn the call over to Ms. Maria Lee. Please go ahead.

Thanks, Tasha. Good morning, everyone, and thanks for joining us. I'm joined today by our Chairman, President and Chief Executive Officer, Dave Nord; and our Senior Vice President and Chief Financial Officer, Bill Sperry. Hubbell announced its third 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.

Okay. Thanks, Maria. Good morning, everybody. Thanks for joining us. I'm going to start on Page 3 of our earnings slides, give some introductory comments and then turn it over to Bill for some quarterly details. As you saw in the release this morning, we have very strong results across the company in the third quarter.

On the sales side, you saw that sales were up 5%, driven by organic growth of 4% and acquisitions of 1 point. This is the highest level of organic growth we've seen in 10 quarters. So we're very pleased with that. Power, of course, led the way with 9% sales growth, 8 points of which was organic, driven by growth in the underlying transmission distribution markets, and about 3 points from storm-related volume. Bill will talk a little more about that later. It's hard to get that precise, but it certainly was a good contributor for us on the Power side.

The Harsh & Hazardous business as well as our gas connectors and accessories was also benefiting from strong markets and competitive positioning, and they each saw double-digit organic growth in the quarter. On the operating profit side, when I look at that, I'm particularly pleased that our reported operating margin, you see, was 15.4%. That's up 40 basis points year-over-year. And when we adjust that for restructuring and related costs, margins were 16%. That's the first time in more than 3 years both the Electrical segment and the Power segment expanded margins. And keep in mind, this includes the investment in the Internet of Things R&D via iDevices that's embedded in the Electrical segment.

I'm also happy to say that Lighting's manufacturing and distribution performance has stabilized. Some of the problems we saw early in the year, we put a lot of attention on. We spoke about it last quarter, and we think we've got that to be stabilized and believe the bulk of this year's restructuring-driven inefficiencies are behind us. So all that's given us reported earnings per share of $1.47, which compares to $1.56 in the same quarter last year.

In these results, as we've mentioned before, they include $0.11 of onetime refinancing costs and $0.07 of restructuring-related costs. When you adjust for these costs, third quarter earnings per share was $1.65, and this compares to $1.63 on a comparable basis last year. On the refinancing, we lowered interest expense by issuing $300 million of new debt and using the proceeds to redeem higher-interest notes that were going to come due next year. And under restructuring, the program continues on track with our stated goals on cost and savings.

For capital deployment, you probably saw -- hopefully, saw last Friday, our board approved a 10% increase in the quarterly dividend to $0.77 per share and a renewed authorization for share repurchase of $400 million over the next 3 years. As these actions demonstrate, we remain focused on returns to shareholders.

So before Bill takes you through the slides on the financial details and the full year outlook, let me give you a couple of additional comments about the quarter. First, on storms. Certainly, the recent hurricanes affected 2 of our facilities, specifically one in Katy, Texas and the second in Puerto Rico. Obviously, our first priority was making sure all of our employees were okay, and fortunately, they are. Our facility survived without major damage, but our production capacity in our facility in Puerto Rico has obviously been limited due to power outages. We have actions in place and supplemental power coming online, and we expect to get that close to back on full capacity sometime next week. But that's been a bit of a challenge, for sure.

From a financial perspective, the impact of the lack of production and the cost of that, more than offset by the benefit from the increased volume, primarily at Power. Obviously, Power, you might have seen post-Harvey, they were recognized in Inc. Magazine as a company that's specifically identified as helping Harvey relief efforts, and therefore, should be a company that you want to help out as well. And the one thing about storms is that it provides our Power business the opportunity to continue to showcase their commitment to service, reliability and partnership with our customers, and we hear it all the time from our customers.

Let's talk a bit about customers. I spent the -- sometime over the last few weeks with some of our largest distributors. And what's great is their optimism on the outlook was clear and consistent, as was their emphasis on their digital strategy and the potential to impact their businesses. It was great to hear from them, the favorable feedback about our investment in iDevices as a platform to accelerate our Internet of Things R&D. And speaking of iDevices, they continue to be the only home automation solution that works on all 3 major platforms: Amazon, Apple and Google, with a single product platform. That's one of the reasons why one of the top 10 leading homebuilders most recently chose iDevices as its exclusive home automation solution during the third quarter.

We're also pleased that our customers acknowledged our commitment and performance, and we saw that Progress Lighting was recently awarded Supplier of the Year by a major distribution customer. And this clearly is a testament to the improvements we're making in Lighting, certainly, after a tough year.

And lastly, if we look at our product innovation and product awards at Harsh & Hazardous, our diversification beyond traditional oil markets, as you've heard, the team down there talked about at our Investor Days, is paying a benefit. A global pharmaceutical company recently selected the Harsh & Hazardous as the only hazardous area lighting partner with a global agreement that provide quotes for LED lighting covering all 86 of its manufacturing sites. We're enthusiastic about this award or this contract and look forward to the opportunity. And it really is a result of a combined effort between our Harsh & Hazardous team and our Lighting team, both from a market access and from a technology standpoint.

Now I mentioned already, in the quarter, iDevice became the exclusive home automation solution for a major homebuilder, but they also launched a hub-less WiFi smart dimmer switch that turns traditional switches into dimmer switches. We continue to work on identifying vertical market solutions as well with iDevices beyond residential and into institutional and utility. That combines Hubbell's product breadth with our growing software capability.

We recently held sessions with one of our major utility customers to identify where we have technology capability, combined with our product, our breadth of product offering, and help match that with the strategic direction that the utility is trying to go in and using iDevices technology. But it goes beyond that. Our innovation is happening across Hubbell. Ease of use and flexibility are critical drivers to our product development. We saw that at BURNDY in the quarter. We introduced a new ergonomic design for our Patriot battery-actuated crimper that's lighter, shorter and has improved balance.

Safety also inspires our innovation, from the UL listed marine isolation transformers that ensure onboard power is safe, to using LEDs to communicate electrical status of a switch without removing the cover. Hubbell wiring debuted new products in the quarter that prioritize safety. It's these kind of continuous improvements in product design that are the hallmark of Hubbell's long history that drive our innovation and customer satisfaction.

So with that, let me now let Bill take you through some of the details, and I'll come back with perspective on next year.

Thanks very much, Dave, and good morning, everybody. Appreciate you spending time with us here today. And I guess, I, too, feel we had a good quarter. As we assessed our performance, we thought there were some really good things. We had strong organic growth, as David referenced. A lot of that growth came in attractive high-margin markets, which is good news. Able to expand gross margin, operating profit margin, while investing in R&D, as David mentioned, and the remediation of the restructuring-driven lighting inefficiency, I think, are all pretty good positives. And really on the negative side, as we'll talk to, as we get to our heavy industrial markets, still showing weakness as part of the portfolio.

And that's where, on Page 4, we start with talking about the markets. And you can see the market strength, if you see those green arrows, starts with the oil and gas side. In oil, double-digit growth. In Harsh & Hazardous, definitely not a V-shaped rebound like we might have experienced back in '09, but a very welcome sign of recovery in an attractive market for us. On the gas side, where we sell components to the distribution side of that infrastructure, double-digit growth there as well. So good green contributions there.

And then Power Systems, you'll see both distribution and transmission showing strength. And that strength is really beyond typical MRO type, and there's capital expenditures and project business that's helping to drive that. And I think the noteworthy of industrial composite, you see that being sideways, which is really comprised of the lighter industrial being positive and the heavier industrial being negative.

So on Page 5. We've got our adjusted operating income picture and you can see we grew operating income from $142 million to $152 million. That $10 million is certainly noteworthy as well as the margin expansion from 15.6% to 16%. The S&A improvement that you see there of improving by 10 basis points has been the continuation of a trend that we've been experiencing of efficiency at the S&A line. I think the good news for the quarter is embedded up in that gross margin area, where you see 30 basis points of margin expansion. And that's happening, as David mentioned, while absorbing the higher spending in smart tech R&D. And this, certainly, is an area where, if we can drive sustainable improvement, that would be very good news.

So as we see on Page 6, adjusted earnings per diluted share, up a couple of pennies to $1.65. And that, again, compares to -- that $10 million gave us a about $0.12 from operating earnings. But our effective tax rate costs us about $0.10 in the quarter. And more than half of that was driven by a return to producing credit from last year, and the balance coming from negative geographic mix. For example, as Dave was referring to, the lack of absorption and profit in Puerto Rico as an example that would drive some negative geography mix for us. And the lower share count of about 0.5 million fewer shares in the share count is a result of our share repurchase activities.

So we'll switch to now looking at the segments. And starting on Page 7, we'll talk about Electrical. So you can see, 3% growth to $654 million. That 3% growth being driven by 2% organic growth. And that organic growth coming from the nonres area, where we saw some decent growth, as well as the oil and gas side, which we've talked about. The performance side, you see a 20 basis point improvement to 13.8% or 5% growth rate. And I think of note, you're really seeing there the recovery of Harsh & Hazardous coming back, the strength of the gas components business contributing and the effective remediation of the lighting inefficiencies coming from our restructuring program, while investing in the smart technology of R&D. So a positive performance there from our Electrical segment.

Page 8, you can see the Power segment. And you see $297 million of sales in the third quarter of '17, growth rate of 9%, as David mentioned. About 8% of that is organic. And the favorable impact of storms, we're estimating to have contributed about 3% to that sales growth. So the market has really given us about 5%, with acquisitions adding 1 point. And we saw, again, favorable growth in both distribution and transmission and the capital -- CapEx cycle helping us there beyond just MRO.

On the performance side, 40 basis point margin expansion to 20.9%. You can see $6 million of contributed OP there. Impressive performance by our Power Systems business. And you can essentially see balance between price/cost and productivity, and so the benefit coming through from higher volume.

I'm going to switch now from the third quarter to talking about our year-to-date 9-month picture. And from the sales side, you can see, we grew $100 million or 4% to $2.75 billion. Of that 4%, 2% of that growth came from acquisitions. And it's worth some commentary on the state of our acquisition program. So in this 9-month period, you saw 8 different investments contributing, and they were in several buckets, being led by our Power Systems business, where 4 of the 8 acquisitions were made in that business. Two of the 8 were in gas distribution. We had a small Harsh & Hazardous addition and then the iDevice deal, which we've talked a bit about. So I think you can see our capital allocation strategy growing in Power Systems business, growing gas distribution and having confidence in Harsh and the need to make sure we've got the right competencies around smart technology.

In addition, on Page 9, around our operating performance, you can see our adjusted OP margin, about 10 basis points below last year. The effective tax rate, about 1 point higher and EPS about $0.08 higher at $4.39. Cash flow is below last year in some important places, and we'll talk about that in some detail in just a couple of minutes.

Page 10. We cover the year-to-date period for the Electrical segment, 2% growth, a similar story to the third quarter. Organic, up 2% coming from nonres and residential growth. The oil and gas business for the year-to-date period are up around mid-single-digits. And those industrial headwinds we've had for the 9-month period continue to be soft. The Lighting business for us, year-to-date for those 9 months, has been up 1 point on volume but down a couple of points on price. You can see the adjusted OP down 60 basis points to 11.8%, and that's really bearing a lot of that price headwind coming from the Lighting business as well as the material inflation that we've been experiencing as well as the acquisition impact, which is the investment in iDevices.

Page 11, we've got the Power segment. You can see a very strong year being put up here, 8% growth, 5% organic. Distribution and the telecom business adding to that. The performance being up 90 basis points to 20.9%. You can see a lot of dollars being contributed from the OP here in Power Systems, and you've got productivity and volume helping to drive that margin performance above the sales growth level.

On Page 12, we've got the year-to-date cash flow, which I said we'd talk a little bit more about. So you can see, we're below last year's levels. And on -- we've got deal-driven noncash charges in D&A being up, which is a tailwind. So the headwind is really coming from that working capital area, which is largely inventory for us. And the largest contributor to that inventory investment has been in our Lighting space, and more specifically on the residential side. As our service levels had dipped as part of our remediation plan that Dave outlined, we invested in building up that inventory to improve service levels, and we can see here the cost of that investment. And the other contributors to our inventory has been the strong growth, both in Power Systems as well as in Harsh & Hazardous and gas components. That double-digit growth has necessitated some investment in working capital as well.

And so in the other side, you can see a lower source of cash this year. The largest contributor to that change is driven by the redesign of our pension plan. And as we moved, essentially, from a frozen DB plan to a DC plan, we implemented a safe harbor design, which has funding throughout the quarters of the year rather than just once a year, and so there's more -- obviously, more cash going out. The CapEx side, you can see we've spent more in CapEx. So that's negative cash flow, but we believe very, very high-ROI projects that we're investing in. So we are still focused on a high cash flow fourth quarter to get free cash flow equal to net income.

I was going to ask Maria to comment on capital structure on Page 13.

Sure. We ended Q3 with $386 million of cash. As is typical, almost all of this cash was international. And we have a little more than $1 billion of debt. In the third quarter, we completed the refinancing of senior notes that were coming due in 2018. We issued new 10-year senior notes at 3.15% and used the proceeds to redeem the existing notes, which were at 5.95%. So we reduced our interest expense while keeping the debt level the same. Our reported third quarter results include a loss of $0.11 from this early extinguishment, and we expect to see benefit from the lower interest expense starting in the fourth quarter of this year. So a healthy balance sheet with comparable debt levels year-over-year and lower interest expense going forward.

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

So Page 14, we've summarized our outlook for the balance of '17, and I'll highlight the changes we've made since the July call. We have made a few tweaks to this. On the first -- on electrical transmission and distribution, we've raised that the outlook from 2% to 3% -- from 1% to 3% to 2% to 3%. On the resi side, we're tweaking down from 4% to 6% to 4% to 5%. And on the industrial side, we have been expecting 2% to 4%, and you'll see here 2% to 3%. So the result of all of this is a 2.5% to 3% market outlook, but you can see some tweaks to slightly stronger T&D and slightly weaker on the industrial side.

And on Page 15, you'll see how that boils down into our EPS range. So where we were on our July call was $5.40 to $5.60. And as Maria just highlighted, the refinancing of that debt took about $0.11 out. And we've got -- so since then, and based on our third quarter performance and our outlook, we've narrowed the range by $0.10 and took the lower end up, which effectively adds a $0.05 to the guidance to get to $5.40 to $5.50 you see here. And you'll see here, we're still anticipating a heavy cash flow fourth quarter to catch us up to net income.

So that concludes our remarks about '17. And I was going to ask Dave to give you our thoughts and early preview on 2018.

All right. Thanks, Bill. Yes, before we get off '17, I can't help but be really appreciative of all the efforts. And when I look at the performance in the third quarter, I think everybody, the whole organization has really performed and has delivered. And what's particularly satisfying is that, when we look and we cut through it, when we look at the performance year-to-date, we actually are performing as we expected, which was the expectation we would do a little bit better. The markets would be supportive, and I think all of our business experienced that.

We've got the benefit of storms that have helped us, although not without some challenges operationally. And the one challenge that we've had is self-inflicted challenge that we've had in Lighting, which I think we've put a lot of attention into trying to stabilize and right that. So I'm particularly pleased with how the third quarter is really reflective of what we expected as we started the year. Still more work to do to finish the year, no question. You don't know what you could be facing over the last couple of months, but I think the third quarter is a good set-up to a very solid finish to the year.

So what would that do for next year? Well, I'm on Page 16 and an early preview of our end markets. As we typically do at this point, I want to provide our initial thoughts on how next year's shaping up, but we'll give our official guidance in January. Yes, but for now, we expect the end markets next year to grow in the aggregate 2% to 4%, which is similar to this year and pretty balanced growth across the key markets. Certainly, the strength in the transmission, distribution and oil and gas are going to continue.

Although with the momentum that's built through this year, certainly, the back half of next year will face tougher compares. But I think, still, we'll see strength. We see signs that the heavy industries are going to improve and consumable-driven light industrial is going to grow. And the level of growth in nonresidential, a little less certain as some of the indicators -- recent indicators are mixed. But yes, at this point, we think it will continue to grow next year, but probably at a little lower rate. And we see the same thing with residential.

On Page 17, you can certainly see, and we see, that there's a number of earnings tailwinds that position us well for the opportunity to deliver double-digit earnings growth. The refinancing impacts should be favorable, both the absence of the Q3 loss on the extinguishment and the lower interest expense, as Maria talked about.

Restructuring and related costs should be lower. We planned, next year, to stop adjusting results for restructuring and related costs, as we are getting to a run rate level that we anticipate to be an ongoing somewhere $0.15 to $0.20 per year compared to this year's $0.30. And we'll see some incremental savings from actions we've taken this year. We think the end market growth should provide some benefit next year. And certainly, the stabilization of Lighting operations in terms of the absence of the restructuring-driven inefficiencies would be beneficial.

We do have another important facility move to complete, we announced the fourth quarter last year. And there's no doubt and we've acknowledged in the past and there's no secret that we have had missteps in the past, and the important things that we have to do with those missteps is learn from those mistakes. And we've applied a lot of those learnings to this move. We've got a very structured process with dedicated resources, focused on training at the receiving plant, which is always where we seem to have a problem, as well as deselecting some of the low-volume, high-complexity product offerings, which has always caused us some difficulty.

And where possible, we've built buffer inventory to smooth the transition. I think of all of those things are things that we're working at proactively, and I also am confident because the plant that we're moving it into is a very well-run facility that came to us through the acquisition of Litecontrol, a very experienced team, a very proud team and a very capable team that's been doing this for a long time in similar areas. So I can never say with absolute certainty, but we've put a lot into trying to make sure that this one goes smoother than any of them have.

As you expect, we do anticipate some headwinds next year. And I think pricing in the lighting market continues to be challenged. We expect rising material costs that are going to pressure margins across all of our businesses. As is typical, there's a 1- to 2-quarter lag between the inflation and our ability to get the price.

And on Page 18, a few more considerations for earnings that are harder to size and time right now. Certainly, include opportunities like new acquisitions, share gains, potential tax reform, as well as some risks, like higher cost from more investments in R&D with our Internet of Things efforts. But we've got relatively consistent end markets, which would suggest the mix would be flattish. And pension expense, as Bill just went through, at this point, because of our design changes and discount rate and asset returns, we expect that to be flat, as well as currency.

So you put all this together at this early stage, I feel pretty good about 2018 and I think the team feels pretty good, other than the work involved to actually deliver on that opportunity. Certainly, we've done a lot, as you know, and you've all been patient with our cost actions that we've taken over the last few years that position us well to capitalize on continued market growth. And I think our portfolio with strong brands, quality products, commitment to customers, will help us manage through some of these anticipated headwinds. So while still early, a lot to do. We won't come out with official guidance until January, but certainly my goal and the team's target is to get us to deliver double-digit earnings per share growth in 2018.

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

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

So Dave, I just wanted to confirm the bars on Page 17 are not to scale?

Correct. Correct. We knew you'd get out your ruler, so we made sure that they were just all equal weight for now.

Yes. Okay. I do have my ruler here. It's about $20 of earnings in '18, but -- which should be nice, but [it seems that's not]. Okay, so to move on to the serious part of this conversation. So you mentioned -- so obviously, the benefits to Power from the storms. How sustainable do you think this is? I mean, I'm assuming that you'll get some carryforward into 4Q. Do you still see 2% to 4% growth, notwithstanding this benefit in the second half of the year?

Well, there's a couple of things on storms. Yes, there is still some carryover into the fourth quarter. You also have what is very difficult to size, which is when you send 30,000 linemen to Florida, that means there's work not being done someplace else. So is there catch-up work that comes back online that didn't occur? And then the other piece that is still early on, but we're seeing some of the quoting activity, is in, certainly, the critical efforts that are necessary in Puerto Rico. And so that, certainly, is going to continue through the fourth quarter and probably somewhat into the early part of next year.

Right. Okay. And then I know you're talking about -- I mean, I joined the call late, so I apologize if you addressed this already. But your facility in Puerto Rico, where is production right now compared to pre-storm?

Right now, it has limited production. We're probably operating with about 10% to 15% of the employee base. But we've got some supplemental power coming in this week and we expect to be back to close to full production by the end of the month.

Okay. Great. And then just a final one. I'm sure that my other questions will be addressed elsewhere. But on the inventory you built up in Lighting, our we now at a level that you feel comfortable given the kind of demand environment you see going into 2018? And just when you build inventory, degrees of confidence that there's no obsolescence or some potential pricing discounting required to ship the inventory.

Yes. So the bulk of our lighting inventory investment, Nigel, is on the resi side, which tends to move faster and has a much lower experience rate of obsolescence. And so yes, we would say the question is we feel good that we've got the inventory necessary to drive very competitive service levels, and that we've invested in the right SKUs at the right areas.

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

Dave, just wondering with Electrical margins, with the inefficiencies done now in Lighting, does that flip your net price/cost productivity to a tailwind going forward?

Yes. So well, in the quarter, the -- Electrical had negative price that was driven by Lighting. And so when you look at sort of the price/cost mix, that -- the pricing was a big offset. But it certainly helps not to have that drag in the cost inflation piece.

Okay. And then just wondering if you could give your latest status report on Lighting competition, how it looks. Anything you'd characterize as truly structural? What's the magnitude versus kind of seeing the typical skirmishing?

I -- we don't see anything unusual, at least in the space that we're in. That's nothing different than we have seen, I would say. There's no, from what we can tell, irrational behavior other than, I think, a big factor has been low-cost entrants that have put pressure on the market overall, more single-line offerings that can be done at a lower price, but not at the completeness of the solution. And in some cases, arguably, not with the same level of reliability, but that's the world that we live in. And we're -- well, one of the things that we're doing as well is being -- focusing even more with discipline on where are those products, because we have so many -- such a breadth of products offering, Chris. To the extent that we see areas where that pricing is not competitive, we just won't participate in that market. And that may mean giving up a little bit of volume or share. But we can certainly make it up on the products that we are a leader on, have great technology, have a broader solution and a broader package, and that's where we find success. So...

That's great. One clarification, my ears shut down momentarily. Did you say rational or irrational?

No irrational behavior.

Okay. Got it.

Of course, that's all relative. It depends on your position. We think anything -- any competition like that is irrational. We'd rather everybody keeps trying to drive price up, but that's not the case.

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

Just following up on Lighting. Bill, what were -- some housekeeping items, what was the volume/price? And then if you have that for commercial C&I and then residential?

Yes. So for the 9 months, they gained about 1 point of volume and gave up a couple of points of price. So net sales was about -- was down 1.

That's for the 9 months, not just the quarter though?

Yes. That's the 9 months, yes. And for the 9 months, the resi piece grew better than the C&I piece.

Okay. And then my recollection was you started to have the price headwinds about this time last year, so you're starting to comp against that. You're talking about pricing being an incremental headwind in '18. Should we think of that as less worse than what you've experienced this year?

Yes. I like less worse, yes.

Okay. On Power, so 5% ex the storm benefit, so you've outperformed the market. Historically speaking, when you've had these surges, you've kind of -- the growth has moderated in the year following or the couple of years following. How do you see the cycle playing out here? I mean, some of the structures guys are talking about good visibility out for the next year or so and feeling good about growth. Your outlook seems to imply that. What's your -- what are your thoughts about outgrowing the market versus what you've pegged '18 at preliminarily?

Yes. I mean, you've hit on a couple of the big themes, right? First is the growth rate that we're envisioning is positive for next year, but not as high as the 5 points that we've been running at for the last couple of quarters. For us, we think of, Rich, that MRO cycle as really driving something GDP-ish. So I don't know, 2.5%-ish. Maybe we could do 3% with that. And so to do 5% implies that there's some capital spending going on. And I agree, the visibility on that, I think our team feels that they can see that. Of course, those are always subject to being delayed and pushed out. So I think we're feeling like there's a decent spending tailwind here. There is some CapEx in it. There is some MRO in it. And yes, it's a little -- it's below kind of our performance this year, which then suggests what you can do on a new product development side and is there share gains that come via innovation.

And what's the balance between distribution and transmission growth-wise for next year anticipation?

Yes. I don't know that we've separated that. I'd say that the T has been much more volatile this year than the D, and so that comes into play as well.

Okay. Last one for me. The deal's done this year. As we think about benefit for next year, my recollection has been that you do deals and they typically are neutral, maybe even slightly dilutive initially, it takes you a little bit time to integrate. As you think about contribution for '18, I didn't see any bars or errors regarding contribution from deals done this year? I mean, is there a way to quantify or at least top-down look as we think about impact for next year, positive impact from an accretion standpoint?

Yes. I would say, conceptually, just to be clear on the word accretion, for us, the deals are accretive to earnings. If your -- I think you're referencing, they sometimes dilute margin in the first year.

Right. Margin-wise, correct.

And that's true. And so then, you're saying in the second year, as you burn off some of the acquisition accounting and the integration matures, does that margin naturally creep up in year 2 of the deal? And I would say our experience with that, Rich, is yes. So we didn't have it built out as its own arrow, but conceptually what you're saying is true.

(Operator Instructions) Our next question comes from the line of Jeff Sprague from Vertical Research.

Dave, I couldn't help but chuckle. The iDevices stuff sounds good, but is anything hub-less good for hub?

Okay.

Okay. So back to your arrows. They're not to scale, but I think we know what a bunch of them are, right? I mean, correct me if I'm wrong, kind of the restructuring variance carryover effect versus lower restructuring is some $0.25-odd, I think.

Yes.

Yes.

The Lighting headwinds were what? Probably $0.10 or $0.15?

That's about the right range, yes.

A $0.05 or so in refinancing?

The refinancing, if you include the actual loss on the early extinguishment, so that's $0.11. And then the interest expense is another, call it, $0.07 to $0.08 next year, because we have a little of it this year in the fourth quarter.

Okay. And then given what's going on with restructuring, how do you guys think you'll convert on incremental margins on revenue growth? That's the price/cost noise in there, but should be some volume leverage.

Yes. I think although there's -- those forces are all working in interesting ways, I think we have some market growth, Jeff, in places where we have traditionally had a little bit better margin. That would help drop through. You're right that there are savings coming through from restructuring, and then you've got to think about what commodity prices and inflation and investing and all of that stuff does. So we'll be more explicit about that in January, but I think you're right that some of the more known elements, which would be growth in good margin areas, plus some benefits from restructuring, those are good places to start.

And when you're thinking about -- putting the Lighting aside, which is kind of maybe a special case on price, it feels like -- well, we've been in an inflationary environment for a little while now from an industrial standpoint. And I guess, as long as industrial materials are going up, you're always playing catch-up to some degree. But now with maybe a little bit better end-market tone, or in other words, better kind of demand side of the equation, do you think there's actually a prospect to get up, get caught up on price relative to cost in 2018, even if it's not on a full year basis, perhaps by the time you're exiting 2018?

I think you've phrased the question exactly right, which is the increase, for example, in steel throughout '17, and now the copper and aluminum contributions to that, I think, make asking for some price, industrially, more palatable. But I do think you're probably playing catch-up, and for us that -- with the 6-month lag, you are playing catch-up. So I do think it offsets, but you're right about the actions and the support to ask for price, generally. And I'd say you're also right to put Lighting on the side of that. Those are -- I think those are 2 different buckets.

But you're right. By the end of the -- by the second half of next year, you could be on the top side of that. If demand holds and certainly -- that's certainly been our history. There's the lag, you catch up. And assuming that, at some point, the material cost would moderate, you can -- but demand is there, if you will, get ahead of it for some time.

Yes. One thing to add. We had -- we are being -- we are able to get some price and we have gotten some price in the non-Lighting Electrical businesses. So we have seen some of that traction this year already. It's really Power where we haven't gotten that price, I mean, outside of Lighting. And where that, potentially, could be a benefit next year as well.

And then last one for me, putting aside tax reform, which could change everything. How do you think your tax rate tracks into next year?

Yes, I think that we would anticipate, at this stage, thinking about that as flat net of policy changes. We're always working to come up with planning ideas to help get that better. I think geography ends up being a pretty big driver of year-over-year for us. And so we'll -- again, we'll talk more about that in January.

(Operator Instructions) Our next question comes from the line of Joseph Osha from JMP Securities.

I wanted to return to Lighting a bit. I know you commented on a lot of the very aggressively priced sort of single-line solutions you're seeing. And I'm wondering, especially with iDevice, sort of taking iDevices into account, how you're sort of trying to reposition the higher end of the portfolio and add intelligence and value to maybe hold on to just some pricing and share in that segment of the market.

Well, I mean, we've been working with -- on controls within Lighting beyond iDevices. We have an NX system that we introduced earlier this year. That's been well received. So clearly, that's an area of focus, to continue to add capability, not to the point of the complexity of being a Tier 4 building system solution, but certainly having products that are enabled to operate within any building system. That's kind of the -- been the -- as I mentioned, the capability within iDevice, and that's been the strategy within the Lighting business already. So it's really marrying those 2 capabilities and advancing that to make the higher-margin specified product that is always been at the core of our Lighting business and success even more in demand.

And so I take it from your comments then that I should not necessarily expect anything more ambitious into, say, for example, something that looks like Predix or more of a building control-type solution? It's going to stay more in the Tier 3 segment of the market?

Yes. Yes.

Okay. Thanks. Well, Steve and I will be around all day if there's any follow-up questions, so feel free to reach out. Thanks for joining us today.

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