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Hubbell Inc. (HUB.B)

February 21, 2013 1:20 pm ET

Executives

David G. Nord - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Finance Committee

William R. Sperry - Chief Financial Officer and Senior Vice President

Analysts

Scott R. Davis - Barclays Capital, Research Division

Scott R. Davis - Barclays Capital, Research Division

Okay. Great. Thank you all for sticking around later on a Tuesday here and not being on the beach, appreciate it. We have Hubbell up next, and Dave Nord is the relatively new CEO. And I think he's pretty well regarded, I should say, both internally and externally by -- among investors; and Bill Sperry, who is the CFO, that I think many of you know as well.

Just to give you a little bit of context, I've covered Hubbell for a reasonably long period of time. And their reputation, if you go back kind of 10 years ago, is that it was a sleepy company with an okay business mix, nothing really all that overly interesting. And more so, over the last 2 or 3 years, it's become fairly, I think, more ubiquitous amongst the investment community that their portfolio is actually much more interesting than most perceived it in the past, and that the company was really not sleepy and no longer sleepy. I think the Burndy acquisition was one that woke a few people up and said these guys are really trying to participate in the consolidation of this industry.

We've seen a lot of activity, notably Eaton and Cooper and ABB and Thomas & Betts has created some, I think, 2 sides that I mean, one side of it has created some optimism that since the industry is consolidating, that the next up-cycle we'll see maybe greater price discipline and further margin upside. And then obviously, there's always chatter of continued consolidation, and Hubbell participating, in one way or another, in that. You probably prefer that to be you're buying something, I'm guessing, and not the other way around. But I'm joking.

So anyway, it's one -- we don't get a lot of pushback on recommending Hubbell as a stock right now. However, as I said in the previous meeting with Ingersoll-Rand, there is a tremendous amount of debate of what type of a recovery we might see in things like commercial construction, most notably commercial construction really. I think at this point most understand that utility transmission, at the very least, transmission spend is -- the outlook is good. Distribution's been probably better than most would assume and generation's not so great, but that's not an area where you guys are highly focused.

So when we think about today, I think some of the topics aided to dig in what Hubbell is doing to really position itself for recovery in its end markets and how it can create shareholder value. I think there's going to be questions related to capital structure. Hubbell is one of the companies that we would highlight that's probably a little bit too cash heavy or debt light, I should say, and scale. I think more and more, we've been writing in our research about the importance of having scale, not just in your most important local markets, but more on a global basis. And I think it's going to be interesting to chat a little bit about where Hubbell has scale and where they don't have scale and where they feel like they might need to build that up.

So with that backdrop, why don't we start off. Maybe, Dave, a bit of a state of the union or if you want to give us an update of what Hubbell's been up to and that should help? And then we can dig in to whatever questions after that.

David G. Nord

Sure. I'm happy to. Okay. Thanks, Scott. I mean, it's great to be here, it's interesting. I'm a little nervous, though, because you're a little more serious in this introduction than last year. I recall last year, the introduction with Tim had some reference to Caddyshack and a few other things.

Scott R. Davis - Barclays Capital, Research Division

I was told I have to grow up.

David G. Nord

So keep it light. Keep it light. It's okay. It's okay. Well, a lot's happened since we were here a year ago. Importantly, we had a good year, better than we thought a year ago. Finished a little weaker, but you can't argue with finishing with sales just over $3 billion and earnings per share of $5, both records for Hubbell. And that's -- not lost in that is a fairly significant management change over the course of last year. In June of last year, I was named President and Chief Operating Officer, and I was fortunate Bill Sperry was on the team. And so Bill could be named as the Chief Financial Officer, replacing me, and then in December of this year...

Scott R. Davis - Barclays Capital, Research Division

You finally get yourself a good CFO.

David G. Nord

Finally, yes. I keep tell him to do what his successor -- his predecessor didn't do. And then in December, the Board made the next move and named me CEO, effective January 1. And Tim Powers stays on as Chairman of our Board. So when you think about it, the challenges for us were -- in the interest of the Board, was making sure that the succession process and transition was seamless. So we're particularly pleased that we were able to put up record results in a year that we were going through that change. And I think that's -- we expect that to continue going forward for sure.

I've been with Hubbell for a little over 7 years. Bill joined about 5 years ago. And so part of the plan -- we've had a very good run over the last 5 years not because the market's been great, but because we've spent a lot of time focusing on execution. And I think that's been the charge for us to keep it going. And since we're familiar and we're part of doing that, we feel pretty good about our ability to continue to do that.

The year, well it -- last year finished a little week in December. It snapped back pretty well in January, which we tend to see from time to time, just buying behaviors around year end. But we're still cautious about this year and how it develops. We're a little -- we tend to be conservative buyers, and particularly because in a lot of our businesses, we don't have great visibility longer term, so we're looking at leading indicators and other factors. But those seem to be suggesting that at the second half of the year we'll start to see some better improvement, leading into great future opportunities. But until we see that, we want to be a little more cautious. So with that...

Question-and-Answer Session

Scott R. Davis - Barclays Capital, Research Division

Yes. Let's back up a little bit, I mean, I think one of the questions I asked the folks in Ingersoll-Rand is that one of the things we really struggle with is having a real forecast for commercial construction that is anything other than a total guess. And we all look at the same data. I happen to think that the ABI data isn't all that helpful, I think Dodge is a little bit better. But when we look at our forecasts, we're forecasting up 5% in 2013 and then up 7% in 2014, but rarely have we ever seen a cycle that's that kind of benign. Particularly in -- I mean, we haven't had a rate environment like this. But look what's happened in the residential side and you can see what the impact of lower rates and pent up demand can really do too. I mean how do you guys think about it? I mean how do you think -- I mean you kind of have to get it right too. I mean you may need to add capacity or sales people or at least be available with inventory to provide a fast snapback. I mean, we've -- how do you forecast internally and think about it?

David G. Nord

Well that's -- you're right. The non-res part of the business is particularly difficult to forecast. And it's been even more challenging as past history, when cycles that were more predictable hasn't been the case, as you describe, it's been a benign recovery. And so, we use a lot of external data, Dodge and ABI. We do a lot of analysis around that. But we also rely a lot on our customers and what customers are seeing, both in distribution and the contractors. One thing that is for sure is that we have found, and we'll see this time too, that the residential market is the first to recover, and then the non-res will lag back. We've all suffered through a slower recovery on residential, which has started to accelerate. And typically, for our business, the non-res part of the market would lag the res recovery by 6 to 9 months. But because of the slow pace of residential recovery, we're a little bit more cautious around the recovery on non-res as well.

Scott R. Davis - Barclays Capital, Research Division

Makes sense. So you don't have any idea either. So basically, it's just we're all going to walk around and wake up in 2014, it's going to be up 25% or flat, and we're going to get run over or otherwise, right?

David G. Nord

Well, the good news for parts of our business, certainly on the lighting side, we do have the advantage of being late in the process on construction. So we do have a little bit of lead time. When they're starting to put up buildings, we're going to be 6 to 9 months. So as long as the building's going up, we have that. But until that happens, it really is pretty much a guess.

Scott R. Davis - Barclays Capital, Research Division

Yes. So one of the things I mentioned in my overview is that scale, on a global basis, is becoming more and more important, or as we think it is. You can no longer just show up and put up a tent in China and sell your products that take about 6 months for somebody to knock it off and figure out how to do it cheaper. I mean, where do you think you need to build scale? Or maybe said a different way, does it matter as much for you guys? Because you're so kind of vertical specific and product specific that you do have scale in that particular product, but maybe not on a broad basis. I mean, how do you guys think about it and how should we think about the importance of that concept of global scale?

David G. Nord

I think your assessment about scale is right. We feel good about the scale that we have in the markets that we're in, but we also -- and we've talked about it the past, why we wouldn't expand internationally in a small way, because you can't just put up your tent. You need to have the depth. Because of the nature of the product and the breadth of a product, you need to have a broad-enough offering to be substantial in any of those markets. So that's why we have really concentrated on the North American market for a core part of our business, and that's on the electrical products. When you go beyond that to our utility products or our harsh and hazardous-related products, our high-voltage test equipment products, those are global market products and we do have good global position in some and can expand on those internationally. But we're not disadvantaged by our current size.

Scott R. Davis - Barclays Capital, Research Division

So this -- when you talk about M&A, it's -- anything that's really under $500 million is so far off our radar screen that when people ask us, what are the types of things that Hubbell can buy, the answer is, I don't know. Heck, I'd never even heard of Burndy before you did the deal, and it's a pretty darn good business and they're pretty substantially, and it's a sizable business. When you look globally out there, in an industry that is still somewhat fragmented but in the process of consolidating, are there those Burndy type of acquisitions that are still out there that -- and to a certain extent that, for one reason or another, haven't -- weren't attractive at the time to the ABBs and the Etons and even Cooper when it was a standalone company; what's the opportunities for that I guess is the question?

David G. Nord

Well there's certainly -- one of the points you made, is one of the things that we like to use to advantage, and that is you don't even know what some of these companies are. And that's great. Because a lot of people don't know who the companies are because they're really niche players, niche products. And that's really been our strength, is working within that market. And there are tremendous opportunities there. The challenge for us is to -- even for our business, to identify those opportunities. We know there are plenty out there. There's some that we have known, we've competed against, we have looked at from time to time. Burndy was one that we looked at for more than 10 years at different times. And there are other properties out there like that, that we will continue to evaluate and it's just a question of when those become available and, in some cases, trying to make them become available. But in the interim, what we do is we rely a lot on our core strength which is in our $25 million to $75 million size range of acquisitions. And what we're doing is scaling up to do more of those. We would historically do maybe 1 or 2 a year, and we're scaling up to be able to do 3, 4 or 5 of those a year to still get that same kind of additive benefit of consolidation.

Scott R. Davis - Barclays Capital, Research Division

Now does that explain why you've been so conservative on the capital structures side, is that you do see a pipeline of deals that's so interesting that you want to make you have dry powder for?

David G. Nord

Absolutely. Absolutely. That's -- that has very -- almost always worked to our advantage. It certainly was the case in the Burndy acquisition being a very clean, simple effectively cash buyer.

Scott R. Davis - Barclays Capital, Research Division

Right. Okay. Let's go to the Audience Response System then and do question one, if you will. Okay. Do you currently own the stock? And I think it's pretty much going to be either a 1 yes or a 4 no, given the size of the company, so why don't we start voting?

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. There's a short out there.

David G. Nord

We got potential. All right. Well, yes there was.

Scott R. Davis - Barclays Capital, Research Division

So this is -- it's funny, this is identical to what we've seen in the previous 3 presentations, identical. There is -- it's interesting that people are coming to presentations where they don't own the stock. Obviously, that is a positive indicator, I would say, for the dry powder that's out there amongst the buy side. It's been a strange day in that regard, but we…

David G. Nord

You might need to qualify that no to did you get out because you got nervous and little faith or...

Scott R. Davis - Barclays Capital, Research Division

Well, I think once you buy Hubbell, you never get out.

David G. Nord

I hope not.

Scott R. Davis - Barclays Capital, Research Division

Liquidity is by appointment I suppose. Okay. Second question, what is your general bias towards the stock right now, positive, negative or neutral? Let's start voting.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. So that's a pretty good ratio of positives to negatives, 4:1 or so, right? Well, better than 4:1. All right. Let's go to the third one. In your opinion, through-cycle EPS growth for Hubbell will be above peers, in line with peers, or below peers? Now this is through the cycle; okay, peak to peak or trough to trough. Let's vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. So it's somewhat of a normal curve. All right, we'll come back to the next 3 questions a little bit better. So let's go back to the core markets and let's talk about utility a little bit. Utility has been one of these strange -- I keep asking my utility analyst when electricity demand's going turn positive and he keeps saying, "Tomorrow." And he's been saying that for a couple years. It's a strange world out there, right. I mean you've got a lot of transmission projects that were -- even some that were supposed to be started in 2002 and 2003 that are now just being started. When you look at the list of projects, it just looks massive, a lot of miles going in. And then -- but if you look at overall utility CapEx, it's down, down, down and the outlook just keeps -- seems -- seemingly gets worse and worse. What do -- how do you guys fit in the whole value chain and how do you think about that, just as far as the differences between what you're selling to utilities and maybe even the outlook or what they're telling you?

David G. Nord

Well, it's interesting when you say that you keep waiting for utility demand to go up. We're in that interesting position of having a business that thrives on energy efficiency and reducing the use of our lighting business, in particular. And so here we are trying to discourage the use of a product that our other business wants to encourage and are struggling with the lack of use, so. And that's an interesting dynamic that I think is coming -- is playing a lot on utilities' decision-making because that hadn't been the case forever. There was always continued growth. You could bet on 2% to 3% continued growth in demand, and make your investment decisions based on that. Now they're struggling with, well, what is the future expectations on the demand curve? And so that's put a little bit of the uncertainty and volatility in the market. At the same time, we clearly have an infrastructure in the U.S. that is -- needs to be upgraded, both on the distribution side and then just moving the power to places where it needs to be, and not where it's being generated, so that's the transmission play. And so we're participating in all sides of that, but then I think you're running into probably the biggest obstacle that we continue to face, despite many attempts to simplify it, is the regulatory environment. The regulatory environment continues to put obstacles in, in rate base, in crossing state lines. And so that's been a bit of a challenge. But our market and our business is very well positioned and has done quite well in both sides, both the transmission and distribution, particularly in transmission. That was one that had been talked about for many years, isn't there going to be this bow wave of work and projects. Because you knew the projects were on the list, it was just a question of when they were going to be released. And I think we saw that starting late in 2011 and certainly at the beginning of 2012. A real big bow wave of projects released. That impacted us very favorably and we saw that last year, right. But that's brought us to levels of spending that are actually quite good on the transmission side. But of course, the expectations is always are you going to do better than you did last year and coming off 20% growth a year, that's a little bit more a challenge.

Scott R. Davis - Barclays Capital, Research Division

Let's talk about the storm side of it, then. I mean, this has been a strange world, particularly if you live in the Northeast, it feels like we get 1 or 2 weeks of blackouts a year and all kinds of fun stuff, but are the utilities changing their behaviors? My understanding is, and tell me whether I'm wrong, that for a number of years, utilities wouldn't stockpile any storm-related stuff, and if they needed it, they'd call you guys up and you'd have it and you'd get to kind of make a nice margin for warehousing it holding it for them. And is that changing at all, in the context of utilities wants the stuff on site, and they want to hold more inventory or any -- I mean, I'm just asking you guys a question.

David G. Nord

Yes. No, that's -- we don't find that as much for our product. A lot of our product is smaller piece parts that maybe different for transformers and poles, potentially that are difficult to get quickly. But for our products, they know, and part of it is the reliability of our delivery. As storms are approaching, we actually are -- we have a whole operation, that's sort of weather channel-like sort of storm chasers. And when the storm's coming, we load up the trucks with the parts to make sure that they're within striking distance. And so the utilities haven't had to change that part of their behavior.

Scott R. Davis - Barclays Capital, Research Division

Okay. And the price mechanism, that hasn't changed at all, you can still make a good margin, better than average?

David G. Nord

Yes. It's a good margin, but what's interesting is that the product itself is inherently a good-margin product. The pricing in a storm is no different than a non-storm. There's no incremental pricing there. It just is sort of an aftermarket-type product that has a better of margin.

Scott R. Davis - Barclays Capital, Research Division

Okay. So one of the -- I want to ask about mix shift. We're going to walk into, potentially, a period with commercials coming back, but industrial maybe isn't as strong as it's been in the last few years. Industrial products, I think are generally pretty good margin products. Do you offset that negative mix shift by the volume pull-through that you get in SKUs that you just haven't been able to get any volume with? I mean how does that work?

David G. Nord

Yes. Certainly you're right to point out that there is a drag on our margins from the mix because what's been a very strong market, particularly on industrial, is good margin business, is, if non-residential comes back, it's not at the same levels. It's not that far off, but there certainly is. So we're betting on the incrementals that come from that volume, but also continuing to focus on our core productivity improvements, particularly in our facilities. And we have today still, in my view, too many facilities. We have 23 warehouses and distribution centers, we have 57 manufacturing facilities. A lot of them are specialized and so they're necessary, but not all of them. So we continue to rationalize our footprint in a way that is affordable and, more importantly, manageable. As you know, we've had our problems in the past where we tried to do things too quickly or too many things at once. And we've -- because our business is so dependent on the reliability of our delivery, that we have to be very, very careful. But we'll have more going on this year, getting more of that done. And we've also, like it or not, through some of our acquisitions, continued to acquire facilities. So there's activity that has to occur there as well. So…

Scott R. Davis - Barclays Capital, Research Division

Okay. Let's see if there's any questions in the audience. Don't everybody raise their hands at once. We'll take the guy -- gentleman in the back.

Unknown Analyst

You mentioned you have 57 manufacturing facilities currently. What do you expect that number to go to over the course of the year and kind of longer term?

David G. Nord

Something less. There's not a specific number. And part of the reason that I'm a bit evasive on that is because the other question that we get on the other side is how much more volume can you absorb without adding bricks and mortar? And so one of the reasons, as we look at our markets over the next 2 to 3 years, we see growth in, certainly, markets that have more business on residential and non-residential. And we need to make sure that we maintain the capacity to support that growth. But it will be -- I would expect that over the next 2 to 3 years. We'll reduce that by 1 to 3 facilities a year, something like that.

Scott R. Davis - Barclays Capital, Research Division

Okay. Next question? Fourth row.

Unknown Analyst

I had a couple questions. One, just looking at your end-market pie chart, I wonder if you could talk a little bit about -- you talked about the utility outlook, so -- but maybe a little bit about the others in particular, as you came through the end of 2012 and we went through all the fiscal cliff uncertainty, did you see an order impact? If so, has that recovered? And obviously, sort of how is res and non-res looking to you? And then the second general question is with the combination of Eaton and Cooper, do you see any -- either opportunities or challenges in that integration, vis-à-vis, your own business?

David G. Nord

You want to take the end markets, Bill? And I'll come back on the Cooper Eaton.

William R. Sperry

Sure. I think starting with residential, you see it's a little bit less than 10% of our exposure. We've got a double-digit outlook there. And really, there are 3 components that comprise our exposure there. The first and largest is single-family house construction; second is multifamily; and the last and the smallest is really the DIY, kind of big-box Renault spending. And so, we've got a pretty favorable view right now of housing. I think we can be accused of we were probably a little early thinking it was coming back. But last year through '12, we had some double-digit experience, and so we're actually quite hopeful for how '13 is shaping up in terms of residential. The reason -- so that's only a small exposure of our revenues. But it actually helps drive, as Dave was mentioning, the non-residential piece as well. So when Scott was asking about what data you use and do any of the forecasters get it right. One thing that's pretty reliable to us is as you add houses, some of the commercial needs around that housing tends to follow. So -- but at the same time, we take a non-residential, we really separate at first cut between public and private spending going on there. And on the public side, we continue to see a real pull back from after the stimulus dollars were hitting at fullbore, that spending was about 50-50 between public and private. And that was unsustainable for the public sector to be -- to really be contributing that much of the spending. So as that's retreated as we expected, that's causing headwinds to the growth rate. But we are seeing a much healthier private non-res construction market right now. And so, we think that we're seeing that pretty flattish for the first part of the year. But I think as the public stabilizes, we should start to see some decent contribution in the second half of the year from non-res. And I kind of agree with where Scott was going. That bodes probably pretty well going into '14. On the industrial side, the last piece of the pie that you see there, we really have 3 main components there. The largest is really what I would call exposure to general manufacturing. So that's us selling wiring devices, for example, to automotive plants or steel plants or glass facilities. And there's some -- the growth there is okay, it's moderating a bit from some of the strong rebound post-'09, but it's growing okay. The second piece is a -- is what Dave referred to as harsh and hazardous. So we're selling components there to extractive industries that are mining companies or oil and gas rigs. And again, I think that's energy infrastructure, that we have a reasonably strong outlook for over the medium term. Rig count can tend to be a pretty good predictor for us there. And that's flattening out just a little bit right now, but medium term, we have good outlook there. And the third component of that is high-voltage test equipment what -- that we are selling to either an OEM who's making a transformer or to a utility who's using the test equipment in the field to test their transmission networks. And that business has proved to be countercyclical since '09. It was doing strong when the rest of industrial was softer. And as industrial grew, it's actually been weakening the last couple of years, and we expect it to have a soft year in '13 but be bottoming. And it looks like from its -- the inquiries and how the backlog's building, it should have a good second half of '13 and building into a stronger '14. So that sort of rounds out the pie there.

David G. Nord

So as to the other question on Cooper and Eaton, interestingly, we haven't seen really any impact. And I know that sounds kind of strange, but I think part of it has to do with while it was announced nearly a year ago -- as you all know, the Irish takeover rules made it very difficult for them to talk much about it. And so you'd hear some chatter in the industry but not a lot. So it's actually a fairly new combination, substantively. Both very good companies, both very well respected. We compete in some areas. Interestingly, we don't go head-to-head across all product lines for either of the businesses. So there is a scale element that they have, but I think we're all paying very close attention to how they end up sorting out the different businesses that they end up with and what their long-term view will be. But today, there's no major impact.

Scott R. Davis - Barclays Capital, Research Division

Let's go to the next audience response -- ARS question please. Make sure we get through these. Okay. In your opinion, what should Hubbell do with excess cash; bolt-on M&A, larger M&A, share repurchases, dividends, pay down debt or internal investment? Let's vote on this.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. Bolt-on M&A and larger M&A. Well, it's pretty much both-on M&A. All right. Let's go to the next question please. In your opinion, on what multiple 2013 earnings should Hubbell trade; that's 2013, PE? Let's vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay, 3 and 4, largely. That's very consistent with what we've seen all day. And then, let's do the last question. What do you see is the most significant investment issue for Hubbell; core growth, margins, capital deployment or execution/strategy? Let's vote on this one.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Core growth, capital deployment, too. It's a little bit different than what I thought the answer would be. I thought there'd be a little bit more on number 3, but that says a lot. Okay. Sure, let's take a question. Front row.

Unknown Analyst

Just speaking of capital deployment, obviously, one of the stories always been about Hubbell is your ability to do bolt-on acquisitions and grow the company that way. So you may have said it and I might have been dazed and bugged out or you might have -- I might have walked out, but what are you guys doing? I know you're not going to list, enumerate your acquisitions that you got in the pipeline, but over the next 12 months, what should investors expect if you -- what can you share with us?

David G. Nord

Well, from an acquisition standpoint, just put in perspective, over the last 10 years or so, we've done about 30 acquisitions, $1.2 billion of value. The majority of those have been in the $50 million range, $30 million to $50 million range, and we would expect to continue to do that, but do more of those to the level of -- if you looked at we're larger and we expect to continue to be able to do those, but do twice as many. So where we've done 1 or 2, we expect to do 3 or 4. So you put that together, and we're looking at, on an annual basis, somewhere between $150 million to $200 million, at least. Now, the ability to do that ratably over an annual basis is not always predictable, so some years will be bigger than others. And then on top of that, we'll continue to look at and explore and would expect to do a Burndy-type transaction in the $300 million, $400 million or $500 million range.

Scott R. Davis - Barclays Capital, Research Division

Repeat the question too please.

David G. Nord

Yes. The question is whether it would be in our core business or something -- a neighbor. And really, we stick to our core, we have a lot of diversity in our portfolio that there's a lot of opportunity to -- in the -- in a very fragmented industry to continue to consolidate and add to our product offering, staying within our core businesses, so.

William R. Sperry

So to give you some order of magnitude, we go up against an addressable market in North America that approximates $35 billion. We're $3 billion of sales. We're one of the larger players in that space. So I think Scott referred to as fragmented. That gives you an idea of how many smaller companies there are that create the pipeline for that.

Scott R. Davis - Barclays Capital, Research Division

Okay. Any other questions from the audience? Guys, What -- let's talk about price a little bit. I mean, the -- I forget, are you LIFO accounting or FIFO? I forget.

David G. Nord

LIFO.

Scott R. Davis - Barclays Capital, Research Division

You're LIFO, and everybody else is kind of FIFO or mixed.

David G. Nord

Yes. Mixed. We're predominantly LIFO.

Scott R. Davis - Barclays Capital, Research Division

Yes. You're predominantly LIFO. So there has been a history, or at least a track record, that you do have some quarters that you get whacked a little bit with price costs. And we could be walking into an environment, let's say in 2014, where you have some commodity volatility, at least much greater than we've seen in the last year. I mean, with the consolidation that's already occurred in the industry, is there a greater chance that there will be more of a de temps, if you will, in -- within your major markets where you can have a more immediate impact on price as commodities go up or...

David G. Nord

I think the industry, in general, has been pretty disciplined. There's a timing implication and, as you point out, as a LIFO company, we tend to be hit with the cost before we can get the pricing in. And so that's why we, from a -- on an annual basis, will have volatility. Recall in 2011, we were behind the curve until late in the year, and in 2012, that then turns around and we have a tailwind on that. The challenge is to make sure you're holding that price. So we look at this year as one that is more benign commodity cost, and therefore, more likely benign pricing, at least relative to the implications of commodities. Now there are other inflationary cost pressures that we generally try to offset with productivity gains. But some of those are coming at us not by choice and at magnitudes that it's not as easy to do. When you look at some of the regulatory environment, health care costs and the like, that we also have to look at our pricing structure. And we're seeing some of that -- some early signs of that elsewhere in the industry. So we're coming out in some of our products starting next month, with some price increases which we weren't anticipating necessarily early in the year, but the market seems to be providing opportunities for that. So…

Scott R. Davis - Barclays Capital, Research Division

Any more questions from the audience? So what do you guys worry about? I mean, other than waiting for a recovery in -- what are your main -- a couple of your main big markets. One of the things that cause you some pause in 2014 to either not step up and do acquisitions more aggressively or not come in and buy back stock in a more aggressive basis, that may be holding you back from maybe having a more aggressive stance?

David G. Nord

Well, certainly, one of the things I worry about is not being able to do the acquisitions at the level that we have the ability to do, and I think would be very valuable to us, but executing on that side of the equation. The core operations and the execution, I think we've built a great organization and have gotten some great discipline, and we're going to continue to build on that. But the acquisition side is much more unpredictable. And so, I worry about that. I think we've got, certainly in one of our business, a very dynamic business now in the lighting business, with the change in technology and the shift to LED. That's a business that hadn't changed technology for decades, and there's a rapid change. I think we're doing quite well. We're well positioned. We've got great design, engineer, products, mark -- channels to market. But that's a changing market that we spend a lot of time making sure that we're looking ahead to do the right things, to take advantage of that. And I think if we do that, we'll be even more successful in our lighting business than maybe we have been in the past.

Scott R. Davis - Barclays Capital, Research Division

All right. Actually that's probably a good -- the next question is probably a good one to finish up on and that's just talking about LED. First of all, size it for us now, because if I had to guess, I'd say it's maybe $200 million or so, but maybe I'm way off. Where are the trends? Are the -- have the trends changed at all in that business? I think, my understanding is that the first thing is to try to light up as many parking lots, outdoor parking lots, and then it's just going to just spread, spread, spread. And has that changed at all?

David G. Nord

I think the only thing that's changed is probably the pace of adoption.

Scott R. Davis - Barclays Capital, Research Division

Is it $200 million?

David G. Nord

It's been faster. Not quite $200 million, but in the fourth quarter, our -- the LED sales in our lighting business were just above 20%, a little over 20%. Now the forecast is that in -- by 2015, we'd be at 30%, so I think that forecast is an indication that's probably a dated forecast because what's changed is the cost of the chips and the light quality that comes from it. So that's really accelerating the business case around adoption. And we're right up there with the product. Our business model has always been built around the fixture and the application, the lighting solution and the application of that light. So we have been very aggressive in trying to apply the LED technology in a way that makes a lot of sense, particularly for the ultimate use. That's not completely around the economics, but also around the ultimate use. Because as you know, the early LEDs were not very high quality, people didn't like the color, and that didn't play well, particularly in commercial applications with specifiers and lighting designers. So -- but that's a group that we spend a lot of time with, so we have a great appreciation for what their expectations are.

Scott R. Davis - Barclays Capital, Research Division

Okay. Thank you, Dave and Bill. And thank you, everybody, for your questions and interest. So we'll move out.

David G. Nord

Okay. Thank you.

William R. Sperry

Thank you.

David G. Nord

All right.

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Source: Hubbell Inc. Presents at Barclays Industrial Select Conference, Feb-21-2013 01:20 PM
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