Good day and thank you for standing by and welcome to the Hubbell Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today Dan Innamorato. 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 second quarter 2021. 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 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 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 and are included in the press release and slides.

Now, let me turn the call over to Gerben..

Great. Thanks, Dan, and good morning, everyone, and thank you for joining us on this busy day to discuss Hubbell's second quarter results. I'm going to start my comments on page three with some key takeaways for the quarter.

As you can see from our results and our press release this morning, it was a quarter of strong growth for Hubbell, with revenues and earnings each up over 20%. We are seeing broad-based growth across both our electrical and utility segments and within each of our major end markets.

As anticipated, our operating margins declined year-over-year in the second quarter, due to the lapping of prior year cost actions, as well as inflationary headwinds, which we are actively mitigating through price and productivity.

Operationally our second quarter results are consistent with our prior guidance, but we are now raising our full year adjusted earnings per share expectations at the halfway point.

We'll walk you through our guidance in more detail later, but at a high level, we see stronger market growth and a modestly lower full year tax rate, relative to our prior guidance. And while inflationary headwinds are greater than initially anticipated, we are proactively driving incremental price and productivity to offset.

We'll give you some more context around each of these dynamics throughout this morning's presentation. Turning to page four, to provide some more details on the results. Second quarter sales were up 26% and organic growth was up 21% year-over-year, as markets and customer demand were strong across both segments.

In Electrical Solutions, we saw broad-based inflection across end markets, with light industrial continuing to lead the recovery and heavy industrial and non-residential markets beginning to improve as well.

We noted coming out of the first quarter that electrical orders have turned positive and this trend accelerated in the second quarter, as demand remained strong and electrical orders continued to exceed shipments.

Looking ahead, we expect our electrical markets to benefit from these recoveries in industrial and non-residential markets as well as longer-term trends toward increased electrification. In Utility Solutions, we continue to see strong demand for T&D components, driven by aging infrastructure and grid modernization trends.

Recall, that despite the economic impact of the COVID-19 pandemic, our Power Systems business remained very resilient and grew revenues in 2020, as our electric utility customers are actively investing to upgrade and modernize the grid.

These investments are driving attractive growth over the near and long term, including in our gas distribution business, which is effectively serving the growing need from gas utilities to harden and upgrade critical infrastructure.

As anticipated, communications and controls markets returned to growth in the quarter as project deployments, which faced pandemic-related delays, have steadily returned. Operationally, adjusted operating margins of 14.5% were down year-over-year.

As previously communicated, we took a series of temporary cost actions and salary reductions in the second quarter of 2020, which resulted in a one-time benefit of approximately $20 million, and we lapped that benefit this quarter.

We also continue to face significant inflation from materials, freight and labor as the impact of tight supply chains across the industrial economy drives higher input costs. However, we are being aggressive in our response.

We continue to utilize the strength of our brands to lead most of our markets in frequency, pace and magnitude of price increases. And we achieved strong price realization in the quarter of 3.5% with increasing traction into the second half.

We also continue to realize significant savings from our prior investments in restructuring actions, particularly within the Electrical Solutions segment, where you're already seeing the productivity benefits of unifying that segment under a common leadership structure come through in our results.

We will give you some more granular color on our outlook section at the end of this presentation and our expectations for the second half, but we are managing through a dynamic environment aggressively and proactively and we now expect to deliver stronger full year results than from where we said a few months ago.

Let me now turn it over to Bill to give you some more context around our financial results starting on page 5..

Good morning, everybody. I know how busy you all are so appreciate you taking time with us. Page 5 has got some graphical representations of what Gerben walked through. So you see the 26% sales growth to $1.192 billion. That's got four points of acquisition in it, and it's got about 3.5 points of price.

It unpacks to electrical growing at about 28% and utility at about 23%. So quite a broad-based and I think fair to describe, this as a V-shaped inflection for us comparing against the second quarter last year, where we were down just a little over 20% in total, a little more skewed towards electrical as Gerben highlighted.

Utility was a little more resilient last year. So I think the other thing to comment on about the sales growth and about the $1.192 billion is sequentially the pickup from the first quarter is better than typical Hubbell seasonality.

So not just does the V-shape feel like it's rebounding from last year's dip, but it also feels like building some momentum and some improvement from first quarter to second quarter. The OP line $173 million is an increase of 15% year-over-year.

Gerben highlighted the fact that, this V-shaped recovery is bringing with it, a significant amount of inflation. And so we're working hard to get our pricing up to that level and we're making quite good progress on that. And we'll talk about that a little bit more in our segment discussions.

And as you look at earnings per share on the lower left of page 5, you see an increase of 26% to $2.36, a nice increase that's in line with the sales level. To get there, we had some help from the non-op areas, most notably from tax.

Some discrete items allowed us to have an effective tax rate in the quarter in the mid-18s, which would cause our full year tax rate to come down to that 21%, 22% range from what we would – started to expect of 22% to 23%. Second contributor to – on the non-op side is interest expense, a little bit lower this quarter. We mentioned last quarter.

We had refinanced $300 million of bonds at about 130 basis points lower interest rates. So we're getting the benefit of that lower interest rate here in the second quarter. And the free cash flow of $131 million, it's important to think about what the right comparison and context for that $131 million is. Last year is a strange compare.

In the second quarter of 2020, we were certainly reacting to the sharp contraction in demand and were harvesting the working capital section of the balance sheet collecting receivables, not building or investing in inventories. And this quarter, this year is a 180 to that. You basically have gone from the contraction to the expansion.

And so, we're investing heavily in receivables and inventories. So, I think looking back to 2019 is actually pretty instructive. We've got a full year target this year of getting to $500 million of free cash flow which is around the level we achieved in 2019 and at the halfway point of 2021.

This $131 million plus the first quarter gets us to about $170 million of first half cash flow which compares favorably to where we were in 2019. So feels on track and I think you got a story of quite strong revenues and continuing to navigate the inflationary environment, as we work to get our margins up to where they were last year.

I think it's instructive though to unpack the enterprise results into the two segments because they are performing a little bit differently. We'll start with the electrical segment. On page 6 you see a 28% growth rate to $603 million of sales. That includes 1% from acquisitions.

You'll remember us talking about the AccelTex acquisition, a really good investment made by the segment in the 5G antenna space. There's about four points of price in that organic growth of 26%. And so, you'll note that that's a little bit ahead of the average for the company at 3.5%.

We're finding that the ED channel is quite receptive to these price increases. We find that they're passing that along the channel to the end user and installers. And most of what we're selling, we're finding selling through and not any kind of prebuy situation that we're noticing in the channel.

The broad-based nature of this recovery is certainly notable. The electrical segment was down about 26% a full year ago. The next quarter it was down about 14%; the next quarter about 10%; and then flat and now up. So quite a noteworthy inflection and quite broad-based.

I'd say if anything leaning to the industrial side as kind of leading us in the V-shape rebound. Certainly, light industrial has been our strongest end market. We're selling connectors, grounding wiring device-type products into that end market and experiencing attractive growth. But the heavy side is showing positive signs as well.

Our Harsh & Hazardous business, which has been quite oil and gas based, we've worked hard to diversify the end markets they serve with explosion-proof devices.

And they've returned to growth which is quite welcome, as well as heavy industrial components which are serving factories, steel mills, rail transportation and the like also showing good signs. On the non-res side, we had started the year a little bit cautious on non-res. We're anticipating some contraction there.

We've been experiencing growth and interesting I think to be led at this point by the reno and retrofit side of the business. I think new construction the early indicators the leading indicators are looking positive there as well. So certainly we have a brighter outlook for non-res than we started the year.

Inside of there we've got not only wiring devices, but our commercial and industrial lighting which grew over 20% in the quarter. And the resi business was -- it continues to be strong. And it sort of was strong all through last year. So they'll have harder comps to lap in the second half, but still showing some decent resilience there.

So the team did a great job of getting margins to expand to 13.4%, 41% growth in operating profit to $81 million. The higher volumes are important. The restructuring work that Gerben mentioned at the beginning quite important. We've been investing money as you followed us here.

A couple of years ago, we spent about $37 million on restructuring, last year about $31 million, anticipating to spend about $20 million this year. And so that you're getting both a tapering effect of that spending, but also the benefits from the projects we did last year creating some good lift.

And those were substantial enough to help us overcome the headwinds from the inflation that we're facing. And I think it may be worth just a comment and pulling the lens back on restructuring. We continue to feel quite good about the program. We've taken out by our analysis about 1.5 million square feet from our manufacturing footprint. That's over 15%.

And we continue to see opportunity both on the manufacturing side ultimately on the warehouse side as well.

And as Gerben described in his opening comments the ability to take the segment and compete collectively under a unified leadership rather than have three different vertical businesses we think is opening up good opportunities to share warehouses, to share factories and become more efficient. And we see continued runway there.

I would comment that in the first half of the year, we didn't spend half of the $20 million we anticipated. I'd say a lot of our engineering focus was on capacity and making sure we had production to service our customers' needs. And so the back half outlook for electrical will contain an increase in R&R spending compared to the first half.

But we anticipate the demand to be strong. They start the second half with a big backlog and the pricing actions continue to increase as commodities continue to increase most notably steel. We've seen copper and aluminum starting to show signs of maybe flattening out.

Steel is still showing signs through the third quarter of increasing until hopefully it looks like some rollover in ultimately in the fourth quarter. So we continue to price for that. I think we've also had to expand our definition.

I think those of you who followed us know we try to maintain a parity between price and commodity costs and then use productivity to offset inflation in non-commodity areas. We're finding that the inflation in areas like transportation and some labor costs are such that natural productivity levels are insufficient.

So we're starting to sweep those other items into the bucket that need to be covered by price. And again, we've been encouraged by the channel's reaction. We'll continue to offset those and to get to -- get back our margins. The utility side on page 7. You see 23% growth to $589 million.

There are six points of acquisition inside that utility growth number and three points of price compares to the four points of price in electrical. So, utility customers moving a little bit more deliberately than the ED channel serving the electrical side.

Those acquisitions to remind you included in the enclosure area for electric utilities, water utilities and telecoms. That business is high growth high margin. We also bought the company's called Armorcast.

We -- Beckwith is wrapping around here, which is controlling the infrastructure, and maybe also of note we sold a very small line of business from within Aclara, the customer engagement business that didn't fit well with our set of solutions and was worth more to someone else than it was to us.

So it has no material impact on our sales or OP going forward, but we feel we can use the proceeds from that to invest in areas with a better fit. We've unpacked the sales here in Utility Solutions between the components and the communications.

The components is both electrical T&D, the old legacy Hubbell Power Systems continuing though resilient last year continuing to grow very, very nicely this year. The grid modernization trend and renewables trends continue to push spending there. We've noted a little better strength in distribution and transmission this quarter.

That can go back and forth. And the gas distribution components that go into the last mile of natural gas distribution had been you'll recall slightly held back by some site access issues. And happy to see those conditions improving seeing nice growth and nice margins out of the gas distribution business.

On the comms business and Aclara, we had also had site access issues there, and as those have improved we see that returning to growth. So, again, a broad-based situation of healthy demand inside of Utility Solutions. $93 million of operating profit is comparable to last year and at lower margin than last year.

The price cost area continues to be a source of drag here in the second quarter. Our three points of price is up from about one point in the first quarter. We've had our fourth increase already announced, which will influence the second half. So I think an unprecedented number of increases.

And we feel we're certainly leading the market as we announce those price increases, but we continue to be very confident that we'll catch up as this inflation from the commodity starts to level out that we'll catch up and restore our margins. There's two other factors worth mentioning here in the margin profile.

First is the Armorcast acquisition that I mentioned. It's located in Southern California and in our -- we closed on the very early January, so we've had it for about six months. And I'd say they've endured significant labor turnover and having a hard time staffing the facilities in that geography.

So it's not been contributing much though it's on the bottom line. And so we're working hard and we're very excited about the acquisition. And we're confident we'll have a better second half and set up well for a better 2022.

I think the third driver I'd mention to you is inside of Aclara, recall, there's three lines of business there the communications, the meters and the install. The install business is, at the lower end of profitability of the three lines of business. That's where the access had been constrained.

As that was loosened, we saw the install area be the largest level of growth and therefore, being mix unfriendly. And so those pieces conspired to result in flat OP for utility. And I think that describes the two segments and where they are. As we think, about the outlook for utility, we feel great about the backlog that's starting in the second half.

The demand feels broad-based and solid. Perhaps of note the chip shortage that we're all reading so much about, the place that would affect Hubbell is more in the Aclara on the communications side. And we're sort of watching those supply chain situations closely. But our guidance is contemplating some of those risks.

So I'd turn it back Gerben, to you to talk through the outlook in general. .

Great. Thanks, Bill. Let's turn to our 2021 outlook then on Page 8 and starting with our end market pie chart on the left. With the first half behind us and increasing visibility into the unfolding economic recovery, our markets overall are trending above expectations that we had at the beginning of the year.

Most notably as Bill, indicated industrial markets have strengthened throughout the year and we now expect this market to be up high single digits on average with light industrial verticals leading the way, and heavier industries expected to continue recovering in the second half.

We're also more optimistic on nonresidential markets, where we were expecting a modest decline a quarter ago and now see modest growth. While new construction activity remains mostly soft for now, we expect to see recovery here heading into 2022 as major leading indicators have rebounded strongly in recent months.

Near-term, our incremental optimism in non-residential is driven by reno and retrofit markets, which have been solid as the economy has reopened.

On the utility half of our business we are sticking with our prior end-market guidance for approximately, mid-single-digit growth for the full year, with communications and controls outgrowing components primarily, due to prior year comparison dynamics.

This all adds up to mid-single-digit market growth for the full year and we are now anticipating high single-digit organic growth as we drive approximately four points of price realization. Then when we layer on the contributions from acquisition we now anticipate total sales growth of 11% to 13% for the full year.

We've also tightened and raised our adjusted earnings per share guidance by $0.25 at the midpoint versus our prior range, and continue to expect approximately $500 million of free cash flow for the full year.

I'll give some more context on the drivers of this guidance raise at the next page but with half the year behind us we are confident in our ability to deliver on these raised expectations. Now turning to Page 9 for our year-over-year EPS bridge.

We've shown this earnings bridge throughout the year and we think it's a helpful way to summarize the various moving parts of our guidance.

At a high level, what has changed relative to our prior guidance, is that we now expect stronger volume growth, stronger incremental price realization and some non-operating tailwinds from a lower tax rate all of, which is more than offsetting inflationary headwinds, which have also turned out to be more significant than contemplated in our initial guidance.

The net impact of these dynamics allows us to raise the full-year guidance to now reflect mid-teens adjusted earnings per share growth. A couple of other points of note, on this page before we turn it over to Q&A. Restructuring continues to be a key driver of our financial model with ongoing investments generating strong savings throughout this year.

We continue to include restructuring investment in our adjusted earnings framework and are still targeting investments consistent with our prior guidance of approximately $0.30 though, we now expect this investment to be more weighted to the second half, as Bill, highlighted as our operational efforts over the first half has focused more on increasing our production capacity to meet the strong demand from our customers.

We still have a multi-year pipeline of footprint optimization products, to drive incremental savings well into the future. On price/material, as we've reiterated consistently throughout the first half we are highly confident in our ability to manage this equation to net favorability, over the course of a cycle.

Although inflation in material, as well as freight and labor have persisted throughout the second quarter, we have taken aggressive pricing and productivity actions that will accelerate in the second half and generate wraparound tailwinds going into 2022.

As is typical, our financial model tends to operate with a one-to-two quarter lag between commodity cost and price capture. So while we anticipate, catching up the net positive on price/material across the enterprise by the fourth quarter, this will continue to be a headwind on a full year basis.

To conclude, we are raising our full year adjusted earnings per share guidance to a range of $8.50 to $8.80. We remain confident in our ability to deliver on these commitments. And we are focused on serving the critical infrastructure needs of our customers, while continuing to actively manage our costs and deliver value for our shareholders.

With that, let me now turn it over to the Q&A section..

Question-and:.

[Operator Instructions] Your first question is from Jeff Sprague from Vertical Research. Your line is open..

Thank you. Good morning, everyone..

Good morning, Jeff..

Good morning, Jeff..

Hey. Good morning. A couple for me, first just on, maybe where you closed Gerben with kind of getting net neutrals on price cost.

I assume that comment was just on the raw materials, or are you talking relative to the broader scope that Bill was talking about, trying to get the labor and the logistics inside that construct also?.

Yeah. I mean, we're talking about getting the material piece covered. And we're -- we think we've got the actions lined up and already asked. But as we've been through our reviews with everybody, we keep showing them those other chunks Jeff.

And so, I think we've got to keep pushing on this, and making sure -- that there's other forms of inflation outside of commodities that we've got to sweep up into our pricing..

Yes. And then, Jeff, maybe I'll add a comment on that. It's -- in much lower inflationary periods, we've generally adopted the strategy of price for commodities. And then, we're driving productivity in our business to offset more general inflation in this environment, where we're seeing this steep inflationary pressure.

We're definitely thinking around our pricing strategy more than just commodity, but think inflation more broadly. So, a lot of our actions are with broader cost inflation in mind..

Understood.

And then, the comment on restoring the power margins, could you just clarify kind of, when and to kind of what level you're talking about restoring?.

Yeah. I think Jeff if you look at the utility segment's March, from 2018-2019 into 2020, you saw a nice healthy couple of hundred basis points of margin expansion there. And so we're definitely catching the utility segment here, off of a nice high watermark.

And even specifically, it's interesting, thinking about the third quarter last year, when they actually rebounded nicely from the second quarter. They actually had some factory closures with COVID in the second. And they still had some favorable price cost going such that, they had real nice margins then.

So, we've got some tough comps, not only in the second half of 2021, but looking back. And yet, as we continue to grow and manage price cost, we think we can -- we're hoping that, 2022 kind of recovers a lot of that margin that we faced the headwinds on this year..

And what you should expect to see is sequentially improvement on that margin as we go through the balance of this year..

Okay, great. And then just one last one for me, just on Aclara, obviously the comp was super easy. The growth in the quarter doesn't really stand out relative to that comp. But I assume there was still access and other issues.

But could you just give a little more specific color on how you see things playing out there over the balance of the year?.

Yes. I think that the access will be -- even despite some of these variants still feels like access is better. I think in terms of demand the backlog, plus the blanket orders continues Jeff to be healthy and is higher than last year. And so, the lumpiness of the business makes it a little tricky to be -- too predictive to you narrowly.

But certainly, what we're looking for is the comms and meters business to be the drivers of the growth not the install side right? So we sort of need that to stabilize. But again, I would say the pipeline the backlog all looks where we want it.

And so if you take out little quarter-to-quarter distortions, I think we still see this medium-term outlook for us is mid-single-digit growth there with margin expansion. .

Great. Thanks a lot guys..

Your next question is from Steve Tusa from JPMorgan. Your line is open..

Hi Steve. Steve, if you're talking we can't hear you. I don't know if you're on mute or maybe got dropped. .

Operator can we move to the next question, there is a problem with Steve’s line..

Your next question is from Tommy Moll from Stephens. Your line is open..

Good morning and thanks for taking my question..

Good morning..

So in terms of your end market strength, you've talked about a V-shaped inflection versus last year also pointed out some momentum in the quarter-over-quarter comparisons. And then obviously raised your full year outlook. As you look across the business and as we start to think about next year, I know we're not going to get guidance today.

But do you have any sense of the duration of this momentum? I mean any pockets of your business where you can start to see a more normalized rate of change, or is it just... .

Yes. I think it's -- I think Tommy the first piece that's hard and you're right to point out is comparing a second quarter, when last year we were down 21% to this quarter. That's hard to describe that as normal.

And so, we took a decent amount of enthusiasm from the sequential from 1Q to 2Q to see that behave in a better-than-normal seasonal fashion, not by a lot. But when we look at orders the orders did improve by a lot. And so that suggests to us the demand profile is improving.

I think the cloud in our crystal ball comes when -- if you told us that customers were anticipating price increases and a choppy supply chain that would be a little bit irregular in delivering customer service. That could lead to earlier buying than needed. So, we keep watching, what's selling through in the channel versus what's out our doors.

And so far through the first half our sense is that everything is kind of moving. Whether the end user is doing a little of stockpiling is hard for me to see or to know.

But I think we're going to get past the down V and the up V here in the second and start to have a slightly more normal-looking second half, when we start to do a VPY basis on the top line. So, I think the units versus price will be interesting to keep looking at.

There's going to be quite a bit of price in the second half, if you think about us anticipating a full year at 4 points of price Tommy. And we had a first quarter of 1 point and a second quarter of about 3.5. You can see that we're anticipating a second half over 5. So that will be on top of units.

And so, we'll have to keep our eye on sort of those organic pieces and make sure we track the units as well. .

And maybe just a couple of comments to add to that. I would say what gives us confidence with our guidance going into the second half is what Bill just indicated. We built backlog in the first half, so we have that going into the second half. We also have not seen meaningful restocking in the first half.

So that certainly helps -- gives us confidence that we can deliver in the second half.

Pulling that lens out a little further going into 2020 and even beyond, I would say -- and this is an area that we've talked about around some of the secular growth trends in our industries, right? So whether you look at renewables or grid reliability, those are areas that we feel are setting us up well longer term to continue to enjoy growth.

Of course, the comps get tougher if you spike up like this, but we're still very optimistic about our growth going forward..

And as we think about Tommy, stimulus and any kind of infrastructure package that government policy maybe behind, it's certainly too early for us to see any impact of that obviously. And it's not even clear where 2022 might be impacted there. So, we think the demand we're seeing is solid and we're pretty confident in that..

Thank you, both. That's very helpful. I wanted to follow-up on capital allocation. You've taken care of your near-term maturity. Your leverage appears to be well under control.

So, what would you offer to help frame up priorities in terms of M&A shareholder returns any areas of increased investment internally that you've got in mind?.

I would say Tommy, if you think about us generating order of magnitude $600 million or so of operating cash flow, and I'd anticipate there being a couple of hundred million of dividends, $100 million of CapEx. That dividend is meant to be at a relatively -- around that 45% of net income payout ratio.

So, as our net income kind of structurally gets better, anticipate increasing dividend payout in relation to that. The $100 million of CapEx is order of magnitude, a couple of points of our sales. And we're finding that that's adequate to handle capacity plus productivity needs.

Our share repurchases tend to be in that $40-ish million range, $50-ish million a year, which we really, at a starting point Tommy, would think about offsetting dilution rather than per se trying to shrink the shares outstanding.

And that leaves about $250 million of acquisitions, and we continue to think that's a -- it would be a nice amount for a given year to be able to spend that invest that in new acquisitions. Armorcast started the year its first day. It was new. And so, we're eager to get back and close some acquisitions. We've got a nice pipeline of opportunities there.

I'd say the market is a little bit hot if you're on the buyer side. I'd say valuations are tending up, processes move fast. And so we got to be mindful as we are on the buy side here to make sure we can find good things at good values. And we're confident that we'll continue to do that..

Thanks Bill. That’s helpful, and I’ll turn it back..

Your next question is from Christopher Glynn from Oppenheimer. Your line is open..

Thank you. Good morning..

Good morning..

Good morning Chris..

Good morning. So more good numbers top line from utility and you broke out the 19% for T&D, 9% for Aclara organic.

Curious how you'd peg the market growth there because I think you have a legacy of doing a little bit better?.

Yeah. Inside of T&D, I think our perception is that we maybe have been share -- gaining a little bit of share. But it's -- may be hard for me to prove that to you, but it feels to us like we are Chris..

Okay.

And is there any way you benchmark the Aclara side of the house?.

Yeah. I mean certainly there are a couple of public comps who report sales growth from the meters and comms side. And as we looked at them quarter in quarter out over our ownership period, I would say it feels like we've outpaced them a little bit probably on the meter side. But again we continue to see that as a good mid-single-digit long-term grower.

And couple of decent public comps that we can track ourselves to, to make sure we're growing with the market..

Yeah, it's truthfully easier on that side on the communication side where you have some public companies to compare than on the legacy power side where there's less -- or they're within larger companies. So it's very hard to get to that in exact numbers..

Okay. And then on electrical curious too, do any deeper dive on the book-to-bill, and then within non-res the particulars of what's improving there.

If it's, kind of, bifurcated in your product categories or not?.

Yeah. I mean the book-to-bill was over 1.15 in that neighborhood so decent bookings. And in non-result, we had higher performance on the reno retrofit side than we did on the new construction side.

So something that -- like C&I lighting Chris that's become more dependent on the reno, and retrofit I think benefit and it was interesting to see them grow at over 20% in the quarter. But the leading indicators on new construction in non-res are actually leaning favorable too.

So despite the fact that we started the year a little cautious on non-res it's proved to be stronger than we were predicting back in January..

All right. And then just clarifying, I think you said lower tax rate. I'm not sure if you gave us a level to model, if you could comment there? And also would -- I'm not sure what's driving that.

But would we expect just normalized tax rate back in 2022?.

Yeah. So I would say our normal tax run rate has been in that 22% to 23% range. In the second quarter it was down around 18.5-ish percent. And so that will cause a one point reduction in the full year to 21%, 22% rather than 22%, 23%. So the discrete items in the quarter don't repeat and don't reverse.

They just help -- they create a little bit of tailwind in the second quarter and that gets smoothed out over the full year..

Understood. Thank you..

Your next question is from Josh Pokrzywinski from Morgan Stanley. Your line is open..

Hi, good morning guys..

Hey Josh..

Good morning Josh..

Bill just to follow-up on some of the price cost commentary and, kind of, that broader definition that you're using. What would be expectation as maybe some of the material side of the equation starts to level off but maybe things like freight or labor or other logistics costs remain high.

Like is that something that you feel like you can go to the market with price with, or do customers really want to be able to circle a chart with steel prices and tie back to that a little bit better?.

Yes. I mean I think we're trying to position that conversation in the broader sense and you've captured the two biggest drivers that we're going to throw in the bucket, which is transportation costs and labor costs. So we certainly owe our customers every effort at us having productivity.

And I would say to expect that productivity to give us a couple of points off the cost base is realistic, right? In an inflationary environment like this that you're just going to – it's just those two items you mentioned transport and labor are going to outstrip what productivity you can do.

So, we feel the more surchargey the discussion is Josh, right, where you're just pulling out a graph of here's steel, here's copper, here's aluminum, I think that's too – that feels like you're just surcharging for the metal and it is – misses the part of the quote conversation that we think is important, which is overcoming inflation.

So that's sort of a new initiative and drive of ours and Gerben and I spent last week in operations reviews and really met with all of our key BU and P&L managers. And they're all pushing for that definition of what price needs to cover. So we're going to keep driving here in the second half..

Yes. I would maybe just add to that. It's – we're – have definitely evolved in pricing in the businesses both how we organize around it, as well as our approaches. We're doing it more aggressively. And I'd say we're doing it with more analytics around it and organization around it. So I fully agree with Bill's comments.

It's less about indexing and surcharging than it is looking at pricing across your entire portfolio. And where can you get price and where do you need price. And I think we're managing both those probably better than we've ever managed it. And I think you see that by price realization here.

Commodities have continued to go up throughout this year, right? And it's now – I mean steel as an example, it's one of our highest uses. And a year ago that was sitting at about $600, $700 a ton. We're at $2,000 a ton and so – and it's sitting at a high right now.

So will that eventually level off? Will that come down? Who knows? The thing that we can control is the actions we take, which is pricing and we're going after that really aggressively..

Got it. That's helpful. And then just on the utility side for you Gerben. Obviously, a lot, especially on the legacy Power Systems business going on in the marketplace, whether it's some of the like energy transition stuff or on renewables or grid modernization.

But I also know that there's some heightened kind of near-term activity with places like Texas and California.

What's your sense of kind of what is going on there that you would say is a bit more kind of secular and forward thinking on the part of your customers versus stuff that's more reactionary in the here and now? And my guess would be it's all of the above but can you take that a little further?.

Yes, it's – kind of laughing, as you asked that question because it is and it's – I would say it's still – I see it very much consistent with how we've communicated that this. And there is absolutely some secular drivers in this market that will continue to set us up.

It's a very aged infrastructure that with the push for renewables, which is real I mean this is happening is putting a ton more stress on the system. So I think there is a desire to retire less efficient assets and to put on more efficient, which is the renewables. And we benefit from that very secular.

And I think in that there is a heightened realization of how fragile this grid is and that's where you see the upgrading of the grid. That you get reminders of that when there are storms and there's fires. But I'd say those two kind of go hand in hand, and we are very bullish on this over the next two years.

But as you point out, it's not necessarily one thing, but it's positive for us. And I also say that, there is generally good support from regulators on these types of investment. The Public Utility Commissions are recognizing need for this as well. So I think there's a lot of momentum here. .

Great. Appreciate the color. Thanks, guys..

Your next question is from Chris Snyder from UBS. Your line is open..

Thank you. I wanted to follow-up on some of the –.

Good morning, Chris..

Hi. Good morning – on some of the commentary around raw material inflation.

Could you remind us how significant raw material consumption is as a percentage of cost of goods sold in a normal year? Just so we can put some math around the Q4 price cost neutral comments, which it sounds like is reflecting price up in the 5% kind of plus range?.

Yeah, Chris. Your math, I like the way you're doing the math. I would put our raws in the order of magnitude of the low 40% of sales and a little bit more than half of COGS. And so there is a mathematical equation between what you need on the top line and price versus the inflation you're getting in the raws.

So I think about it exactly the way you are..

Okay. I appreciate that. And then for the second one, I wanted to follow-up and – particularly on the non-res business. And then within that specifically the new construction side, which feels like it's beginning to turn.

Could you just remind us where you sell into the new construction life cycle? And I know lighting is quite late stage, but maybe more on the electrical side just so we can kind of feel for how you realize that recovery?.

Yeah. I would say the rough-in electrical is fairly mid-cycle to the construction. So think of boxes that would be inside of the wall. But then some of the receptacles and lighting and poke throughs in the floors those would all be quite late cycle. So we're kind of mid to late and skewed towards the late in the timing of that..

Appreciate that. Thank you..

Okay..

Your last question is from Justin Bergner from G.research. Your line is open..

Good morning, Gerben. Good morning, Bill..

Good morning..

Good morning..

Two quick questions.

On the grid side, the T&D side, what is the potential upside from bearing electrical or bearing power lines for example in California? And then on the utility infrastructure bill, if the bipartisan bill passes looking out to the medium term do you see that as sort of extending this 5% to 6% organic growth rate environment for your T&D business or actually increasing that growth rate?.

So, Justin, let me take the first part, and I'll give Bill the second part. So the first one on the grid, T&D the particular question was around underground. I think you probably saw recently a large IOU utility talking about perhaps doing this.

I'd say, our portfolio leans more to the overhead side, but if you think about transmission infrastructure and the distribution grid, most of the US actually is overhead except when you go into neighborhoods. We do have a presence in the underground.

I would also say that, when – and as you look at the investments required to bury this, it's humongous. So it's generally at least 10x or more the cost. So I think many utilities don't find the economics to be able to do this. So I don't see it as a threat to our franchise truthfully.

But it's something that in certain situation can happen and we can serve materials for it as well..

Yeah. I think the second half on the infrastructure. I think areas like renewables can really be quite favorable to where Hubbell is exposed solar and wind components both -- on both sides of our segments. We would have utility benefits, as well as some of the grounding and component elements inside of electrical.

Anything on grid reliability certainly would be favorable. There's talk on telecom reliability, just making buildings more energy efficient for our behind-the-meter piece of our business.

So, there's a lot inside of that that ultimately, I think could contribute to maybe what I'd call a stimulated period of demand that would be a little bit more than sort of our normal level, if that comes to pass and gets spent over who knows a period of five years or so.

So, it would be certainly on the topline, it would be -- have bullish implications I would say..

Thank you. I'll take my other questions offline. I appreciate the color..

Okay. Great. Thank you..

There are no questions over the phone. I'm going to turn the call back to Dan Innamorato..

All right. Thanks, operator. Thanks everyone for joining us. I'll be around all day for questions. Thanks..

This concludes today's conference call. Thank you for participating. You may now disconnect..