HUBB - NYSE

Good day, and thank you for standing by. Welcome to the Third Quarter 2024 Hubbell Incorporated Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Innamorato, VP of Investor Relations. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the third quarter of 2024. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by Chairman, President and CEO, Gerben Bakker; and Executive Vice President and CFO, Bill Sperry. Please note our comments this morning may include statements related to the expected future results of our company and our forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and considered incorporated by reference to this call. Additionally, 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 slides. Now let me turn the call over to Gerben.

Great. Good morning, and thank you for joining us to discuss Hubbell's third quarter 2024 results. Hubbell delivered strong operating performance in the quarter, generating 14% year-over-year adjusted earnings per share and operating profit growth as well as 180 basis points of adjusted operating margin expansion. We are raising our full year outlook this morning, and we remain confident in delivering double-digit adjusted operating profit growth in 2024. In our Utility Solutions segment, grid modernization and electrification continue to drive strong growth in transmission, substation and grid automation markets as utility customers invest in grid infrastructure upgrades to accommodate electrification-driven load growth and interconnect new sources of renewable generation. We believe that we are at the early stages of a multiyear T&D investment cycle and that Hubbell's leading positions and service levels position us for sustained GDP+ growth over the long term. As anticipated, Telcom markets remained weak, and utility distribution markets continue to reflect the impact of customer inventory normalization. Operational execution was strong in the quarter, and Utility Solutions returned to year-over-year operating margin expansion. Electrical Solutions delivered another quarter of strong core operating performance, with solid organic growth and 190 basis points of adjusted operating margin expansion. Performance in the quarter was led by strength in data center and renewable markets, where we are executing effectively on our strategy to compete collectively in high-growth verticals with specified positions, innovative new products and an integrated solution-oriented service model for customers. From an operational standpoint, we continue to simplify our business to drive productivity and operating efficiencies, which, along with portfolio transformation efforts, contributed to robust margin expansion in the quarter. Overall, while we continue to navigate pockets of challenges in certain large high-margin businesses, Hubbell is proving the ability to compound off of recent outperformance. As we look ahead, our portfolio and strategy uniquely position Hubbell to capitalize on grid modernization and electrification megatrends. We are confident in our ability to deliver on our increased full year outlook as well as to achieve differentiated performance for our shareholders over the long term. Before I turn it over to Bill to discuss the quarter in more detail, I'd like to provide some additional context on recent storm activity and the potential implication to our business. First and foremost, our thoughts are with all the people and communities impacted by these catastrophes. Hubbell has a large manufacturing presence in the U.S. Southeast, and three of our manufacturing facilities were impacted and encountered disruptions as a result of Hurricanes Helene and Milton. However, all have quickly returned to full operation, and I'm relieved that all of our employees are safe. I am proud of how Hubbell and our employees have responded in support of all of those in need during this time as well as the collective efforts to serve our customers and ensure that critical infrastructure and the impacted community is restored safely and efficiently. When we highlight service as a key differentiator in our industry, storms are a prime example where our customers depend on trusted partners who can reliably serve their needs at scale and with agility. Our dedicated emergency response team is unique in this regard, providing customers with 24/7 support, dedicated storm inventory, prioritized production, engineering to support to identify alternative restoration solutions and logistics capability to expedite delivery and never charging premiums or fees, but viewing it as our obligation and privilege to make a positive impact during these times of critical need. Bill will provide you with more specifics on the financial impact of the storms in the third quarter in a few minutes as well as the anticipated contribution of storm-related orders in the fourth quarter. As we have highlighted many times over the years, the impact of storms typically represent only a small portion of full year revenues, but more importantly, they highlight the ongoing need to harden our critical infrastructure in order to mitigate against the increasing impact of extreme weather events as well as the mission-critical nature of Hubbell product offerings and our commitments to service excellence for our customers. With that, let me now turn it over to Bill to walk you through some more details of the quarter.

Thanks very much, Gerb, and good morning, everybody. Appreciate you taking the time to be with us this morning. And I need to beg your patience. I've been fighting a cold this week and my voice is sharp, so I'm sorry about that. I'm going to start my comments on Page 4 of the slides that I hope you found and reiterate what Gerben said. Overall, very strong operating performance for Hubbell in the third quarter, 5% sales growth, 14% OP growth 180 basis points of OP margin expansion, 14% growth of earnings per share and 19% growth in free cash flow. In addition to looking at these variances to prior year, we sometimes look back at sequentials, and compared to the second quarter, we had growth in OP dollars, OP margins and earnings per share, all up sequentially, so we think signs of healthy financial performance. So returning to sales of up 5%, that's comprised of organic being down slightly and net M&A contributing about six points. The net M&A refers to the fact that we sold a lower-growth, lower-margin business of residential lighting and added some higher-margin, higher-growth businesses in the Utility segment, most notably, Systems Control, which we'll talk about the strong contributions we're getting from that acquisition when we get to the Utility segment. Inside of the organic story, we have strong end customer demand across the portfolio, the exception being a particularly weak Telcom industry. And as Gerben had mentioned, distribution utility still working through an overstock situation between the channel and our end customers. Operationally, you see mid-teens growth of 14% to $4.49 of adjusted EPS, and the operating profit side equaled growth with 180 basis points of margin expansion. And that also compares favorably to the second quarter where we had 40 basis points of sequential margin expansion from Q2 to Q3 in adjusted operating profit. There's improvement across both segments, and we'll talk about those in the next two pages, but structural improvements in the Electrical segment and on the Utility side, strong performance as well. I think you'll see good price cost, productivity execution and you'll see the impact of successful portfolio transformation by selling some lower-growth, lower-margin business and adding some higher-growth, higher-margin business. The EPS growth in that mid-teens in line with operating profit growth. Below the line of OP, there was a little bit more an interest expense due to the acquisition and a little bit lower tax rate that offset each other. And the cash flow in line to hit our full year targets. So on Page 5, we'll start to disaggregate the company's performance into the two segments, and I'm going to start, as we usually do, with the Utility segment. So you see double-digit sales growth in the third quarter of 11% to $933 million. That's comprised of 15% via acquisition and minus 4% organic. If we were to unpack that into the different divisions, you'll see growth in both, with 15% growth in grid infrastructure and mid-single-digit growth in grid automation. Just to remind everybody what we have in those two divisions, we have the old transmission and distribution, the old Hubbell Power System in the grid infrastructure as well as specialty, which includes both enclosures and gas components plus Systems Control. And in the grid automation, we've got Aclara, which has both meters and comms, plus switching infusing as well as some connected automation products. Sequentially, we saw sales growth from Q2 to Q3, which we think is a good sign of healthy seasonality. If we disaggregate a little bit into some of the markets, Telcom continues to be weak, down 30% in the third quarter. It represents a modest improvement over the first half as we're starting to flatten sequentially, but it remains pretty bumpy month-to-month, and we're expecting continued softness into the fourth quarter. Fourth quarter though will have easier compares and important maybe to note that flat from here would imply growth in 2025. On the T&D side, the real strength on the transmission piece, double-digit growth, benefiting from megatrends of electrification and renewables, both requiring new miles and new grid interconnections, which is spending that benefits Hubbell. On the distribution side, continuing to work through channel and customer overstocking. But there continues to be, we think, healthy demand as more equipment is being installed to harden the grid and for maintenance and repair. So we believe that's obviously a temporary condition, and we get to the end of this morning, and Gerben will give you some outlook ideas into 2025. Systems Control is worth pausing on. They're off to a really great start for us. This is our third quarter reporting with them in addition to a very short stub period in December. They are growing versus prior year at very healthy levels and delivering very attractive margins. The turnkey solution that they provide is proving to be very attractive for customers. Gerben and I have a chance to go out there and visit the team a couple of weeks ago. They're all very energized, excited to grow very culturally consistent with Hubbell, and great to watch our sales force interact with their sales force. And I think we can see some long-range growth there as our customer base can become Systems Control customer base. The selling cycle is a little bit longer, so the backlog provides actually a very strong visibility into 2025 already. So you'll hear us be quite confident about Systems Control. And on the grid automation side, growth up mid-single digits. Good tailwinds in grid protection and control solutions as our customers continue to invest in grid resiliency and, in particular, switching and fusing are doing quite well in substation applications. So on the right side of the page, turning to margins, you see very strong margin performance, up 18% in dollars to $236 million. You see 130 basis points of margin expansion to over 25%, which is a nice benchmark, we think, and that represents over one point of sequential expansion from the second quarter. So you have acquisitions contributing new dollars. You've got really strong price cost management, and you see some returns on prior year investments in productivity, and all of that is absorbing some of the decrementals from the contraction in Telcom. So very strong performance in the Utility segment. And let me elaborate a little bit on Gerben's comments on the storms. So to the Utility segment, the storms had a neutral impact in the quarter. We have a couple of facilities in Aiken, South Carolina, and Largo, Florida, that were impacted and had to be closed for the last several days. And we believe we lost about $5 million in shipments from those closures, but that was offset by about $5 million of shipments on storm orders that we got that we had in inventory and represented about one-fourth of the $20 million in orders that we received. So net effect is, in the third quarter, neutral, in the fourth quarter, we'll get those shipments out and including $15 million more in storm orders, which are already out there. So I'm going to turn to Page 6 and the Electrical segment. Another nice quarter for the Electrical segment as they've done in 2024. You see 3% organic growth with 190 basis points of margin expansion and 5% operating profit growth. The 3% organic growth nets out the effect of the disposition of residential lighting. If you also added back the effect of storms on the Electrical segment, there, we have a facility in Arden, North Carolina, near Asheville, the western part of North Carolina. And we're estimating they lost about $5 million to $10 million in sales from having to close those last several days of the quarter. Had those shipments gone out normally, you would have seen about 5% sales growth. So we think Electrical has got good trends and doing nicely on the sales side. That growth is being driven by data centers and renewable where we've enacted our vertical sales strategy, which is proving to be quite effective. We've unified the marketing materials, integrated the sales force, becoming much more effective at cross-selling the balance of system products and as well becoming more innovative with our new product development and doing really well with that strategy in those couple of verticals. Light Industrial continues to be very solid as the critical electrical content is installed in a wide range of products across a wide range of industries. Lesser contributions from heavy industrial and commercial. So decent trends across the portfolio, but the clear strength is data centers, renewables and light industrial. On the right side of the page, operating profit continues the strong performance we've been seeing in 2024. You see a 5% increase in operating profit. That would be double digits if you netted out resi from last year. So quite healthy growth, 190 basis points of margin expansion. Seeing good drop-through on that incremental growth, effective price cost management, the effect of the portfolio management is seen very clearly. And I think what portends best for the future is watching Mark, Mike and his team continue to simplify and streamline the business, continue to compete collectively, reorganize the sales force by geography versus product, eliminate functional redundancies and ultimately make the segments more efficient and more effective. So we're excited to see the path that Mark and his team have segment on. I think they're set up for good multiyear performance. On Page 7, I'm going to give the remainder of '24 outlook, and then I was going to ask Gerben to comment on next year. So we're raising our full year guidance to $16.35 to $16.55. That's mid-single-digit growth. And just to remind everybody, that's off of a base that over the last two years, in '22 and '23, is up about 75%. And so, to us, having what is in effect a 20% CAGR since 2020 levels is what we were trying to convey at Investor Day by describing kind of the new, new, where we're going to be growing off of this base. And we're going to be growing, we think, both sales and OP margin and that's quite important, we believe. The year specifically has evolved a little differently than we expected back in January, namely, we've generated lower sales volume as the Telcom market weakness has persisted longer than we believe, and the utility customers on the distribution side holding more inventory than we believed. So managing through those two headwinds, but we're quite pleased that the Hubbell business model is really performing very nicely, and despite those volume challenges, is delivering at the high or above high end of the original EPS range. So we've got multiple levers to pull, obviously, this year. We're relying on the acquisition level as well as the price cost productivity lever and those are proving to be very effective. And maybe just a comment on the fourth quarter itself. We're expecting revenues to be a little bit stronger seasonally as that storm shifted some of the sales out of 3Q into 4Q and created some new sales for the Utility segment. But we expect the operating performance to continue to increase margins. And so that gets us to the high end or maybe modestly above the high end as a range for the balance of the year. And I'll ask Gerben to give you thoughts as we're thinking about next year at this point.

Great. Thanks, Bill. I am confident in our ability to deliver on our raised full year 2024 outlook and believe that Hubbell is well positioned for 2025 and beyond. With unique leading positions across the energy infrastructure in front of the meter, behind the meter and at the edge, we believe that Hubbell will achieve attractive GDP+ growth through the cycle as secular grid modernization and electrification megatrends accelerate. In Utility Solutions, we anticipate that robust T&D budgets will drive attractive growth across most of our end markets, as utility customers continue to invest in making the grid infrastructure more reliable, resilient and renewable. Project pipelines and interconnection backlogs drive high visibility to continued strength in transmission and substation markets, and we are confident that our sales and distribution markets will return to growth levels corresponding with healthy end customer demand. While our exposure in telcom markets will be reduced headed into next year, easing comparisons and stabilizing markets provide a constructive setups. In grid automation, we anticipate that meter project roll-offs will be more than offset by strength in Protection & Control Solutions. In Electrical Solutions, secular growth markets of data centers, renewables, and T&D make up more than 25% of our portfolio and are positioned for continued strength. While macroeconomic conditions drive some uncertainty in pockets of our business, we are well positioned to continue executing on our growth and productivity playbook to achieve differentiated performance. Hubbell has demonstrated over the last several years to collectively show their ability to execute across a wide range of environments and market conditions, driving over 20% compounded growth in adjusted operating profit and earnings per share. We expect to continue building off this strong base of performance in 2025 and beyond, and we look forward to sharing more details with you when we provide our initial outlook next year. With that, let me turn the call over to Q&A.

[Operator Instructions] Our first question comes from Jeffrey Sprague with Vertical Research. Your line is open.

Hi, thanks. Good morning everyone. Hi, just in terms of getting level set on the actual results, on Slide 5, you used to kind of give us the organics. I've got Systems Control, looks like it's $120 million-ish of revenues in the quarter. If you could maybe let us know if that's right. And I guess that implies sort of grid infrastructure is down, I don't know, 6% organic or so. But maybe you could just share those numbers?

Yes. You've got Systems Control. Yes, that's right, Jeff.

And how about grid automation? There's a little bit of M&A in there, too? Or is that 4% a good organic number?

That's organic, yes.

That's all organic. And then on the storm impact itself, is there any confidence that this flushes out remaining channel inventory? I suppose if you need inventory in North Carolina and it's sitting in Arizona, it's not moving across the country, so maybe you don't really know. But you've been trying to solve this riddle all year. Where do you think we're at on the channel, and kind of getting the normalization?

Yes. So Jeff, maybe I'll take that one. And the short answer to it is yes. This is helping to flush out the inventory. As you well point out, this is in with very specific customers in very specific regions. And I would even say within those customers, as they prepare for storm a branch. When they see that coming, they're going to play storm orders looking at their inventories, not necessarily what exists across the whole enterprise network perhaps. But yes, this is clearly going to help with flush that inventory through.

And maybe just kind of a separate follow-on. Bill mentioned strong price cost. Could you give us a sense of how price performed in the quarter across the two segments?

Yes. So price was positive in both segments, about a point to the enterprise. And I think, I didn't want to mention it in my remarks just, because I think it's going to - we're pivoting, Jeff, to a period where it's just going to be a smaller part of the price/cost equation versus in '22 and '23, it was such a large thing. But about a point for the enterprise, and positive on both.

Right. Thank you.

Thank you. And our next question comes from Steve Tusa with JPMorgan. Your line is open.

Hi, good morning. Can you hear me okay?

Yes, great.

Great. Thanks. Just following up on that last question from Jeff on pricing. How should we think about that next year, in particular with utility? I mean, is like - I'm sure you're talking to your customers, how does that - how are those kind of negotiations playing out here for you guys passing utility for next year?

Yes. Maybe - Steve, let me provide you just some broader comments on the discussions. I'd say our price traction this year in both segments have been good, right? The outlier to that is in the Telcom. We've given back some price to get specifics on targeted projects. But if you look at the T&D part of the business and the rest of the business, the price stick and the price actually - additional pricing that we've taken has held. We're coming into what we call blanket season again, with utilities right now. And as we think about it, price will still be a lever for us going forward. There's still inflation in the market. It will be much more modest levels, but we continue to focus on what our true value proposition is, right, which is service first. And the storms - the recent storms have again shown our customers why they do business with us. So, we still believe that while much - at a much more modest level that our customers will value first and foremost, the quality and the service and of course, then at a competitive price. So as we stated before, our whole construct is not to go backwards. And I think we've proven that in '24, and that's our views and set up for '25 as well.

So when you look at kind of the margin you guys put up this year, pretty strong result. Was there anything in the comps, as we look to next year that plays out as a bit of a headwind? So should we assume the '24 margins are kind of a base to at least grow off of, for next year for utility margins? Because you just keep beating those numbers, obviously?

Yes. Look, I think, Steve, the way we wanted to set up the future, with our Investor Day outlook, was kind of shifting the idea of our OP walk to be going from a price cost kind of, really big step up in '22, and '23 and still a little bit in '24. And so, as you think about us going forward, think a little bit more about that volume driving incrementals. And that's why you sort of saw us in that 25% to 30% drop-through that we're kind of expecting. There's a little bit of investment activity still, but I would think of our ability to drive margins next year, to be largely driven on incrementals from volume.

Yes. Maybe the other thing to keep in mind, Steve, is, as we were at the second half of last year, we really stepped up the investment levels to prepare for, where we had visible areas of demand. And that's a little bit what we're - what's driving our margins now as well right, is in the absence of some of those investments.

Right. And then sorry, just one last quick one on utility. Should we think of next year as like an easy comp, because you still have destocking this year, so it should be above kind of your long-term average on some of these more stock and flow items?

Yes. I mean I think that we are anticipating transmission to remain really strong. And you're right that the D, should be able to bounce back. And so, I would agree with your statement.

Okay. Thanks a lot.

Thank you. Our next question comes from Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning. So Bill, you do sound like you're struggling there, so hopefully it won't take too long to answer this question. But the way I'm trying to decompose here, I mean, I think Jeff's math is right down 6%, for core utility components. It looks like telcom is the bulk of that. So I'm getting to sort of ex-telcom flattish, maybe down 1% core. Is that correct? And then just kind of going from there, if that is correct, a couple of things. Number one, what do you estimate to be your sort of end customer, utility customer spending across your businesses, their distribution and maybe an infrastructure side? And then is this the weakness in residential new zones, have an impact on that business, or is this really just a destocking impact?

Maybe let me take the first one, and you take the resi one, Bill. So your math is correct. As you pointed those out with both what the closures or telcom contributes and then the rest of the T&D. And I'd say end demand is mid-single digits, what we've been talking about. So, but I think you have it all assessed, right?

Yes. And I think, on the resi side, you continue to - I mean, we had - if you think about resi's impacts on us, we had a resi lighting business we got rid of. On the electrical side, we still have some exposure through the big boxes that goes into resi applications. But that's - I think your question was as it affects utility. We think that the maintenance and repair is really the way to drive that and that is still strong. And the effect of what's happening in new developments would be a smaller effect, I think.

Okay. And then a quick one on the margins. Utility margins were really impressive, especially given the mix impact, et cetera. SG&A came in a lot lighter than what we had. I think SG&A was down 4%. And obviously, we've got some portfolio changes going on here. But is that a sustainable level of SG&A? Was there some one-timers in there? And did that land primarily within utility components in terms of the SG&A impact?

I would say the SG&A was spread. I would say the level of spending is sustainable. As Gerben was saying, there was some elevated investments happening at the end of last year. So between last year's SG&A and this year's, I think this year's is kind of the durable maintainable level.

Yes. And maybe as a - Nigel, as a percentage wise, certainly with the addition of Systems Control that right, in sales growth that reduces SG&A as a percentage. And then I'd say the other area in some of the business, particularly in the telcom and enclosures business, we've taken some actions to address cost appropriately for that decline in volume.

Okay. That's very helpful, thanks.

Thank you. And our next question comes from Julian Mitchell with Barclays. Your line is open. Hi Julian. Julian, please check your mute button.

Hi, good morning. Just wanted to circle back on the HUS sales outlook again. So perhaps maybe help us understand the telcom piece, how much are you thinking that's going to be down this year? I think before you'd said maybe down in the mid-20s. Wondering if that's still held. And when we're thinking about 2025, what slope of sort of telcom bounce should we see? And on the transmission side of utility, is that kind of steady growth next year? Any kind of acceleration, because of what's going on in backlog, maybe help us understand on that piece as well?

Yes, I'd say on the telcom - I'm catching a cold. I am sorry. On the telcom side, it's more like 30% this year. It was, of course, stronger in the first half. And we're very careful to how to build that business back up. Our goal is not to try to recapture that volume, but to grow that profitably going forward. And even now, as we see some projects come back and we're quoting some pretty sizable projects for next year, we're just being very, very thoughtful to not just capture that volume at any price. So, I wouldn't expect it to bounce back at those kind of levels that have declined, but more steady growth from here going forward.

And I think your second half was around transmission, and transmission has been cranking at double-digits, and we're anticipating that to continue. I wouldn't - I think your question was whether there was some acceleration, and I would say we're expecting it to continue to crank in double-digits.

That's helpful. Thank you. And then just kind of following up on that. On the inventory aspect at the customers, I realized the visibility is perhaps not as high as one would like. Is your impression that the inventory issue, we won't still be talking about it early next year. Do you have some sense of where those inventory levels lie at the major customers?

Yes. Let me give some comments and insights on it. And as we think about the destock, what we see is that it's driven mainly by our large IOU customers. In many cases, these are VIP relationships, long-term strategic alliances. And this is an area where we actually prioritized them, when we started to see the supply chain normalize, in part, helping to create this. In other areas like the smaller munis, co-ops and the public power where this overstock has been less pronounced, we're actually seeing very nice growth, in line with what is demand - what we see as demand. Certainly, the - as we said, the storms have helped this a little bit. We continue to have conversations with our customers. We continue to analyze the sell-through data, with conversations with these customers. And I'd say that provides a constructive outlook for us for distribution growth in '25. Now of course, the timing of precise at the turn of the year, is it over? Those are just very hard to call. But I'd say what's for us encouraging that we're also right now starting, to see some of these customers trying to place '25 orders, specifically for projects that they start having visibility, too. So that gives us confidence that demand is strong. So I would say calling a specific date is very hard. We anticipate that this situation will be much, much improved exiting this year, and return to growth here more importantly.

That's great, Gerb. And just to clarify sort of what proportion roughly of your utility revenue is that type of customer where the inventories have been high? Any rough sense of proportion?

We haven't disclosed that, Julian.

Understood. Thanks very much.

Thank you.

Thank you. Our next question comes from Joseph O'Dea with Wells Fargo. Your line is open.

Hi, good morning. Thanks for taking my question. I wanted to circle back. I thought, Gerben, your comment on telcom and being selective and the volume go after is interesting. Just any perspective on kind of margin mix within HUS as we think about sort of transmission distribution substation, versus like telco and gas distribution? Trying to think about, as telco comes back, but you're more selective with it, just some of the margin considerations there, as well as with the growth contributions may be changing a little bit next year, any margin mix considerations?

Yes, Joe. It's interesting thinking about mix, specifically with telcom. The margins have been really high. And as we've worked through this volume decline, they have come down. But you'd expect, as it comes back, the margins to return to attractive levels. And I wouldn't get to - I don't think there's a ton of mix drivers in all those different pieces, much more consistent, I would say.

Got it. And then just anything on tariff scenario considerations, in particular as it relates to sourcing? I think the portfolio moves would have diminished some of the direct exposure that you have, but I'm not sure in terms of the portfolio, as it exists today. And just as we're mindful of sort of scenario considerations, anything on the tariff front?

Yes. I think you're right to point out that exposure has been reduced, particularly the lighting businesses were highly exposed to that, but I'd also say in the last couple of years as part of our resiliency and strengthening during the supply chain crunch, we've also reduced our exposure to certainly one of those regions that, we're highly exposed to tariffs in the past. I'd say today, to Hubbell, it's a lower exposure than it was. And I'd say the second thing is we've learned a lot from the earlier days of when we perhaps were self-critical of not going after that fast enough. And I think, we've proven over the last couple of years whether it's tariff, or other inflation that we've much better reacted to those. So I'd say I'm confident that when tariffs - if and when tariffs do happen that it's, a, smaller impact to our business; but b, that we'll manage it.

I appreciate it. Thank you.

Thank you. Our next question comes from Chris Snyder with Morgan Stanley. Your line is open.

Thank you. I wanted to follow-up on the utility organic growth commentary. It seems like - at least based on my kind of back of the envelope math, it seems like utility is up low single-digits organic in Q4, and really, all of that is driven by the storm, whether it's the deferment out of Q3, or just the storm orders you guys got. So I guess my question is, how fast do you think that this business can get back to that mid-single-digit kind of plus target? It sounds like you guys think next year at or above, just because - is that more of like a back half that we get there? Or do you think you could start the year at that level? It just seems like a big step up from what's implied on Q4?

Yes. I mean I think that our view is that, it could bounce back when this inventory levels are - find their natural level. And that we think, at the end market level, the material is getting installed at a level higher than our shipments are right now. So as Gerben said, I think the situation keeps getting better every day. There's a mathematical point at, which you can still grow even if customers are still destocking and - so that's - we haven't given you our guidance for '25 yet, but we do anticipate organic utility growth starting at the beginning of next year.

I appreciate that. Thank you. And then maybe just following up on that. Can you maybe talk a little bit about what's expected for Aclara? It came out of a period of really strong growth, but a lot of that was driven by kind of working down the backlog. Is the expectation that Aclara kind of flat lines? Or should we expect Aclara to enter a period of decline just given how some of the comps are? Thank you.

Yes. I mean I think Aclara has got ability to grow its comps, half of its business. And so the - your question is really pointed, I think, at the meter piece. And there is a couple of big projects that are rolling off, and the business has become a little bit more a maintenance and repair-type business. And when new projects get added back, ultimately, that would provide the next surge of growth, I would say.

And maybe to put a finer point on it, I think as we look to '25, we expect meters to be down, but more than offset by the AMI and Protection & Controls growth. And then that's how we kind of look at that business as a whole as grid automation.

Thank you.

Thank you. Our next question comes from Christopher Glynn with Oppenheimer. Your line is open.

Thanks. Good morning and feel better Bill. Just wanted to ask about the heavy industrial and commercial markets. You said a little softer. It didn't sound like it was particularly maybe it flattened. Does that feel like just kind of wonkiness in the end market, or some fundamental slowing, maybe the facility impact hit those products?

Yes. I think it's an interesting one. As we look at it, Chris, if you start on the heavier industrial side, we're serving, for example, steel plants. And when you see steel prices down, that tells you something about demand and gives us an indication of that demand, is not strong on steel. It's interesting that copper has kind of been running in different direction from that. And so, it's a little bit - the contributions have just been very modest comparatively, and something that keep our eye on, as we give you guidance for '25 when we're together in January, we'll have, I think, more to say about what we're expecting there.

Okay. And commercial markets, non-resi?

Yes. So again, it's interesting, we used to - with the big lighting business there, we used to have a lot of exposure and we have a lot less now. But it's been, again, pretty modest for us right now.

Okay. And then just kind of a final-step question on all the distribution products discussions. Anything interesting in the third quarter book-to-bill versus the first half?

I don't think anything terribly enlightening now. I think Gerben's comments on how you're sort of peeling away, where would there be destocking on the distribution side. It's not in co-ops and utilities and public power anymore. I think we just started ruling out kind of from Houston through Florida in the Southeast. The hurricanes have probably flushed that all out, right? So, we just - keep getting better on that side, I would say.

Great, thank you.

Thank you. Our next question comes from Brett Linzey with Mizuho. Your line is open.

Hi, good morning. This is Peter Costa on for Brett. So just one on the BEADs program. Is there any update to how you're thinking about that, the impact of the funding? And then are you worried about any political risk there, just should there be a Trump presidency, particularly with Musk trying to cut costs, and is more outspokenly opposed to the program? Thanks.

Yes. I mean, what we've said, Peter, is limited contributions this year and probably not until later next year until BEAD funding starts to flow. There's been a couple of approvals recently for money to flow in terms of big project that's, associated with BEAD. It's not something we've seen yet. And so, I think later next year was sort of the base case of when some of that could start to contribute.

All right. Thanks. And just on the M&A pipeline, anything on deal velocity, general sizing, or just white spaces you're looking to fill out? Thanks.

Yes. I think the M&A pipeline is pretty robust right now. A couple of things swirling around, and I would say, of the traditional sizes, there's more in our typical $50 million to $100 million size range, but there are also the things in the billion-ish range where you've seen us do a couple of things recently. So it's something we continue to feel there will be opportunities for us to strengthen both the Electrical and Utility segments. There continues to be good brands out there. We can buy ways to strengthen our product and solutions suite. And the - we continue to look for growth rates, and margin potential that's additive to us. So one of the interesting implications of that is, I think we are seeing higher multiples and yet, because of the higher margin and higher growth rates, we're still able to deliver the same, or even often better rates of return. So it's an interesting outcome that - I feel like the multiples have crept us - up on us the last year or two, but then I think it's - I actually think there it's warranted and justified given the return potential.

Perfect. Thank you.

Thank you. Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

Yes, thanks guys. Good morning. A lot of questions have been asked already. But I guess maybe just on channel inventory, I mean, obviously, a lot of discussion around what's happening at the end customer level. But I just want to confirm that you guys still feel comfortable, with where channel inventory is today?

Yes, I'd say yes. Yes, it's working out.

Okay. Got it. That was clear. Okay cool. And then I guess on the 4Q outlook, it seems like you guys are saying this, but just wanted to confirm, like we should be kind of assuming a normal seasonal outcome, and then just layer on the impact of the storm pushout from 3Q to 4Q. So you guys expect to recapture all of that in the fourth quarter?

Yes. That's a better way. I think I said better than seasonal, but it's probably - you said it better, which is it will be seasonal plus a pickup from the storms. You said it better than I did.

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

Thank you. Our next question comes from Scott Graham with Seaport Research Partners. Your line is open.

Yes. Hi, good morning. Thank you for taking my question. Two questions really. The renewables and the data center businesses, were those up sort of in the 15%, 20% territory? Or was it actually 20%?

It's up strong double-digits, Scott.

Fair enough. Okay. There was a comment made earlier about POS utility level, being sort of running up mid-single. Is that across both grid infrastructure and automation? Or was that just a comment on just infrastructure?

There's a comment on distribution markets, within utility and some of the customers that aren't in an overstock position.

Great, thank you.

Thank you. Our next question is a follow-up from Jeffrey Sprague with Vertical Research. Your line is open.

Hi, thanks for letting me back in. I just want to come back to Systems Control. I think we were working with the assumption that was a $400 million business last year. You kind of confirmed you just did $120-ish million in revenues here in Q3. I'm sure there's some seasonality. I mean, is this business growing 15%, 20% organically currently? Maybe you could just give us a sense. You mentioned order strong, modularization offering, getting traction. Just kind of a little bit more color on how that business is performing?

Yes. So first of all, we didn't have it last year. So I'm comparing...

No, I know, but yes, whatever the business impact?

But yes, growth rate is strong. It isn't perfectly linear. I would say the third quarter was particularly strong. But I think you're right to infer that it's growing very handsomely and at nice margins and that, I believe, over the long-term, but this would require investment on our part. But I think with our sales force and our relationships, I really think we can grow that business over the long-term, yes Jeff, in a really important way. So, we're really pleased to have systems control in the family.

Just a point of clarification, $400 million was the expectation for revenues this year, Jeff.

It was. Okay. Thanks Dan [Ph]. And can you - I think somebody might have asked a tariff question, I'm going back and forth a little bit between calls. But can you give us a sense now of what percent of your COGS are U.S.-based?

I don't know that I have that off the top of my head. The question was asked, and we said; a, it's smaller. It was the inverse. It was what exposure would you have and it's smaller; a, because we sold off two lighting businesses that had a lot of exposure; second, we had done some redundancy planning and pulled some volume back domestically. And then secondly, the fact that we have a lot more confidence in our ability to manage whatever tariff headwinds via price and productivity. So, we'll keep our eyes very closely on the tariff question. But we're a pretty significant majority of our COGS are U.S.-based now.

Yes, Jeff, without having - I too don't have the number, but I'd say it's a significant portion of our COGS is North American based.

Appreciate it. Thanks.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Dan Innamorato for closing remarks.

Thanks, everybody, for joining us. We'll be around all day for calls. Appreciate it.