HUBB - NYSE

Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Hubbell Inc. 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.

Great. 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. The press release and slides are posted to the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker; and our 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. These are 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 into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, which 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 2025 results. Hubbell delivered double-digit adjusted earnings growth in the third quarter, driven by strong high single-digit organic growth in Electrical Solutions and Grid Infrastructure as well as a lower year-on-year tax rate. In Utility Solutions, T&D markets remain strong as utility customers invest to interconnect new sources of load and generation on the grid, while aging infrastructure continues to drive solid hardening and resiliency activity. Our Grid Infrastructure businesses achieved high single-digit organic growth in the quarter. While the pace of inflection in Grid Infrastructure growth was steadier than we anticipated in our July outlook, markets and order activity are strong, and we anticipate further improvement in year-over-year organic growth in the fourth quarter. While Grid Automation sales declined 18% in the third quarter on large project roll-offs, we anticipate these headwinds to fade in the fourth quarter as the business returns to more normalized comparisons. In Electrical Solutions, we delivered high single-digit organic growth with continued margin expansion and double-digit adjusted operating profit growth. Our segment unification efforts and strategy to compete collectively are driving outgrowth in key vertical markets, most notably in data center, where new product introduction and capacity additions contributed to strong performance in the third quarter with visibility to continued strength in the fourth quarter. We continue to simplify our HES segment to drive productivity and operating efficiencies, which we are confident will drive long-term margin expansion. Turning back to overall Hubbell. While cost inflation accelerated from the first half as anticipated, our pricing and productivity actions have been successful in more than offsetting these costs. Our strong positions in attractive markets and our execution in proactively managing our cost structure drove positive price/cost productivity in the third quarter and positions us well to drive continued profitable growth going forward. We are raising our full year 2025 outlook this morning. Operationally, we anticipate the impact of lower organic growth to be fully offset by stronger margin performance, while a lower full year tax rate drives higher adjusted earnings per share relative to our prior outlook. As we look ahead to 2026, we anticipate a year of strong broad-based organic growth across the portfolio. Hubbell is uniquely positioned at the intersection of grid modernization and electrification, and we have driven strong performance over the last 5 years. As these megatrends accelerate and we exit 2025 with recent supply chain normalization dynamics behind us, we are confident in our ability to deliver continued strong performance in '26 and beyond. Now turning to Slide 5. We announced at the beginning of October, the closing of our acquisition of DMC Power. We are very excited to add DMC to Hubbell's portfolio as the business is highly complementary to our utility connector product offerings and provides a unique technical solution in high-growth substation markets. Hubbell has been very successful in our acquisition playbook in utilizing our industry-leading sales force and portfolio breadth to drive penetration of new solutions across our customer base, and we are confident that we can accelerate DMC's strong growth trajectory further over the long term. This acquisition is a continuation of our capital allocation strategy to acquire high-growth, high-margin businesses in attractive markets with strong strategic fit and product differentiation. We anticipate the acquisition of DMC will contribute approximately $0.20 of adjusted earnings per share accretion in 2026. Before I turn the call over to Bill, I want to highlight our recent announcement of Bill's upcoming retirement as CFO at the end of this year. Bill's contributions to Hubbell have been immeasurable over his 18-year career with the company, but let me highlight a few statistics that put his impact into perspective. He led 68 quarterly earnings calls, including more than 50 as CFO. He led the acquisition of 50 companies, averring a double-digit ROIC for our shareholders. And most prominently, under Bill's tenure, Hubbell has more than doubled sales, improved OP margins from low teens to over 20% and increased our market cap from less than $3 billion to $23 billion. In short, Bill's strategic and financial leadership have helped shape Hubbell in the company it is today. He is valued and respected by our employees, customers and shareholders alike. And on a more personal note, Bill has been a trusted partner to me and our entire leadership team. Thank you for your distinguished service to Hubbell, Bill, and we wish you all the best in a well-earned retirement. One of Bill's many strength was developing a strong bench of finance talent at Hubbell, and I am pleased to have announced Joe Capozzoli as Bill's successor. Joe has held a wide range of leadership positions across Hubbell and the finance organizations over his 12 years and most recently has been the CFO of our Electrical Solutions segment, where he has worked as a close business partner to our segment President, Mark Mikes, in implementing our strategy to transform HES as a unified operating segment. You can see the success of Joe's leadership in that role through the strong growth and margin expansion of HES over the last few years. Joe and I have worked closely together over our careers, and I am confident in a seamless transition and in Joe's ability to drive further value for all of our key stakeholders in his new role as CFO starting in 2026. With that, let me turn the call over to Bill to provide some additional details on our financial results.

Good morning, everybody. Thanks for joining, and thank you, Gerben, for those remarks. I'm especially appreciative of the partnership you've offered me over my 18 years. And I think particularly the past 5 have been really special to me. And Joe, I congratulate. I recruited him about 15 years ago, worked super closely with them. We've given him a variety of roles, as Gerben has noted, incorporate in the field, inside of finance, operations and shared services. And I think you're going to find he's really well prepared to be our CFO, and I think will be a great partner to Gerben, and I'm sure a great communicator to our shareholders. So I'm going to use the slides that you found. I'm starting on Page 5, the third quarter results. You see sales up 4% to about $1.5 billion. OP similarly up 4% to $358 million. Adjusted diluted EPS up 12% and free cash flow up 34%. Let's go through each of those measures individually. So starting with sales. Those results show really strong performance across the entire Electrical segment and the Grid Infrastructure unit within our Utility segment. Those 2 areas, Electrical and Grid Infrastructure grew collectively at around high single digits, where the Grid automation component of Utility segment contracted and created about a 4% drag to the overall growth. What's important about that, as we look forward, we can see that the year-over-year compare for Grid Automation will start to flatten and that drag of 3 or 4 points will start to ebb away, as Gerben said, fade. So the combination of growth in the Electrical segment, growth in Grid Infrastructure plus the flattening of Grid Automation is a good driver of Q4 and ultimately a good setup for 2026. The second column there is operating profit, 4% growth to $358 million, margins roughly comparable with effective price pulling offsetting combination of tariffs and a higher level of restructuring spending, which we feel is really important to continue to drive productivity and to keep pushing margins up into the future. The earnings per share in the third column, up 12% more than the growth rate in operating profit, and that's driven by tailwinds below the OP line. Specifically, we had share repurchases in the first half of the year totaling about $225 million, that's helping lift EPS. And we had a lower tax rate as there was an international acquisition that gave us the opportunity for a tax-friendly restructuring and helped us drive the rate down. So helping push EPS up. And the fourth is free cash flow, up 34%, $254 million, most importantly, in line to deliver our 90% of net income to the full year, which continues to replenish the balance sheet. So Gerben commented on the DMC acquisition. And even after that, $825 million investment, our balance sheet is still poised for investment. And so very good to see us be able to absorb an acquisition of that size and just take that in stride. So now let's unpack the performance by segment. And on Page 6, we'll start with the Utility segment results. See sales up 1% to $944 million. OP roughly comparable in dollars to $242 million. Back to sales, you see the Grid Infrastructure unit, which accounts for about 3/4 of the segment, grew high single digits. And I think the good news about that strength is that it was broad across all of the end markets. So transmission was double digit, seeing strength driven by load growth and grid interconnections. Substation was up mid- to high single digit. Distribution up double digit with grid hardening and resiliency initiatives. And that's a good sign. That's representing acceleration as we move past a period of inventory normalization in distribution area. And lastly, Telecom and Enclosures returned to growth in the third quarter. I think you'll remember that had been dragging on us through an overstock situation there. So third quarter experiencing good breadth of sales strength in Utility and Grid Infrastructure. I think as we look to the fourth quarter in that area, we've got very good visibility to stronger growth rates in the fourth quarter. That's really being driven by the order book, which has really accelerated over the past 2 months in September and October, really releasing some pent-up spending and I think is a good sign for 4Q and beyond. Grid Automation, continuing the trend from the last several quarters, down double digits, driven by project roll-offs that aren't being backfilled with new projects, and that's being partially offset by growth in grid protection and control products. I think what's important here about the Grid Automation is, we're really coming up to the point where we've had 4 quarters in a row now sequentially bouncing around between about $230 million to $240 million of quarterly sales. And so that started in the fourth quarter of 2024. So as we get to the fourth quarter of 2025, we're going to start to see that sequential flatness turn into year-over-year flatness and really remove the drag on this segment that we've been experiencing. So good news there just around the corner. On the OP side, dollars roughly comparable. Pricing and cost management created a nice tailwind, but offset largely with higher levels of restructuring spend and decrementals from the Grid Automation side. Page 7, let's switch to the Electrical segment. And you'll see Electrical segment continuing a string of strong performance here over the last several quarters. So you see double-digit sales growth of 10% and 17% OP growth with about 140 basis points of margin expansion. Returning to those sales, you'll see 8% organic fundamentally across the end markets, that lift is coming from 2 of those markets. One is data centers where we're selling connectors and grounding balance of system products as well as modular power distribution skid solutions, very strong growth there. Also very strong growth from the light industrial segment, where we see connectors being sold into industrial applications, providing the lift there. That's where our Burndy brand is. Continuing through the markets, heavy industrial, a little bit mixed in the quarter and nonres remaining soft as it has been for the past few quarters. So basically, by market there, you see about 8% growth. But beyond market growth, we feel good that we're pushing for both organic and inorganic growth here. So we've effectively realigned the sales force. We have a more geographic bent now, which creates some efficiency, and we're complementing that with some vertical market specialists, which creates some effectiveness, and we're very happy about how that's working for us. New product development, which Gerben had mentioned, we continue to expand the franchise organically through those measures. And on the inorganic side, we've been successfully operating an acquisition since the first quarter of '25 and Ventev provides solutions that power, protect and connect wireless networks. So Electrical really doing both organic and inorganic measures here. On the OP side, the 140 basis point of margin expansion coming through volume growth, price/cost management and productivity initiatives to drive efficiency, as Gerben described, both Joe and Mark Mikes and their team putting in initiatives to compete collectively as a segment. So really nice job turned in by Electrical Solutions segment, a continuing multiyear story there, driving margins up. Let's pivot from describing the third quarter to looking forward on Page 8. And you'll see that we've adjusted our EPS guidance upward for the year as well as narrowing the range. So we had a $0.50 range from $17.65 to $18.15. We now have a $0.20 range from $18.10 to $18.30. That's a midpoint movement from $17.90 to $18.20 or a $0.30 increase, and we're essentially passing through a lower expected tax rate for 2025. And that really implies that operationally for us, the third quarter was in line with what we needed to hit the full year target. We're getting there with a little more weight to Electrical versus Utility, and we're getting there with a little bit more weight to margin and sales versus what we had originally expected. But this outlook now can be summarized in that 3% to 4% organic growth, OP margins expanding in the 50 to 100 basis point range, good pricing, good productivity initiatives. The DMC acquisition, which Gerben highlighted, we're anticipating being neutral to earnings in Q4 as we set it up to contribute $0.20 next year. And we've got the free cash flow driving towards 90% adjusted income conversion. It may be instructive to comment on Q4 and talk about the Q4 that's needed to deliver this full year guide. It's a little bit stronger than normal seasonality. And I just want to take a second to describe why we're confident and have the visibility in that. So the fourth quarter would imply 8% to 10% organic growth with contributions from both segments. And if you think about the step-up in growth if we walk sequentially, you can see -- we talked about the absence of the Grid Automation headwinds that adds substantially. We've got incremental price in the fourth quarter, and we see strong visibility to data center projects, new capacity inside of our Burndy business from some investments we've made in automation there and very substantial pickup in September and October in the transmission and distribution orders of the Utility segment. So we see that -- we've got visibility to that, and we see margin expansion in both segments in the quarter. And so that's leading to our ability to maintain that original guide with the pass-through of the taxes creating a $0.30 increase. So with that, I'll pass it back to Gerben and ask him to pull back the lens from this quarterly focus to a longer-term view of our Utility franchise.

Okay. Great. Before we give our preliminary thoughts on 2026, we thought it would be instructive to set the stage by taking a closer look at the performance of our Utility segment over the last 5 years and how that sets us up looking ahead to 2026 and over the next several years. And this is on Page 9. While there is a lot of information on the page, let me highlight a few key points. First, while supply chain dynamics have impacted the various pockets of our segment over the last few years, we have executed well through these dynamics, and they will be fully normalized exiting 2025. Second, the strong growth and margin expansion we have delivered has been driven by our large, high-growth and margin businesses. Most notably, T&D infrastructure has grown at double-digit CAGR over the last 5 years, underpinned by our strong portfolio, position and secular megatrends and proactive price/cost management. While our meters and AMI performance has been more modest, we are confident that we have repositioned this business with the appropriate cost structure and a more focused strategy to deliver growth at improving margin levels moving forward. Third, our M&A and capital allocation strategy has been effective in driving outgrowth while expanding our leading Utility positions, most notably in Substation automation with the acquisition of Systems Control as well as the attractive area of grid protection and controls. And finally, as we look back at the last several years of performance as a whole, HUS has delivered organic growth in line with strong utility CapEx budgets, which are set to accelerate further over the next several years as customers increase their investment budgets to meet the demands of grid hardening, load growth and data center interconnections. We are confident that our strong position in these attractive markets will enable our Utility Solutions segment to meet or exceed our long-term targets for mid-single-digit organic growth moving forward. Now turning to Page 10. I'd like to provide some preliminary views on our end markets for the next year before providing a more comprehensive full year outlook in the next few months. In Utility Solutions, we have high visibility to robust project pipeline supporting continued strength in substation and transmission markets, while ongoing hardening and resiliency activity support continued momentum in distribution markets and modernization initiatives support strong growth in grid protection and controls. In our smaller end markets, we anticipate a return to growth in meters and AMI as well as telecom. In Electrical Solutions, we expect data center, light industrial and T&D markets to remain strong, while macroeconomic uncertainty drives a more modest preliminary growth outlook in areas of the portfolio such as nonresidential construction, heavy industrial and renewables. We are confident that our strategy to compete collectively in HES will continue to drive above-market growth and long-term margin expansion. Overall, we see an attractive end market environment, which we believe will enable us to deliver organic growth in line with our long-term targets. And we are confident that accelerating megatrends impacting the largest high-margin areas of our portfolio will underpin strong performance in 2026 and beyond. With that, let me turn the call over to Q&A.

[Operator Instructions] Our first question comes from the line of Jeffrey Sprague from Vertical Research.

Bill, thanks for everything over the years and best of luck. Hopefully, we'll see you around. And then just kind of appreciate on 2026, maybe you don't want to kind of get over your skis given how frustrating this utility guide has been this year. But I just want to sort of interrogate a little bit Q3 versus Q4 in utility and think about what that exit rate really means for 2026. I think there's a little bit of debate about what is normal seasonality. But one could certainly make a case on simple arithmetic that this exit rate for utility would actually point to maybe double-digit utility growth in 2026. So I just want to get your thoughts on that. Again, I understand you don't want to get ahead of your skis here, but maybe how unusual is Q4? Did stuff that you expected to happen in Q3 slip into Q4, and therefore, we need to be a little judicious about thinking about this exit rate.

Yes. I think you hit on several important points in that question, Jeff, which we would agree with. And thank you for the well wishes, by the way. But I do think that there's a chance you could see a very strong year. I think -- we think, as you say, it's prudent for us to plan our resources around that sort of long-term guidance that we've had. Fourth quarter has got some easy compares and you point out seasonality as a point of debate, which usually we have a head and shoulders construction where the fourth quarter is a little bit lower. And we still probably have that, but your year-over-year with some easy comps help really boost that. So I think you start looking at the sequentials and then apply seasonality to '26 and you start to feel that setup is pretty good. So we share your confidence. We think it's prudent to, as you say, not get over the skis.

Maybe one thing to add -- yes, maybe the one thing, and we're certainly looking at those exit rates as well with the businesses and to see what this could be. And I think, Bill, you said it well, maybe going into the year and a little bit to your point of the frustration this year is that we'll take a more conservative approach going into next year and really making sure that our cost is aligned to that lower volume. And then if we do see the upside, and I think, Bill, you're correct that, that upside could likely happen, we'll benefit from it, so...

Could you elaborate a little bit more on the September, October order strength? And also just thinking about the up arrows here on this slide for telecom and meters specifically. Obviously, these have been nagging issues and problems all through 2025, some of it's comps, but still sort of an issue of can those businesses grow? Why will they grow? Should they grow? Just the confidence to put up arrows on those into 2026?

If we started with telecom, again, it's a function of sequential math where we got flat for more than 4 quarters. And so the growth comes, but certainly, Jeff, off of a lower level, right? And that's just -- that's already sort of happened, and we see demand there and orders in line to support that. I think with meters and AMI, it's not dissimilar. We've seen 4-ish quarters of contraction and building a franchise that's maybe to led off some of the larger public utility projects and kind of getting down to a size that is based on stronger MRO base as well as some good repeatable business inside of the muni and co-op segments. So I think that's -- and you will note the color there of yellow maybe suggests some of it's -- it's an up arrow, but let's call it modest, Jeff. And then the September, October order strength, I think the best thing to say about it is it's very broad-based inside of the T&D world really across all of the products. So I don't know, Gerben, if you have anything to add.

Yes. And I would say this was the inflection we were expecting to happen and perhaps a little bit later. And if we think back and with some of the discussions with our customers, certainly with the tariff environment and there have been some pretty significant ongoing tariff increase and price increases over the summer. These customers are working within their budgets and assessing what this all means for their budgets. And I think that perhaps influenced a little bit. But it's very hard to call exactly in timing to a specific month or quarter. But the good news is we're seeing it come up. And I would say this is what we've been waiting and expecting to happen.

I'm sorry, just one quick one. Is this tax rate sustainable into '26?

Yes, it's driven by an international acquisition restructuring. So I'd say it's project-driven, Jeff, and we're anticipating tax rate normalizing next year.

Our next question comes from the line of Tommy Moll from Stephens.

I want to make sure I'm hearing you here on the pace of recovery for Utility. Is it a fair characterization that in reducing the organic guidance for this year, the revenue guidance, it was entirely within the Utility segment, but that the shape of the recovery is as expected, the timing has shifted.

I would say both your points are accurate, yes.

Okay. And that would be true as well of the distribution piece of that business?

Yes. I think we saw a good inflection in distribution in the third quarter, Tommy, but I think that's a similar comment as well.

And I'll move to a housekeeping type item here. On your early commentary for 2026, which is appreciated as always, you indicated the organic growth is in line with long-term targets. We've heard from you before on the sales piece of that 4% to 6%. Have you commented explicitly on what your organic earnings algorithm is? I know you've communicated a double-digit pace, but I think that includes some acquisitions. And so if there's anything you could do to tighten it up, that would help.

What we've talked about is 4% to 6% from the top line. We've talked about incrementals in the 25-ish to 30% range that gets you alone into high single digits. And then we're talking about buttressing that inorganically, Tommy. So that's kind of mathematically how we build to double digits for kind of mid-cycle sustainable earnings growth.

Our next question comes from the line of Steve Tusa from JPMorgan Chase & Company.

I'm not a big management tire pumper here, but thanks a lot for all the interactions over the years, Bill. And I think you're not only a really good and honest CFO, but a great guy. So it's been a pleasure working with you and hopefully see you around the golf course in the future.

Thank you, Steve. Likewise, back at you.

So just on the quarter pricing, what was -- what's kind of the breakout by the 2 segments?

Yes. We were talking about pricing for the year being in the 3-point range and the quarter was in line with that. And I'd say, reasonably balanced between the segments, Steve.

Okay. And then any -- can we just talk about the puts and takes on the margins for next year? Anything moving around on the PCP front for next year?

Yes. I mean I think I'd rather wait and let my esteemed colleague, Joe, give you those guidances in our January call. But I do think if you take the long-term setup that we're referring to, which goes back to Investor Day, the incrementals that we cite are below what I would call maybe harvesting incrementals. And that implies that we would anticipate continuing to make investments along the way. As you know, there's a little bit of wraparound price embedded, and we could -- we'll talk through all that in detail in January, but that's kind of how that long-term framework really plays out.

And maybe the only thing to add is, we certainly will continue to manage the price/cost productivity equation to net neutral or better.

All right. And then, Jeff had like, I think, 3.5 questions. So I'll just do 3. The -- I guess just on this drag from the meters and the other kind of infrastructure, more infrastructure-type businesses. How much visibility do you think you have on that bottoming? And do you just get the sense that some of your businesses are getting like crowded out from an investment perspective with such a significant focus from the utilities on P&G as opposed to the D side of the equation?

Yes. So the first question -- remind me, sorry, Steve, I was thinking about the second...

I did. I snuck in 3.5, maybe 4. But the first one is just how much visibility do you have on this Aclara and Grid Infrastructure drag? Like how confident are you...

Yes. I would -- Yes. Thanks, Steve. I would say it's generally longer dated than our -- certainly our distribution side of the business. But it's -- after these big project roll-off, this business now has more of a component of MRO, and we see future projects actually being less lumpy. We're refocusing this business on more of the public power. Those projects tend to be smaller, and they tend to be implemented over a longer period of time as well. So I would say what was much longer visibility is now much smaller. But I think it's also going to be more predictable for that business. And certainly, distribution is still going to be very good growth.

Yes, the crowding out point, I think, is one we debate a lot, Steve. And I think, Gerben, the way he was asking is a heavy amount of T&S spending going to for -- by definition, drive D kind of down a little bit. And we've seen a very healthy D. And even though there's some logic and there's a fixed number of dollars, it just feels like there's going to be growth across those 3 markets.

And maybe the one thing to add, if it did drag it out -- and we saw the upside in substations at which we will. We're a little bit agnostic. We're a very strong position in all 3 of those markets. I would say equally strong position, so if $1 -- an additional $1 goes to substation and transmission, that just delays the investments that need to be made in distribution. So we'll probably extend that cycle of investment that will benefit. So we see our position to benefit equally if some of that happens and it could.

Our next question comes from the line of Chris Snyder from Morgan Stanley.

I just wanted to follow up on, I guess, the softer back half utility organic growth. I guess, maybe relative to 3 months ago, is this like a function of Aclara maybe softening a little bit versus that Q2 kind of expectation? Is distribution turning just maybe not as sharp as previously expected? I guess just kind of what specifically is kind of causing the utility back half to come in below?

Yes, Chris, it's not Aclara. Aclara has been kind of as expected. There is just a little less from the T&D side. Now we say that and it's growing 8%, right? It's not like that's a low growth rate, but we were expecting kind of this sharper snapback that the September and October orders are suggesting. And so I think Gerben described it as a more steady improvement rather than maybe that third quarter snapback, but I think we're going to see a little snap in the fourth quarter here. So it's within T&D, just, I'd say, 90 days delayed, Chris, is really what I would say.

I appreciate that. And then, I mean, it seems like the full year guide kind of calls for pricing to exit maybe in like the 5% range versus, I think you guys said 3% in Q3. So I guess, is that right? And then just any commentary you would have on price realization? Any pushback on price in the market? Any elasticity you're seeing tied to that?

Yes, let's start with kind of the timing of pricing, and we've recognized tariff costs increasing throughout the year. And similarly, pricing to match that has increased throughout the year. So I think you're right to say if we end the year in the ballpark of 3% you do a little bit better in the fourth quarter. And then I think some of that would wraparound. In terms of stickiness, I think the stickiness has been quite good. In terms of pushback, I'll maybe ask Gerben to comment, but I would say, so far, we're talking about very constructive discussions with our channel partners, very constructive discussions with our end market partners. And -- but I don't know, Gerben, if you had anything to say on stickiness and/or...

Yes. Yes. No, I'd say our price realization has been quite strong this year. And I'd say not much different from what it has been the last couple of years. And if you remember, our -- certainly are in the market -- some of the markets that we operate in, the demand is pretty strong if you look at utility and data centers. The other thing to remember, we're generally a small part of the total cost of systems we go in, but critical in the use. So usually quality, service, availability is the leading conversations and questions with strong specified positions in many of the markets that we deal in. So that all works in our favor for why you would have strong stake right now. The conversations have been more frequent, I would say, as some of these tariffs came through. But a big part of that was just helping our customers understand where some of these costs were coming from, how this affected our product line, what we're doing about it to partially offset it. And I would say that combination of those 2 things has caused us to have pretty good stake rates here.

Our next question comes from the line of Joe O'Dea from Wells Fargo.

Can you just touch a little bit on behind-the-meter infrastructure investments and what that means from a content perspective for you on both the Utility and the Electrical side, how that would compare to an alternative of in front of the meter? Any perspective on sort of dollars per megawatt in a data center and how to think about that from the different kind of angles of investment?

You're talking about data center investment, Joe, or...

Specifically data center investment, but whether that's being supported from kind of behind the meter or in front of the meter and how to think about what it might mean for differences in your content opportunity?

Yes. I would say probably immediately on the data center, it's directly more on the electrical side with some of the Burndy businesses, with the grounding system, I mean, tremendously strong position with some of our electrical connectors that are going into the data centers. As a matter of fact, a lot of NPD that we're doing to continue to support data centers with higher amperages that are going through it as well as our PCX business. So I would say there, we feel the direct impact of it. But I think what you're pointing out, which is clearly a benefit for us as well on the Utility side of how do we support the data centers with the power that they need. And that comes in various forms. I would say the primary way that a data center wants to be served, it served by utility companies for that power. And there's a lot of investment going in there, not just in new generation, but in how you can connect -- interconnect the grid better to provide that load. But then also, we have very strong relationship with the independent power producers, the EPCs. So in some cases, you see data centers maybe looking in the short term to fulfill some of that generation more directly. And I'd say we would benefit from that as well when you interconnect these data centers to -- with substations and with the short lines that you would need to bring into the data centers as well. So I think our position is good to benefit from this. But I would say generally, a data center would have a preference to have utilities provide that power.

And I think, Joe, maybe one of the things you're pointing out when we talk explicitly about our data center exposure, we are talking about that behind-the-meter piece. And I think you're pointing out that in front of the meter, there's quite a bit driving growth that doesn't exactly -- we don't call that data center because it's going into our utility customer. But I agree with you, there's a driver there, too, for sure.

Right. No, exactly. Just trying to understand kind of those different phases of investment and opportunities and appreciating the direct kind of data center exposure within Electrical that you're reporting. And then just thinking about the Grid Automation piece, where that sort of CAGR has been relative to target over the past couple of years and trying to think through like any perspective that you can add on meters and AMI, maybe sort of growth not performing to what those targets would be, but whether there's broader value within the portfolio that maybe is underappreciated. And so is there synergy value that, that business is bringing that remains attractive to you?

Yes, I would say the short answer to that is yes. And you're right to point out that the financial performance of it has been below our expectations. Now we've not set still on that, and we've pivoted that business to where we believe we can compete, we can win and we can get a margin that's more closely in line with the rest of our portfolio. But yes, it's actually one of the strategic reasons we acquired that business in 2018 when we assessed our portfolio and we have a tremendously strong position in the component side, and that continues today. That continues to be needed for it tomorrow. But as we saw the grid modernizing, we really didn't have the right resources or portfolio to do that. And so we acquired Aclara in it. And initially, it was just Aclara. Today, it's Grid Automation. So half of the revenues of this business today is not Aclara for products that we've since acquired, that we have developed and that are growing at the high end of our portfolio growth. So I would say it's absolutely contributed to the whole of Grid Automation, but we're also focused as we are in the rest of our portfolio that the individual businesses have to perform and contribute to the whole, and that's where our focus right now is with Aclara.

Our next question comes from the line of Julian Mitchell from Barclays.

And I wish you all the best, Bill. Thank you for the help and congratulations to Joe. Maybe just my first question would be around operating margins. Just wanted to try and understand, as we think about next year, I understand there'll be more flavor or color in 3 months' time. But if there was anything to highlight in terms of the effect from restructuring costs not repeating or higher savings, any kind of carryover to margin effects next year from self-help measures this year? And whether there would be any effect on the year-on-year margin progression from the accounting change earlier this year. Just to see if you could flesh out a little bit the comments around incrementals next year.

Yes. I think restructuring, Julian, we've tried to put it into this virtuous cycle where we spend roughly the same amount every year. Maybe it bumps around a little bit quarter-by-quarter. But then you don't notice it annually in terms of the margins. And we continue to believe that restructuring program is important in driving future productivity. We might call that productivity with a capital P, lots of smaller productivity initiatives with a lower case P, obviously. And so I think that part is something we hope not to whipsaw you with margin-wise and that we feel -- I know a lot of our competitors would exclude that number from their margin and say that it's a discretionary item. And we just feel it's going to be part of our year in and year out modus operandi, and therefore, we include the cost because we expect you to experience it every year plus it's not just an expense. It's basically an investment to get margins up. So that's why we included and hoping that you don't see a lot of distortion from that. And the accounting change, I don't think would change the margins percentage next year either.

That's great. And then just maybe on the top line for a second, a lot of explanation understandably around the Utility market, but maybe switching to Electrical and the commentary around, I think, nonresidential and also kind of heavy industry into next year is quite muted per Slide 10, I think. Maybe sort of flesh out any movement you've seen there? I know some other companies have sort of talked up U.S. nonresidential in the past month or 2. It seems like you're a bit more cautious.

I think we are probably a little cautious. It's been reasonably mixed and soft for us. But I wouldn't be surprised if you see a decent rebound. Our exposure in that space has gotten smaller as a result of some of our business development work, both in terms of what we bought and what we sold. And the heavier industrial, it's always interesting to look at steel prices and the like to see if you start to see some output increase there. But that will certainly true that up, Julian, by the time we get to our January guidance. I think you'll find -- I don't think we'll be an outlier from the general market expectations there.

Our next question comes from the line of Nigel Coe from Wolfe Research.

Bill, you look forward to be useful to be retiring, but I know you've had a long career. So congrats, and I hope you enjoy retirement. So no comment on that, so I'll move on. So a couple of -- a couple of quick modeling items, and then I've got a...

I can see that today, so I'm older than I look....

Yes, you definitely have that youthful sort of -- kind of look. But a couple of quick modeling items, and then I've got a bit more of a strategic one. Just on DMC, we understand the margins there are really rich and north of 40% EBITDA margins. Is that -- is that the case? And then maybe just comment on the 3Q utility performance. Was there any impact from the storm activity? It seemed like there weren't any big storms down in the Gulf Coast area. I know that can swing things a little bit. So just wondering if there was an impact as well.

Yes. Maybe I'll start with the second first. So storm impact, there was none. It was quite a calm season, although there is a big one right now that's hitting Jamaica. But yes, that -- and that generally, we would say in the overall scope of Hubbell is not a big driver of revenue. But within a quarter, certainly, that could have a couple of points if there's storm activity. On the first question on DMC, that's indeed a quite attractive margin business. And if you think about the application of this, it's in substation, very high stakes, I would say, environment of power with a very unique solution of a sewage technology to put these crimp first on these connectors onto the conductors, what traditionally would be a specialized welding application in a substation. So you can imagine both the application of something like this and the savings or the efficiency in installation, that's what drives a really nice margin. And when you put that then in our portfolio, and I would say this is about as down the fairway as you can get for fitting in our portfolio because we do a lot of connectors, and this is enough solution of that, we generally are able to add and to boost what privately or single-line player can get with our sales force, with our relationships. So we're really excited when we are able to fold in businesses like this into the portfolio.

Run DMC. And then my follow-on question is really -- it seems like there's a huge market for control house applications in data center. And my understanding is systems control, certainly, the sort of the history of system control is very much in the substation for utilities. So I'm actually wondering if there's a sales channel opportunity into the data center for that business.

Yes. We bought a company a little while ago called PCX, which does the control house to data centers. And -- we do think, Nigel, the application has got a lot of growth in it, and we do agree there's some interesting best practices to be shared between data centers and the Utility side on the substation. So I think you -- we would agree with your press.

Yes. The only thing I may say is, we are very busy trying to serve our Utility customers at this point. We're adding capacity in this business, but we see like you an opportunity to expand it in those other areas.

Our next question comes from the line of Christopher Glynn from Oppenheimer & Company.

A lot of ground has been covered, but Bill, it's been a pleasure to work with you and we've observed the excellence you brought to Hubbell for a long time. So thanks for all that work together. Yes, just looking at data center, I don't know if we got a particular call out on the growth rate there, but I think that's kind of the spearhead of your vertical market strategy. Light industrial is obviously a little bit more diversified, but I think you're probably seeing some of that there. I'm just curious if you could comment on that as we think about the vertical market strategy being bigger than a data center theme for HES.

Yes. It's -- I would say you're right, the data center is driving a lot of notable growth inside of the Electrical segment and some of it is a dedicated unit, PCX and some of it is the connectors and grounding solutions. So I agree -- but I think I also agree with you that there are other verticals besides data centers where we've tried to add sales and marketing specialists, do a better job of cross-selling across different units and we're finding those efforts to be well worth it. And it's not just the data center vertical, as you say. It just happens to be a very high-growth pointed one right now.

Okay. And then just wondering if you have the D&A numbers for DMC in particular, maybe the depreciation since the amortization backs out anyway?

Yes, I don't have it off the top of my head. But the math right, you're talking about sales growth in the 20-ish percent range. You're talking about EBITDA, as we said, in the 40-ish percent range, and you should assume -- I may be guessing here, but it's a couple of points of sales. And then we'll do -- we'll be doing some investing in that business. So we'll be ramping those margins up over our ownership time, I would, Chris.

At this time, I would now like to turn the conference back over to Dan Innamorato for closing remarks.

Great. Let me take the call here, and I just want to make a comment of thanks to all of you for the well-deserved, well wishes for Bill. I'm sitting here across from him. And while he's not always reacting verbally, I can tell what it means to him. And also, I think we set the bar for Joe coming in of beating 50 earnings calls as CFO. So I'll make sure to relay that to him. But thanks and look forward to connecting in the first quarter. Thank you much.